§4251 — Imposition of tax
9 citing cases
Statute Text — 26 U.S.C. §4251
There is hereby imposed on amounts paid for communications services a tax equal to the applicable percentage of amounts so paid.
The tax imposed by this section shall be paid by the person paying for such services.
For purposes of subsection (a)—
The term “communications services” means—
local telephone service;
toll telephone service; and
teletypewriter exchange service.
The term “applicable percentage” means 3 percent.
For purposes of subsections (a) and (b), in the case of communications services rendered before November 1 of a calendar year for which a bill has not been rendered before the close of such year, a bill shall be treated as having been first rendered on December 31 of such year.
For purposes of this subchapter, in the case of communications services acquired by means of a prepaid telephone card—
the face amount of such card shall be treated as the amount paid for such communications services, and
that amount shall be treated as paid when the card is transferred by any telecommunications carrier to any person who is not such a carrier.
In the case of any prepaid telephone card which entitles the user other than to a specified dollar amount of use, the face amount shall be determined under regulations prescribed by the Secretary.
For purposes of this subsection, the term “prepaid telephone card” means any card or any other similar arrangement which permits its holder to obtain communications services and pay for such services in advance.
Treasury Regulations
-
Treas. Reg. §49.4251-1Imposition of tax
(a) In general. Section 4251 imposes a tax on amounts paid for general telephone service; toll telephone service; telegraph service; teletypewriter exchange service; wire mileage service; and wire and equipment service. See § 49.4251-2 for rate and application of tax.
(b) Termination of tax on general telephone service. (1) Except as otherwise provided in subparagraph (2) of this paragraph, no tax is imposed on amounts paid on or after July 1, 1965, for general telephone service rendered on or after such date.
(2) In the case of amounts paid pursuant to bills rendered on or after July 1, 1965, for general telephone service for which no previous bill was rendered, no tax is imposed on that portion of the amount paid pursuant to such bill or bills as is attributable to general telephone service rendered subsequent to April 30, 1965. However, the tax applies to that portion of the amount paid pursuant to any such bill or bills as is attributable to general telephone service rendered prior to May 1, 1965. The tax also applies to amounts paid for general telephone service pursuant to bills rendered before July 1, 1965, without regard to when the payment is made or the service is rendered.
-
Treas. Reg. §49.4251-1(a)In general.
In general. Section 4251 imposes a tax on amounts paid for general telephone service; toll telephone service; telegraph service; teletypewriter exchange service; wire mileage service; and wire and equipment service. See § 49.4251-2 for rate and application of tax.
-
Treas. Reg. §49.4251-1(b)Termination of tax on general telephone service.
Termination of tax on general telephone service. (1) Except as otherwise provided in subparagraph (2) of this paragraph, no tax is imposed on amounts paid on or after July 1, 1965, for general telephone service rendered on or after such date.
(2) In the case of amounts paid pursuant to bills rendered on or after July 1, 1965, for general telephone service for which no previous bill was rendered, no tax is imposed on that portion of the amount paid pursuant to such bill or bills as is attributable to general telephone service rendered subsequent to April 30, 1965. However, the tax applies to that portion of the amount paid pursuant to any such bill or bills as is attributable to general telephone service rendered prior to May 1, 1965. The tax also applies to amounts paid for general telephone service pursuant to bills rendered before July 1, 1965, without regard to when the payment is made or the service is rendered.
-
Treas. Reg. §49.4251-2Rate and application of tax
(a) Rate of tax. Tax is imposed on amounts paid for each of the following services rendered at the rate specified below:
(b) Amounts paid. The term “amounts paid” means the amounts collected for the communication services specified in paragraph (a) of this section, without regard to whether the charge therefor is paid or satisfied in money, service, or other valuable consideration. For additional provisions relating to the term “amounts paid” see the section of the regulations relating to the particular taxable service listed in paragraph (a) of this section.
(c) Liability for, and return of, tax. The taxes imposed by section 4251 are payable by the person paying for the services rendered, and must be paid to the person rendering the services who is required to collect the tax and return and pay over the tax.
-
Treas. Reg. §49.4251-2(a)Rate of tax.
Rate of tax. Tax is imposed on amounts paid for each of the following services rendered at the rate specified below:
-
Treas. Reg. §49.4251-2(b)Amounts paid.
