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Treasury Department drops court defense of excise tax on long-distance calls

[JURIST] The US Treasury Department [official website] announced on Thursday that it will no longer defend [press release] in court the federal excise tax on long-distance telephone calls [Tax Foundation backgrounder], and will issue refunds to taxpayers of all monies paid on the tax since litigation began three years ago. Treasury Secretary John Snow estimates the refund, which will be included in 2007 tax refunds, could cost the Treasury as much as $13 billion.

Federal appeals courts have consistently sided against the Treasury Department against the tax, which was instituted in 1896 as a luxury tax on telephone calls to finance the Spanish-American War, and it was raised during each subsequent armed conflict, peaking at a 10% penalty during Vietnam. The excise tax was set to expire in the eighties, but budget concerns led to the Revenue Reconciliation Act of 1990, which permanently froze the tax at 3%. Critics attacked the tax as a user fee for long-distance calls. Snow also called on Congress to repeal the local telephone exist tax. Reuters has more.

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