Delta Logistics, Inc. v. Emp't Dep't Tax Section

JurisdictionOregon
Parties Delta Logistics, Inc., Petitioner, v. Employment Department Tax Section, Respondent.
Citation279 Or.App. 498,379 P.3d 783
Docket NumberA158021
CourtOregon Court of Appeals
Decision Date20 July 2016

Brad S. Daniels argued the cause for petitioner. On the opening brief was Jeffrey M. Wong. With him on the reply brief was Stoel Rives LLP.

Judy C. Lucas, Assistant Attorney General, argued the cause for the respondent. With her on the briefs were Ellen F. Rosenblum, Attorney General, and Anna M. Joyce, Solicitor General.

Before Ortega, Presiding Judge, and Lagesen, Judge, and Garrett, Judge.

GARRETT, J.

In this petition for judicial review, Delta Logistics, a “for-hire” interstate motor carrier, challenges an order of an administrative law judge (ALJ) for the Office of Administrative Hearings upholding the Employment Department's assessments of unemployment insurance taxes based on payments that Delta made to owner-operator truck drivers for the audit period from the third quarter of 2009 through the fourth quarter of 2010. We review the ALJ's order for substantial evidence and errors of law, ORS 183.482(8)(a) ; ORS 657.684 (providing for judicial review as in review of orders in contested cases in ORS chapter 183), and reverse the assessments.

The department's tax assessments are prima facie correct, ORS 657.683(4), and an entity challenging an assessment has the burden to establish that it was not the employer of the person performing the services or that the payments subject to the assessment are excluded from taxation for some other reason. Mitchell Bros. v. Emp. Div. , 284 Or. 449, 451, 587 P.2d 475 (1978).

The facts are largely undisputed. Delta is a for-hire carrier as defined in ORS 825.005(7)(a),1 and is licensed and authorized by the United States Department of Transportation (USDOT) to provide interstate motor transport. Under federal law, to ship freight in interstate commerce, a motor carrier must register with and be authorized by USDOT, and must comply with regulations promulgated by USDOT. A motor carrier may provide interstate transport services with leased vehicles, in compliance with federal statutes and regulations. 49 USC § 14102 ;2 49 CFR § 376.11 ; 49 CFR § 376.12.3

Delta does not own transport vehicles. During the audit period in question, Delta leased vehicles and used the services of approximately 40 contract drivers to make deliveries for customers within the continental United States and Canada. The drivers, in turn, either owned or leased their vehicles (owner-operators) or were hired by persons who owned or leased their vehicles.

Delta's agreements with owner-operators consisted of two documents:4 A “Lease Agreement” provided that the owner-operator “leased” the vehicle to Delta.5 The lease agreement did not separately describe the consideration for use of the vehicle.6 Another document, entitled “Owner Operator Contract,” stated that the owner-operator provided transportation services to Delta under Delta's carrier license and described Delta's compensation to the owner-operator, based on a percentage of gross revenue (less expenses) from the haul under Delta's carrier authority.7

In upholding the department's assessments, the ALJ determined that the services provided to Delta by the owner-operators8 constituted taxable employment under ORS 657.040(1),9 that Delta's payments for those services constituted wages within the meaning of ORS 657.105(1),10 and that Delta was an employer during the audit period within the meaning of ORS 657.025(1).11

Delta asserted that the services provided by its owner-operators were not employment under ORS 657.047,12 which exempts from employment [t]ransportation performed by motor vehicle for a for-hire carrier by any person that leases their equipment to a for-hire carrier and that personally operates, furnishes and maintains the equipment and provides service thereto.” In the order, the ALJ stated that the evidence was undisputed that Delta was a for-hire carrier, that it did not own trucks, and that the vehicles used to transport goods were furnished by the owner-operators, who either personally operated them or provided drivers for them. The ALJ also found that the owner-operators maintained their vehicles.

