Compliance · Communications

By File720Online Editorial Team · April 17, 2026

Communications Excise Tax: What Businesses Need to Know

The 3% federal communications excise tax is one of the oldest excise taxes in the U.S. Tax code. Communications service providers must collect it from customers and remit it quarterly via Form 720. Here is what qualifies, what doesn't, and how to file.

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Quick Answer

The 3% communications excise tax applies to local telephone service and teletypewriter exchange service. It does not apply to long-distance or cell phone plans in most cases (those were excluded by IRS action in 2006). Service providers collect the tax and remit it on Form 720 quarterly.

What Communications Services Are Taxable?

The IRS distinguishes between taxable and nontaxable communications services:

Generally Taxable (3% applies)

✗ Local telephone service (flat-rate or measured)
✗ Teletypewriter exchange service
✗ Telephone access lines
✗ Certain prepaid telephone cards (local calling)

Generally Not Taxable

✓ Long-distance telephone service (excluded since 2006)
✓ Standard cell phone plans
✓ VoIP services (in most cases)
✓ Internet access services
✓ Data transmission services

History of the Communications Excise Tax

The federal telephone excise tax was first enacted in 1898 to fund the Spanish-American War. It has been modified numerous times over the past century. Originally it applied to all telephone service. In 2006, following multiple court decisions finding the tax inapplicable to modern long-distance plans, the IRS announced it would no longer collect the tax on long-distance and international telephone service.

The tax continues to apply to local telephone service — the category that most closely matches the original 1898 statutory language. Congress has not formally repealed the tax, so it remains in effect for qualifying local service providers.

How to Report Communications Taxes on Form 720

Communications taxes are reported on Schedule I, Part II of Form 720. For each quarter, you report the total taxable amount billed to customers for local telephone service and calculate 3% of that amount.

Maintain detailed billing records that distinguish taxable from nontaxable communications services. The IRS may request documentation of how taxable amounts were calculated during an audit.

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Frequently Asked Questions

What is the federal communications excise tax?

The federal communications excise tax is a 3% tax on the amount paid for certain communications services. It is one of the oldest federal excise taxes, dating back to 1898. The tax applies to local telephone service and teletypewriter exchange service. It is collected by the communications service provider and remitted quarterly on Form 720.

Does the communications excise tax apply to cell phones and VoIP?

The tax does not apply to standard cell phone plans or VoIP services in most cases. In 2006, the IRS stopped collecting the 3% tax on long-distance and international telephone service following court decisions. The tax now applies primarily to local telephone service — flat-rate or measured-rate services that allow calls within a local area. Whether a specific service qualifies depends on the service structure and billing arrangement.

Who must collect and remit the communications excise tax?

The communications service provider (telephone company, VoIP provider, or other communications service) collects the tax from customers as part of the service bill. The provider then remits the collected tax to the IRS quarterly on Form 720. The customer is technically the taxpayer, but the provider acts as the tax collector.

Are prepaid calling cards subject to the communications excise tax?

Prepaid telephone cards and prepaid wireless services have different tax treatment. The IRS has issued guidance on how to handle prepaid communications services. The tax is generally imposed on the face value of prepaid cards when sold. Consult IRS Publication 510 and IRS Notice 2006-50 for current guidance on prepaid communications taxation.

Where is the communications excise tax reported on Form 720?

The communications excise tax is reported on Schedule I, Part II of Form 720. You enter the total taxable amount of communications services billed during the quarter and calculate 3% of that amount. Like other Form 720 taxes, it is filed quarterly with deadlines of April 30, July 31, October 31, and January 31.

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Disclaimer: The information provided in this article is for general informational purposes only and should not be relied upon as legal, tax, or professional advice. Tax laws and regulations are subject to change, and their application can vary based on individual circumstances. Consult a qualified tax professional or attorney for advice specific to your situation. File720Online is an IRS-authorized e-file provider and does not provide legal or tax advice.