Central Illinois Public Service Company v. United States

• Decision Date: 28 February 1978
• Docket Number: No. 76-1058,76-1058
• Citation: 55 L.Ed.2d 82,435 U.S. 21,98 S.Ct. 917
• Parties: CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, Petitioner, v. UNITED STATES
• Court: U.S. Supreme Court

55 L.Ed.2d 82

98 S.Ct. 917

435 U.S. 21

CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, Petitioner,

v UNITED STATES.

No. 76-1058.

Argued Oct. 12, 1977.

Decided Feb. 28, 1978.

Syllabus

Sharon L. King, Chicago, Ill., for petitioner.

Stuart Alan Smith, Dept. of Justice, Washington, D.C., for respondent.

Mr. Justice BLACKMUN delivered the opinion of the Court.

This case presents the issue whether an employer, who in 1963 reimbursed lunch expenses of employees who were on company travel but not away overnight, must withhold federal income tax on those reimbursements. Stated another way, the issue is whether the lunch reimbursements qualify as "wages" under § 3401(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 3401(a).

I

The facts are not in any real dispute. Petitioner Central Illinois Public Service Company (Company) is a regulated public utility engaged, in downstate Illinois, in the generation, transmission, distribution, an sale of electric energy, and in the distribution and sale of natural gas. Its principal office is in Springfield. It serves a geographic area of some size. In order adequately to serve the area, the Company, in accord with long-established policy, reimburses its employees for reasonable, legitimate expenses of transportation, meals, and lodging they incur in travel on the Company's business. Some of these trips are overnight; on others, the employees return before the end of the business day.

In 1963, the tax year in issue, the Company had approximately 1,900 employees. It reimbursed its union employees and the operating employees of its western division (its only nonunionized division) for noon lunches consumed, while on authorized travel, in an amount not to exceed $1.40 per lunch.¹ The amount was specified in the Company's collective-bargaining agreement with the union. Other salaried employees were reimbursed for actual reasonable luncheon expenses up to a specified maximum amount.²

An employee on an authorized trip prepared his expense account on a company form. This was turned in to his supervisor for approval. The $1.40 rate sometimes was in excess of the actual lunch cost, but at other times it was insufficient to cover that cost. An employee who took lunch from home with him on a company trip was entitled to reimbursement. If, because of the locality of his work assignment on a particular day, the employee went home for lunch, he was not entitled to reimbursement. Many employees were engaged in open-air labor. Even in 1963 the $1.40 rate was "modest." ³

The employee on travel status rendered no service to the Company during his lunch. He was off duty and on his own time. He was subject to call, however, as were all employees at any time as emergencies required. The lunch payment was unrelated to the employee's specific job title, the nature of his work, or his rate of pay. "[T]his lunch payment arrangement was beneficial and convenient for the company and served its business interest. It saved the company employee time otherwise spent in travelling back and forth as well as the usual travel expenses." ⁴

During 1963 the Company paid its employees a total of $139,936.12 in reimbursement for noon lunches consumed while away from normal duty stations on nonovernight trips. It did not withhold federal income tax for its employees with respect to the components of this sum. The Company in 1963, however, did withhold and pay federal income withholding taxes totaling $1,966,489.87 with respect to other employee payments.

Upon audit in 1971, the Internal Revenue Service took the position that the lunch reimbursements in 1963 qualified as wages subject to withholding. A deficiency of $25,188.50 in withholding taxes was assessed. The Company promptly paid this deficiency together with $11,427.22 interest thereon, a total of $36,615.72. It then immediately filed its claim for refund of the total amount so paid and, with no action forthcoming on the claim for six months, see 26 U.S.C. § 6532(a)(1), instituted this suit in the United States District Court for the Southern District of Illinois to recover the amount so paid.

The District Court ruled in the Company's favor, holding that the reimbursements in question were not wages subject to withholding. 405 F.Supp. 748 (1975). The United States Court of Appeals for the Seventh Circuit reversed. 540 F.2d 300 (1976). Because that decision appeared to be in conflict with the views and decision of the Fourth Circuit in Royster Co. v. United States, 479 F.2d 387 (1973), we granted certiorari. 431 U.S. 903, 97 S.Ct. 1693, 52 L.Ed.2d 386 (1977).

II

In Commissioner of Internal Revenue v. Kowalski, 434 U.S. 77, 98 S.Ct. 315, 54 L.Ed.2d 252 (1977), decided earlier this Term, the Court held that New Jersey's cash reimbursements to its highway patrol officers for meals consumed while on patrol duty constituted income to the officers, within the broad definition of gross income under § 61(a) of the 1954 Code, 26 U.S.C. § 61(a), and, further, that those cash payments were not excludable under § 119 of the Code, 26 U.S.C. § 119, relating to meals or lodging furnished for the convenience of the employer.

