January 7, 2009
Faculty Members Given Laptops May Incur Taxes
Professors lucky enough to get laptops from their institutions may want to watch out — the taxman could come knocking.
Manchester College has announced that employees with university-owned laptops will now have to add those laptops to their tax forms as taxable items. This means a $1,600 laptop with a four-year life expectancy would add $400 per year to an employee’s taxable income, Manchester’s information-technology director, Michael Case, wrote in a message sent to an e-mail list for campus technology officials hosted by Educause.
At Manchester, the news has caused “significant push back from employees” who want to avoid paying additional taxes, Mr. Case wrote.
“Many want to exchange their laptop for a desktop to avoid the tax liability in the future,” he wrote. “I can’t blame them because I’m thinking the same thing.”
Because university laptops are often used for personal purposes, the Internal Revenue Service counts them as taxable “fringe benefits,” said Bertrand Harding, a tax lawyer specializing in nonprofit institutions, in an interview with The Chronicle. If a college is able to provide documentation showing such laptops were used for business purposes every time they were turned on, it would not have to pay tax on the machines. But few institutions could offer any such proof, Mr. Harding said.
In recent years, the IRS has started to crack down on fringe benefits like laptops and cellphones, and it has asked institutions to pay taxes that were not withheld from employees, Mr. Harding said.
This has resulted in an increasing number of colleges — like Manchester — listing laptops as taxable items, Mr. Harding said.
“Some colleges just put their heads in the sand and say we’re just going to wait for the IRS to come,” Mr. Harding said. “Others are changing their policies so they don’t get hammered when the IRS comes in.” —David Shieh
Posted on Wednesday January 7, 2009 | Permalink |Comments
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“This means a $1,600 laptop with a four-year life expectancy will cost an employee $400 in taxes per year.”
It should probably say “it would add $400 to taxable income” rather than it will cost $400 in taxes/year.
— Magda Teter Jan 7, 02:19 PM #
Thanks Magda, we corrected that in the item.
— wired campus Jan 7, 03:21 PM #
The universities can’t prove laptops are NOT used for personal stuff. Okay, but it seems to me that the argument should work both ways. Can the IRS prove that they ARE? If universities list them as benefits, then sure, case closed. Otherwise, it seems that this is a taxation based on assumption. I’m no tax expert, but should I pay a “sprocket-tax” just because the government assumes I use one? Perhaps a tax law expert can describe the burden of proof required of the IRS..?
I suppose it all comes down to universities passing the cost down. I guess they are taxed on the equipment, period. Claiming laptops as benefits is spurious, though, since it assumes that desktops are never used for personal stuff.
— Anthony Jan 7, 03:34 PM #
“Claiming laptops as benefits is spurious, though, since it assumes that desktops are never used for personal stuff.”
Good point Anthony.
— Kyle David Jan 7, 04:57 PM #
As I am the Michael Case in the article, I can only tell you that our college’s interpretation, while seemingly unique, is a valid interpretation of the current code. The IRS tax code in this instance makes no sense (why not tax for personal use of office desktop PCs, for example?) and needs to be changed to prevent the abandonment of these valuable business tools.
I will see the additional taxable income on my 2008 taxes.
— Michael Jan 7, 04:58 PM #
If I am being taxed for the full value, over X number of years, as the example here shows, wouldn’t that mean I own the computer and not the University? This amortization assumes no business use what-so-ever.
— Edward Jan 7, 05:17 PM #
What about all the time I spend working on the laptop from home when I’m not compensated? I’ve even worked on it from a hospital room while on FMLA!
— JP Jan 7, 05:21 PM #
JP – Good question. Of course, it would matter if you are an exempt employee or not.
— Edward Jan 7, 05:24 PM #
Next, they’ll start taxing our brains. “No personal thoughts at work!”
— Captain America Jan 7, 05:25 PM #
Our school does require laptop users to carry their own insurance when it’s off-campus. If hit with the tax, though, I’d say “sorry, I’m done doing any work at home”.
Michael, what do you do about pool laptops, i.e. units that are loaned out for set periods of time when faculty travel?
— SB Jan 7, 05:46 PM #
Michael …… I got to looking into this, and I am not a tax expert. lawyer, or IRS agent or anything like that, but the only thing in the IRC I can find that deals with this is IRC Sec. 280F(b)(2) which only applies if “business use percentage does not exceed 50 percent.” I assume that you do not think most people use the laptops issued by Manchester College more than 50% of the time for non-work use (esp. if they do not have a desktop computer at work as well), so where in the IRC did you see that employees should be taxed on laptops? I am sure you are right that they should be, but I would like to know where it is so I can see what the rules are.
