Century-Old Phone Tax Axed

The U.S. Treasury Department announced that it will no longer collect a 3 percent federal excise tax on long-distance calls and would refund approximately $15 billion to taxpayers. Imposed in 1898 to help pay for the Spanish-American War, the tax applied to wealthy Americans during a time when phone service was considered a luxury.

The Treasury said it was conceding its efforts to uphold the tax after five appeals courts declared it illegal because of changes in the way long-distance calls are billed. Phone companies and cellular carriers must stop billing for the tax Aug. 1. Individuals and businesses can file for refunds next year on their 2006 tax returns for excise taxes paid on long-distance calls since March 1, 2003. Individuals who don't have phone bill records can seek a standard refund that has yet to be determined.

Elimination of the tax will cost the Treasury about $46 billion in refunds, lost revenue and administrative expenses in the next five years. Callers will still pay a 3 percent excise tax on local phone calls. But that tax will no longer be levied on services that don't distinguish local calls, such as cellular, all-distance landline plans and Internet-based offerings. Consumers with those services can seek refunds on their full excise-tax payments.