IRS buckles on long-distance tax

The tax created 107 years ago to pay for the Spanish-American War has finally been repealed. The Internal Revenue Service announced today that it is conceding the long-running legal dispute over the federal excise tax on long-distance telephone service.

The IRS had lost five federal appeals court rulings in the past year, in lawsuits brought by corporate customers fighting the 3% tax. At issue was the applicability of the tax to calls billed in time increments or those covered by a flat-rate, as many long-distance services are offered today. The courts have upheld the claims of companies such as OfficeMax, Hewlett-Packard, Amtrak and ServiceMaster that the tax is illegal and ordered the telephone companies to pay refunds.

Treasury Secretary John Snow said this morning that the IRS would no longer impose the tax and that consumers can claim up to three years of refunds on their 2007 tax returns.

“We commend the IRS for taking an important step today to stop the unlawful collection of the federal excise tax on long-distance calls, which was originally enacted to fund the Spanish-American War,” said Walter B. McCormick, president and CEO of USTelecom. “It is more than past time that consumers not be penalized for simply using critical communications services. We applaud the IRS’ action and look forward to working with the Administration and Congress to repeal permanently the remaining part of the federal excise tax that still applies to local telephone service.”