03 Jul Elimination of phone tax tempered by paperwork
Madison, Wis. – It’s not often that a tax is eliminated at any level of government, but before businesses and consumers start popping champagne corks over the recent elimination of the federal excise tax on long-distance phone service, they should know that getting some of their money back will require paperwork.
The good news is that a May 25 United States Treasury ruling has effectively eliminated the three percent federal excise tax for long distance telephone service, and businesses (and individuals) are entitled to claim a full refund on their 2006 tax returns, to be filed in 2007, for excise taxes paid during a 41-month period between 2003 and 2006.
The bad news is that neither the Internal Revenue Service nor telephone companies will be required to calculate the taxes paid by business consumers. Companies or their tax preparers will have to pore through phone bills dating back to March 1, 2003, to figure out their refund.
That distresses Brian Erlichman, senior vice president of Business Fitness, a Mequon consulting firm that works to reduce the business costs of clients, including their phone bills. To Erlichman, it’s a crime that long-distance providers, armed with information detailing how much excise tax their customers paid, are not making instant, automatic refunds.
He questions whether small businesses will spend three or four hours tracking down information on what might amount to no more than $75 in charges, and he isn’t sure whether those who take on this time-consuming task will be able to calculate the tax correctly. Part of the challenge will be to separate the portion of the federal excise tax pertaining to long-distance and cellular usage from flat-rated services.
“Most companies will say it’s not worth it,” Erlichman said.
Another problem is that information contained in billing statements varies from bill to bill, and cannot always be found in the same place.
“It’s not uniform – that’s why it’s difficult to calculate,” said Nancy Peckham, president and CEO of INI Global, a Madison-based telecommunications expense management company. “The tax can be found in various parts of the bill, and that makes it challenging to business clients.”
Corporations have more financial incentive to pursue a refund, even though they may be required to produce detailed documentation to validate what has been taken out of their pockets. A statement from INI Global cited several examples from 2004 to 2006 in which larger companies like American Bankers Insurance Group and OfficeMax filed suits in federal court and were awarded precedent-setting refunds ranging from $360,000 to $434,000 for the previous 3 years.
Other companies scrambled to claim refunds, and the resulting litigation pressures prompted the recent Treasury Department ruling. Outgoing Treasury Secretary John Snow characterized the tax, which was established 1898 to fund the Spanish-American War, as outdated and antiquated. He called on Congress to repeal the excise tax on local phone service as well.
The IRS has asked long-distance and cellular providers to discontinue charging the excise tax no later than July 31, and several already have begun to stop assessing the tax.
Although business customers will need to review their payments and work with their tax advisors to determine the amount of actual taxes paid, individual consumers are receiving kinder and gentler treatment. The IRS is reportedly working to develop a simplified method for individuals to claim a refund on their 2006 tax returns.
DeAnne Boegli, public relations manager for TDS Telecom, said last week the company would cease billing the tax on July 1, but said TDS was still working on how to communicate to customers the amount they were billed. She said the company was estimating the expense and time it would take to gather the data.
The IRS has not provided information yet on the amount of a “Safe Harbor” clause for residential customers, so it’s unclear if these customers will need to prove their payments or just check a box on their return for an average amount, Boegli said.
AT&T turned off collection of the federal excise tax on June 1 for the majority of its customers, and expects to be fully compliant by the July 31 deadline. “We’re working as fast as we can to remove [the tax],” said AT&T spokeswoman Sue McCain. “It’s an IT billing platform that requires coding, so they’re working pretty quickly to decode.”
Customers can ask for back bills, McCain said, but there may be fees associated with going back through the archives.
AT&T won’t analyze billing information because it is only the tax collector and remitter for the IRS, added company spokeswoman Terri Rucker.
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