Excise tax on your phone bill may be on way out
By Leslie Cauley, USA TODAY
NEW YORK Some say it's absurd. According to seven federal courts, it's also illegal. But one thing is for sure: America's excise tax on phone service has soaked consumers for more than a century.
Rep. Gary Miller, R-Calif., recently introduced legislation in the House supported by 98 co-sponsors aimed at repealing the tax, which was imposed in 1898 to help pay for the Spanish-American War. The war was over in six months, but the tax stayed.
The general excise tax has so far cost consumers about $300 billion, says the Congressional Research Service. The entire Spanish-American War cost only about $6 billion, adjusted for inflation.
AT&T says the tax is grossly unfair to consumers. "This is a 19th-century tax on a 21st-century technology," says Jim Cicconi, AT&T's general counsel. "It makes no sense, and it ought to be repealed."
Gene Kimmelman, director of Consumers Union, agrees. "This is the poster child for how messed up our telephone pricing system is today," he says. "It makes no sense to have to pay a tax to fight a war that was over more than 100 years ago."
This year, consumers and businesses will fork out another $6 billion in general excise taxes enough to pay for the Spanish-American War all over again, notes Rep. Christopher Cox, R-Calif.
"The original purpose of the tax was to raise revenue for a specific purpose, and to do so in a way that would not be noticed by the average consumer," he says. "Today, the purpose is gone, and consumers are definitely feeling the pinch."
It was originally a tax on the affluent because phone service was a luxury in 1898.
Now, general excise taxes show up each month as a line item on phone bills. Businesses and consumers pay the same: 3% of the total. On a $100 phone bill, that works out to $3. On a $10,000 bill not uncommon for businesses the tab is about $3,000.
Over the years, the excise tax has shot up to as high as 25%. During the inflation-driven 1970s, the tax hovered in the 10% range. Because the tax is applied evenly, with no regard for income, poorer consumers are hit hardest.
Seven federal courts have so far declared the tax to be illegal. The rulings came in response to lawsuits by taxpayers who were balking at paying.
The government's latest loss was in May. That ruling, which involved the American Bankers Insurance Group, was issued by the 11th U.S. Circuit Court of Appeals.
Verizon says it's time for the agency to throw in the towel. "(The IRS) is 0-7," says Mark Mullet, a Verizon vice president. "They're either going to have to come up with a new strategy on how to win this, or just decide they can't collect it."
Miller's bill appears to be gaining momentum. A companion bill was introduced this week in the Senate. In addition to AT&T and Verizon, SBC, Time Warner, Comcast and America Online are all supporters. Cox, one of the House bill's co-sponsors, says consumers stand to benefit most if the measure passes.
"Clearly, the Spanish-American War was paid for and won," he says. "It's time we put the tax to its rightful repose."