Form 720 – Communication Excise Tax

Communication Tax

The federal telephone excise tax is a statutory federal excise tax imposed under the Internal Revenue Code in the United States on the amount paid for certain communication services. The telephone company collects it from their service users or customers with their bills or service charges. It pays the taxes through the quarterly federal excise tax form 720 every quarter, which is forwarded to the IRS. A 3% of total revenue is charged as communication excise taxes from the telephone companies/services and teletypewriter exchange services.

Local Telephone Service

The local telephone service includes access to a local telephone system and the privilege of telephonic quality communication with most people who are part of the system. This local telephone service also consists of any facilities or services provided with this service. The form 720 excise tax applies to lease payments for certain customer premises equipment (CPE) even though the lessor doesn't give access to a local telecommunications system.

Local – Only Service

The local-only service is the same as the local telephone service but not without any plans for long-distance telephone service or 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.

Private Communication Service

Private communication services are different from local telephone services. Private communication service includes accessory-type services provided in connection with a Centrex, PBX, or other similar systems 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.

Teletypewriter Exchange Service

The teletypewriter exchange service 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.

Form 720 federal excise tax is imposed 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 form 720 excise 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 separately stated on the taxpayer's bill.

Uncollected Tax Report

A separate report must be filed by collecting agents of communications services taxes. If the person from whom the facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax or the collecting agent can't collect the tax. The report must contain the name and address of the taxpayer, the type of facility provided or service rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid.

Regular Method Taxpayers

Regular method taxpayers should report and pay their federal excise taxes using the form 720 within the due date for every quarter.

Alternative Method Taxpayers

Alternate method taxpayers should report and pay their federal excise taxes using the form 720 by the due date for every quarter that, includes an adjustment to the separate account for the uncollected tax.

Communication Excise Tax Refund Requests by Exempt Organizations

The following organizations are exempted from Form 720 communication excise taxes,

• Non-profit hospitals for services furnished to such organizations.
• Non-profit educational organizations for services furnished to such organizations.
• State and local governments and their instrumentalities.

If any form 720 excise taxes are paid by the organizations mentioned above, they can claim refunds from the IRS using the tax refund claims form 8849 with the appropriate schedule form.

Non-profit Hospitals

A non-profit hospital means a hospital referred to in section 170(b)(1)(A)(iii) of the Internal Revenue Code, which is exempt from income tax under section 501(a). Non-profit hospitals are exempt from form 720 federal excise taxes.

Non-profit Educational Organizations

A non-profit educational organization satisfies all of the following requirements,

• It normally maintains a regular faculty and curriculum.
• It normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on.
• It is exempt from tax under section 501(a).

A school operated by a section 501(c)(3) exempt organization that meets the above requirements is a non-profit educational organization. They are not liable for the quarterly form 720 federal excise taxes.

For any of these exemptions to apply, the purchase of the services or facilities must be for the use of the exempt payer. Thus, for example, a college's purchasing communications services for students residing in dormitories would not be exempt.

Qualified blood Collector Organizations

The form 720 federal excise tax does not apply to telephone services furnished to qualified blood collector organizations for their use. A qualified blood collector organization is,

• As 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.

Federal, State, and Local Government

The form 720 excise 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. You should treat an Indian tribal government as a state for the exemption from the form 720 communications excise tax only if the services involve the exercise of an essential tribal government function.

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