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June 1, 2006

Pryce Remarks on Elimination of
Long Distance Telephone Tax

This morning I am glad to be able to give everyone the 411 on the tax announcement.

108 years, 18 presidents, and 54 Congresses ago, the telephone tax was put in place as a luxury tax on those who could afford a phone, in order to fund the Spanish-American War. 

While the United States won that war, and even got Guam and Puerto Rico, the American taxpayer has been the loser for the last 108 years.

Today is a victory of another sort, a victory for the American taxpayer.  

While August 12, 1898, marked the cease-fire between the United States and Spain, May 25, 2006, marks the cease-fire between the U.S. taxpayer and the IRS. 

Today we announce the terms of the cease-fire: Americans will get three years of this tax back, and will no longer see this tax on their bill.

QUESTIONS and ANSWERS  

TIMING OF CONCESSION

Question:

Why has the government waited so long to give up on the telephone excise tax?

Answer:

  • Treasury and Justice have concluded that the government’s continuing lack of success in litigation justifies today’s decision to follow the conclusion of five circuits and stop collecting the telephone tax on long-distance service.

COST OF GIVING UP ON TAX

Question:

How much will the decision to give up on the telephone tax cost the government?

Answer:

  • Treasury estimates that telephone tax receipts will drop by about $29 billion over the 2006-2011 period as a result of the decision to follow the courts’ rulings and stop collecting the tax on other than local service.
  • They also expect that the IRS will be refunding about $15 billion of telephone taxes collected over the last three years.

REFUND METHOD

Question:

How will the IRS give improperly collected telephone taxes back to taxpayers?

Answer:

  • No immediate action is required by taxpayers.
  • Taxpayers can claim refunds of all excise tax they have paid on long distance service over the last three years.  Refunds of taxes paid more than three years ago are generally barred by the statute of limitations. 
  • The refund will not include tax paid on local telephone service.  Taxes on local service have been about one-third of total collections.
  • Taxpayers will claim the refund on their 2006 tax returns filed in 2007. 
  • The IRS will provide a standard refund amount for individuals to use.  The standard refund amount will eliminate the need for taxpayers to spend time digging through old telephone bills. 
  • The IRS is still working to determine the dollar amount for the standard refund.  The dollar amount should approximate how much the typical taxpayer paid in tax over the last three years.   
  • Only individuals will be able to claim the standard refund amount.  All taxpayers, including individuals who choose not claim the standard refund amount, may claim a refund based on the actual amount of tax paid.  The IRS is developing a new form for taxpayers to file if they choose to claim a refund based on the actual amount paid. 
  • The IRS will also provide a method for taxpayers who normally are not required to file income tax returns to claim a refund of the tax.

BUDGET

Question:

Won’t giving up on the tax increase the budget deficit?

Answer:

  • Five Federal appeals courts have made it clear that this tax is uncollectible.
  • This is an antiquated tax that should have been repealed years ago.
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