DESCRIPTION OF H.R. 3916 

(REPEAL OF THE FEDERAL COMMUNICATIONS EXCISE TAX) 

Scheduled for Markup 

By the 

HOUSE COMMITTEE ON WAYS AND MEANS 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

JCX-47-00 

May 15, 2000
 -iCONTENTS

 Page

I. INTRODUCTION................................................................................. 1 

II. DESCRIPTION OF H.R. 3916............................................................. 2 

 A. Present Law....................................................................................... 2 

 B. Overview of History of the Communications Tax............................ 3 

 C. Explanation of the Bill ...................................................................... 4 
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I. INTRODUCTION 

 This document,1 prepared by the staff of the Joint Committee on Taxation, 

provides a description of the present Federal communications excise tax, an overview of 

the history of the tax, and a description of H.R. 3916, a bill to repeal the tax. H.R. 3916 

has been scheduled for markup by the Committee on Ways and Means on May 17, 2000. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 3916 

(Repeal of the Federal Communications Excise Tax), (JCX-47-00), May 15, 2000. 

 
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II. DESCRIPTON OF H.R. 3916 

A. Present Law 

In general

 A three percent Federal excise tax is imposed on amounts paid for 

communications services (Code sec. 4251).2

 Communications services are defined as 

"local telephone service," "toll telephone service," and "teletypewriter exchange 

service."3 The person paying for the service (i.e., the consumer) is liable for payment of 

the tax. Service providers are required to collect the tax; however, if a consumer refuses 

to pay, the service provider is not liable for the tax and is not subject to penalty for failure 

to collect if reasonable efforts to collect have been made. Instead, the service provider 

must report the delinquent consumer’s name and address to the Treasury Department, 

which then must attempt to collect the tax. 

Local telephone service is defined as the provision of voice quality telephone 

access to a local telephone system that provides access to substantially all persons having 

telephone stations constituting a part of the local system. Toll telephone service is defined 

as voice quality communication for which (1) there is a toll charge that varies with the 

distance and elapsed transmission time of each individual call and payment for which 

occurs in the United States, or (2) a service (such as a "watts" service) which, for a flat 

periodic charge, entitles the subscriber to an unlimited number of telephone calls to or 

from an area outside the subscriber's local system area. 

 Special rules, enacted in 1997, apply to the sale of "prepaid telephone cards." 

These cards are subject to tax when they are sold by a telecommunications carrier to a 

non-carrier (rather than when communication services are provided to the consumer). 

The base to which the tax is applied is the face amount of the card. 

Exemptions

 Present law provides for the following exemptions: 

• Public coin-operated service from the tax on local telephone service, and to the 

extent that the charge is less than 25 cents, from the toll telephone service tax.4

 

• Service for the collection of news by the public press, news ticker, or radio 

broadcasting services (providing a news service as part of or similar to that of the 

 2

 The tax base does not include State or local taxes on the same service provided that the amount 

of the State or local tax is separately stated on the customer's bill. 

 

3

 Teletypewriter exchange service refers to a data system that is understood to be no longer in use. 

4

 If coin-operated toll service is taxable, the tax is computed to the nearest multiple of five cents. 
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public press), from the toll telephone service tax. (Local telephone service 

provided to the press is subject to tax.) 

• Private communication service for which a separate charge is made, from the 

local telephone service tax.5

• Service provided to international organizations and the American Red Cross. 

• Toll telephone service provided to members of the Armed Services who are 

stationed in combat zones. 

• Certain toll telephone service to common carriers, telephone or telegraph 

companies, or radio broadcasting stations or networks in the conduct of these 

businesses. 

• Installation charges (including wires, poles, switchboards, or other equipment). 

• Telephone service provided to non-profit hospitals. 

• Telephone service provided to State and local governments. 

• Telephone service provided to nonprofit educational organizations. 

B. Overview of History of the Communications Tax6

 The first tax on telephone service was enacted in 1898 to help finance the 

Spanish-American War. That tax was repealed in 1902 and was not re-enacted until 

World War I required additional revenues. The World War I telephone tax was repealed 

in 1924 and was re-enacted in 1932. All of these initial telephone taxes applied only to 

toll (long distance) service. In 1941, with the advent of World War II, the tax was 

extended to general local service. 

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 Private communication service is defined as (1) service that entitles the customer to exclusive or 

priority use of a communication channel or group of channels, or an intercommunication system for the 

customer's stations; (2) switching capacity, extension lines and stations, or other associated services 

provided in connection with services described in (1); and (3) channel mileage connecting a telephone 

outside a local service area with a central office in the local area. 

 Unlike the other exemptions, the special treatment for private communication service is 

accomplished by means of an exclusion from the definition of local telephone service rather than as a stated 

exemption. 

6

 For a more complete discussion of the history of the communications excise tax, see 

Congressional Research Service (Louis Alan Talley), The Federal Excise Tax on Telephone Service, A 

History, May 9, 2000 (RL30553). 
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An excise tax on telephone service has been in effect in every year since 1941, 

despite enactment of periodic legislation to repeal or phase-out the tax. In the Excise Tax 

Reduction Act of 1965, Congress scheduled a phase-out, beginning with a reduction in 

the then 10-percent rate7

 for both local and toll service to three percent after 1965. 

Additional reductions of one percentage point per year were scheduled thereafter until 

there would have been no tax effective on January 1, 1969. However, the scheduled 

reductions were repealed in 1966 (effective April 1, 1966), and the 10-percent rate was 

re-instated. A delayed phase-out schedule was enacted in 1968, to begin in 1970. This 

phase-out schedule also was postponed, with a one-percentage point per year phase-out 

finally going into effect on January 1, 1973. 

 In 1973, the tax rate declined from 10 percent to 9 percent as the first step in this 

phase-out, which was to be completed beginning in 1982. However, the Omnibus 

Reconciliation Act of 1980 delayed the repeal by one year (until 1983); and the 

Economic Recovery Tax Act of 1981 further delayed repeal for two additional years. 

After reaching a rate of one percent, the rate was increased again to three percent in 1983, 

and after being extended at that rate several times, the three percent rate was made 

permanent by the Revenue Reconciliation Act of 1990. 

C. Explanation of the Bill 

 H.R. 3916 would repeal the three-percent Federal communications excise tax, 

effective for amounts paid pursuant to bills first rendered more than 90 days after the date 

of enactment. 

 

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 At their highest, the tax rates were 15 percent on general local service and 25 percent on toll 

service costing more than 24 cents per message. These rates were in effect from 1944 until 1954.