The IRS and Telephone Taxes

Imagine, if you will... Suppose that you have discovered that the garbage collection company you use has been charging you a fee for picking up the garbage. Suppose also that you have discovered that this fee is illegal and federal courts have ruled on different occasions that the garbage company has no authority or power to collect the fee. Finally, suppose the garbage company has told you that it will not stop collecting the fee because it doesn't want to and because it thinks the courts are wrong in their determinations. How does it make you feel if I told you that the above situation is absolutely true? The only difference between this story and our reality is that instead of the garbage company collecting a fee from you, this role is played by the Internal Revenue Service which is forcing the phone companies to collect an illegal tax on you and me for making long-distance phone calls.

 

Seriously, on three separate occasions the courts have ruled that the tax, as written, cannot be imposed because methods of billing for telecommunications have changed. The tax in question originated in 1898 to help pay for the Spanish-American War. Granted, it's been updated and changed a couple of times over the last 100 or so years to reflect the changing times. The parts that are being contested in court were written in 1965. For a closer look at what is being taxed and how much the imposed tax is see Title 26, Subtitle D, Chapter 33, Subchapter B--Communications if the Internal Revenue Code. What I found interesting was what the federal government considers a taxable "privilege." From Section 4252:

(a) Local telephone service
  For purposes of this subchapter, the term "local telephone service" means--

(1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system.

(b) Toll telephone service
  For purposes of this subchapter, the term “toll telephone service” means—

(2) a service which entitles the subscriber, upon payment of a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time), to the privilege of an unlimited number of telephonic communications to or from all or a substantial portion of the persons having telephone or radio telephone stations in a specified area which is outside the local telephone system area in which the station provided with this service is located.

(c) Teletypewriter exchange service
  For purposes of this subchapter, the term "teletypewriter exchange service" means the access from a teletypewriter or other data station to the teletypewriter exchange system of which such station is a part, and the privilege of intercommunication by such station with substantially all persons having teletypewriter or other data stations constituting a part of the same teletypewriter exchange system, to which the subscriber is entitled upon payment of a charge or charges (whether such charge or charges are determined as a flat periodic amount, on the basis of distance and elapsed transmission time, or in some other manner).

Did you know that when you pick up your telephone to call dear old Aunt Maggie, that you are in fact exercising a privilege granted by the federal government to you? I didn't, either. I thought when I paid the phone company for their services that I was paying for the ability to communicate with anyone who also pays for the service. Hmmm... But, I suppose they'll argue that the telephone poles that the phone company's wires are strung upon are placed in public right-of-ways and that is where the privilege originates from.

 

For more on this topic, I'll refer you to the article that brought this to my attention, Merchants Fight IRS Over Telephone Taxes. One last thing I want to point out before I leave this subject. The article states:

The government can expect to collect $52 billion over the coming decade from all telephone excise taxes, according to a recent report from the Congressional Budget Office.

The report said there is a "significant likelihood" the Internal Revenue Service will continue losing in court and eventually stop collecting the tax on some long-distance calls.

While cases work through the courts, the IRS says it still is instructing telephone companies to keep collecting the tax.

After losing in the 11th U.S. Circuit Court of Appeals, the IRS issued a notice stating that it would continue to assess and collect the tax. After losing in the 6th Circuit, the IRS asked all judges on that court to hear the appeal. The IRS also lost in the U.S. Court of Appeals for the District of Columbia Circuit.

The agency has not asked the Supreme Court to consider the issue.

The IRS won't ask the Supreme Court to hear their case because if they lose again, and they will, their done. If they can drag their feet and keep it tied up in the lower courts, the IRS will be able to keep on collecting the tax. As demonstrated by their actions mentioned in the above article, they intend to keep on bullying businesses into illegally collecting their taxes. These are the very same strong-armed tactics that we fought the British to get away from.