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Telecom Cost Management Featured Article

August 31, 2006

Telecom Cost Management Services Help Companies Claim Excise Tax Refund

By Mae Kowalke, TMCnet Senior Editor

It’s that time of year again: back-to-school. In many parts of the U.S., sales tax holidays are making the hectic shopping period a little bit easier for parents.
Recently, the Internal Revenue Service (IRS) instituted a different sort of tax break, this one permanent. The government agency announced in May that it no longer is collecting federal excise tax on long-distance telephone service.
Not only that, but the IRS will be refunding, with interest, all excise taxes paid on long-distance phone service since February 28, 2003. Most affected taxpayers will claim the refund on their 2006 returns.
Anyone with ties to the telecommunications industry—particularly companies offering or utilizing telecom cost management services—probably has the IRS’ announcement very much on their mind.
In its press release explaining the change, the IRS said that a tax on phone service first was levied in 1898. Most recently, the tax appeared on telecom invoices as 3 percent of the charges billed. (Long-distance carriers were required to drop the tax as of August 1.)
Barbara Clements, President of telecom cost management services provider Auditel, Inc., told TMCnet in a recent e-mail correspondence that, while the luxury FET has now been removed from some long distance telecom bills, terminology related to the tax may be confusing.
“Some think that all excise taxes are the same, for example the ‘old horse and buggy tax’ which is a state excise tax,” Clements said. “The postalized distance based tax is sometimes called a ‘time and distance tax’ but it is known by most as the federal excise tax.”
It is the postalized distance-based tax that, as of July 31, no longer appears on telecom bills.  
While the removal of this tax may be viewed as positive over the long term, for the time being the change may be creating headaches for companies rushing to claim the refund before it’s too late. Non-profits are particularly pinched for time: they have only until October 15 to file.
In its release, the IRS promised it would be rolling out a straightforward process for filing to get back three year’s worth of excise tax.
“Claiming a refund will be simple and fair,” IRS Commissioner Mark Everson said in a May statement.   
Simple and fair, perhaps. Time-consuming, for sure. In order to claim the refund, businesses have to provide proof of the taxes they paid, and for small companies especially the task may prove a daunting one.
“Each company wanting to claim their federal excise tax refund needs to obtain and analyze the portion of the bill containing federal excise tax and determine whether it applies for the refund, for long distance and cellular usage,” Clements said. “We have found that many corporations just don’t have the time or the manpower to dedicate to the federal excise tax refund project.”
Clements added: “Although it is like getting free money, it still takes a large effort from the client to prove the FET refunds are due.”
Choosing to hand the task over to a professional auditing company, like Auditel, will be the way to go for many companies.
“We simplify the process for our clients to obtain the maximum Federal excise tax refunds,” Clements said. “Our research is helpful to provide the evidence, and documentation necessary to obtain the full federal excise tax refund each client is due.”
Mae Kowalke previously wrote for Cleveland Magazine in Ohio and The Burlington Free Press in Vermont. To see more of her articles, please visit Mae Kowalke’s columnist page.

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