Weaver Hauling & Excavating, LLC v. Dep't of Labor & Indus.

• Decision Date: 06 January 2016
• Docket Number: No. 266 C.D. 2015,266 C.D. 2015
• Citation: Weaver Hauling & Excavating, LLC v. Dep't of Labor & Indus., 132 A.3d 557 (Pa. Commw. Ct. 2016)
• Parties: WEAVER HAULING AND EXCAVATING, LLC, Petitioner v. DEPARTMENT OF LABOR AND INDUSTRY, OFFICE OF UNEMPLOYMENT COMPENSATION TAX SERVICES, Respondent.
• Court: Pennsylvania Commonwealth Court

132 A.3d 557

WEAVER HAULING AND EXCAVATING, LLC, Petitioner

v.DEPARTMENT OF LABOR AND INDUSTRY, OFFICE OF UNEMPLOYMENT COMPENSATION TAX SERVICES, Respondent.

No. 266 C.D. 2015

Commonwealth Court of Pennsylvania.

Argued Dec. 10, 2015.

Decided Jan. 6, 2016.

Peggy M. Morcom and Melissa L. Kelso, Lebanon, for petitioner.

Arthur Selikoff, Assistant Counsel, Harrisburg, for respondent.

BEFORE: DAN PELLEGRINI, President Judge,¹ MARY HANNAH LEAVITT, Judge,² and P. KEVIN BROBSON, Judge.

OPINION BY Judge BROBSON.

Petitioner Weaver Hauling and Excavating, LLC (Weaver or LLC), petitions for review of a final decision and order of the Department of Labor and Industry (Department), which denied Weaver's petition for reassessment of unemployment compensation tax assessed by the Department's Office of Unemployment Compensation Tax Services (Tax Services). We now affirm the Department's order.

I. BACKGROUND

Weaver is organized as a multi-member limited liability company (LLC). (Reproduced Record (R.R.) at 3a, 102a,165a–174a, 269a–283a.) Weaver's operating agreement provides that an individual may purchase a 2% interest in the LLC for $100.00. (Id. at 165a–174a, 269a–283a.) In the operating agreement, Elmer Weaver is designated as the managing member. (Id. ) Members may not compete with the LLC without approval, and they "acknowledge [ ] that [they] shall be taxed as a self-employed person in accordance to the tax laws relating to the taxation of self-employed persons." (Id. )

On November 9, 2012, Tax Services filed a notice of assessment against Weaver for wages paid to members of the LLC from 2008 through 2012, based on Tax Services' determination that the members were employees of Weaver. (Id. at 2a.) The amount assessed totaled $35,256.03. On November 23, 2012, Weaver filed a petition for reassessment with the Department, arguing that Tax Services erroneously classified its members as employees rather than independent contractors. (Id. at 1a–4a.)

The Department conducted a hearing concerning the petition for reassessment on May 15, 2014. During the hearing, the Department admitted various documents that were reviewed by Tax Services during its audit of Weaver, including a list of partners, Weaver's operating agreements, copies of federal tax form 1065 (concerning the return of partnership income for the years 2008 through 2012), and copies of instructional pamphlets available on the Department's website. The Department presented the testimony of Michael Deihl, the unemployment compensation tax agent who conducted the audit of Weaver. Weaver presented the testimony of Elmer Weaver, the managing member of the LLC, Levon Weaver, a minority member of the LLC, and Galen Martin, Weaver's accountant.

By opinion and order dated February 15, 2015, the Department's Deputy Secretary for Administration issued a final decision of the Department, denying Weaver's petition for reassessment. In so doing, the Department made the following findings of fact:

1. [Weaver] operates as a general hauling and excavating, trucking business, doing excavating for residential and dirt work and dump truck work and aggregate hauling, with gravel as its primary product or service.

2. [Tax Services], specifically Michael Deihl, a UC Tax agent, conducted [a] UC audit of [Weaver] for the tax year 2010 and then expanded its audit to encompass the first quarter of 2008 through to the second quarter of 2012.

3. [Tax Services] presented the Pennsylvania Enterprise Registration Form PA–100 filed by [Weaver] in 2012, registering for Pennsylvania unemployment taxes for that year.

4. [Weaver] had previously filed a Form PA–100 in 2006.

5. [Tax Services] records indicate that [Weaver] was issued a Subjectivity Notice on September 18, 2006, and that [Weaver] paid wages in some form between October 1, 2006, through March 31, 2007.

6. The Subjectivity Notice advises employers of filing requirements and the penalties for not filing reports with the Department.

7. As part of [Tax Services'] audit, Karen Sensenig, from [Weaver]'s accountant's office, submitted a list of "partners", hereinafter referred to as "members", for the Year 2010 and copies of U.S. Return of Partnership Income Form 1065, along with Schedule K–1s [ (K–1s) ] for 2010.

8. [Tax Services] received copies of various LLC Operating Agreements and Partnership Agreements from [Weaver], which indicate that various members paid $100.00 for a 2% interest in Weaver....

