When my daughter first got her driver’s license in the early 1990s there were a few things I insisted upon. Besides the obvious rules about wearing her seat belt and obeying speed limits, I told her she had to keep a mobile phone in her car at all times. She thought I was crazy.
This was no small thing in more ways than one. The phone itself came in a case the size of a loaf of bread, and the battery was as big as a two-pound block of cheese. She laughed and threw it in the back seat, and rarely used it. There was no one to call, because no one else in her circle of friends had a mobile phone.
But I learned from my own experience that having a cell phone could make a huge, even life-saving difference in an emergency. Because I was working as a reporter at that time and was on the go constantly, I seized on the technology when it became possible to hard-wire a phone in your car, just like a home phone.
Invariably, late one night, my car broke down on a treacherous overpass on I-95 outside of Baltimore. Without the phone I would have had to walk along the road in the dark for more than a mile, and it had virtually no shoulder. Instead I stayed put and called a tow truck.
The experience seems almost quaint now. Today, there are more than 203 million cell phones in the United States. Americans talk an average of 13 hours a month, and 18-to 24-year-olds average 22 hours. The average U.S. wireless household now texts 357 times a month, and has just 204 phone conversations, according to Fuor Digital, a digital media company in Chicago.
In fact, more and more households are going without traditional landline telephones in their homes. Among 18- to 29-year-olds, one in three has no “home phone,” according to The Economist magazine. And these trends are likely to continue, as phones become more sophisticated and include such things as GPS and Internet service.
As for businesses, they are expected to spend an estimated $59 billion on cellular voice service for employees in 2009, according to research by In-Stat, a digital technology research company in Scottsdale, Ariz.
While the technology has advanced rapidly, one thing hasn’t — the Internal Revenue Service’s view and tax treatment of mobile devices.
Back in 1989, Congress amended the tax code to make mobile phones a “listed item” like cars and computers. That meant making a personal call on a business cell phone was considered a taxable “fringe benefit.” Businesses were required to painstakingly detail business and personal minutes and employees were required to pay taxes on the latter.
As cell phone usage grew, the paperwork became so burdensome that many businesses, especially small firms, ignored the rule. Today about 40 percent of employees on average use a company cell phone to make personal calls, according to an In-Stat survey.
Needless to say, such personal use has become a favorite target of IRS auditors, and businesses often end up with a hefty bill for back taxes and penalties in an audit. But the rule today is as outdated as those bulky mobile phones.
“Put simply, the intent of Congress to limit a lucrative fringe benefit given to high-flying executives is painfully out of date. No one today views iPhones, Blackberries, or other personal electronic devices as ‘luxuries,’” according to Grover G. Norquist, who heads Americans for Tax Reform, a non-profit advocacy group.
House Small Business Committee Chairman Nydia M. Velazquez agrees. “The administrative expense incurred by employers and employees in tracking this ‘income,’ coupled with the time, money, and resources the IRS must devote to auditing employees greatly outweighs the revenue impact to the Treasury in this regard,” she said in a recent letter to the IRS.
Last year, Congress acknowledged as much when legislation was introduced to remove cell phones as listed property, in essence freeing businesses to deduct the cost of providing employees with phones without having to track personal calls.
The legislation failed to pass in 2008 and has been reintroduced this year in both chambers with Velazquez one of many co-sponsors of the House bill. Meanwhile, the IRS has been moving ahead with plans to simplify the tax rule.
In June the agency issued a notice requesting comments from the public regarding three simplification proposals. Ironically, the Obama Administration announced the same week that it was throwing its full support behind legislation to remove the tax consequences for the personal use of employer cell phones by employees.
IRS Commissioner Douglas Shulman said that he and Treasury Secretary Timothy Geithner have both urged Congress to pass the phone legislation “to make clear that there will be no tax consequence to employers or employees.”
In light of the president’s position, Shulman’s remarks suggest that the IRS may stop audits of cell phone use in anticipation of congressional action. But IRS officials have not made any public statements to that effect. To the contrary, they are moving ahead with their new tax treatment proposals.
Congress should pass this legislation and get it to the president’s desk immediately. In today’s challenging economy, every little bit helps, and this bill would have the added benefit of bring the nation’s tax code one step closer to the 21st century.
As I learned long ago, a mobile phone is an invaluable device that can dramatically increase productivity in the workplace — and provide a little peace of mind as well.