— Edward Jan 7, 05:56 PM #
<start sarcasm>
Wow, I thought the IRS was strapped for resources and asking Congress for more funding to hire additional agents. If that is the case, then why the heck are they focusing their enforcement efforts on “nickels and dimes” as opposed to “dollars”? Oh, I forgot, because this is an easy target.
<end sarcasm>
I think Edward (#11) is on the right track. It appears the interpretation being offered by Mr. Case is that provided laptops are taxable “fringe benefits”. However, if this is true, then the College is taking too aggressive a stance by passing the entire laptop cost through to the employee as income. The correct method would be to apportion the cost between business and personal use, and record the prorated amount of the cost that is due to personal use as income.
It seems to me that the College is lacking creativity in their approach and taking the easy way out (which favors the IRS and penalizes the employee). Rather than taking a stand that is more correct but possibly requiring defense to the IRS, they are taking a safe approach which will not be questioned by the IRS but in the end is screwing the employees.
I see a couple of alternatives to the approach being taken:
1. Establish a policy that University provided laptops are provided to support employees in their work efforts and not for personal use. Require employees that use their laptops for significant personal use to report this annually for tax reporting purposes. The employee who is using their laptop for only business use :-) will then not be penalized for having a laptop.
2. The College’s IT support can implement tight operating system policies related to software loading to prohibit installation of personal software and use filtering software to try to preclude access to non-business websites. (This would create evidence to the IRS that the laptop is used only for business purposes).
Of course, the other alternative for Manchester is to provide desktop computers for their employees in which case they will either suffer a loss in productivity or screw with their employees work-life situation by forcing those who could do some work at home during off hours to come to the office to get that same work done.
Hey Manchester: Get a little creative here. You can make a case that these laptops are primarily for business use!
— Kevin O Jan 7, 07:23 PM #
What do you want to bet that most if not all of the whiners on this post are Democrats? Kind of ironic, don’t you think? After all, Biden clearly campaigned on the “paying taxes is patriotic” platform!
http://firstread.msnbc.msn.com/archive/2008/09/18/1419074.aspx
Of course, he meant “the rich” — so professors can still weasel out in good conscience.
— wq Jan 7, 08:06 PM #
Where I have worked, the laptop actually remains the property of the university. If the laptop user leaves the university, the laptop goes back to the university. If the laptop is owned by the university, I don’t understand how it can/should be my responsibility to pay taxes on its use. Also, will they start to tax my phone if I should happen to make any personal phone calls? What about if I happen to write a grocery list using a pen from my university! Uh oh, I could owe big!
— L Jan 7, 08:48 PM #
It would seem that there could be another unintended consequence of Manchester’s interpretation… If the employee under consideration is paid hourly, then the hours an employee works at home on the laptop may require additional compensation from Manchester, since by their own admission (interpretation) the employee is working on Manchester business.
— ben Jan 8, 12:01 AM #
I am a professor of accounting and a CPA. The comments I offer are general; for individual tax advice see a tax professional.
I will try to clarify some misconceptions. Anthony asks if the IRS can prove the laptops are used for personal use. The answer is they don’t have to. The burden of proof in the IRC (Internal Revenue Code) is on the taxpayer. Edward wants to know if he owns the computer at the end. Whether you do or not is irrelevant for taxation, you received the benefit of the laptop. Ownership may not be an option because many universities lease laptops. (It’s a sensible choice not to own laptops, because otherwise at the end of three or four years the University would be in the used laptop business, which would consume valuable resources while trying to dispose of them.) Kevin thinks this is “nickels and dimes.” Maybe to an individual professor it is, but imagine 100,000 professors in this situation. That’s $40 million in more taxable revenue to a government which spends more than receives in taxes.
The IRS treatment of the laptops is no different than the treatment of an automobile. For example, if an employee is given a car to use for university business, and uses it for personal activities, such use is taxable. Businesses require employees who have automobiles to log the mileage for each trip, so an allocation can be made between business use and personal use. “L” worries about paying tax on using the telephone for personal calls. That is taxable already. Every university I have worked for audits long-distance calls from university telephones and demands reimbursement for personal calls. If they did not, the call would be income to the employee. For cellphones, the IRS requires employees to pay tax on personal use. Organizations have to audit cellphone use, as they do use of a hard-wired telephone.
