FOR IMMEDIATE RELEASE: January 15, 2006
New Court Decision Shows Government Owes NYC Cell Phone Users $275 Million, Schumer Urges IRS To Stop Collection Of Cell Phone Excise Tax And Refund Cash To NYers Immediately
Millions of NY Cell Phone Users would be Entitled to Average of $50 each from the Feds
Recent Court Decisions Have Voided Federal Tax Paid by Over 5 Million Cell Phone Users in New York City, Senator Calls for Immediate End to Century-Old Tax
Schumer Urges IRS Commissioner to Issue Orders to Cell Phone Companies to Stop Collecting Fed Tax and then Fully Refund Taxpayers Who Have Paid the Tax
U.S. Senator Charles Schumer is urging. the Internal Revenue Service to immediately stop collecting a recently voided tax on cell phone users in New York and issue refunds to taxpayers as soon as possible. The federal tax on cell phone bills has cost New York City’s over 5 million cell phone users $275 million over the last three years and has been voided by several federal appeals courts around the country. Schumer will send a letter. to IRS Commissioner Everson on Monday morning urging him to heed the multiple federal court rulings, stop collecting the federal tax through cell phone companies, and implement a program to refund whatever cell phone users have unfairly paid over the last three years to the federal treasury. Schumer announced the recent revelations and released a letter. to the IRS today.
Schumer said, “When federal courts rule that a federal tax should not be paid by consumers in multiple states, the IRS should not continue to collect that tax in New York or anywhere else. The bottom line is that this century-old tax doesn’t make sense and unfairly taxes New York’s cell phone users, even though it has been voided in many other states. Cell phone users in New York City already suffer from shoddy reception and high state taxes – this voided federal tax adds insult to injury.”
Cell phone customers in New York City are due $275 million in tax refunds according to a series of federal court decisions. The Internal Revenue Service is still collecting the tax through cell phone companies and has announced that it will not process refund requests from taxpayers while other cases are pending.
Last month a third federal appeals court in Washington, D.C. voided the tax. Two other federal appeals courts, with jurisdiction over seven states, have voided the tax as well. States covered by the three federal circuit courts include Kentucky, Michigan, Ohio and Tennessee, Alabama, Florida, Georgia, and DC.
The Cellular Telecommunications and Internet Association (CTIA) estimates that Americans spend just over $100 billion a year on cell phone service, meaning that the cell phone tax is costing U.S. consumers just over $3 billion a year. New Yorkers would end up saving over $130 million each year if this tax stopped being collected by the IRS. New Yorkers would also be entitled to over $275 million in refunds from the IRS.
The average consumer pays an average $50 for his or her monthly cell phone bill – but the rates for cell phone users are based on the time of the call, not the distance the call travels. In other words, the courts have said that the previously-mandated tax on “long distance” phone calls does NOT apply to cell phone calls.
In his letter. to Commissioner Everson, Schumer wrote, “Despite the holdings of several federal appeals courts that the excise tax does not apply to calls with a time-based rate, the IRS continues to require that the phone companies collect the tax. This is bad for business and it is bad for consumers. Because the courts must deal with these cases circuit-by-circuit, the result is that customers in Ohio are exempt from the tax while customers in New York are not. We should eliminate this disparity and treat all consumers the same, regardless of the federal circuit in which they live.”
The federal excise tax on communications was imposed in 1898 to help pay for the Spanish American War. The tax was extended again in 1965 to cover long distance phone calls, at a time when only one telephone company existed. That is why courts addressing the issue have repeatedly held the tax does not apply to calls for which the rate varies by the time of the call. The IRS should bring its practices in line with the court rulings.
Schumer is calling on the IRS to immediately:
1. Issue a formal letter to telephone service providers instructing them to immediately stop collection of the tax on calls for which the rate varies by the time of the call;
2. Refund customers for taxes paid over the last three years.
To make this work smoothly, telephone service providers should notify their customers as to how much tax they have paid over the past three years, and then the customers should apply directly to the federal government to receive their refunds. The application process for these refunds must also be as simple and efficient as possible.
“New Yorkers should be treated the same as taxpayers in states like Ohio and Alabama where this wrong-headed federal tax has been voided by federal appeals courts. If the IRS is not willing to fix this unfair tax that costs New York’s cell phone users millions of dollars, I will do everything I can to make sure the federal excise tax is taken off the books permanently,” Schumer concluded.
Click here to view letter.