IRS actually STOPS taxing something : Rooftop Views

Rooftop Views

IRS actually STOPS taxing something

Ever reviewed your home telephone bill, cellular phone bill, or if you are a business owner, your company phone bill and wondered why each and every month you are being charged a "Federal Excise Tax"? More importantly, have you ever wondered if you could avoid the tax altogether or get a refund? Wonder no more...the IRS recently announced that it will stop collecting the Federal Excise Tax on long distance phone service, and taxpayers will actually be eligible to file for refunds of all excise tax paid on long distance service billed to them from February 28, 2003 through July 31, 2006. And believe it or not, the IRS will even pay you interest on these refunds! (Yet of course will tax you on the interest you are paid.) But before we jump into how you get your refund back, let's take a step back in time and look at the history of the Federal Excise Tax.

The tax was imposed in 1898, and was originally a tax on the affluent because phone service was a luxury back in 1898. The purpose of the tax was to help pay for the Spanish-American War which lasted six months. But after the war ended, the tax continued and consumers have paid well over $300 billion to pay for a war that cost only a tiny fraction of that amount. And with the current excise tax rate being 3% of the charges billed, that amount can be significant! For example, if your telephone bill is $100 the federal excise tax is only $3 a month but, if you are a business owner and your phone bill runs $10,000 that number is $300 a month. And with many consumers having more than one telephone service, the excise tax can add up pretty quickly.

So, how do you collect your cash?

The only way to obtain your refund is with your tax return. Tax forms will include a line for requesting the overpayment amount, and the refund can be claimed on 2006 returns due in 2007. To determine the amount of the refund, the IRS is working on a simplified method - similar to the sales tax deduction - which will allow you to use an IRS table amount to claim your refund. Or...similar to itemizing deductions on your return, you can gather up those old phone records dated after February 28, 2003 and add up the actual amount. For some, this could result in a larger refund and may be worth the effort. And although interest will be paid on the refund amount...don't forget that we're dealing with the IRS...the interest is taxable and will need to be reported on your 2007 income tax returns.

An interesting thought ......we all know that the IRS moves really, really slowly when it comes to change. But who would have thought that it would take over a century to repeal the federal excise tax?