![handle is hein.tera/crstax0176 and id is 1 raw text is: Order Code RS20119
Updated September 15, 2000
Telephone Excise Tax
Louis Alan Talley
Specialist in Taxation
Government and Finance Division
Summary
Thie federal excise tax onl local and long distance telepihone Service priodutces
su~bstanltiat r-evenlues evenl at a tax rate of 3%0'. In the Budgetforisa yea 2Q1It is
reported that the tax reachied a newN recordl in collections of $5. 185 billion inI FY1999.
These taxes go in-to the general receits of the U .S. Treasuiry and are not dledicatedl to
aI truLst funi-d or any othier spiecial purtipose. InI the debate ov er whIethier the tax shIoldI be
repealed, interestedl par1ties have attribuitedl a numbIIIer Of adv antag-es andc disadvantages
to the tax. Not onlyI is the tax adiniiistrativ ely easy for the federal g-ov ernmilent to collect,
butt it also conitinuies to generate large and stable amiounits of r-evenuie. Those wh lo fav or
the tax note that there is no seriout-s ev idence that the comn-i--cationis induILstry haS beenl
injuired by the piast imi-positioni of tis tax. Amlong(- thlose opposedl to the tax there is br-oadl
con-sensuis that tis is a r~egrTessive tax. Thiey stress thlat telephon01e uIsag:e shldC be
dlistinguilshed from-i the sumnptuiary ('sin) excise taxes impilosed onl itemis suich as alcohiolic
bev erages anid tobacco. Opplonlents arguYLe that the tax base IS One wh Iich sholdI be left
to the States, thlat w\ithIout this tax thle comn-iiiiicationis inidu]stry would growN miore
rapidly, and that the economyV wVold benefit fr-om- this expansin. The Houise of
Repriesenitatives firstl passedI a biti (H.R. 3916) that pihases-otthe telephlonie excise tax
wNithl compI-lete r-epeal schledu-led for October 1 , 2002. The Senate Finiance Coi-iimittee's
v ersin of the legislationi priovides fuill repecal of the tax for bills ren-deredl after Augutst 31,.
2000. The I-LuSe Of Reprlesenltatives has again passed legislation (H.R. 4516-a
comin Ilationl appr11o pritilonlS/tax mIIeasur Ie) which wCIold C repieal the comni iiiicationl exc Ise
taxes. The differenice between H.R. 45 16 and the legislation as passed by the Senate
Finiance Comi-i-ittee is the exten-sion of the tax for one additionial mioth (thrloughTl
Septemiber 30, 2000). Th-is report will1 be updICatedl as leg-isIltie aIctions occurI.
Brief History
The federal excise tax on telephone calls (also known as the communications tax)
originated on long distance service under the Spanish War Act of]1898. This original tax
Congressional Research Service ud The Libraty of Congress
CRS Report for Congress
Received through the CRS Web](ViewImageLocal?handle=hein.tera/crstax0176&div=1&collection=&method=preview&ext=.png&size=3)
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