Treasury Concedes Telephone Tax Fight, Promises $13 Billion Refund

The Treasury Department said Thursday it will stop collecting some telephone taxes on long-distance calls and refund about $13 billion to consumers.

"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 end on July 31. Individuals will be allowed to claim three years' worth of refunds on their 2006 tax returns, filed in 2007. They would be given the option of calculating their actual taxes paid or claiming a standard amount set 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 tax amounts to little on the average telephone bill.

Individuals who don't have to file a tax return could use a special form to apply for the refund. Businesses would be required to calculate the taxes they paid before requesting a refund.

The federal excise tax on local telephone service remains in effect, but Snow said the administration would support any effort to terminate that tax as well.

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.

Snow said the government can handle the reduction in tax revenue, despite persistent federal budget deficits. "Federal revenues are surging," he said.