Humble Oil & Refining Company v. The United States
| Decision Date | 14 May 1971 |
| Docket Number | No. 392-67.,392-67. |
| Citation | 194 Ct. Cl. 920,442 F.2d 1362 |
| Parties | HUMBLE OIL & REFINING COMPANY v. The UNITED STATES. |
| Court | U.S. Claims Court |
David W. Richmond, Washington, D. C., attorney of record, for plaintiff, Miller & Chevalier, Walter B. Morgan, Roger Bonney, John J. Hollis, and Robert L. Moore II, Washington, D. C., of counsel.
Frances M. Foltz, Washington, D. C., with whom was Asst. Atty. Gen. Johnnie M. Walters, for defendant, Philip R. Miller, Washington, D. C., of counsel.
Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.
This case was referred to Trial Commissioner Lloyd Fletcher with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Rule 134(h). The commissioner has done so in an opinion and report filed on June 5, 1970. On August 19, 1970, defendant filed exceptions to the commissioner's findings, opinion and recommended conclusion of law. Thereafter, on September 18, 1970, the court granted a joint motion to consolidate this case and No. 343-68 (), for further proceedings. On October 17, 1970, defendant filed a supplemental brief on consolidation and exceptions. The cases have been submitted to the court on oral argument of counsel and the briefs of the parties.
Since the court agrees with the commissioner's opinion, findings and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in the case.* (See also the opinion of this date in the consolidated and companion case, No. 343-68, 442 F.2d 1353, referred to above.) Therefore, plaintiff is entitled to recover and judgment is entered for plaintiff with the amount of recovery to be determined pursuant to Rule 131(c) in accordance with this opinion.
FLETCHER, Commissioner:
Once again the court is called upon to consider the troublesome area of the tax treatment properly to be accorded payments, or reimbursements, by an employer of his employees' moving expenses. See, Ritter v. United States, 393 F.2d 823, 183 Ct.Cl. 875 (1968), cert. denied, 393 U.S. 844, 89 S.Ct. 127, 21 L.Ed.2d 115 (1968). The question now presented is a refinement of the issue considered in Ritter.
Having successfully contended there (and also in other cases) that certain moving expense payments and reimbursements were taxable income to the recipient-employee, the defendant now moves forward another step and says that, since the payments and reimbursements were admittedly income to the employee, it was the duty of the employer to withhold income taxes thereon just as he is required to do in the case of salary or wage payments. In my opinion, the withholding requirement on "wages" contained in section 3402 of the Internal Revenue Code of 1954 cannot be carried to the extent now urged by defendant.
In summary, the facts are these. For many years the plaintiff, Humble Oil & Refining Company, has been engaged in various aspects of the petroleum business, and it has offices and other facilities in numerous locations throughout the United States. As might be expected, the maintenance of these widely scattered offices has quite frequently resulted in the movement of numerous of its employees from one location to another. When this has occurred, plaintiff has borne the bulk of the moving employees' expenses either by way of direct payment thereof, or by way of reimbursement to the moved employees, or by a combination of both. This policy of Humble was well-known to its employees, and whenever they were asked to move from one location to another, not much thought was given by them to the matter of moving expenses. The important thing was the fact that their jobs were being moved. Hence, the primary decisional factor was the question of whether they desired to continue working for Humble or to seek employment elsewhere. Usually, an employee's old job was available to him only in the new location and only a lesser position, or perhaps none at all, was open in the old location. Occasionally an employee was offered a better position and a higher salary in the new location. In any case, however, Humble offered to pay or reimburse its employees for most of their moving expenses.
Essentially, the present dispute arose out of a decision by plaintiff in 1960 when it determined to move the entire New York City headquarters of the former Esso Standard Oil Company (which company had been merged into plaintiff in 1959) to Houston, Texas. This move of the Esso operation from New York to Houston took place in 1961. In order to achieve the move with as little disruption as possible, plaintiff requested hundreds of its New York employees, both managerial and clerical, to move from New York to Houston. The employees were formally advised that the company, under its "resettlement policy," would either directly pay for, or reimburse such employees, for the bulk of their expenses incurred in moving. As one witness described it, the promise of the company was to make the moving employee "whole" to the end that he would not be "out of pocket to a great extent."
During 1961, Humble paid, or reimbursed, its employees, both old and new, for the following moving expenses, the bulk of which involved the New York to Houston move:
(a) Moving expenses incurred by new
employees: Expenditures for moving
household goods and personal effects
to new locations, transportation of
families to the new locations, and
meals and lodging en route to the
new locations __________________________ $46,130.98
(b) Expenses incurred by existing employees
in moving themselves, their
immediate families, and household
goods and personal effects to the
new locations __________________________1 1,945,438.23
(c) Expenses incurred by existing employees
in the sale of their residences
Brokers' commissions, expenditures
in preparing residences
for sale, costs of advertising, mortgage
prepayment penalties, closing
costs and fees _______________________________ 959,205.43
(d) Expenses incurred by existing employees
in purchasing new residences
House hunting trips, intertest
on loans, expenditures for acquiring
mortgages and securing title
policies, recording fees, loan papers
credit reports, surveys, restrictions
escrow fees, closing costs and fees ____ 443,224.03
(e) Expenses incurred by existing employees
in occupying new residences
Installation of appliances
refitting rugs and drapes, painting,
decorating and carpentry _____________________ 240,711.80
(f) Other expenses incurred by existing
employees: Interim living expenses,
expenses of interim trips
to new locations, and miscellaneous
expenses _____________________________________ 767,109.89
(g) Amounts paid to existing employees
representing in the case of
each employee to whom payment was
made, an amount equal to 75 percent
of the excess of an appraised
value of the employee's
old house over its actual selling
price (provided that the employee
placed his house for sale on
multiple listing, or with two or more
brokers, and then was unable to sell
the house for as much as its appraised
value) _______________________________________ 323,357.10
Plaintiff did not withhold income taxes on these payments. Insisting that plaintiff was required by law to do so, the Commissioner of Internal Revenue assessed deficiencies in withholding taxes against plaintiff who paid them and thereafter filed a timely claim for refund. Parts of that claim have been settled administratively, but there remains in controversy the sum of $500,353.04 plus assessed interest. This amount was computed by applying the 18 percent withholding rate to all the payments listed above except the direct moving expenses to existing employees set forth in category (b). See footnote 1, supra.
Section 3402 of the Code requires withholding only on "wages" as defined by section 3401 reading, in pertinent part, as follows:
(a) WAGES. — For purposes of this chapter, the term "wages" means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash; * * *
Plaintiff's position, of course, is that the reimbursements and payments in question do not constitute remuneration "for services performed." If statutory words are to be given their ordinary, everyday meaning, plaintiff's position would appear to be quite correct, at least with respect to payments to its existing employees. No service was performed by plaintiff's employees in order to obtain these reimbursements, unless it be the act of physically moving from one permanent job location to another at plaintiff's request, and in the case of existing employees the Government does not even contend that the reimbursement of expenses incurred in such physical movement (so-called "direct" moving expenses) are income subject to withholding.
What the Government does contend is clear from its heavy reliance on this court's decision in Ritter v. United States, supra. There, essentially the same type of reimbursements and payments for employee moving expenses were involved as here. The plaintiff in Ritter, however, was the employee, not the employer, and the question was whether the payments to him constituted ordinary income and, if so, whether he was entitled to deduct as expenses the items for which payments were made. The court adopted, per curiam, the opinion of...
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