Communications provider not allowed refund for excise taxes collected
Court of Federal Claims denies collector of tax as eligible for refund
TAX ALERT |
On Feb. 29, 2016, the United States Court of Federal Claims determined that a communications provider was not entitled to a refund of more than $1 million of excise taxes it collected and remitted to the IRS in 8x8, Inc. v. United States, No.13-478T (Fed. Cl. February 29, 2016).
The federal communications excise tax (FCET) is assessed on certain types of communications services, including “toll” telephone services, pursuant to section 4251. Telephone service, and the process for charging for this service, has changed drastically since the inception of the FCET. However, not until 2006 did the IRS modify its procedures for collecting the tax. Originally, the tax applied to all toll calls, which were defined as telephone communication that was charged based on the distance and duration of the calls. However, as telephone services became bundled (local and long distance service for a flat rate) or through the use of voice over internet protocol (VoIP), the toll definition no longer applied, but the IRS continued to tax it as such. After much litigation the IRS acknowledged that communications that do not meet the toll call definition should not be subject to the FCET.
In 2006, the IRS released Notice 2006-50 setting forth procedures for taxpayers to use to obtain refunds of the FCET that should not have been subject to the tax during the previous three years. It is pursuant to this Notice that 8x8, Inc., alleges it is allowed a credit.
8x8, Inc., a provider of VoIP services, filed a refund suit in the Court of Federal Claims after being denied a refund of FCET through amended returns. 8x8 provides VoIP services to its client for a monthly contract price. In addition to the contract price, 8x8 passes through various charges such as sales, use, and excise taxes, which are to be paid exclusively by the end user. It is then 8x8’s responsibility to remit the excise taxes it collected from the end user to the IRS.
Under section 6415(a) collectors of taxes are allowed credits or refunds only if they repay the tax to the customer or if he has received consent from the customer to claim the refund. Although 8x8 alleges that it “bore the legal incidence of the tax” as a transferee seller and as such is entitled to a refund under Notice 2006-50, the court relies on a plain reading of section 6415(a). In doing so, the court determines that unless 8x8 can establish that the tax has been returned to their customers or that they have their customers consent to claim the refund, the refund cannot be allowed.
Both the IRS and 8x8 stipulated to the facts of the case and filed for summary judgment, alleging that there is no genuine issue of material fact in the case. 8x8 does not dispute that it did not return the tax to the customer. As a matter of law the court denied 8x8’s motion for summary judgment and granted the IRS’s cross motion, finding that 8x8 is not entitled to a refund under these facts.
There are many opportunities to claim refunds for the overpayment of excise taxes or for certain excise tax credits, however, there are often strict requirements that must be met in order to be eligible to file refund claims. This is a confusing area of tax law and often the filing requirements are in a different section of the Internal Revenue Code and there is no cross reference to point the way. Accordingly, it is important to consult with an experienced excise tax specialist before trying to take advantage of refund opportunities.