Spanish-American War tax finally killed

Guest Columnist

Have you looked at your monthly telephone bill in detail? If you do, you will be shocked by the myriad of federal, state and local taxes you pay just to dial up Grandma in Topeka or the dry cleaners down the street.

I just reviewed our telephone bill at the office and the government taxes and fees add a whopping 11 percent.

Thankfully, our long-distance phone bills will be lower beginning in August because the federal government has wisely decided to end the excise tax on long-distance calls. It took them a while. The tax was levied more than 100 years ago to fund the Spanish-American War.

According to the Heartland Institute, the long-distance tax was imposed at a time when only wealthy people and businesses had telephone service. As telephone service expanded, it was extended to cover other telecom services.

The federal government did not give up the tax easily. In fact, the decision came only after a string of successful court challenges.

The floodgates opened last October when Hewlett-Packard won a $6.2 million refund, plus interest. Then Honeywell, AOL and OfficeMax were awarded smaller judgments. With lawsuits pending by Wal-Mart, Home Depot, MBNA and other major telecom consumers, the feds threw in the towel.

In filing these lawsuits, big business did a favor for all of us because the rulings apply to small businesses and families, as well. Consumers, who will be able to claim refunds on three years of long-distance taxes, are expected to collect $15 billion in refunds on their 2006 income tax.

Now, Sen. Charles Grassley (R-Iowa) has introduced legislation to eliminate the federal excise tax on local phone service, as well.

Government at all levels is reluctant to eliminate outdated taxes, even though it makes sense to do so. Technology changes so rapidly, it is difficult to maintain a fair and equitable tax policy.

Nowhere is that more apparent than telecom. That industry has changed significantly in the last decade, and state and local governments would be wise to review their taxing policies.

The task will not be easy. There are significant disparities in taxes on cable companies, Internet providers and traditional telephone carriers that offer wireless service.

The job is made even more difficult by the fact that the telecom landscape changes almost daily.

A few years ago, the big issue was who was allowed to provide local and long-distance service, but that argument is moot today because of the rapid growth of cell phones, PDA phones and other wireless technologies.

Hopefully, the decision by the feds to drop the federal excise tax on long-distance service will trigger other changes in the way telephone and Internet service are taxed.

The technology market is innovative, fast paced and cost sensitive. It deserves better than a tax policy that was devised when Spanish forces surrendered to the Americans in the Philippines around the turn of the last century.

Don C. Brunell is president of the Association of Washington Business.