The federal excise tax was set up to pay for the Spanish-American War

Verizon Communications Inc. has stopped collecting a 108-year-old U.S. telephone excise tax, after the U.S. Internal Revenue Service decided in May to stop fighting to keep the tax.

Verizon today stopped collecting the 3% federal excise tax on long-distance wireline telephone services used by businesses and consumers. It had stopped collecting the tax on wireless services June 1.

U.S. telephone customers will be able to receive a refund or credit on federal excise taxes paid over the past three years on their 2006 federal tax returns. The details of the refund are being worked out.

Large telecom carriers and some U.S. lawmakers have targeted the federal excise tax for several months. In May 2005, the U.S. Court of Appeals for the 11th Circuit ruled that long-distance telephone services are not subject to the excise tax, which Congress approved in 1898 as a way to help pay for the Spanish-American War. At the time it was a luxury tax on wealthy U.S. residents who owned telephones.