Understanding the Local Telephone and Teletypewriter Excise Tax

• The Local Telephone and Teletypewriter Excise Tax is IRS No. 22 on Form 720.
• It dates back to 1965 - one of the oldest taxes still on the books.
• Long-distance got dropped in 2006. Local service didn't.
• "Teletypewriter" sounds outdated because it is the name that has never changed.
• Local providers still report this one quarterly.

Not every line on Form 720 gets much attention, and the Local Telephone and Teletypewriter Excise Tax is a good example of one that quietly sits there year after year. It's filed under IRS No. 22, grouped with Communications and Air Transportation Taxes, and most businesses encountering it today are telecom-adjacent providers rather than the general public.

The tax itself is a 3% federal excise tax under IRC Section 4251, originally applied to local telephone service, teletypewriter exchange service, and toll (long-distance) telephone service. What's changed over the decades is which of those three pieces the IRS still actually collects on.

ALSO CHECK - What is a Federal Excise Tax?

What Actually Counts as Taxable Service

“Local telephone service” in Section 4252 includes access to a local telephone system and the right to communicate using the telephone system within that local network, which in most cases would be a landline phone system, a service that existed long before most of the internet as we know it was even created. Teletypewriter exchange service is a much older category, the ability to access a TT ESS (teletypewriter exchange system), which had begun to disappear by the time most readers of this article were born.

Neither term has been updated to reflect how communication actually works today, which is part of why this tax confuses people who run into it. VoIP, mobile data, and bundled internet-phone packages don't map neatly onto definitions written decades before any of them existed.

A Bit of History That Actually Matters Here

This tax dates back to 1965, and in the majority of its existence it featured a single 3% charge on local, long-distance, and teletypewriter service. But that all changed when a series of federal court rulings in the mid-2000s, such as the Fortis, Inc. vs. United States decision and others, ruled that the IRS's approach to taxing long-distance service no longer aligned with the way phone companies billed customers for the service.

Rather than keep fighting it case by case, the IRS issued Notice 2006-50 in 2006 and stopped collecting the tax on long-distance and bundled service altogether. Local telephone service wasn't part of that ruling, though, and technically remains taxable under the same statute. In practice, this means the tax has narrowed dramatically in scope without actually being repealed.

Who Ends Up Reporting This on Form 720

Providers offering taxable local telephone service, largely traditional landline carriers at this point are the ones filing under IRS No. 22. A few things worth knowing:

• The 3% rate applies to amounts billed for taxable local service
• Teletypewriter exchange service, where it technically still exists, follows the same rate
• Bundled packages that mix local service with internet or long-distance need to isolate the taxable local portion, not the whole bill

Given how much of this technology has been replaced by other systems, most modern providers won't encounter this tax at all but for those still billing traditional local phone access, it hasn't gone away.

Filing It Correctly on Form 720

Reporting this tax follows the same quarterly rhythm as every other Form 720 category. A few points specific to this one:

• Report only the local service portion under IRS No. 22, separate from anything already exempted under the 2006 change
• Keep billing records that clearly separate local, long-distance, and bundled charges, since the burden of proof on what's taxable sits with the filer
• File by the standard quarterly deadlines - April 30, July 31, October 31, and January 31

Where This Gets Misreported

Taxing the whole bill instead of the local portion - Bundled service plans make this an easy mistake since only the local telephone service piece is taxable, not internet or long-distance charges included in the same invoice.

Assuming the tax was fully repealed - The 2006 change ended collection on long-distance and bundled service, not on local service specifically, and providers sometimes conflate the two.

Misclassifying modern services under an old category - Not every digital or VoIP offering fits cleanly into "local telephone service" as legally defined, and forcing it in either direction taxing something exempt or missing something taxable causes filing errors either way.

Final Thought

The Local Telephone and Teletypewriter Excise Tax is proof that old tax law doesn't disappear just because the technology it was written for did. It's narrower than it used to be, filed by a shrinking pool of providers, but still very much active for anyone billing taxable local telephone service.

For providers still navigating IRS No. 22 alongside other Form 720 categories, eFile720 handles the quarterly filing so legacy tax categories like this one don't get lost in the paperwork. Visit efile720.com to keep every category, old and new, filed correctly.

FAQs

1. Is the Local Telephone and Teletypewriter Excise Tax still active today?

Yes, for local telephone service specifically. Long-distance and bundled service were removed from collection in 2006, but local service remains taxable under the same statute.

2. What rate applies to this excise tax?

3%, applied to amounts billed for taxable local telephone service under IRC Section 4251.

3. Does this tax apply to VoIP or modern internet-based phone services?

It depends on how the service is structured and billed. Many modern services don't fit the legal definition of "local telephone service," but classification should be checked case by case rather than assumed.