Amounts paid. The term “amounts paid” means the amounts collected for the communication services specified in paragraph (a) of this section, without regard to whether the charge therefor is paid or satisfied in money, service, or other valuable consideration. For additional provisions relating to the term “amounts paid” see the section of the regulations relating to the particular taxable service listed in paragraph (a) of this section.
-
Treas. Reg. §49.4251-2(c)Liability for, and return of, tax.
Liability for, and return of, tax. The taxes imposed by section 4251 are payable by the person paying for the services rendered, and must be paid to the person rendering the services who is required to collect the tax and return and pay over the tax.
-
Treas. Reg. §49.4251-4Prepaid telephone cards
(a) In general. In the case of communications services acquired by means of a prepaid telephone card (PTC), the face amount of the PTC is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred by any carrier to any person that is not a carrier. This section provides rules for the application of the section 4251 tax to PTCs.
(b) Definitions. The following definitions apply to this section:
Carrier means a telecommunications carrier as defined in 47 U.S.C. 153.
Comparable PTC means a currently available dollar card or tariffed unit card (other than a PTC transferred in bulk or under special circumstances, such as for promotional purposes) that provides the same type and amount of communications services as the PTC to which it is being compared.
Dollar card means a PTC the value of which is designated by the carrier in dollars (even if also designated in units of service), provided that the designated value is not less than the amount for which the PTC is expected to be sold to a holder.
Holder means a person that purchases other than for resale.
Prepaid telephone card (PTC) means a card or similar arrangement that permits its holder to obtain a fixed amount of communications services by means of a code (such as a personal identification number (PIN)) or other access device provided by the carrier and to pay for those services in advance.
Tariff means a schedule of rates and regulations filed by a carrier with the Federal Communications Commission.
Tariffed unit card means a unit card that is transferred by a carrier—
(1) To a holder at a price that does not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit; or
(2) To a transferee reseller subject to a contractual or other arrangement under which the price at which the PTC is sold to a holder will not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit.
Transferee means the first person that is not a carrier to whom a PTC is transferred by a carrier.
Transferee reseller means a transferee that purchases a PTC for resale.
Unit card means a PTC other than a dollar card.
Untariffed unit card means a unit card other than a tariffed unit card.
(c) Determination of face amount—(1) Dollar card. The face amount of a dollar card is the designated dollar value.
(2) Tariffed unit card. The face amount of a tariffed unit card is the designated number of units on the PTC multiplied by the tariffed price per unit.
(3) Untariffed unit card—(i) Transfer to holder. The face amount of an untariffed unit card transferred by a carrier to a holder is the amount for which the carrier sells the PTC to the holder.
(ii) Transfer to transferee reseller—(A) In general. The face amount of an untariffed unit card transferred by a carrier to a transferee reseller is at the option of the carrier—
(1) The highest amount for which the carrier sells a PTC that provides the same type and amount of communications services to a holder that ordinarily would not be expected to buy more than one such PTC at a time (if the carrier makes such sales on a regular and arm's-length basis) or the face amount of a comparable PTC (if the carrier does not make such sales on a regular and arm's-length basis);
(2) 135 percent of the amount for which the carrier sells the PTC to the transferee reseller (including in that amount, in addition to any sum certain fixed at the time of the sale, any contingent amount per unit multiplied by the designated number of units on the PTC); or
(3) If the PTC is of a type that ordinarily is used entirely for domestic communications service, the maximum number of minutes of domestic communications service on the PTC multiplied by the applicable rate.
(B) Applicable rate. The applicable rate under paragraph (c)(3)(ii)(A)(3) of this section with respect to a PTC is $0.30 reduced (but not below $0.20) by $0.01 for each full 20 minutes by which the maximum number of minutes of domestic communications service on the PTC exceeds 40 minutes.
(C) Sales not at arm's length. In the case of a transfer of an untariffed unit card by a carrier to a transferee reseller otherwise than through an arm's-length transaction, the fair market retail value of the PTC shall be substituted for the amount determined in paragraph (c)(3)(ii)(A)(2) of this section.