The ALJ nonetheless concluded that the ORS 657.047 exemption was not applicable because Delta's agreement with the owner-operators did not constitute a “lease” of the vehicle to Delta, as required by that statute. In the absence of a definition for “lease” in ORS chapter 657, the ALJ applied the “ordinary” meaning of the term. SeePGE v. Bureau of Labor and Industries , 317 Or. 606, 611, 859 P.2d 1143 (1993) (words of common usage should be given their plain, natural, and ordinary meaning). Citing Black's Law Dictionary and the definition of “lease” in ORS 72A.1030(1)(j), the ALJ reasoned that a lease for purposes of ORS 657.047 must transfer the “possession and use” of the vehicle, in exchange for payment of compensation. See also Thomas v. Foglio , 225 Or. 540, 553, 358 P.2d 1066 (1961) (in determining whether “legal possession” of a truck had passed so as to give rise to a lease, the court seeks to determine “which party has that measure of control of the equipment which the law regards as the more significant”). The agreement that Delta had with its owner-operators, the ALJ concluded, did not give rise to a transfer of legal possession and use of the vehicle in exchange for compensation.

The ALJ rejected Delta's contention that the legislative history of ORS 657.047 shows an intention to give “lease” an industry-specific meaning different from its ordinary meaning. See Zimmerman v. Allstate Property and Casualty Ins. , 354 Or. 271, 280, 311 P.3d 497 (2013) (when a term has acquired a specialized meaning in a particular industry or profession, the court assumes that the legislature used the term consistently with that specialized meaning). The ALJ reasoned that usage in the trucking industry did not have any bearing on Oregon's unemployment insurance taxation scheme and concluded Delta had not met its burden to show that the Oregon legislature intended a specialized rather than ordinary meaning for the term “lease.”

But the ALJ nonetheless reasoned that, even under the trucking industry definition of “lease,” Delta's agreements with owner-operators were not sufficient to qualify for the ORS 657.047 exemption. The ALJ noted that 49 CFR section 376.2(e), which applies to interstate motor carriers, defines a lease as [a] contract or arrangement in which the owner grants the use of equipment, with or without driver, for a specified period to an authorized carrier for use in the regulated transportation of property, in exchange for compensation.” The ALJ cited federal regulations that require that a lease of equipment to a motor carrier for interstate transport transfer “exclusive possession and control” of the equipment in exchange for compensation. 49 CFR § 376.12(c)(1). The ALJ concluded that Delta's agreement with owner-operators failed as a lease because it did not transfer possession and control, and did not provide compensation to the owner-operator for use of the vehicle.

On judicial review, Delta challenges the ALJ's interpretation of ORS 657.047. Instead of making a textual argument, Delta asserts that the ALJ's interpretation is inconsistent with the statute's legislative history, which, Delta continues to argue, shows an intention to apply the meaning of “lease” as it is understood within the interstate trucking industry. Delta notes that the federal regulation's definition of “lease,” 49 CFR section 376.2(e), does not include an explicit requirement for a transfer of possession and control of the equipment. But, Delta neglects to mention the other regulations that do impose such a requirement. For example, 49 CFR section 376.12 requires that a lease “provide that the authorized carrier lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease.” Delta does not explain how, if at all, the federal requirement for “exclusive possession, control, and use” differs substantively from the definition of lease applied by the ALJ. Instead, Delta asserts that its leases necessarily complied with ORS 657.047 because they have been approved for intrastate and interstate transport by state and federal regulatory authorities.

With respect to the issue of compensation for use of the vehicle, Delta asserts that the documents must be considered in their entirety and that, when so construed, they unambiguously provide compensation to the owner-operators for the driver's services and for the use of the vehicles.

Finally, Delta contends that, if and to the extent that the documents are “defective” because they do not contain all of the elements required for a lease, it is the nature of the underlying relationship that controls, as shown through the documents interpreted as a whole and evidence extrinsic to the documents presented at the hearing. Delta contends that that evidence shows that its relationship with the owner-operators qualifies as a lease under Oregon law.13

In addressing Delta's contentions on judicial review, we begin with the disputed statutory text. State v. Gaines , 346 Or. 160, 171–72, 206 P.3d 1042 (2009) (setting forth familiar interpretive methodology, examining the statute's text, context, and relevant legislative history, as well as any applicable maxims of statutory construction, to determine the legislature's intent in enacting a statute). ORS 657.047(1) provides an exemption from employment for [t]ransportation performed by motor vehicle for a for-hire carrier by any person that leases their equipment to a for-hire carrier and that personally operates, furnishes and maintains the equipment and provides service thereto.” At the outset, we observe that, assuming the applicability of the ordinary definition of a “lease,” the statutory text sets forth seemingly contradictory requirements: the...

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