FOR IMMEDIATE RELEASE: May 25, 2006
Schumer Announces Treasury Department No Longer Collecting Excise Tax On Cell Phone And Long Distance Calls
Earlier This Year Senator Called for Immediate End to Century-Old Phone Tax
At Senator Schumer’s urging, the U.S. Treasury Department today announced it is terminating collection of its excise tax on cell phone and long distance calls, and will be issuing 3 years’ worth of refunds. Earlier this year, citing court cases from around the country, Schumer called for an immediate end to the century-old phone tax on those services. Schumer estimates 11.93 million New York State cell phone users are each entitled to an average refund of $54. Collectively this would mean $644 million is headed to New York State taxpayers.
“This decision is a great victory for consumers, and the IRS has finally caught up with the courts,” Schumer said. This archaic tax dates back to the Spanish-American War; and like that war, it should be in our history books. The tax didn’t make sense, it unfairly targeted consumers, and that’s why the courts voided it. These days, almost everyone has a cell phone and people are sick of being nickel and dimed.”
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. Since then, the appeals courts that have addressed the issue have unanimously held that the tax should only apply where the rate of the call as calculated by phone companies varies by both the time of the call and the distance the call travels. In short, according to the law, consumers can only be taxed their bills are based on how long they are on the phone, and how far they are calling. Since cell phone plans typically fall outside of this criteria, they should not be taxed.
The Cellular Telecommunications and Internet Association (CTIA) estimated 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 be entitled to over $250 million in refunds from the IRS.
In January, Schumer sent a letter to IRS Commissioner Mark Everson urging him to heed federal court rulings, stop collecting the federal tax, and implement a refund program. In his letter Schumer said, “Despite the holdings of several federal appeals courts that the excise tax does not apply to calls with only 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.”