Excise Tax on Communications Ends

Service providers no longer are paying the 3 percent federal excise tax on longdistance, wireless, VoIP, prepaid and other communications traffic. The collection end date was Aug. 1, but some carriers, including Verizon Communications Inc., stopped earlier.

The U.S. Treasury Department in May 2006 said it would concede the legal fight over the federal excise tax on long-distance telephone service and require the Internal Revenue Service to issue refunds to consumers and businesses for proceeds paid over the past three years. The 3 percent tax originally was established in 1898 as a luxury tax on wealthy Americans who owned telephones, because the government needed to finance the Spanish-American war. The Treasury Department and phone companies had said the tax on telephone calls was not compatible with communications in the 21st century.

Verizon stopped collecting the tax on June 1. This is a good first step in alleviating consumers telephone tax burden, which currently accounts for more than 18 percent of the average bill, said Robert Ingalls, president of the companys retail markets group.

The last portion of the tax, which pertains to local telephone service, remains in effect but Verizon and other telecom companies are lobbying Congress to repeal it. CTIA – The Wireless Association said wireless users still pay approximately 14 percent of their monthly bills in taxes and fees. This is still an excessive burden that punishes hundreds of millions of Americans for choosing to make their lives more efficient and productive through the use of wireless technology, said Steve Largent, the associations president and CEO. If policymakers want to ensure that high-tech services like wireless are affordable for all consumers, then the issue of discriminatory taxation must be addressed.