Kowalski, however, concerned the federal income tax and the issue of what was income. Its pertinency for the present withholding tax litigation is necessarily confined to the income tax aspects of the lunch reimbursements to the Company's employees.

The income tax issue is not before us in this case. We are confronted here, instead, with the question whether the lunch reimbursements, even though now they may be held to constitute taxable income to the employees who are reimbursed, are or are not "wages" subject to withholding, within the meaning and requirements of §§ 3401-3403 of the Code, 26 U.S.C. §§ 3401-3403 (1970 ed. and Supp. V). These withholding statutes are in Subtitle C of the Code. The income tax provisions constitute Subtitle A.

The income tax is imposed on taxable income. 26 U.S.C. § 1. Generally, this is gross income minus allowable deductions. 26 U.S.C. § 63(a). Section 61(a) defines as gross income "all income from whatever source derived" including, under § 61(a)(1), "[c]ompensation for services." The withholding tax, in some contrast, is confined to wages, § 3402(a), and § 3401(a) defines as "wages," "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." The two concepts—income and wages—obviously are not necessarily the same. Wages usually are income,⁵ but many items qualify as income and yet clearly are not wages. Interest, rent, and dividends are ready examples. And the very definition of "wages" in § 3401(a) itself goes on specifically to exclude certain types of remuneration for an employee's services to his employer (e. g., combat pay, agricultural labor, certain domestic service). Our task, therefore, is to determine the character of the lunch reimbursements in the light of the definition of "wages" in § 3401(a), and the Company's consequent obligation to withhold under § 3402(a).

Before we proceed to the resolution of that issue, however, one further observation about the income tax aspect of lunch reimbursements is in order. Although United States v. Correll, 389 U.S. 299, 88 S.Ct. 445, 19 L.Ed.2d 537 (1967), restricting to overnight trips the travel expense deduction for meal costs under § 162(a)(2), dispelled some of the confusion, it is fair to say that until this Court's very recent decision in Kowalski, the Courts of Appeals have been in disarray on the issue whether, under §§ 61 and 119 of the 1954 Code or under the respective predecessor sections of the 1939 Code, such reimbursements were income at all to the recipients.⁶ Thus, even the income tax character of lunch reimbursements was not yet partially clarified before the end of 1967, four full years after the tax year for which withholding taxes on lunch reimbursements are now being claimed from the Company in the present case, and were not entirely clarified until the Kowalski decision a fe weeks ago.

III

The Sixteenth, or income tax, Amendment to the Constitution of the United States became effective in February 1913. The ensuing Tariff Act of October 3, 1913, § II E, 38 Stat. 170, contained, perhaps somewhat surprisingly, a fairly expansive withholding provision.⁷ This, however, was repealed ⁸ and in due course came to be replaced with the predecessor of the current "information at the source" provisions constituting § 6041 et seq. of the 1954 Code, 26 U.S.C. § 6041 et seq.

The present withholding system has a later origin in the Victory Tax imposed by the Revenue Act of 1942, § 172, 56 Stat. 884. This, with its then new § 465(b) of the 1939 Code, embraced the basic definition of "wages" now contained in § 3401(a) of the 1954 Code. The Victory Tax was replaced by the Current Tax Payment Act of 1943, 57 Stat. 126, and was repealed by the Individual Income Tax Act of 1944, § 6(a), 58 Stat. 234. The structure of the 1943 Act survives to the present day.

In this legislation of 35 years ago Congress chose not to return to the inclusive language of the Tariff Act of 1913, but, specifically, "in the interest of simplicity and ease of administration," confined the obligation to withhold to "salaries, wages, and other forms of compensation for personal services." S.Rep.No.1631, 77th Cong., 2d Sess., 165 (1942).⁹ The committee reports of the time stated consistently that "wages" meant remuneration "if paid for services performed by an employee for his employer" (emphasis supplied). H.R.Rep.No.2333, 77th Cong., 2d Sess., 126 (1942); S.Rep.No.1631, 77th Cong., 2d Sess., 166 (1942); H.R.Rep.No.401, 78th Cong., 1st Sess., 22 (1943); S.Rep.No.221, 78th Cong., 1st Sess., 17 (1943); H.R.Rep.No.510, 78th Cong., 1st Sess., 29 (1943).

The current regulations also contain the "if" clause, Treas.Reg. on Employment Taxes, §...