American Oil Co. v. Fly, 10324.

• Decision Date: 11 May 1943
• Docket Number: No. 10324.,10324.
• Citation: 147 ALR 824,135 F.2d 491
• Parties: AMERICAN OIL CO. v. FLY, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Fifth Circuit

147 ALR 824, 135 F.2d 491 (1943)

AMERICAN OIL CO. v. FLY, Collector of Internal Revenue.

No. 10324.

Circuit Court of Appeals, Fifth Circuit.

May 11, 1943.

Percy N. Booth, of Louisville, Ky., Ben A. Harper, of Chicago, Ill., and T. C. Hannah, of Hattiesburg, Miss., for appellant.

Helen R. Carloss and Sewall Key, Sp. Assts. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and Toxey Hall, U. S. Atty., and A. Y. Harper, Asst. U. S. Atty., both of Jackson, Miss., for appellee.

Before SIBLEY, McCORD, and WALLER, Circuit Judges.

SIBLEY, Circuit Judge.

The simple question presented is well stated by appellee thus: "Whether the operator of wholesale distributing plants owned by taxpayer, and individuals engaged by such operator to assist him in marketing and distributing taxpayer's petroleum products, are employees of taxpayer within the meaning of Titles VIII and IX of the Social Security Act", 49 Stats. 636, 639, 42 U.S.C.A. §§ 1001, 1101, and ff. The taxes were paid and suit brought to recover them; the court held the distributors and the persons they engaged to help them were employees of American Oil Company, the taxpayer, and gave judgment against recovery. The Oil Company appeals.

Three forms of contracts with distributors in Mississippi appear in the record, differing in some details but agreeing in substance. They provide, in brief, as follows: The Oil Company is to furnish its products for distribution, at a wholesale storage and distributing station belonging to the Company which includes storage tanks, warehouses, switch tracks, driveways and other facilities and equipment, to be maintained at the Company's expense. The products sent are to be at the election of the Company, and the prices to the distributor are to be fixed by the Company, delivered at the station in carload lots; and the products are to be the property of the Company while on hand unsold. The distributor is to furnish at his own expense delivery trucks, tanks, and other equipment, and bear all expense of operating them, and of unloading and distributing the products, including all expense of the bulk plant operations. Liability insurance is to be carried by the distributor to protect both the Company and the distributor. The distributor agrees absolutely to pay on demand for all commodities delivered to him at the prices fixed by the Company, except what remains on hand unsold. He agrees to use his best efforts to sell and distribute the largest possible quantity, for cash, or at his own risk on credit, except that the Company may in writing select customers it is willing to credit, to whom the distributor may sell, reporting each such sale, and taking credit as though cash had been remitted. On other sales the proceeds are to be remitted to or deposited to the credit of the Company as directed, and accounts of all sales are to be kept, and are subject to inspection as may be required by the Company. The distributor has no right to bind the Company by any contract, or assign or delegate his duties without the consent of the Company, but may employ others to assist him, who will be strictly the agents and employees of the distributor and not of the Company, and subject solely to the direction and control of the distributor. The distributor's compensation is to be named commissions per gallon and per pound to be allowed in settlements with the Company. The distributor assumes responsibility for all payroll social security taxes, and will reimburse any the Company has to pay. The contract is for a territory not specifically defined, and for an indefinite time, cancellable by either party on one day's notice. The practice of the parties under the contracts was in substantial accord with their terms. Each distributor had several truck drivers and other persons hired, and he paid and directed them. Each distributor controlled his own hours and methods of work, and sold to such persons as he could profitably reach at prices he could afford to quote. The State and municipal permits and licenses for operating the bulk station were taken out and paid for by the Oil Company. The motor carrier permits for the trucks were taken out and paid for by the distributor. The distributors do not usually give their whole time to this work, but have other independent enterprises.

The Social Security Act, Sections 801, 804, 901, in levying the taxes in controversy, speaks of "wages", and an "employer * * * having individuals in his employ". Sections 811 and 907 define "employment" as "any service, of whatever nature, performed within the United States by an employee for his employer". "Employer" and "employee" are not defined. In a broad sense one "employs" another whenever he uses his time and effort under any sort of contract. But Treasury Regulations 91, Arts. 2 and 3, made to enforce the Act, adopt a much narrower construction of it, expressly adopting as the test of the employer-employee relation the common law distinction between master and servant and independent contractor, the critical question being whether "the person for whom services are performed has the right to control and direct the individual who performs the services not only as to the result...