By Howard Greninger
TERRE HAUTE — In an effort to comply with federal tax law, Vigo County commissioners are preparing a written policy to pay a stipend to county employees who use cellular telephones on the job. That stipend would then become part of an employee’s taxable income.
Currently, the county pays for a phone and phone service. However, the employee may also make and receive personal calls. That use is considered a taxable fringe benefit by the Internal Revenue Service, said Vigo County Auditor Tim Seprodi.
“It is similar to receiving an automobile that is provided by an employer,” Seprodi said. “Any personal use, if paid for by the employer and used for personal use, that is income to you.”
Employers are required to account and document business and personal use on cell phones and the IRS can declare that all undocumented use is personal and be taxed as wages. However, if the county pays a taxable allowance for an individually owned cell phone, it removes the requirement of detailed documentation, the auditor said.
That is what the City of Terre Haute did when it adopted a written cell phone policy last year.
City Attorney Chou-Il Lee said an IRS audit of the city prior to Mayor Duke Bennett assuming office in January 2008 indicated the city needed better records on cellular phones.
Lee said the city also saw large IRS judgments coming against cities and universities. In 2007, the University of California at Los Angeles was hit with a back tax bill of $240,000 because it could not provide documentation on cell phone use.
“It is now on [employees’] W2 form. We do not provide a phone. Now they use their own personal phones and receive a stipend,” Lee said.
The city policy, Lee said, also requires a city employee, while driving on city business, to pull over to use a cell phone for city business.
Seprodi said the IRS can issue a back tax bill for up to three years. The auditor said he is gathering information on the number of cellular phones in all county departments. Those departments are serviced by at least three different cellular telephone providers. The auditor said the county is not required to switch those providers, but a consolidation could result in cost savings, depending on services needed.
The City of Terre Haute pays a stipend on 165 cell phones, Mayor Bennett said.
“We chose to do it for a couple of reasons. One is we wanted to cap the costs to the city,” Bennett said. “We had certain employees who were going over their [monthly cell phone usage] plan and their costs were changing from month to month.
“Now those costs are capped, so if they excessively use that phone, that cost is on them,” Bennett said.
“Second, by doing it this way, we don’t have to separate business calls from personal calls. We would have had to [document] that on all cell phones and that would have been a nightmare. It would have been nearly impossible,” the mayor said.
“We would have to sit down with an employee every month to sift though itemized call lists and that would have been a joke,” he said.
The city has three stipend levels. The first is $25 per month for basic service; $50 per month for higher users; and $100 for phones that have Internet data access, such as a Blackberry.
“We make the determination based on a business case. They have to tell us what kind of service is needed for the phone,” the mayor said. “We are not just giving Internet access or texting just because they want it, they get it because they can show they need it for their job.”
“It seems to be working very well,” Bennett said.
Bennett said the city will see a cost savings, but that it is too early to determine what that savings will be. The mayor said that by the middle of this year, those savings could be calculated.
Howard Greninger can be reached at (812) 231-4204 or howard.greninger@tribstar.com
