So far, county skirting cell phone tax

Contra Costa County has for 20 years failed to comply with an IRS demand that employees pay personal income taxes on the value of personal communications from government-issued cell phones, PDAs and other electronic devices.

The county has known about the IRS rule for years. A committee set up five years ago ground to a halt when the employee assigned to analyze the problem retired.

"Like a lot of public agencies, Contra Costa's position has been that of a camel with its head in the sand, hoping Congress will change the rules," said Contra Costa Auditor-Controller Steve Ybarra. "So far, the IRS hasn't called. But the longer we go downstream without a change in the rules, we are going to eventually have to say to our folks, 'OK, here's what we have to start doing.'"

The revenue agency has lately been going after some major offenders and reaping big sums. The IRS requires public agencies to report as taxable income the dollar value associated with all personal use of government-owned cell phones. To prove a phone is used solely for business, the employer must provide detailed logs that specify the work purpose of every call.

Contra Costa spent $1.65 million on cell phone service last fiscal year, a nearly twofold increase over its 2005 costs.

The county does not mandate the keeping of detailed call logs, although a handful of employees each month reimburses the county for personal calls.

Under the IRS rules, Ybarra said, the

The county could also switch to a monthly phone allowance, a fully taxable stipend under which employees use their personal phones for business, requiring no logs.

The IRS will likely come knocking soon.

The tax collectors fined UC San Diego and UCLA a combined nearly $500,000 in the past year for failing to keep call logs.

Federal investigators are auditing Riverside County's cell phone policies, and the IRS crackdown has prompted other California counties to cut the numbers of phones they provide and to alter policies.

By far, the largest numbers of cell phone users in Contra Costa County work in law enforcement, public health and public works. Each department has its own policies and negotiates its own service plans, which are spread across AT&T, Nextel, Sprint and Verizon.

Ybarra does not know how many cell phones the county provides. Each of the county's 30 departments manages its own cell phone contracts and no centralized data or uniform policy exists.

The IRS added cell phones in 1989 — when they were a rare and expensive luxury — to the list of taxable employer-provided fringe benefits.

Reps. Earl Pomeroy, D-N.D., and Sam Johnson, R-Texas, and Sens. John Kerry, D-Mass. and John Ensign, R-Nevada, have proposed legislation that would reverse the rule, but there are no signs of imminent passage.

In the meantime, the IRS has proposed employers whose workers use government cell phones for personal reasons assign a quarter of an employee's annual phone expenses as a taxable benefit.

Under that scenario, according to a Wall Street Journal analysis, a worker in the 28 percent tax bracket, whose phone costs $1,500 a year, could pay $105 in additional federal income tax.

As alternatives, the IRS has proposed setting a minimum number of personal minutes permitted for each employee would be permitted or the application of a statistical sampling of workers' personal cell phone usage as a basis for the determination of a taxable percentage across the work force.

Cell phone practices vary around the Bay Area.

Solano County switched to a monthly cell phone allowance in 2006 to comply with the IRS rules.

Solano provides a limited number of government-issued phones but bans personal calls requires detailed logs, said Solano Auditor-Controller Simona Padilla-Scholtens, also chairwoman of the State Association of County Auditors.

"Some of the managers and department heads weren't excited about having to pay income taxes (on the allowance) but it is the law," Padilla-Scholtens said. "Either you maintain detailed, rigorous records of every call or you take the stipend and pay taxes."

Other local agencies could find themselves at odds with the IRS.

The Dublin San Ramon Services District and the City of Pleasanton, for example, issue cell phones. Employees must track and reimburse the agencies for nonwork calls but pay no taxes on the value of the service.

Pleasant Hill pays a flat monthly fee for its city-issued phones and as a result, its spokesman says personal calls do not cost the city additional money and so are not reported as taxable income.

Reporters Robert Jordan and Lisa White contributed to this story. Reach Lisa Vorderbrueggen at 925-945-4773 or www.ibabuzz.com/politics.