9. All members receive a weekly draw based on time worked and services performed, which was the guaranteed payments to the members.

10. [Weaver] prepared a spreadsheet of the guaranteed payments to members, for the pertinent years in question, to [Tax Services] as part of its audit.

11. Based upon the information provided by ... [Weaver], [Tax Services] concluded that [Weaver]'s members were employees, and that they received wages for services performed for unemployment tax purposes.

12. Petitioner was originally a general partnership established in 1992, managed by Elmer Weaver, which then formed into a[n LLC] in 2005, however, was not incorporated.

13. [Weaver]'s LLC is governed by numerous operating agreements with the individual members for the applicable time period in question.

14. Elmer Weaver is managing member of ... [Weaver], having paid a capital interest in the company of $4,500.

15. Most other members of the LLC received a 2% interest with a capital investment of $100.

16. Elmer Weaver would have to agree to give someone more than a 2% interest.

17. Elmer Weaver's interest in the LLC would increase or decrease, proportional [sic] to the number of members and their percent of interest in the LLC.

18. Elmer Weaver's interest in the LLC was approximately 83.833333% in 2008, 84% in 2009, 83.666667% in 2010, 82.833333% in 2011, and 80.333333% in 2012.

19. Members signed operating agreements with the LLC, which established their membership interest.

20. [Weaver] has had employees, and a worker could decide not to be a member of the LLC and would instead be considered an employee.

21. As a member of the LLC, the members agree to a non-compete clause.

22. As a member of the LLC, members agree that they shall be taxed as "self-employed" persons, and that the member is responsible to pay self-employment taxes.

23. Member[s] could elect to withdraw from the LLC, in writing, and would be paid out.

24. [Weaver] has held money in escrow for at least two of its members for quarterly employment taxes so that those members could make payment.

25. The members would meet occasionally to discuss business issues. Although there was no formal voting process, purported members had voting rights based on their proportional shares.

26. When the members did not want to move in the same direction as Elmer Weaver, he would work out a solution. He would sometimes take the position of minority members with regards to how to handle a particular job, or with regard to the jobs [Weaver] may take.

27. [Weaver] has had 10 to 12 members of the LLC per year, other than Elmer Weaver, for all years relevant to the audit.

28. [Weaver] has allocated profits/income based on membership share, but has not had losses to allocate since inception.

29. Galen Martin has been [Weaver]'s tax accountant for a number of years, and prepared [Weaver]'s tax returns in 2008 through 2012.

30. For all periods relevant, [Weaver] filed its federal taxes as a partnership, filing Tax Returns and U.S. Return of Partnership Income, Form 1065, including K–1s.

31. Business profits distributed to the members for the years in question, minus guaranteed payments and expenses, were $37,515.04 in 2008, $6,227.44 in 2009, $10,886.39 in 2010, $11,528.57 in 2011, and [$]1,583.02 in 2012.

32. The K–1s indicated that [Weaver]'s 2% members received an individual allocation of profits of $750.30 in 2008, $124.55 in 2009, $217.73 in 2010, $230.57 in 2011, and $31.66 in 2012.

33. Of the years covered by the audit, [Weaver] has the highest profit year in 2012, with $2,085,212.57 in gross receipts/sales and $1,519,210.94 in gross profits, but the 2% members received their lowest allocation of profits based on percentage share, $31.66.

34. Levon Weaver, son of Elmer Weaver, testified on behalf of [Weaver].

35. Levon Weaver was a member with the LLC since 2005, but had also been a partner in the prior partnership.

36. Levon Weaver provided a capital contribution of $100.00 for his 2% interest in the LLC.

37. Levon Weaver recalled being in meetings with the other members discussing business related to the LLC.

38. The employees who elected not to become members of the LLC were welcome at the business meetings, but did not attend.

39. Levon Weaver had been in meetings where the minority members had swayed Elmer Weaver from a position in which the other members did not necessarily agree.

40. Levon Weaver's job involved office work, and he agreed that he knew upon entering into the operating agreement that he would be considered self-employed, although could not independently identify what an LLC was.

(Department Op. at 2–7 (citations omitted) (footnotes omitted) (emphasis added).) Based upon those findings, the Department determined that Weaver did not satisfy its burden to prove that its members were independent contractors. As such, the Department concluded that the members were employees of Weaver, rather than independent contractors. Weaver petitioned this Court for review.

II. ANALYSIS

On appeal to this Court,³ Weaver argues that the twelve findings of fact italicized above are not supported by substantial evidence. It also argues that the Department erred in concluding that Weaver was not a bona fide partnership. Additionally, Weaver contends that the Department erred in concluding that Weaver's partners were employees under Section 4(l )(2) of the Unemployment Compensation Law (Law).⁴ Next, Weaver argues that the Department's decision and order conflicts with the Limited Liability Company Law of 1994 (LLC Law).⁵ It further argues that the Department's decision and...