108 Year-Old Telcom Tax Repealed

A 108 year-old tax that originally was used to fund the Spanish-American War ceased to exist Tuesday, and telecommunications industry executives vowed to continue to press for further tax relief for their customers.

A three percent tax was charged to subscribers of long-distance services, as well as wireless, VoIP, prepaid telephone cards and other bundled services.

In May of this year, the IRS announced that it would no longer seek to collect the federal excise tax (FET), ending a long-standing legal dispute with telecommunications providers. The law had been successfully challenged in five appeals courts, which the proceeds since the conclusion of the Spanish-American War had gone into the general fund.

In addition, customers who had been charged the tax would be able to claim a refund as part of their 2006 tax returns. Taxes charged between Feb. 28, 2003 and before Aug. 1, 2006 would be refundable. The IRS said it would provide guidance on how to apply for these refunds from the agency's Web site.

"We have been working for years on behalf of our customers to eliminate this outdated and regressive tax," Verizon Retail Markets Group president Bob Ingalls said in a statement. "This is a good first step in alleviating consumers' telephone tax burden."

One part of the tax remains, which deals with local telephone service. Verizon said it was working with other telecommunications companies to have the tax completely repealed by the end of the year.

Wireless interest groups also lauded the repeal of the tax, saying the average wireless customer's tax burden is 17 percent. However, they said more work was left to lower taxes even further, as they remain at 14 percent even after the FET's repeal.

"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," CTIA president Steve Largent said. Largent added that the passage of telecommunications legislation now in the Senate was important to give consumers further tax relief.

The bill would prohibit states from placing additional taxes on wireless service for a period of three years. The CTIA is currently involved in a legal battle with Pennsylvania over a five percent gross receipts tax for wireless service in the state.

"While the Senate bill is being debated, we fully intend to remain highly active in states and cities that seek to increase wireless taxes," Largent said.