Cell Phone Users May be Eligible for Federal Excise Tax Refund

A federal appeals court in Washington D.C., in December, became the third appeals court to void the federal excise tax on telephone services which are billed only by time, and not by time and distance, USAToday reports. The excise tax, originally levied to support the Spanish-American War, was last amended in 1965, when the statutory definition of long distance charges became “time and distance”, according to technology-reports.com. The government has argued that the intent of the law is to tax all commercial long distance. Tax on local service is not affected by the rulings.

To date, the administration has not appealed any of the decisions to the Supreme Court, but continues to require phone companies to collect the tax, usually 3 percent of the user's bill.


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The court decisions apply to most cell phone service, internet phone service and some long distance services, and could potentially support refund requests of up to $9 billion, according to USAToday. The IRS has been settling some refund claims by Fortune 500 companies at the 30-40 percent level, technology-reports.com says, but is currently waiting to see how the issue plays out in the courts, and may end up paying dollar for dollar in refunds.

Consumers should consider that the statute of limitation on these types of claims is three years, technology-reports.com says, and that should put a premium on filing for a refund now. Most individual cell phone customers would probably be entitled to a refund of $49.52, but businesses could collect much higher sums. Convergys, which operates call centers around the world has filed for a $6 million refund, and OfficeMax has successfully challenged the IRS for $380,000 in Cleveland, USAToday reports. The government is appealing this case.

Taxpayers who decide that it is worth the time to collect and analyze their phone bills should file IRS Form 8849 “Claim for Refund of Excise Taxes”, available in pdf format on the IRS web site, and IRS Form 8849, Schedule 6, “Other Claims". The taxpayer must fill out a separate Schedule 6 for each of the quarters in the three-year period for which he is requesting a refund.

A few years ago the House of Representatives voted to repeal the excise tax, news.zdnet.com reports, but the Senate never took the matter up. Now, a congressional subcommittee has suggested extending the excise tax to “all data communications services”, including broadband, dial-up, fiber, cable modems, cellular and DSL links. The IRS and the Treasury Department have said they are considering applying the tax to Internet phone calls, zdnet.com reports.

The wireless industry is preparing its own lawsuit to recover taxes it considers were wrongly collected from users, but eliminating the excise tax will be difficult, RCR Wireless News reports. The tax is popular with Congress and the administration because it is not earmarked and can be used to pay down the deficit.

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