An Open Letter to the United States Congress: Pass H.R. 1898 and Halt the IRS's "Rough Riding" Tax Policy

Dear Member of Congress:

On behalf of the 350,000 members of the National Taxpayers Union (NTU), I urge you to act immediately and pass H.R. 1898/S. 1321, the Telephone Excise Tax Repeal Act of 2005. This request is even more urgent in light of the Internal Revenue Service?s recent move to blatantly disregard judicial decisions that rule against collection of the federal excise tax (FET) for certain telecommunication services.

As you may know, the FET, better known as the ?Spanish-American war tax? because Congress imposed it to fund the 1898 war, imposes a 3 percent tax on some communication services, including long-distance telephone calls and toll telephone service.

When the American Bankers Insurance Group (ABIG) found that a communication service purchased from AT&T from 1999 to 2002 did not meet the ?plain reading? definition of what was considered taxable under the FET statute, ABIG filed tax refund claims with the Internal Revenue Service. The IRS resisted ABIG?s efforts, but in May 2005 the U.S. Court of Appeals for the 11th Circuit issued an opinion in American Bankers Insurance Group v. U.S. finding that the communication service purchased by ABIG was not taxable under the law authorizing the excise tax. A subsequent ruling in the 6th Circuit (OfficeMax, Inc., v. U.S.) also found in favor of a plaintiff seeking a refund from the improperly applied tax.

Yet in late October 2005 the IRS announced that it would continue collecting the FET on communication transactions similar to those covered by the ABIG case ? even within the 11th Circuit?s jurisdiction! The IRS has apparently decided to brazenly defy the precedent set in Marbury v. Madison that ?it is emphatically the province and duty of the judicial department to say what the law is.? Since the IRS won?t uphold the Court?s decision, Congress must act now by simply doing away with this highly regressive, outdated tax.

Americans have been well served by the passage of tax cuts for each of the past four years, and repealing the FET would have a demonstrable positive impact on many Americans? finances by removing a senseless tax from their phone bills. The Spanish-American War has been over for more than one hundred years, and it is time to end the tax that funded the war.


Kristina Rasmussen

Government Affairs Manager