More than a century after the Spanish- American War, AT&T Inc., BellSouth Corp. and Sprint Nextel Corp. may be close to being rid of the tax created to pay for it.
In the past year, five appeals courts with jurisdiction over 13 states have said the 108-year-old U.S. excise tax on long- distance calls is illegal, and Republican lawmakers in both chambers of Congress have introduced legislation to abolish it. In February, Treasury Secretary John Snow told a congressional panel that ``the handwriting is on the wall'' for the levy.
``Secretary Snow has led me to believe they're just about ready to throw in the towel,'' said Representative Gary Miller, a California Republican who is sponsoring repeal legislation in the House. ``It's time we just eliminate it.''
The Treasury Department said Snow would make an announcement today about the telephone tax. Snow's spokesman, Sean Kevelighan, said this week that ``IRS, Treasury and Justice are considering all the options, and we will hopefully have some sort of conclusion or decision in the future.''
The driving force behind the push for abolition of the tax comes from successful legal challenges by corporate phone-service customers such as Itasca, Illinois-based OfficeMax Inc. and Palo Alto, California-based Hewlett-Packard Co. The 3 percent excise tax, which carriers are required to collect from their clients and remit to the government, would generate $67 billion in government revenue over the next 10 years, according to estimates by the congressional Joint Committee on Taxation.
The telephone companies say the court rulings have put them in an untenable position: stuck between customers in those states who may sue them for collecting the levy and a government that may penalize them for failing to pass it on.
`Obligated'
``We are obligated to continue to collect the tax because the IRS hasn't issued any guidance telling us we don't have to,'' said Caroline Graves Hurley, director of tax, finance, and business policy for the Washington-based U.S. Telecommunications Association, an industry group that represents 1,200 companies, including San Antonio-based AT&T, Atlanta-based BellSouth and Reston, Virginia-based Sprint Nextel.
At issue is whether a 1965 version of the law, first enacted in 1898 to fund the war with Spain, permits the government to tax long-distance calls based on elapsed time, distance, or both. The IRS in 2005 insisted both types of calls are taxable; the courts have ruled the tax doesn't apply to calls billed in time increments or those covered by a flat-rate plan, as most calls currently are.
Refunds
More than a dozen companies, including St. John's, Newfoundland-based Fortis Inc. and Amtrak, the national passenger railroad based in Washington, have won more than $2 million in refunds from the government in the past two years. On May 16, Downers Grove, Illinois-based ServiceMaster Co., owner of the Terminix, TruGreen ChemLawn and Merry Maids brands, won a refund of $880,000 collected by AT&T and Sprint.
Those victories have led to dozens more suits, including a class-action claim filed by Fort Worth, Texas-based RadioShack Corp. that seeks as much as $9 billion in refunds on behalf of telephone users around the country.
Individual consumers may soon join the fray, too. BellSouth is already fighting a class-action lawsuit brought in April by a long-distance customer in Alabama.
``We believe anyone who wants to challenge the tax needs to challenge it with the taxing authority,'' said Bill McCloskey, a BellSouth spokesman. About 14 million of BellSouth's 19.8 million customers reside in states where the appellate courts have ruled the tax illegal, he said. Other telephone companies referred calls to the U.S. Telecommunications Association.
``With several appellate court losses already on the books, the IRS is clearly aware of the legal challenges they face,'' Hurley said. ``We hope they will act quickly to resolve these conflicts.''
Tax Cuts
The courts' involvement may deliver a victory to tax-cutting Republicans in Washington who are running out of taxes to cut and are facing a projected $300 billion budget deficit for this year.
Congress in 2000 voted overwhelmingly to abolish the levy, though then-President Bill Clinton vetoed the broader spending legislation that contained the repeal. The Bush administration hasn't revived the measure.
Since then, Republican lawmakers -- including Miller, Minnesota Representative James Ramstad, Pennsylvania Senator Rick Santorum and Virginia Senator George Allen -- have led efforts to pass a new repeal.
`The Time Has Come'
``The time has come for the IRS to stop applying this unfair, and apparently illegal, tax,'' said Santorum, whose state is covered by the Third Circuit's ruling that the levy is illegal.
J. Leigh Griffith, a partner with the law firm Waller Lansden Dortch & Davis LLP in Nashville who is preparing to file as many as 100 refund lawsuits against the government on behalf of mid-sized companies, said lawyers are watching the results of two cases pending in the U.S. Court of Federal Claims.
A victory there by Time Warner Corp.'s Dulles, Virginia- based America Online unit or Morris Township, New Jersey-based Honeywell International Inc. would have national ramifications, he said. ``There is a reasonable chance the government will ultimately throw in the towel,'' Griffith said.
McCloskey, the BellSouth spokesman, said his company has been fighting the telephone tax for years and is tired of acting as a tax collector.
``We'd like to see it resolved in favor of the customer,'' he said. ``We've been in middle since the Spanish-American War.''
No comments:
Post a Comment