TAXING TIMES

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A Silly Tax Has Been Revoked! - Really!

You may have read in the papers this week that the Government is actually eliminating a tax. This tax is a fairly small one but it is fun to see this happen.

It is the the long distance telephone call tax. It has been around since (get this) the Spanish American War! (Back then long distance calls were a luxury and this tax affected very few people - another example of the law of unintended consequences - kinda like the Alternative Minimum Tax.) It has been ruled unconstitutional by five federal appeals courts so the powers that be are throwing in the towel (finally).

Since the tax has been around longer than the current income tax code, you would think DC would owe us a refund for the past 108 years, wouldn't you? Sorry to destroy your faith in the system, but they are only issuing refunds for the last three years - statute of limitation rules don't ya know. On top of that, the tax does not go away until July 1. So even though it is an unconstitutional tax & it has been repealed, they will still collect it for another month. Make sense to you? Me either.

So What Should You Do?

No immediate action is required of taxpayers. The IRS will be issuing refunds (with interest) to us as part of year 2006 income tax return filing. The refund claims will cover all excise tax paid on long-distance service billed to you after 28 February 2003. The IRS will create a simplified (I love it when they use that word) method for us to claim our refunds. The refunds will not include tax paid on local telephone service, which was not involved in the litigation. According to the Associated Press, the government will be refunding some $15 billion.

While the simplified method will give you some relief, I bet if you could put your hands on all your telephone bills since February 28, 2003, you will see you have paid more in this tax than the IRS tables will allow. I hope you are all record keepers (I do know some of you are not though!). What I suggest you do however, before trying to locate thirty six months worth of phone bills, look at the last few to see how much you paid in this tax to see if it is a significant amount. (Of course, we do not know the IRS formula yet and how much they will allow - OY!)

This applies to both personal and business telephones but not cellular where there are usually no long distance charges. If you do not need to file a 1040 for this year, there will be another way to claim the refund. The guidelines for this have not been released yet.

If you do not want to receive any more of these important, timely & interesting updates, please email me & I will remove your address from the database.

If you need anymore information on this topic or other tax questions, please contact me. Thank you.

Chris Fleck EA
Puget Sound Tax Services

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