Want a quick $30 from Uncle Sam? Just ask.
It's that easy this filing season, thanks to an Internal Revenue Service decision to stop collecting the federal excise tax on long-distance phone calls.
A single filer can collect the $30 amount. Taxpayers with larger families can get up to $60. Most people will be able to get money back simply by filling out one new line on their tax returns.
And the phone
tax funds are available to
filers regardless of whether
their service was via a land
line, cellular provider or
Voice over Internet Protocol,
or VoIP. Even some prepaid
telephone cards could count
toward claiming the cash.
So why is the IRS suddenly in such a giving mood? Last May, after losing yet another in a series of court cases challenging the tax, the agency decided it was time to hang up on the 108-year-old phone charge.
Small tax, long history
The telephone tax originated
in 1898 as temporary luxury
tax on a service that was
then a service limited almost
exclusively to the wealthy.
The 1-cent-per-call levy was
used to pay for the Spanish-American
War.
That conflict
ended just a few months later,
but the tax continued. Meanwhile,
phone service spread well
beyond affluent neighborhoods
and lawmakers recognized the
tax's revenue-producing potential.
Over the century-plus
of its existence, the phone
tax actually was repealed
a couple of times, but was
soon reinstated and even spiked
to a 25-percent high during
World War II. In 1982, it
settled in at the 3-percent
rate, applied to long-distance
calls based on time and distance.
Then came the cellular revolution. As mobile phone providers bundled services, the distance component of calls no longer mattered. Businesses were the first to focus on the new billing methodology and headed to court. Over the last few years, companies successfully argued in case after case that the government was incorrectly applying the excise tax to phone charges that were not based on distance.
"So many
packages of cell phones today
sell blocks of minutes that
can be used for any calls,
local or long-distance,"
says Gary Garwitz, CPA and
partner at BKD,
LLP, in Springfield, Mo.
"The old-fashioned way
of billing long-distance doesn't
apply any more to these products."
When the IRS suffered another legal defeat last May, the agency pulled the plug on the tax. Now it is rebating phone tax money collected between March 1, 2003, and July 31, 2006. The statute of limitations, says the IRS, won't allow it to refund taxes collected before that date.
One more line means money back
Technically, the phone tax money coming back to filers this year is a credit. Credits are a great tax break because you claim them after you figure your tax bill and then get to subtract the credit amount from that.
And the phone tax credit is the best kind: a refundable credit. That means that even if your tax bill is zero, you'll get the phone money as a refund.
Garwitz has
been advising clients for
years on how to get back the
phone tax. Now, he says, the
IRS has made it easy for everyone.