I have done a number of tax returns for faculty members over the years, and many are indignant that they have to pay taxes. After all, taxes are supposed to punish the rich while providing incentives for social justice schemes (whatever the Congress thinks that is this year). The IRC now taxes everyone. Half the voters don’t file income tax returns, but they pay income taxes indirectly when they buy electricity, groceries and other goods and services. Further, there is no fix to a law and regulations that are more than 80,000 pages of dense text, and absorb the time of over 100,000 individuals in government and the private sector. Every time someone tries to correct the IRC, it becomes more complex, not less. For example, there are no fewer than six different definitions of “dependent.” The tax monster is so complex that not even a typical federal judge (undoubtedly a very bright person) understands it; that’s why there is a separate Tax Court with special judges who understand the IRC. Yet the average citizen can lose his property and freedom for making a mistake in complying with this law that most federal judges and CPAs don’t comprehend.
— Prof Pacioli Jan 8, 07:45 AM #
I would like to see an official definition of “personal use.” Which of these scenarios is such?
1. I use my university-provided laptop to access my gmail account to read “personal” emails (because I try to avoid using the university email for “non-official” correspondence).
2. I discuss my children in an email exchange with a professional colleague at another institution that is mainly about professional association business.
3. I mention my interest in Vincent Persichetti, a 20th century composer, in an exchange with a professional colleague (note: I am a library administrator).
4. I read the NYT, BBC and Chronicle online while at work.
5. I spend an hour at home divided equally between aimless surfing around and reading about assessment criteria (because I can only focus on assessment for five minutes at a time without getting a headache).
I hate to appear uncooperative, especially as I aspire to be a model citizen, but if reading blogs such as the Dish, or RCP, or The Root gives me insight into higher education, student learning, and the library of the future, is it not a good investment by the university for me to have the laptop and to spend time reading widely on a diversity of subjects, and to discuss these subjects with any and all?
If the definition of personal use turns out to be artificially narrow, merely to create a situation where the government can charge taxes, am I acting in a subversive manner by making sure that I can connect everything I do on the computer with a justification that arcs back to my creative processes? If the creative process involves finding the intersection of different ideas or lines of thought, can I not claim seriously to be “working” during every waking minute if I am, indeed, thinking of the connections between all of my experiences?
— Philip J Tramdack Jan 8, 08:06 AM #
It seems to me one solution would be to buy the laptop and amortize its cost as a business expense. In that way, one does in fact own the computer and can do university work on it. If the personal use on it is minor, then the deduction would seem to be a legitimate one.
— cj Jan 8, 08:31 AM #
Flat tax! Flat tax!
It could be done the way we do cellphones here at MidWest U. Phone records actually make it possible to figure out exactly how much of your time was personal, but no one here wanted to handle that sort of record keeping. Therefore, those of use with a legit business use of our cell are given a (taxable) allowance and we have to get our own phone. This has the extra advantage of allowing us to ditch the (crappy) service our school was offering. Enough people did that that our telecom department actually improved their offerings considerably!
So could something like this be done with laptops?
— SB Jan 8, 08:55 AM #
I have a laptop but I do use it just for college business. It helps keep me organized and gives me a sense of privacy to keep the home and college computers separate. It is more likely that I will use my desk top at home for college business than vice versa. I am also likely to use my own printer and ink with the college laptop. Now that we bring up this subject perhaps I can call this a business expense and a deduction.
— me 2 Jan 8, 09:49 AM #
Why stop at laptops? Those that have VPN access may go to their desktop with a laptop to do “personal” business as well. After all the desktop could have software that they may want to use for their personal use. In my opinion this is awful. The IRS should concentrate on helping people pay their taxes back. I spent 18 hours on the phone one time because I had a $75 collection due to a mistake on a state tax return. This was just to get the right person to figure out what happened since the information they gave me was cryptic. I am more than happy paying what I owe, but if they start taxing laptops, I am throwing my equipment into the lake call it the Rochester, Mobile Party!
— anonymous Jan 8, 10:01 AM #
OK so since I bring my kids to work sometimes (kids are too young to stay home alone) and let them surf the internet so I can get some work done (bring my home laptop with me and hook into the school’s internet ) I would need to pay taxes on the internet use time, the chairs they sit in, the air they breath, the pencil they might use to doodle (I already pay for all my own printing as this university provides neither printer, ink or paper for faculty use so I am already subsidizing the department’s budget bigtime)…lets see I should have to pay taxes when the babysitter calls me or I call home so that I can stay at work longer to get things done and be accessible to students (we have a number of evening only students which means office hours at least one evening) ?
