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Communication Tax

The federal telephone excise tax is a statutory federal excise tax imposed under the Internal Revenue Code in the United States on amounts paid for certain "communications services." The tax was to be imposed on the person paying for the communications services (such as a customer of a telephone company) it is collected from the customer by the "person receiving any payment for facilities or services" on which the tax is imposed i.e., is collected by the telephone company, which files a quarterly Form 720 excise return and forwards the tax to the Internal Revenue Service.

A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service. Excise taxes are imposed on amounts paid for certain facilities and services. If you receive any payment on which tax is imposed, you are required to collect the tax, file returns, and pay the tax over to the government.

Local telephone service

This includes access to a local telephone system and the privilege of telephonic quality communication with most people who are part of the system. Local telephone service also includes any facility or services provided in connection with this service. The tax applies to lease payments for certain customer premises equipment (CPE) even though the lessor does not also provide access to a local telecommunications system.

Local-only service

Local-only service is local telephone service as described above, provided under a plan that does not include long distance telephone service or that separately states the charge for local service on the bill to customers. Local-only service also includes any facility or services provided in connection with this service, even though these services and facilities may also be used with long-distance service.

Private communication service

Private communication service is not local telephone service. Private communication service includes accessory-type services provided in connection with a Centrex, PBX, or other similar system for dual use accessory equipment. However, the charge for the service must be stated separately from the charge for the basic system, and the accessory must function, in whole or in part, in connection with intercommunication among the subscriber's stations.

Teletypewriter exchange service

This includes access from a teletypewriter or other data station to a teletypewriter exchange system and the privilege of intercommunication by that station with most persons having teletypewriter or other data stations in the same exchange system

The tax is based on the sum of all charges for local telephone service included in the bill. However, if the bill groups individual items for billing and tax purposes, the tax is based on the sum of the individual items within that group. The tax on the remaining items not included in any group is based on the charge for each item separately. Do not include in the tax base state or local sales or use taxes that are separately stated on the taxpayer's bill.

Uncollected Tax Report

A separate report is required to be filed by collecting agents of communications services taxes if the person from whom the facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax, or it is impossible for the collecting agent to collect the tax. The report must contain the name and address of the taxpayer, the type of facility provided or service rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid.

Regular method taxpayers

For regular method taxpayers, the report must be filed by the due date of the Form 720 on which the tax would have been reported.

Alternative method taxpayers

For alternative method taxpayers, the report must be filed by the due date of the Form 720 that includes an adjustment to the separate account for the uncollected tax.

Communications Excise Tax Refund Requests by Exempt Organizations

Some exempt organizations are exempt from telephone excise taxes. Exempt payers include the following organizations:

  • Nonprofit hospitals, for services furnished to such organizations
  • Nonprofit educational organizations, for services furnished to such organizations
  • State and local governments and their instrumentalities

A claim for refund of telephone excise tax by an exempt payer should be requested on Form 8849, Claim for Refund of Excise Taxes.

Nonprofit hospitals

For purposes of this exemption, a nonprofit hospital means a hospital referred to in section 170(b)(1)(A)(iii) of the Internal Revenue Code which is exempt from income tax under section 501(a). See Publication 557 for more information.

Nonprofit educational organization

A nonprofit educational organization is one that satisfies all of the following requirements:

  • It normally maintains a regular faculty and curriculum.
  • It normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on.
  • It is exempt from tax under section 501(a).

A school operated by a section 501(c)(3) exempt organization that meets the above requirements is a nonprofit educational organization

For any of these exemptions to apply, purchase of the services or facilities must be for the use of the exempt payer. Thus, for example, a college’s purchase of communications services for use by students residing in dormitories would not be exempt.

Qualified blood collector organizations

The tax does not apply to telephone services furnished to qualified blood collector organizations for their use. A qualified blood collector organization is one that is:

  • Described in section 501(c)(3) and exempt from tax under section 501(a),
  • Primarily engaged in the activity of collecting human blood,
  • Registered with the IRS, and
  • Registered by the Food and Drug Administration to collect blood.

Federal, state, and local government

The tax does not apply to communication services provided to the government of the United States, the government of any state or its political subdivisions, the District of Columbia, or the United Nations. Treat an Indian tribal government as a state for the exemption from the communications tax only if the services involve the exercise of an essential tribal government function.

To know more about the excise taxes levied on communication service check here

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