Phone customers are due $9 billion in tax refunds and a 3% cut in wireless phone and long-distance bills, according to a series of federal court decisions.
But the federal government continues to collect the tax and requires so much paperwork for refunds that only big corporations are likely to benefit.
On Friday, a court in Washington, D.C., became the third federal appeals court since May to void the tax. Two other federal appeals courts, covering seven states, have ruled the tax unlawful, and cases are pending elsewhere in the nation’s 13 appeals courts. In all, nine federal courts have ruled that a 3% federal tax doesn’t apply to phone calls that are priced only by how long a person talks — not by how far the call travels.
That means cellular phones, Internet phone service and about one-third of long distance calls would be exempt from the tax. The wireless industry estimates that consumers would save about $4.5 billion a year. Taxpayers also would be due three years of refunds — about $9 billion.
The cellphone industry wants the tax removed immediately from bills and the money refunded. “Our customers shouldn’t be paying a tax that courts have repeatedly found illegal,” says Steve Largent, president of CTIA-The Wireless Association and a former Republican congressman.
The Bush administration has not said whether it will appeal to the Supreme Court. “It’s a matter subject to litigation, and that’s all we can say,” Treasury Department spokesman Taylor Griffin says.
An appeals court decision in May voided the law in Florida, Georgia and Alabama. The government did not appeal but continues to require phone companies to collect the tax in those states and pass it on to the federal government.
“It sounds absurd, but the law is written so that the government can keep collecting a tax even though it’s been ruled unlawful,” says Hank Levine, a lawyer representing businesses that challenged the tax. Federal law makes it nearly impossible to get an injunction to stop the government from collecting a tax, he says.
The average consumer would be entitled to a refund about the size of the average $49.52 monthly bill paid by the USA’s 195 million wireless subscribers. However, consumers would be required to seek refunds individually, documenting how much they paid each quarter in separate claims.
The time limit for refunds is three years. A person entitled to a $50 refund would have to fill out forms a dozen times to get the three years’ worth of refunds permitted under tax law. Collecting records and preparing the form would take about seven hours.
“I don’t think many people will make the effort,” says Brad Waterman, a tax attorney in Washington.
Big businesses would benefit most from refunds, especially those with large international phone bills. Convergys, which operates call centers around the world, has filed for a refund of more than $6 million. OfficeMax, a retailer, seeks $380,000. USA Today