The Treasury Department said Thursday it will eliminate a tax on long-distance telephone calls and refund about $13 billion collected from callers.
“It’s not often you get to kill a tax,” said Treasury Secretary John Snow.
Companies have been fighting the tax in court and winning, arguing that the 3 percent excise tax should not apply to some long-distance calls. Snow said the government would stop fighting those taxpayers challenging the tax.
The tax will officially disappear on July 31.
“It wasn’t the government’s money. They were inappropriately collecting it,” said Sen. Rick Santorum, R-Pa.
Individuals will be allowed to claim refunds on their 2006 tax returns, filed in 2007, for taxes paid on long-distance telephone calls since March 2003.
Taxpayers can calculate the actual taxes paid and apply for a refund, or they can claim a standard amount that will be set later by the Treasury Department and Internal Revenue Service.
Snow said the government does not know how much money individual taxpayers can expect to receive, but the Treasury expects to return $13 billion to individuals, businesses and others who paid the tax. It typically amounts to a few dollars on the average consumer’s telephone bill.
“Almost everyone is sick of being nickel and dimed,” said Sen. Charles Schumer, D-N.Y., praising the end of the tax.
Individuals who do not have to file a tax return will be instructed to use a special form to apply for the refund. Businesses would be required to calculate the taxes they paid before requesting their money back.
The federal excise tax on local telephone service remains in effect, but Snow said the administration would support legislation in Congress to terminate that tax as well.
The Congressional Budget Office has estimated that the government expected to collect $52 billion over a decade from telephone excise taxes, including charges on local and long-distance calling.
Snow said the government can handle the reduction in tax revenue, despite persistent federal budget deficits. “Federal revenues are surging,” he said.
The tax dates to 1898, when telephones were a luxury and lawmakers needed money to fight the Spanish-American War.
It imposes a tax on calls billed according to distance and duration. Businesses fighting the tax in court had argued that many modern billing plans ignore the distance of telephone calls, and the tax should be declared invalid.