Cybertelecom Federal Internet Law & Policy An Educational Project

Notes :: Taxes

Excise Tax

• History
  • Imposed pursuant to the Spanish War Act of 1898
  • Pub. L. No. 154, § 701, 47 Stat. 169, 270 (1932) (excise tax expanded to include cable dispatches)
  • the Excise Tax Reduction Act of 1965, Pub. L. No. 89-44, 79 Stat. 136, 145-46 (1965), Congress amended section 4251(a) of the Code, which imposes a three percent excise tax on “communications services.”
    • Included within these “communication services” are “local telephone services,” 26 U.S.C. § 4251(b)(1)(A), which, in turn, are defined as: (1) the access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and (2) any facility or service provided in connection with a service described in paragraph (1). 26 U.S.C. § 4252(a). Excluded from the phrase “local telephone service” is any service that is a
      “toll telephone service” or a “private communication service” as defined in section 4252(b) and (d), respectively. See Reese Bros, Inc. v. United States, 447 F.3d 229, 233 (3d Cir. 2006); Western Elec. Co. v. United States, 564 F.2d 53, 55 (Ct. Cl. 1977). “Toll telephone service” means, in relevant part, a “telephonic quality communication for which . . . there is a toll charge which varies with the distance and elapsed transmission time of each individual communication.” 26 U.S.C. § 4252(b)(1). A “private communication service” entitles the subscriber, inter alia, to the “exclusive or priority use of any communication channel or groups of channels” or “to the use of an intercommunication system for the subscriber’s stations.” Id. at § 4252(d); see also
      Western Elec. Co., 564 F.2d at 55.
  • Officemax, Inc. v. United States, 428 F.3d 583, 585 (6th Cir. 2005)
• Caselaw
  • Comcation v. The United States, No 05-515T (US Court of Federal Claims August 17, 2007)
    • Undoubtedly, there are times that Congress, in exercising its taxing powers, fails to keep pace with technological evolution. Indeed, that failure might be purposeful. In such circumstances, a court should be loathe to take an analytical path that would stretch statutory language to cover situations that do not fall within its meaning, as enacted. Yet, the reverse is also true – a court should not give a statute, as written, less than its full compass simply because
      the technology involved could not have been specifically contemplated by the Congress in passing the law. And so, while it is tempting to give credence to the fact that Congress could not have had ISPs in mind, when, in 1965, it passed the current version of the communications excise tax, the question remains: is the service at issue that which Congress in the statutory language actually taxed?
    • In the court’s view, it is. Based upon the foregoing, and finding plaintiff’s remaining arguments unavailing,26 the court concludes that the PRI lines in question, indeed, constitute a taxable “local telephone service” within the meaning of sections 4251 and 4252 of the Code. As such, those lines are subject to the communications excise tax imposed by section 4251 of the Code. Accordingly, no refund is warranted and the Clerk instead is ordered to dismiss plaintiff’s
      complaint.
• Papers
  • Louis Alan Talley, The Federal Excise Tax on Telephone Service: A History (Cong. Research Serv. 2001)