In a couple of Picket Line entries ( & ), I’ve mentioned an interesting legal twist concerning the federal excise tax on long-distance telephone service — one that could end up costing Uncle Sam a lot of money.
In short: the law authorizing the tax was written to apply when “there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication” — in other words, what you typically think of as long-distance service. Nowadays, however, there are long-distance companies that offer plans that have a per-call charge, but that do not vary the charge based on the distance.
Some companies that make a lot of long-distance calls, and so pay a lot of this excise tax, decided to go to court and try to get refunds based on this. The IRS, for its part, has been arguing that the “and” in the law’s phrase should be interpreted as an “or” and that the tax should stand. So far, the IRS has been losing.
The IRS has responded to its inability to win in court by announcing it would ignore what the courts were saying and apply the tax anyway. After it lost yet another case, in the 11th circuit, it issued a release saying:
The government’s recent loss… has caused some to question the continued applicability of the communications excise tax… ¶ The government is prosecuting appeals in five different circuits… ¶ This notice confirms that the Service will continue to assess and collect the tax… on all taxable communications services, including communications services similar to those at issue in the cases. Collectors should continue to collect the tax, including from taxpayers within the jurisdiction of the United States Court of Appeals for the Eleventh Circuit.
They lost again , this time in the 6th circuit. The court noted that “Every court to reach this issue — save one district court subsequently reversed — has concluded that the statute unambiguously requires variance by both distance and elapsed transmission time.”
If the IRS keeps losing, and if they ever decide to submit to the court’s authority, the government could be liable, according to its own figures, for as much as nine billion dollars in refunds to people and businesses who were erroneously taxed.
You may want to try to get your own long distance plan, or your company’s plan, into this category of untaxable long distance phone service because it’s looking more and more likely that the IRS will eventually have to give in on this one. Or you could leapfrog this whole debate and try to move over to a Voice-over-IP internet phone service of some sort.