When the Cell Phone Is the Office Phone, Taxing It Is Wrong

[qi:gigaom_icon_mobile] The IRS wants to enforce rules that require employees to pay taxes on personal calls made on their company-supplied cell phones, according to a story in today’s Wall Street Journal. The issues stems from a 1989 law that says employees are supposed to count personal calls on company phones as income and pay taxes on them. The IRS regards company cell phones as a benefit that could be counted as part of an employee’s taxable income, rather than a necessary tool for work. Like any taxation debate, the issue is confusing, but the bottom line is that figuring out which calls are work-related and which calls are personal would take more time and money than employers want to spend.

That’s because thanks to Facebook, Twitter, cell phones, presence awareness and a host of other technology tools, we no longer conduct business solely on business equipment during standard office hours; we conduct business everywhere, all the time. This makes cell phones a necessary tool for many employees 24/7 (we can debate the merits of that later). For example, I have a cell phone that GigaOM reimburses me for, on which I make all my calls. The company benefits because having that one phone means I check my email on weekends and accept many phone calls from sources well into the evening.

Cell phones are no longer the status symbols of the privileged few who work in international finance or software sales. Fixed-to-mobile convergence, which involves companies issuing cell phones to employees in lieu of actual desktop phones, means my aforementioned habits are becoming more common. But when the employee’s only phone becomes a mobile phone, it essentially renders the entire IRS argument of the mobile phone as a fringe benefit moot, since no one expects an employee to work without a phone. There’s no corresponding rule that taxes personal calls made on a company landline.

What happens once unified communications products using VoIP become popular and the entire need for a phone changes? At that point communication no longer revolves around voice calls (this is already the case in many offices), but all types of online interactions and collaboration. So will we face tax questions tied to work-provided mobile or wired broadband connections that may be used for personal IMs or Skype calls? Will we tax personal use of office bandwidth? Today, mobile phones are just another necessary business communications tool, and the IRS should treat them as such.