One hundred years ago when the American government thought that it needed to go to war, it didn’t just borrow money up to its eyeballs as it does today. Rather it had to find a way to raise the money, since it was much harder for the government to borrow large sums of money. One of the many ways they did this is through additional taxes. During the Spanish-American war, the government needed more money to fund the war effort. In order to raise some funs, they created a luxury tax on telephone usage to earn additional revenue.

After the Spanish-American war, the tax was never repealed. In fact, it lasted for over nine-decades after the Spanish-American war was over! Congress really had no intentions of repealing the tax, however the American Bankers Insurance Group sued the IRS over a technicality in the statute. The IRS code stated that a telephone excise tax could be used in which “varies in amount with the distance and elapsed transmission time of each individual communication.” Since the Federal Telephone Excise Tax did not charge based on distance, the IRS was not following the letter of the law. The US 11th Circuit Court of Appeals agreed with the ABA and in May of 2006, the IRS stated that it would no longer collect the telephone excise tax because it was not based on call time and distance of the call.

What does this mean for you and I? First, we no longer have to pay as much for our land-line telephones, which is nice. Secondly, when we file our federal income tax forms this year, we can get some extra money back. Because of statues of limitation, we can collect taxes that we’ve paid into the telephone excise tax in the last three years.

We can collect our money back in two different ways. The first is that we can itemize the deduction based on the money we actually paid in by going back and looking in at our phone bills, however most of us just don’t have that information available. The federal government will even pay you interest on that money too!

If you’re like most people and have no idea where last month’s telephone bill is, let alone the telephone bills from the last 3 years, you can take a standardized amount. This is a calculation based on the average amount of money that people paid in for telephone excise taxes in the last three years. You can claim either one, two, three, or four or more exemptions. For each year you had telephone service and paid the excise tax, you can claim one exemption. If you are claiming one exemption, you’ll get $30. This increases by $10 per exemption all the way up to $60 for four or more years of telephone-excise taxes.

The amount that businesses can receive back for the federal excise tax has a bit more of a complex calculation. The IRS Website states that, “The special method involves comparing the April 2006 phone bill with the excise tax on long distance service and the September 2006 bill without it. The percentage difference in the excise tax, subject to a 1% or 2% maximum cap, can be applied to annual or quarterly telephone bills to determine the credit. In all cases, interest will be paid on refunds.”

When all is said and done, we still have no control over America’s tax policy, but hey, $60 is $60, and I’ll take that.