Indian Refining Co. v. Dallman, 68.

• Decision Date: 17 February 1940
• Docket Number: No. 68.,68.
• Citation: 31 F. Supp. 455
• Parties: INDIAN REFINING CO. v. DALLMAN, Collector of Internal Revenue.
• Court: U.S. District Court — Southern District of Illinois

31 F. Supp. 455

INDIAN REFINING CO. v. DALLMAN, Collector of Internal Revenue.

No. 68.

District Court, S. D. Illinois, S. D.

February 17, 1940.

Booth & Conner, of Louisville, Ky., and Giffin, Lindner, Newkirk & Jones, of Springfield, Ill. (James T. Nielsen, of Chicago, Ill., of counsel), for plaintiff.

Alden, Latham & Young, of Chicago, Ill., for intervener.

Howard L. Doyle, U. S. Atty., and Marks Alexander, Asst. U. S. Atty., both of Springfield, Ill., and Thomas G. Carney, Atty., Tax Division, Department of Justice, of Washington, D. C., for defendant.

BRIGGLE, District Judge.

The Indian Refining Company, a Maine corporation, having a principal place of business at Lawrenceville, Illinois, filed its bill of complaint herein on November 13, 1939, against Vincent Y. Dallman, United States Collector of Internal Revenue, for the Eighth Collection District of Illinois, to recover certain sums paid by it under protest as taxes under Titles VIII and IX of the Social Security Act of August 14th, 1935, 42 U.S.C.A. §§ 1001-1110, with respect to certain compensation paid by it during the years 1938 and 1939, as commissions to Frank J. Kolb, its consignee at Paducah, Kentucky.

The question for determination is whether Kolb and his assistants were employees of the Indian Refining Company within the meaning of the taxing act in question.

Under Sections 801 and 804 of Title VIII, 42 U.S.C.A. §§ 1001, 1004, which is now known as the "Federal Insurance Contributions Act," taxes were levied on employees and employers respectively, equal to certain percentages of the wages received by and paid to them with respect to employment during the calendar year 1937 and succeeding years. Under Section 901 of Title IX, 42 U.S.C.A. § 1101, which is now known as the "Federal Unemployment Tax Act," taxes were levied on employers equal to certain percentages of the total wages payable by such employers with respect to employment during the calendar year 1936 and succeeding years. It is further provided by Title IX that the taxpayer may credit against the tax imposed by Section 901 the amount of contributions, with respect to employment during the taxable year, paid by him into an unemployment fund, under a state law which may be certified by the states and submitted to and approved by the Social Security Board, not to exceed 90% of the tax with which the taxpayer is credited.

The Social Security Act, in both Titles VIII and IX, defines "employment" as used in the Act, as "any service, of whatever nature, performed within the United States by an employee for his employer, except * * *." See Section 811(b), and 907(c), 42 U.S.C.A. §§ 1011(b), 1107(c).

Regulations defining the term "employment," known as 90 and 91, were duly prescribed and approved by the Commissioner of Internal Revenue pursuant to the provisions of said two titles and other provisions of the Internal Revenue laws, on February 17, 1936 (relating to Title IX), and on November 9, 1936 (relating to Title VIII). In both of said regulations it was specifically provided that to constitute an "employment" under the provisions of said two titles, "the legal relationship of employer and employee must exist." By said regulations certain rules were stated in accordance with which it could be determined whether such legal relationship exists. Those regulations contain the following provisions: "* * * Generally such relationship exists when 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 to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. * * *"

The Indian Refining Company as consignor entered into two consignment agreements with Frank J. Kolb, of Paducah, Kentucky, as consignee, the first dated February 1, 1937, and the second dated February 1, 1939, whereby it contracted with Kolb for the marketing and distribution of the consignor's products at two particular points, Paducah, Kentucky, and Mayfield, Kentucky. The company erected a bulk station at Paducah, Kentucky, in which Kolb operated his business as consignee, and in connection with which Kolb invested the sum of approximately $6,000 in trucks, pumps, air compressors and office equipment, used in the operation of the bulk plant. Kolb, himself, erected early in 1939 a bulk station at Mayfield, Kentucky, and invested approximately $6,500 in real estate, storage tanks, trucks, pumps, air compressors and office equipment, which he used in this consignment business. Kolb employed five individuals at the Paducah plant and two individuals at the Mayfield plant.

The question whether Kolb and his assistants were employees of the Indian Refining Company under Titles VIII and IX of the Social Security Act was submitted by the Indian Refining Company to the Commissioner of Internal Revenue, who ruled, on September 15, 1939, that they were such employees. Accordingly, the Indian Refining Company filed returns under Titles VIII and IX on September 30, 1939, and thereafter on October 2, 1939, paid under protest taxes under Title IX in the sum of $380.97, with respect to the wages of Kolb and his employees for the calendar year 1938; and also paid under protest taxes under Title VIII in the sum of $84.42, with respect to the wages of Kolb and his employees for the second quarter of the calendar year 1939. The periods covered by these two payments were the respective periods under each title immediately preceding the dates of said payments. Claims for refunds under both titles were duly made and denied. The complaint of the Indian Refining Company demanded judgment for these two sums thus paid, with interest thereon. The defendant answered admitting the formal allegations of the complaint, and denying other allegations including the allegation of the Fourteenth paragraph thereof, reading as follows: "Fourteenth: Plaintiff has at no time supervised, directed or controlled the manner or the details of any work performed or engaged in by the said Frank J. Kolb, or his employees, pursuant to the aforesaid Consignment Agreements or otherwise."

Frank J. Kolb, consignee under the consignment agreements above referred to, presented a motion asking leave to intervene in this action as party plaintiff, alleging that the representation of his interests by the Indian Refining Company is or may be inadequate; that he will be bound by judgment in the action; that his claims under the consignment agreements and the main action have questions of law and fact in common; and that his intervention will not, to any extent, delay or prejudice the adjudication of the rights of the original parties. Kolb's motion to intervene was argued before the trial of the main action. Kolb points out that under clause sixth of the consignment agreements he is obligated as consignee to pay "any and all premiums, contributions and taxes for * * * unemployment insurance and for old age pensions, annuities and retirement benefits, now or hereafter imposed by or pursuant to federal and state laws, which are measured by the wages, salaries or other remuneration paid to persons employed as consignee in connection with the performance of this contract;" and that he is further obligated as consignee "to indemnify and hold consignor harmless against any liability for any such premiums, taxes or contributions representing consignee's employees which may be assessed against consignor." Kolb argues that he is in effect the real party in interest in this controversy, as the above clause of the agreements makes him liable to the Indian Refining Company for any taxes with respect to the wages of his employees which that company has to pay.

It is unnecessary to decide whether or not Kolb has the right to intervene under Rule 24(a) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, on the ground that the representation of his interests by the Indian Refining Company is or may be inadequate; for the Court is of the opinion that Kolb should be permitted to intervene in this proceeding, by reason of the fact that his interest under clause sixth of the consignment agreements makes him the person ultimately liable, and as this action may determine such liability. Under clause sixth of the...