(4) Exclusion. The amount of any state or local tax imposed on the furnishing or sale of communications services that is separately stated in the bill or on the face of the PTC and the amount of any section 4251 tax separately stated in the bill or on the face of the PTC are disregarded in determining, for purposes of this paragraph (c), the amount for which a PTC is sold.
(d) Liability for tax—(1) In general. Under section 4251(d), the section 4251(a) tax is imposed on the transfer of a PTC by a carrier to a transferee. The person liable for the tax is the transferee. Except as provided in paragraph (d)(2) of this section, the person responsible for collecting the tax is the carrier transferring the PTC to the transferee. If a holder purchases a PTC from a transferee reseller, the amount the holder pays for the PTC is not treated as an amount paid for communications services and thus tax is not imposed on that payment.
(2) Effect of statement that purchaser is a carrier—(i) On transferor. A carrier that transfers a PTC to a purchaser is not responsible for collecting the tax if, at the time of transfer, the transferor carrier has received written notification from the purchaser that the purchaser is a carrier, and the transferor has no reason to believe otherwise. The notification to be provided by the purchaser is a statement, signed under penalties of perjury by a person with authority to bind the purchaser, that the purchaser is a carrier (as defined in paragraph (b) of this section). The statement is not required to take any particular form.
(ii) On purchaser. If a purchaser that is not a carrier provides the notification described in paragraph (d)(2)(i) of this section to the carrier that transfers a PTC, the purchaser remains liable for the tax imposed on the transfer of the PTC.
(3) Exemptions. Any exemptions available under section 4253 apply to the transfer of a PTC from a carrier to a holder. Section 4253 does not apply to the transfer of a PTC from a carrier to a transferee reseller.
(e) Examples. The following examples illustrate the provisions of this section:
(f) Effective date. This section is applicable with respect to PTCs transferred by a carrier on or after the first day of the first calendar quarter beginning after January 7, 2000.
-
Treas. Reg. §49.4251-4(a)In general.
In general. In the case of communications services acquired by means of a prepaid telephone card (PTC), the face amount of the PTC is treated as an amount paid for communications services and that amount is treated as paid when the PTC is transferred by any carrier to any person that is not a carrier. This section provides rules for the application of the section 4251 tax to PTCs.
-
Treas. Reg. §49.4251-4(b)Definitions.
Definitions. The following definitions apply to this section:
Carrier means a telecommunications carrier as defined in 47 U.S.C. 153.
Comparable PTC means a currently available dollar card or tariffed unit card (other than a PTC transferred in bulk or under special circumstances, such as for promotional purposes) that provides the same type and amount of communications services as the PTC to which it is being compared.
Dollar card means a PTC the value of which is designated by the carrier in dollars (even if also designated in units of service), provided that the designated value is not less than the amount for which the PTC is expected to be sold to a holder.
Holder means a person that purchases other than for resale.
Prepaid telephone card (PTC) means a card or similar arrangement that permits its holder to obtain a fixed amount of communications services by means of a code (such as a personal identification number (PIN)) or other access device provided by the carrier and to pay for those services in advance.
Tariff means a schedule of rates and regulations filed by a carrier with the Federal Communications Commission.
Tariffed unit card means a unit card that is transferred by a carrier—
(1) To a holder at a price that does not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit; or
(2) To a transferee reseller subject to a contractual or other arrangement under which the price at which the PTC is sold to a holder will not exceed the designated number of units on the PTC multiplied by the carrier's tariffed price per unit.
Transferee means the first person that is not a carrier to whom a PTC is transferred by a carrier.
Transferee reseller means a transferee that purchases a PTC for resale.
Unit card means a PTC other than a dollar card.
Untariffed unit card means a unit card other than a tariffed unit card.
-
Treas. Reg. §49.4251-4(c)Determination of face amount—(1) Dollar card.
Determination of face amount—(1) Dollar card. The face amount of a dollar card is the designated dollar value.
(2) Tariffed unit card. The face amount of a tariffed unit card is the designated number of units on the PTC multiplied by the tariffed price per unit.
(3) Untariffed unit card—(i) Transfer to holder. The face amount of an untariffed unit card transferred by a carrier to a holder is the amount for which the carrier sells the PTC to the holder.
