Agency tells phone companies to keep collecting
Spanish-American War tax,
defying federal court ruling

WASHINGTON – The Internal Revenue Service (IRS) yesterday issued a notice that telephone companies should continue to collect and remit the federal excise tax on long distance telephone service, despite a ruling earlier this year by the Eleventh Circuit Court of Appeals that the tax was unlawful.

The tax, which was enacted in 1898 as a temporary “luxury” tax to fund the Spanish-American War, costs businesses and individuals approximately $5 billion annually. The Spanish-American War tax funds no specific purpose, but instead flows into general revenue.

“The IRS not only declined an opportunity to make good tax policy, but also blatantly defied a federal court in continuing to collect the tax,” said taxpayer advocate Grover Norquist, president of Americans for Tax Reform. “The only silver lining here is that perhaps Congress will see the lunacy of this particular tax and repeal it all together.”

H.R. 1898 and S. 1321, sponsored by Rep. Gary Miller (R-CA) and Sen. Rick Santorum (R-PA), respectively, would repeal the tax entirely. Identical legislation passed the House and Senate overwhelmingly in 2000, but was vetoed by then President Bill Clinton.