| Taxing Developments in Telecom
By Allan
Keiter
The government will no longer collect the 3% Federal Excise Tax. However, there has been a slight increase in the universal service fee and, for the first time, this fee will be collected on Internet phone (VoIP) plans.
Around 1898, to help fund the Spanish-American War, the government instituted a 3% tax on one of the luxury items of the day --- making telephone calls. Although that war ended just a couple years later, the tax lived on...and on… and on. For 108 years, we’ve been paying 3% on most of our telephone bills. Whether landline, wireless or VoIP, we’ve been paying this “tax on talking”.
However, when Congress authorized the tax, it was specifically for phone calls that were priced differently by distance (e.g., New York to Boston was a different rate than New York to Los Angeles). That distinction went away in landline a number of years back, and has never existed with wireless or other newer technologies. This led to a legal battle over the legitimacy of the tax, and the courts repeatedly sided against the IRS. Finally, the IRS gave up, and announced they would no longer collect the tax.
As a result, you should see a small decrease in the taxes on your landline and wireless bills this summer. However, there have been some tweaks in the universal service fee (USF) that will offset some of the savings. (The Universal Service Fund helps subsidize communications services in rural and low-income areas). The USF will be collected on a higher portion of wireless bills and will now be collected on VoIP programs like Vonage. Netting the USF against the eliminated excise tax, VoIP subscribers can expect to see their bills increase by about 4%.
Allan
Keiter is president of MyRatePlan.com.
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