Blog Post

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.

16 Responses to “When the Cell Phone Is the Office Phone, Taxing It Is Wrong”

  1. Thanks to new technologies, that carry although voice over 100% IP networks
    wirelessly, and only pay one flat fee, I would surmise. would require no tax
    because it’s not using the voice side of the network

  2. Phone calls must be free of tax!
    Over are the days when job and personal life are strictly separated.

    With the technology and new “movement” of work from home / work at home
    Phone calls are no longer can be track and say this one is for business and this one is for personal.

    The IRS know that too! that is why they trying to force that law.
    It’s their last chance to steal money from your pocket before they loose the battle.

  3. So what’s next! Will the IRS require employers to pay for/report all those work related phone calls and email/data exchanges that employees perform after work hours, form their company phones! (because in its present form, the law would entirely impact employees, for no fault of theirs; i.e. in most cases)!

    Fact is with calling plans that are popular with business users today, offer unlimited or very large # of minutes/data. Hence the employer pays a fixed amount, regardless of the employees usage. The real cost to employers is from the work-time spent by employees on personal communications. However, there are far more effective and efficient ways to address what is really a business productivity issue, than the IRS levying and enforcing a new tax for it!

  4. Increasing taxes on cell phones raises the cost of doing business yet again. This is yet one more tax that is going to decrease company’s profitability (albeit not a huge amount) and make it harder to recapitalize.

    Further, the WSJ reported earlier this week that companies have been choosing pay cuts and furloughs instead of layoffs. This could be another hurdle in the way of increasing employee pay back to a pre-recessionary state.

    • clarkbill

      Bryce, your first two sentences don’t make much sense in the context of this article. The taxes are on personal calls on company cell phones. The employee would be paying taxes, not the business, so I fail to see how this would affect the cost of doing business. The only cost this increases is the cost to the employee–you and me. If I had to pay for a personal phone and carry my company phone, I’m spending money I’d otherwise not have to. If I’m paying taxes on personal calls on my company cell phone, I’m spending money, and wasting my time tracking these calls and reporting them on my taxes. Either way, the IRS wants to screw Joe Citizen out of more money any way they can to pay for automotive industry and financial sector bailouts.

      It’s an old law based on a way of life that no longer exists. Cell phones, whether the telecom industry wants to admit it or not, have become a commodity in the United States. As stated in the post above, cell phones are no longer a “perk” or status symbol for the corporate elite. They’re an everyday part of life in nearly every line of business. The law needs to be changed to reflect changes in the way business is conducted, which itself was changed by the very existence of mobile phones (and mobile computers, but that’s a whole different story for a different day–but I’ll bet they’ll find a way to tax us more on those too).