In 1898, only the wealthiest Americans owned telephones. At that time the U.S. was involved in the Spanish-American war, and in an effort to help fund it, levied a tax of one penny per long-distance phone call. Since the 1960s, the definition of long-distance calls has remained the same, wherein charges were accrued based on both the length of the call and the distance of the transmission.
Today, most phone companies no longer consider distance as a price point. Accordingly, U.S. taxpayers have challenged the government on the taxation of "distance," and since May of 2005, five U.S. courts of appeals have ruled that the excise tax does not apply, based on today's technology system. On May 25, 2006, the IRS conceded that the tax was outdated, and has announced a repeal of long-distance excise tax.
Individuals will be able to claim a refund for the telephone excise tax paid from February 28, 2003 through August 1, 2006, on 2006 federal tax returns. The IRS is working on developing a safe harbor amount that taxpayers may request (via forms 1040, 1041, 1065, 1120, and 990-T), since most Americans do not retain old telephone bills.
When the IRS announcement was made, Treasury Secretary John Snow remarked, "Today is a good day for American taxpayers; it marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history. The Federal Appeals courts have spoken across the board. It's time to 'disconnect' this tax and put it on the permanent 'do not call' list.