After July 31, 2006, collectors stopped collecting and paying over the tax on nontaxable service. Taxpayers may request a credit or refund only on their 2006 federal income tax return for nontaxable service that was billed after February 28, 2003, and before August 1, 2006. Instructions are provided on the applicable income tax returns. Claims can no longer be filed on Form 8849, Form 720, or Form 843 for nontaxable service; the IRS will not process these claims. If you filed a claim prior to May 25, 2006, you or your representative should have received a letter from the IRS explaining how your claim will be processed. If you or your representative have not received a letter or an IRS agent has not contacted you, call 1-866-699-4096 for assistance. If you did not request a refund on your 2006 income tax return, you can file an amended return.
Information on the credit and refund procedures for collectors is described under Credits or Refunds, later. For more information, see Notices 2006-50 and 2007-11.
A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service. taxmap/pubs/p510-033.htm#en_us_publink1000117135
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. taxmap/pubs/p510-033.htm#en_us_publink1000117136
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.taxmap/pubs/p510-033.htm#en_us_publink1000117137
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. taxmap/pubs/p510-033.htm#en_us_publink1000117138
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. taxmap/pubs/p510-033.htm#en_us_publink1000117139
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. taxmap/pubs/p510-033.htm#en_us_publink1000117140
Payments for certain services or payments from certain users are exempt from the communications tax.taxmap/pubs/p510-033.htm#en_us_publink1000117141
Nontaxable service means bundled service and long distance service. Nontaxable service also includes pre-paid telephone cards and pre-paid cellular service.taxmap/pubs/p510-033.htm#en_us_publink1000117142
Bundled service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. If Voice over Internet Protocol service provides both local and long distance service and the charges are not separately stated, such service is bundled service.
The method for sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled.taxmap/pubs/p510-033.htm#en_us_publink1000117143
Long distance service is telephonic quality communication with persons whose telephones are outside the local telephone system of the caller.taxmap/pubs/p510-033.htm#en_us_publink1000117144
A PTC will be treated as bundled service unless a PTC expressly states it is for local-only service. Generally, the person responsible for collecting the tax is the carrier who transfers the PTC to the transferee. The transferee is the first person that is not a carrier to whom a PTC is transferred by the carrier. The transferee is the person liable for the tax and is eligible to request a credit or refund. For more information, see Regulations section 49.4251-4.
The holder is the person that purchases a PTC to use and not to resell. Holders are not liable for the tax and cannot request a credit or refund.taxmap/pubs/p510-033.htm#en_us_publink1000117145
Rules similar to the PTC rules described above apply to pre-paid cellular telephones. The transferee is the person eligible to request the credit or refund.taxmap/pubs/p510-033.htm#en_us_publink1000117146
The tax does not apply to payments received for the installation of any instrument, wire, pole, switchboard, apparatus, or equipment. However, the tax does apply to payments for the repair or replacement of those items incidental to ordinary maintenance. taxmap/pubs/p510-033.htm#en_us_publink1000117147
The tax does not apply to amounts paid for a private line, an answering service, and a one-way paging or message service if they do not provide access to a local telephone system and the privilege of telephonic communication as part of the local telephone system. taxmap/pubs/p510-033.htm#en_us_publink1000117148
The tax does not apply to payments for a two-way radio service that does not provide access to a local telephone system. taxmap/pubs/p510-033.htm#en_us_publink1000117149
The tax for local telephone service does not apply to payments made for services by inserting coins in public coin-operated telephones. But the tax applies if the coin-operated telephone service is furnished for a guaranteed amount. Figure the tax on the amount paid under the guarantee plus any fixed monthly or other periodic charge. taxmap/pubs/p510-033.htm#en_us_publink1000117150
The tax does not apply to amounts paid for telephones used only to originate calls to a limited number of telephone stations for security entry into a building. In addition, the tax does not apply to any amounts paid for rented communication equipment used in the security system. taxmap/pubs/p510-033.htm#en_us_publink1000117151
The tax on teletypewriter exchange service does not apply to charges for the following news services.
- Services dealing exclusively with the collection or dissemination of news for or through the public press or radio or television broadcasting.
- Services used exclusively in the collection or dissemination of news by a news ticker service furnishing a general news service similar to that of the public press.
This exemption applies to payments received for messages from one member of the news media to another member (or to or from their bona fide correspondents). For the exemption to apply, the charge for these services must be billed in writing to the person paying for the service and that person must certify in writing that the services are used for an exempt purpose.
The tax applies to amounts paid by members of the news media for local telephone service. taxmap/pubs/p510-033.htm#en_us_publink1000117153
The tax does not apply to communication services furnished to an international organization or to the American National Red Cross. taxmap/pubs/p510-033.htm#en_us_publink1000117154
The tax does not apply to telephone services furnished to income tax-exempt nonprofit hospitals for their use. Also, the tax does not apply to amounts paid by these hospitals to provide local telephone service in the homes of their personnel who must be reached during their off-duty hours. taxmap/pubs/p510-033.htm#en_us_publink1000117155
The tax does not apply to payments received for services and facilities furnished to a nonprofit educational organization for its use. A nonprofit educational organization is one that satisfies all the following requirements.
- It normally maintains a regular faculty and curriculum.
- It normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.
- It is exempt from income tax under Internal Revenue Code section 501(a).
This includes a school operated by an organization exempt under Internal Revenue Code section 501(c)(3) if the school meets the above qualifications.
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.
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. taxmap/pubs/p510-033.htm#en_us_publink1000117158
Any form of exemption certificate will be acceptable if it includes all the information required by the Internal Revenue Code and Regulations. See Regulations section 49.4253-11. File the certificate with the provider of the communication services. An exemption certificate is not required for nontaxable services.
The following users that are exempt from the communications tax do not have to file an annual exemption certificate after they have filed the initial certificate to claim an exemption from the communications tax.
- The American National Red Cross and other international organizations.
- Nonprofit hospitals.
- Nonprofit educational organizations.
- Qualified blood collector organizations.
- State and local governments.
The federal government does not have to file any exemption certificate.
All other organizations must furnish exemption certificates when required. taxmap/pubs/p510-033.htm#en_us_publink1000117159
If tax is collected and paid over for nontaxable services, or for certain services or users exempt from the communications tax, the collector or taxpayer may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of the credit or refund. Alternatively, the person who paid the tax may claim a refund. For more information on how to file for credits or refunds, see the Instructions for Form 720 or Form 8849.taxmap/pubs/p510-033.htm#en_us_publink1000117160
The collector may request a credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. These requirements also apply to nontaxable service refunds.taxmap/pubs/p510-033.htm#en_us_publink1000117161
Collectors using the regular method for deposits must use Form 720X to request a credit or refund if the collector has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund.taxmap/pubs/p510-033.htm#en_us_publink1000117162
Collectors using the alternative method for deposits must adjust their separate accounts for the credit or refund if it has repaid the tax to the person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. For more information, see the Instructions for Form 720.taxmap/pubs/p510-033.htm#en_us_publink1000117163
Credits or refunds for nontaxable service that was billed after February 28, 2003, and before August 1, 2006, can be requested by taxpayers only on their 2006 federal income tax returns. Instructions to request the credit or refund are available with the 2006 income tax returns. Do not use Form 8849, Form 720, or Form 843 to make claims for nontaxable service; the IRS will not process these claims. If you did not request a credit or refund on your 2006 income tax return, you can file an amended return.