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Long-Distance Telephone Tax Updates
The Internal Revenue Service has stopped collecting the 3 percent federal
excise tax on long-distance telephone service effective July 31, 2006.
This tax was first enacted in 1898 as a luxury tax on long-distance
telephone services to help finance the Spanish American War. The IRS'
announcement follows a string of losses in the courts where it was held
that the excise tax does not apply to long-distance telephone services
as they are billed today.
All taxpayers will be eligible to file for refunds of the excise tax paid
on long-distance and bundled telephone services billed to them after
February 28, 2003 and before August 1, 2006. A service is a bundled
service if the service provider does not separately state the charge for
local and long distance service under the plan. Some examples of bundled
services are prepaid telephone cards and cell phone plans that provide
for both local and long distance service for a flat monthly fee. The
excise tax on local-only telephone service continues to apply.
For individuals, standard amounts are available based on the total number
of exemptions claimed on the 2006 federal income tax return. The standard
amounts are $30 for a person filing a return with one exemption, $40 for
two exemptions, $50 for three exemptions and $60 for four or more exemptions.
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Taxpayers who do not wish to use this method or who have not paid all
of the federal excise tax billed to them after February 28, 2003 and before
August 1, 2006 may choose to claim a refund for the actual amount of the
excise tax paid during this time. Documentation, such as copies of
telephone bills, will need to be retained to support the refund claim.
For businesses and tax exempt organizations, the IRS has released a
formula for calculating the refund. Businesses or tax-exempt organizations
compare their April 2006 phone bill with their September 2006 bill.
They must figure the telephone tax as a percentage of their April bill
(which included the excise tax for both local and long-distance service)
and their September bill (which only included the tax on local service).
They then multiply the difference between these two percentages by the total
telephone expenses shown on their phone bills dated after February 28, 2003,
and before August 1, 2006, to determine the refund amount. The refund is
capped at two percent of total telephone expenses for businesses with 250
or fewer employees, and at one percent for businesses with more than 250
employees. Businesses and tax-exempt organizations can request the refund
by completing Form 8913, Credit for Federal Telephone Excise Tax Paid.
Additional info can be found at
www.irs.gov.
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