WASHINGTON—Speculation is mounting that the IRS will throw in the towel and repeal a tax that goes back to the Spanish-American War and issue refunds to some consumers and companies after losing again in federal appeals court.
“If the government has in fact decided to abandon their defense of the 3-percent federal excise tax and is moving toward a full repeal and taxpayer refund, I congratulate and applaud their decision,” said CTIA President Steve Largent. “This would represent a significant and much-needed tax cut for wireless users in America, and I encourage the federal government to move quickly in this direction.”
The wireless industry has lobbied unsuccessfully to kill the tax since the late 1990s, coming close in the waning days of the Clinton administration. Despite industry and legislative backing for the tax’s elimination, it’s a tough sell because the tax is not earmarked and can be used to reduce the federal deficit. At one point lawmakers considered raising the tax to 4 percent.
Courts have consistently ruled that the federal excise tax is no longer valid for calls that are not time and distance sensitive—in other words, bucket plans. Both the U.S. Court of Appeals for the 11th Circuit and the 6th Circuit have ruled the tax is illegal. However, the IRS has told carriers to continue to collect the tax.
The IRS believes the federal excise tax is legal due to language adopted in 1965 that said calls made through the wide area telecommunications service system can be taxed. The IRS said carriers and end users that believe they have been overtaxed can request a refund, but the agency will not consider requests for refunds until after all appeals have been litigated. The agency said last year it was involved in cases in five different appeals courts.
If the IRS eventually loses and begins refunding money, it would include interest. But if carriers stop collecting the tax without permission from the IRS, they would owe the tax and interest plus penalties should the IRS win in court.
While the telecom industry waits for the IRS to give up or for the courts to finish their work in its favor, it continues to press Congress to eliminate the tax. Bills are now pending in the House and Senate to repeal the tax.