Seems to me the university should be paying ME for having to pay extra to have to be at school more than 8 hours a day 5 days a week. Where is my OVERTIME for all the hours I have to work during advising week, exam weeks, etc.? Where is my extra compensation for working, on average, 60 hour weeks between that which I do at home and at work?
Perhaps we should do a “work to rule” where I only work 40 hours and only do my job to the extent I can ONLY using the tools the university provides. HA! Things would grind to a halt. I should not have to provide basic tools to do my job (have to buy my own white board markers, pens – for some reason there seem to be pencils around, staples, tape, file folders even if all I am doing if filing things related to the classes I teach, all long distance – including returning student calls), work unreimbursed more than 40 hours a week…
Since my home laptop is used mostly for university related purposes they need to reimburse me for this, and for my home printer as well since I do a lot of work related printing on that (of course they don’t pay for my printing at work either but that is another story – can we say on the market and actively engaged in a job search!!).
If universities start doing these kinds of things to faculty with their work tools the backlash could be tremendous. I already try to buy as little as possible on campus because I am so mad about how much of my own money needs to be spent to do the basics of my job. I refuse to buy tickets to anything, I refuse to donate to anything. As long as they are refusing to provide me with the basics to do my job I sure as heck will not voluntarily part with even more or my money in a way that will benefit the university in any way.
— annon Jan 8, 11:13 AM #
Annon, please remember that buying tickets (for your entertainment) and donating to your institution are actions that help your STUDENTS, and while all your points are quite legitimate, please don’t withhold support for your STUDENTS, because their very existence provides the jobs we have. Many share your frustrations.
— S. Hodge Jan 8, 11:37 AM #
Taxable laptops
— Carl Whitman Jan 8, 12:22 PM #
Prof Pacioli – Thank you for your take on this. It was rather interesting and clarifies/confirms some things in my mind. I know what you are saying as per the the IRC that it may not matter who owns the laptop, but if the University is considering the whole value of the computer to be a benefit (which is another form of compensation), it matters greatly to me as an employee. AS you mentioned, with cell phones and cars provide by the employer, the part used for personal use is taxable, not the whole car or phone bill. According to this story, Manchester is saying the whole computer is a taxable benefit which would mean there is no business use at all.
— Edward Jan 8, 02:10 PM #
This is just the beginning.
We have to pay for Obama’s $2 trillion deficits somehow.
— Take Back the U! Jan 8, 02:34 PM #
My take is a little different than those expressed so far. I am disturbed that this article is basically nothing more than a rehash of a query Mr. Case posted to the EDUCAUSE CIO listserv. The Chronicle lurker/reporter merely took Mr. Case’s post about Manchester’s position, changed the wording a bit, and published it as news. As a result our Business Services Office is now asking me whether my IT office is aware of this situation, and does it apply to us, and what will we do if it does, etc. I grant that the issue is of interest to academic IT and financial administrators, and Mr. Case’s post has started a healthy (and welcome) discussion on the subject. But it is a discussion – an exchange of opinions and theories by different administrators at different schools. It’s not a news bulletin, and reprinting it as such does all of us a disservice. It is sloppy reporting at best.
— David Sisk Jan 8, 04:19 PM #
Agreed. While the Chronicle might content that this is just a blog post, not a real article, this is sloppy even by that standard. How about looking into what happened with the outcome of the 110th congress’s HR 5450, or the corresponding senate bill, which were supposed to remove cellphones as listed property? Surely, laptops should follow a similar rationale. How about mentioning the IRS extension granted to UCLA which exempts them from penalties until June 2009 to give Congress time to sort this out? A lot of needless panic, folks.
— Bill A. Jan 8, 05:06 PM #
It’s Bush’s deficit, not Obama’s. And don’t forget the huge surplus that Bush et. al. squandered away.
— Bob P. Jan 8, 07:11 PM #
Three questions for Michael, the VP of IT, and the VP-level University General Counsel:
1. How do you plan to justify your request for extra storage space needed for all of the laptops that faculty members will now turn in and keep using their tax-free desktops and their home computers for their business-use tax write-off (just as is done in business)?
2. If you are going to pretend that you are part of the business/legal end of the university and not part of academia, then why don’t you check to see what businesses are doing (they are all writing off personal use of office computers and giving laptops as part of business 2.0, while you are still inured in Academia 0.5)?
3. How do you plan to justify to the administration that you spent thousands of scarce university funds (note the use of the bureaucratic government term rather than the business term – money) for laptops that the faculty who don’t make a Vice President’s salary and are not going to get a pay raise for the second straight year will now turn in so that they can save $400 and they will not be used (maybe you and the VPs can use some of them)?
