Long-distance phone call tax from 1898 to end Spanish-American War levy’s origin

AUGUSTA – A tax imposed on long-distance phone calls in 1898 to help fund the cost of the Spanish-American War no longer will be collected after July 31, with the U.S. Treasury deciding not to appeal several court rulings that the tax was not being fairly imposed.

But while the tax may be antiquated, it has contributed billions every year to federal revenues, and with the Treasury decision, taxpayers now are owed $13 billion in refunds for taxes paid over the last three years.

“I don’t think we can afford another tax cut, no matter how it is done, through Congress or the secretary of treasury,” U.S. Rep. Tom Allen said. “We are so deep in deficit we are passing on to our children, we can’t afford any increase in the deficit.”

Allen said that while he and others are concerned about the Treasury action, there is no indication GOP House leadership will take any action to keep the tax in any form.

The 3 percent tax on long-distance phone calls has been declared illegal by five different federal courts over the last year because it deals with calls “over phone lines,” which is antiquated language in these days of long-distance phone calls being routed over the Internet or through wireless networks.

“This will have an impact on the deficit, and that has to be a concern,” U.S. Sen. Olympia Snowe said. “It is one of those taxes that has long been considered for expiration. Maybe the time has come to have it end.”

Snowe said for the tax to continue, Congress would need to totally restructure the tax to meet the technological changes since the tax last was amended in 1965. She said as the Senate reviews the 1996 Telecommunications Act, the question of how to tax communications also will be reviewed.

Snowe serves on the Commerce Committee with jurisdiction over telecommunications and the Finance Committee, which has jurisdiction over taxes.

“I really don’t see how we can continue such a tax without fundamental changes so that we don’t penalize one segment of the long-distance industry at the expense of another,” she said.

U.S. Rep. Michael Michaud said he is concerned that the decision to let the tax lapse was made by the Treasury Department and not by Congress. He shares the concern that the action will add to the federal deficit.

“It’s up to Congress to deal with tax issues,” he said. “Should this tax, because of the problems it has, be repealed is an issue for policymakers, not the administration, to make. We are seeing a deficit that just continues to grow, and this just adds to it.”

Michaud suggested that since the tax was passed to pay for the Spanish American War, Congress might want to consider continuing it in some form to pay for the wars in Iraq and Afghanistan, instead of seeing the costs of those conflicts added to the deficit.

“This was supposed to be a temporary tax, although it probably is the longest-lasting temporary tax that our country has ever known,” U.S. Sen. Susan Collins said. “I am amazed it has lasted this long.”

Collins said this tax should not be confused with other taxes on long-distance phone calls that are imposed by the federal government. She said this is not the tax that funds such programs as the subsidy to schools to pay for Internet access.

“This was supposed to be temporary for the specific purpose of funding that war,” she said, “but it shows just how difficult it is to get rid of a tax, even one that is temporary.”

Both Collins and Michaud expressed concern over how the rebates due consumers would be handled. While the potential for payments is about $13 billion, the Treasury Department has indicated people will have to file for payments on their income tax returns.

The department said the IRS is working on a “simplified” method for taxpayers to claim their refund. It is expected to be based on the current sales tax deduction provisions, which allow taxpayers to claim a standard amount or file for an exact amount based on their phone records.

“I see this as an administrative nightmare,” Collins said.