Breaking the Levy

An illegal phone tax.

In December a Washington, D.C., federal appeals court decided that a 3 percent federal excise tax on cell phone usage is illegal. It wasn't exactly a maverick ruling: The court joined eight other federal courts that have ruled the same way. The feds thus owe taxpayers $9 billion—three years' worth of unlawfully collected funds. Yet far from doling out refunds, the federal government has not even stopped collecting the tax.

The tax legally applies only to calls priced on distance, not the length of the conversation, a restriction that should exempt most Internet phone service and cellular calls. Yet the feds will continue to collect the levy on calls the D.C. court determined are legally exempt until the Bush administration decides whether to appeal the ruling. Consumers may eventually be eligible for a slice of the $9 billion overcharge. USA Today estimates that asking for your $49.52 would take seven hours of collecting bills and filling out paperwork.

Legal issues aside, the phone tax has been stirring up controversy since well before the Internet made call distance irrelevant. Dreamt up in 1898 to help fund the Spanish-American War, the tax was repealed in 1902 and reintroduced during World War I. Hang Up On War!, a national campaign to resist the phone tax, has been instructing protesters to duck the "war tax" since Vietnam.

Hang Up On War! suggests that consumers refuse to pay the tax by deducting 3 percent from their monthly bills. Phone companies, accustomed to three decades of tax dissent, tend to have forms and procedures for dealing with consumers who object to the fee. The official policy of Cingular Wireless details the cost of refusing to pay an illegal tax; the company, a 2005 policy document says, must "report to the IRS any customers who refuse to pay."