U.S. will refund $13 billion in long distance telephone taxes

The U.S. Treasury Department on Thursday conceded a legal dispute over the 3 percent federal excise tax on long-distance telephone service and said $13 billion would be refunded to taxpayers.

The telecommunications industry hailed the decision in the long-fought battle to kill a 1898 law, established as a luxury tax on wealthy Americans who owned telephones and to help finance costs of waging the Spanish-American war.

The U.S. Treasury Department said it would end its litigation to defend the tax and taxpayers will be able to reclaim the money on their 2006 tax returns filed next year.

Treasury Secretary John Snow, at a press conference on Capitol Hill with lawmakers, said the tax was “antiquated.”

“It’s not often you get to kill a tax, particularly one that goes back so far in history,” Snow said, adding that Treasury was pleased to concede this tax was no longer useful.

“The revenue stream is strong and can easily absorb this,” Snow said. The refunds will cover tax paid on long-distance service over the past three years.

“So taxpayers won’t have to spend time digging through old telephone bills, we’re designing a straightforward process that taxpayers may use when they file their tax returns next year, said IRS Commissioner Mark Everson. “Claiming a refund will be simple and fair.”

Snow said he could not specify how much of the refund might be made to businesses and how much to individuals, or estimate the size of refund an average individual could expect to get.

He also urged Congress to repeal the excise tax on local telephone service. The Justice Department had appealed in U.S. courts to keep the long-distance tax but was turned back several times.

According to a report in The Wall Street Journal, refunds and lost revenue over the next five years could add up to about $60 billion.

“Customers should see a noticeable difference in their phone bills within the next few months,” said Herschel Abbott, BellSouth vice president for governmental affairs. “We hope this decision is a harbinger of removal of other discriminatory taxes on communications customers.”

Shares of the major telephone carriers were moved slightly higher. Stock in AT&T Inc., the No. 1 U.S. telephone company, were up 5 cents to $25.51 on the New York Stock Exchange. The No. 2 carrier Verizon Communications’ shares moved up 26 cents to $31.01.