— Ole Perfesser Jan 8, 11:21 PM #
Two points for Bob P.:
1. As Edward (#11) researched the US Tax Code, you need to research a key document, the US Constitution, which states that the Congress raises and appropriates taxes (spends them) – so it was no more Bush’s deficits than it was Clinton’s surpluses; it was the frugal early Republican Congress’ rule vs the later entrenched Republican spendthrift Congress’ rule, that got them voted out of office in 2006 and 2008.
2. This new taxation is only a way of taxing the rich, faculty members, (we DO make over $25,000 a year and we need to pay our “fair share”) to give a tax break to the middle-class workers (since you don’t work). It will also finance Obama’s universal care ACCESS that will rival the quality of England’s and Canada’s (of course, while health care access will be universal, real health care is already being made more expensive and difficult for people in North Dakota et al due to all of the Canadians coming down here for real health care from their world of universal but slow, inefficient, and expensive health care – think DMV). Actually, I have to agree with your implication that Bush was a terrible President for most of his second term because he did not behave like the conservative that you think he was.
— Ole Perfesser Jan 9, 12:05 AM #
I’m sitting here in my kitchen on my university-provided laptop reading the Chronicle of Higher Education online. Is that business or personal use? Oops, I just got an email from my father, who happens to be an emeritus faculty member of the university. It’s about a computer problem and I’m the IT Director. Is that business or personal? If my university puts in my job description that I must learn to effectively use my portable computer by applying it to a wide range of tasks business and personal, is making a family photo album in iPhoto now a business task? Michael Case raised the issue because he thought it was ridiculous and wrong. I agree.
— Michael Jan 9, 08:25 AM #
So people are getting mad at following the law. I hope none of you would punish a student for plagiarism. I do not understand why you would get mad at your employer for following their interpretation of the law. Preventing a IRS problem is better than recovering from one.
— Tech guy Jan 9, 09:44 AM #
The IRS holds all the cards here, though. A desk top computer is deemed to be business use because it stays in the office. Personal use on your business computer is considered a de minimis fringe benefit and not taxable. A laptop is listed property and a person is required to keep a log of the business and personal use, and be taxed on the personal portion. Since no one keeps a log, the IRS is allowed to deem the entire use personal. This is exactly the same law that requires use logs for cell phones and autos. Manchester is doing this rather than telling everyone to keep logs of their computer time. I suspect that many Colleges and Universities will follow suit when the IRS starts handing out penalties. The Treasury needs money after all, and auditing this area is a pretty easy way to get it.
— Anne E. Davenport Jan 9, 09:18 PM #
Rules like this (and institutional interpretations like these) are exactly why I prefer to buy my own cellphone and my own laptop. And, if I really want to use their cost to reduce my taxable income, I log my use of them. There’s nothing new here, people—just as your institution is not required to give you a car to get to work in, they are not required to give you a laptop so you can tinker with your syllabus in Starbucks.
— richard Jan 11, 11:57 AM #
Follow the old Dilbert cartoon advice: chain the laptops to their office desks!
— Phil Jan 16, 05:46 PM #
I teach tax law and therefore understand where the IRS is coming from. But its position in this regard is profoundly inefficient. I can’t tell you how much time and effort I used to spend synchronizing my computer at home with my computer at work. Now my school provides a laptop with docking station at work. I take it home and never have to worry about synchronizing. Employer-provided laptops are not like employer-provided laptops — more likely than not to constitute an attempt at evasion. This is a tax disincentive to technological efficiency and as such is simply bad policy.
Oh, well…. Back trying to figure out whether the draft on my work desktop, the draft on my home desktop, or the draft on my thumb drive is most up to date. Ridiculous!
— Theodore Seto Jan 22, 05:41 PM #
Professor Pacioli posts:
“….there is no fix to a law and regulations that are more than 80,000 pages of dense text, and absorb the time of over 100,000 individuals in government and the private sector. Every time someone tries to correct the IRC, it becomes more complex, not less.”
Amen brother! The income tax was established by a constitutional amendment intended to assure that the rich pay taxes, as was the Alternative Minimum Tax. Both have become a plague on common citizens. It’s way past time to repeal the 16th amendment. Most of us are willing to pay our fair share for reasonable and responsible government, but the size and power of the federal government long ago became both unreasonable and irresponsible. Starve the beast! Choke it, kill it!
— FadingFast Feb 6, 11:51 PM #