(ii) Transfer to transferee reseller—(A) In general. The face amount of an untariffed unit card transferred by a carrier to a transferee reseller is at the option of the carrier—
(1) The highest amount for which the carrier sells a PTC that provides the same type and amount of communications services to a holder that ordinarily would not be expected to buy more than one such PTC at a time (if the carrier makes such sales on a regular and arm's-length basis) or the face amount of a comparable PTC (if the carrier does not make such sales on a regular and arm's-length basis);
(2) 135 percent of the amount for which the carrier sells the PTC to the transferee reseller (including in that amount, in addition to any sum certain fixed at the time of the sale, any contingent amount per unit multiplied by the designated number of units on the PTC); or
(3) If the PTC is of a type that ordinarily is used entirely for domestic communications service, the maximum number of minutes of domestic communications service on the PTC multiplied by the applicable rate.
(B) Applicable rate. The applicable rate under paragraph (c)(3)(ii)(A)(3) of this section with respect to a PTC is $0.30 reduced (but not below $0.20) by $0.01 for each full 20 minutes by which the maximum number of minutes of domestic communications service on the PTC exceeds 40 minutes.
(C) Sales not at arm's length. In the case of a transfer of an untariffed unit card by a carrier to a transferee reseller otherwise than through an arm's-length transaction, the fair market retail value of the PTC shall be substituted for the amount determined in paragraph (c)(3)(ii)(A)(2) of this section.
(4) Exclusion. The amount of any state or local tax imposed on the furnishing or sale of communications services that is separately stated in the bill or on the face of the PTC and the amount of any section 4251 tax separately stated in the bill or on the face of the PTC are disregarded in determining, for purposes of this paragraph (c), the amount for which a PTC is sold.
-
Treas. Reg. §49.4251-4(d)Liability for tax—(1) In general.
Liability for tax—(1) In general. Under section 4251(d), the section 4251(a) tax is imposed on the transfer of a PTC by a carrier to a transferee. The person liable for the tax is the transferee. Except as provided in paragraph (d)(2) of this section, the person responsible for collecting the tax is the carrier transferring the PTC to the transferee. If a holder purchases a PTC from a transferee reseller, the amount the holder pays for the PTC is not treated as an amount paid for communications services and thus tax is not imposed on that payment.
(2) Effect of statement that purchaser is a carrier—(i) On transferor. A carrier that transfers a PTC to a purchaser is not responsible for collecting the tax if, at the time of transfer, the transferor carrier has received written notification from the purchaser that the purchaser is a carrier, and the transferor has no reason to believe otherwise. The notification to be provided by the purchaser is a statement, signed under penalties of perjury by a person with authority to bind the purchaser, that the purchaser is a carrier (as defined in paragraph (b) of this section). The statement is not required to take any particular form.
(ii) On purchaser. If a purchaser that is not a carrier provides the notification described in paragraph (d)(2)(i) of this section to the carrier that transfers a PTC, the purchaser remains liable for the tax imposed on the transfer of the PTC.
(3) Exemptions. Any exemptions available under section 4253 apply to the transfer of a PTC from a carrier to a holder. Section 4253 does not apply to the transfer of a PTC from a carrier to a transferee reseller.
-
Treas. Reg. §49.4251-4(e)Examples.
Examples. The following examples illustrate the provisions of this section:
-
Treas. Reg. §49.4251-4(f)Effective date.
Effective date. This section is applicable with respect to PTCs transferred by a carrier on or after the first day of the first calendar quarter beginning after January 7, 2000.
9 Citing Cases
In connection with that bankruptcy, an affiliate of taxpayer 3 pursued refund claims for overpaid section 4251 excise taxes.
Section 4251 imposes an excise tax on "communication services". After certain Federal courts held that the excise tax was invalid with respect to certain communication services, see Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 374 (D.C. Cir. 2005); OfficeMax, Inc. v. United States, 428 F.3d 583 (6th Cir. 2005); Am. Bankers Ins. Grp. v. Uni
Section 4251 imposes an excise tax on "communications services", and in 200 6 the Government conceded the non-taxability of most long-distanc e telephone service and undertook to refund the tax to 160 million taxpayers . See Notice 2006-50, 2006-l C .B . 1141 . The means chosen for making the telephone excise tax refund (TETR) was the - 12- income