Marketplace Report: Long-Distance Phone Refunds

Officials with the U.S. Department of the Treasury have decided to stop collecting some telephone taxes on long-distance calls. That means consumers could split a refund totaling about $15 billion. Madeleine Brand talks to Bob Moon of Marketplace about the decision.

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MADELEINE BRAND, Host:

Back now with DAY TO DAY. Good news, taxpayers. You're getting a refund for a tax you've been paying for the last three years. It's a tax on long-distance calls. And on top of the refund, the tax will be rescinded all together. Joining us with more is Bob Moon from the MARKETPLACE news bureau in New York, and Bob, what is this tax change all about? How many people will it affect?

BOB MOON, reporting:

Well, yeah, when was the last time you heard of the government actually doing away with some kind of tax, Madeleine? This is new on me. It applies to just about everyone who still gets what's known as wire line phone service. If you get a phone bill that shows that federal excise tax, you'll be getting this tax break.

Little bit of the history behind this tax. It actually was one of the last vestiges of the Spanish-American war if you can believe it; most of us who kept right on paying it. Think back to 1892, I don't suppose you were around back then, Madeleine...

BRAND: No.

(Soundbite of laughter)

MOON: But this was a time when there were only about 680,000 telephones in the whole United States. Only the wealthiest people had them, and this tax was supposed to be a luxury tax. It was imposed by Congress to help pay for the Spanish-American war.

Well, fast forward to today, the tax just never went away and then some big corporations that pay a lot for long-distance calling figured out they could save a lot of money if they challenged this tax. This was their argument, the tax was supposed to be a three-percent surcharge using a formula that was based on how long the call lasted and the distance of the connection. Then came along those unlimited long-distance calling plans in recent years. That led to the argument that the length and distance of the call really was immaterial here. In fact, this tax has been declared illegal by five federal courts of appeal during the past year, and now the Treasurer Department has decided to concede the issue. It's dropping the tax as of July 31st, and customers can look forward to a refund on next year's tax returns for the past three years that they've been paying this tax.

BRAND: Well, Bob, why just three years if this tax is more than a hundred years old? Shouldn't we get more?

MOON: Yeah, I wondered the same thing. I looked into that. It turns out there's a statute of limitations for any legal claims or tax refunds -it's three years. And even for those three years, it's hard to say exactly how much you'll be entitled to.

Let's say, for example, that you've paid roughly $50 a month for long-distance calls. The federal tax on that would have been around $18 in a year. You'll have to have all your records to claim the specific tax that you paid, otherwise you can use this formula that the Treasury Department and the IRS are going to come up with by the time next year's returns are issued.

BRAND: And the federal government still collects taxes on local phone service, right?

MOON: That's right, but the Treasury Secretary says we ought to do away with that, too.

Today in the MARKETPLACE newsroom, we're taking a look into the story of two Cambodian daughters who were sold into prostitution so their family could survive.

BRAND: Thank you, Bob. Bob Moon of Public Radio's daily business show, MARKETPLACE. It's produced by American Public Media.

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