TAX FILE: Court disconnects phone tax

Yet another federal court has told the Internal Revenue Service that a widely offered inbound service is not subject to the 3% federal telecommunications tax. On February 14, the U.S. District Court for the Southern District of New York ruled that Fortis Inc. was entitled to a refund of tax it had paid on AT&T's 800 Readyline and Megacom 800 services. The ruling follows several decisions last year

KEN SIMONSON

April 1, 2005

Yet another federal court has told the Internal Revenue Service that a widely offered inbound “800” service is not subject to the 3% federal telecommunications tax. On February 14, the U.S. District Court for the Southern District of New York ruled that Fortis Inc. was entitled to a refund of tax it had paid on AT&T's “800 Readyline” and “Megacom 800” services. The ruling follows several decisions last year that also went against the government.

Many trucking fleets are large users of toll-free inbound services, which they provide to drivers as well as customers. Some companies already made use of a separate exemption for “common carriers” but telephone companies had been inconsistent in allowing the exemption. These ruling should make it easier for all fleets to eliminate a portion of their phone tax.