May 25, 2006

US to repeal phone tax, refund billions

WASHINGTON (Reuters) - The U.S. Treasury Department on
Thursday conceded a legal dispute over the 3 percent federal
excise tax on long-distance telephone service and said $13
billion would be refunded to taxpayers.

The telecommunications industry hailed the decision in the
long-fought battle to kill a 1898 law, established as a luxury
tax on wealthy Americans who owned telephones and to help
finance costs of waging the Spanish-American war.

The U.S. Treasury Department said it would end its
litigation to defend the tax and taxpayers will be able to
reclaim the money on their 2006 tax returns filed next year.

Treasury Secretary John Snow, at a press conference on
Capitol Hill with lawmakers, said the tax was "antiquated."

"It's not often you get to kill a tax, particularly one
that goes back so far in history," Snow said, adding that
Treasury was pleased to concede this tax was no longer useful.

"The revenue stream is strong and can easily absorb this,"
Snow said. The refunds will cover tax paid on long-distance
service over the past three years.

"So taxpayers won't have to spend time digging through old
telephone bills, we're designing a straightforward process that
taxpayers may use when they file their tax returns next year,
said IRS Commissioner Mark Everson. "Claiming a refund will be
simple and fair."

Snow said he could not specify how much of the refund might
be made to businesses and how much to individuals, or estimate
the size of refund an average individual could expect to get.

He also urged Congress to repeal the excise tax on local
telephone service. The Justice Department had appealed in U.S.
courts to keep the long-distance tax but was turned back
several times.

According to a report in The Wall Street Journal, refunds
and lost revenue over the next five years could add up to about
$60 billion.

"Customers should see a noticeable difference in their
phone bills within the next few months," said Herschel Abbott,
BellSouth vice president for governmental affairs. "We hope
this decision is a harbinger of removal of other discriminatory
taxes on communications customers."

Shares of the major telephone carriers were moved slightly
higher. Stock in AT&T Inc., the No. 1 U.S. telephone company,
were up 5 cents to $25.51 on the New York Stock Exchange. The
No. 2 carrier Verizon Communications' shares moved up 26 cents
to $31.01.

(Additional reporting by Alister Bull and Jeremy Pelofsky)