August 1, 2006 12:51 PM PDT

Telecom tax imposed in 1898 finally ends

The Spanish-American War has been over for more than 100 years, and now so is the tax imposed in 1898 to help fund it.

As of Tuesday, all phone companies selling long-distance phone service are legally required to eliminate the 3 percent federal excise tax on long-distance service, which had been established in 1898 as a luxury tax on wealthy Americans who owned telephones.

Verizon Communications said Tuesday that it has stopped collecting the 3 percent federal excise tax on monthly consumer telephone bills for long-distance and bundled services.

After a long legal battle and strong urging from Congress, the Internal Revenue Service and the Department of the Treasury decided in May to discontinue the federal 3 percent excise tax on long-distance telephone service effective Aug. 1.

It also decided not to apply the tax to wireless, voice over Internet Protocol service, prepaid telephone cards and other bundled services. The IRS also said it would allow taxpayers to claim a refund in 2007 for taxes collected on those services retroactive to February 2003.

The last portion of the tax, pertaining only to local telephone service, remains in effect. But Verizon and other telecom companies are urging Congress to repeal the tax in total this year.

"We have been working for years on behalf of our customers to eliminate this outdated and regressive tax," Bob Ingalls, president of Verizon's Retail Markets Group, said in a statement. "This is a good first step in alleviating consumers' telephone tax burden."

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