Telephone Excise Tax: Does "And" Mean "Both" or "Either"?

By Brown, Michael H. | Journal of Accountancy, November 2004 | Go to article overview

Telephone Excise Tax: Does "And" Mean "Both" or "Either"?


Brown, Michael H., Journal of Accountancy


When long-distance telephone service does not take into account the distance of the call, should the 3% federal excise tax apply? In two recent cases, two district courts reached opposite conclusions.

American Bankers Insurance Group (ABIG), a Florida corporation, purchased interstate and international long-distance and intrastate long-distance phone service from AT&T in Florida, Georgia, Ohio and Oklahoma from October 1998 through March 2002. ABIG paid a uniform toll rate that varied only by the country to which the calls were being placed. It filed claims with the IRS for refunds totaling $361,763, contending that federal law imposed an excise tax only on long-distance calls that varied in rate based on the call's distance.

In a case with essentially the same facts, OfficeMax purchased long-distance phone service from MCI WorldCom Communications and MCI Telecommunications Corp. OfficeMax paid $380,296 in excise taxes and filed a refund claim with the IRS based on the same contention as ABIG's. OfficeMax maintained the toll charges were based on each call's duration, the type of access provided or the time of day and that distance was never a factor.

Result. For the IRS in ABIG; for OfficeMax in the other case. In both cases the critical question was whether the phone services the companies purchased were within the statutory definition of "toll telephone service" in IRC section 4252(b)(1). Toll phone service is defined as "a telephonic quality communication" for which the toll charge "varies in amount with the distance and elapsed transmission time" of each individual communication and is paid "within the United States. …

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Telephone Excise Tax: Does "And" Mean "Both" or "Either"?
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