Professional Samplers, Inc. v. SCESC
Decision Date | 16 February 1999 |
Docket Number | No. 2944.,2944. |
Citation | 513 S.E.2d 374,334 S.C. 392 |
Parties | PROFESSIONAL SAMPLERS, INC., Appellant, v. SOUTH CAROLINA EMPLOYMENT SECURITY COMMISSION, Respondent. |
Court | South Carolina Court of Appeals |
Lex A. Rogerson, Jr., of Lexington; and B.W. Enlow, of Columbia, for appellant.
H.W. Funderburk, Jr., of SC Employment Security Commission, of Columbia, for respondent.
Professional Samplers, Inc. (Samplers) appeals from a South Carolina Employment Security Commission (Commission) decision holding Samplers' product demonstrators are employees for purposes of state unemployment insurance coverage. Samplers argues its compliance with the Commission's determination is preempted by federal law. We disagree and affirm.
Samplers contracts with food distributors, manufacturers, and retailers to provide personnel to demonstrate products, primarily by distributing samples and advertising materials. Product demonstrators are frequently seen in supermarkets offering prepared food samples. The demonstrators are often retired individuals who work intermittently, often with several agencies. Samplers describes its demonstrators as "casual laborers."
Samplers historically has treated its demonstrators as independent contractors rather than employees. On February 15, 1995, a Commission employee issued a determination that the demonstrators were employees and that Samplers must file all future state unemployment tax returns consistent with this determination. After a hearing on July 31, 1995, the hearing officer upheld the determination. The Commission affirmed by order dated January 31, 1997. On appeal to the circuit court, Samplers conceded that the facts supported the Commission's finding that the demonstrators were properly classified as employees. Samplers contended, however, that it would forfeit a "safe haven" available under federal law if it were forced to comply with the Commission's ruling. The circuit court affirmed. Samplers appeals.
The scope of this court's review is governed by South Carolina Code section 1-23-380(A)(6) (Supp.1998). We may reverse or modify an administrative decision "if such decision is affected by errors of law, characterized by an abuse of discretion, or clearly erroneous in view of the substantial evidence on the whole record." Todd's Ice Cream, Inc. v. South Carolina Employment Sec. Comm'n, 281 S.C. 254, 258, 315 S.E.2d 373, 375 (Ct.App.1984) ( ), cert. denied (July 25, 1984).
Because Samplers concedes that its demonstrators are properly classified as employees under the common-law "right to control" standard,1 the sole issue on appeal is whether Samplers' compliance with the Commission's decision is preempted by operation of federal law. Samplers argues its qualification for a safe haven under the Revenue Act of 1978, section 530 (as amended), Internal Revenue Code section 3401 note (1986) [hereinafter section 530] allows it to avoid complying with the Commission's determination under preemption principles. We disagree.
Samplers has enjoyed the benefits of a statutorily created safe haven under section 530, which states in part:
§ 530(a)(1)(A)-(B). The statute then enumerates several standards, any one of which will satisfy the condition precedent of a reasonable basis for not treating workers as employees. § 530(a)(2). Samplers has qualified under the long-standing industry practice standard. § 530(a)(2)(C).
Remaining qualified for the safe haven requires consistency in treatment. It will not apply if the taxpayer has treated any individual in a similar position as an employee for purposes of employment taxes for any period2 after December 31, 1977. § 530(a)(3). While the IRS has acknowledged Samplers' qualification for the safe haven, it has also acknowledged that it considers the demonstrators to be employees rather than independent contractors. Accordingly, any change in Samplers' treatment of these individuals for employment taxation purposes will eliminate the safe haven that Samplers currently enjoys. The Commission's determination that the demonstrators are employees will no longer make consistency of treatment possible for Samplers.
Samplers argues the Commission's determination makes compliance with both federal and state law in this situation impossible. If it complies with state law, it will lose its federal safe haven and be subject to federal tax liability. See § 530. If it complies with federal law, it will be subject to penalties for not complying with state law. See S.C.Code Ann. §§ 41-31-350, 41-41-50. Thus, it contends an actual conflict exists such that the state law must be preempted. Samplers argues further that forcing it to comply with state law would thwart the objectives and purposes Congress intended when enacting the federal law. We disagree.
104 S.Ct. 2518; Tarallo v. Searle Pharm., Inc., 704 F.Supp. 653, 658 (D.S.C.1988); Peoples Program for Endangered Species v. Sexton, 323 S.C. 526, 530, 476 S.E.2d 477, 480 (1996).
We do not think our state law creates an obstacle to the fulfillment of federal objectives. The purpose of section 530 was to curb the IRS's practice of reclassifying subcontractors as employees for federal unemployment taxation purposes; it was aimed at controversies arising from "overzealous" IRS tax collection activity. Ren-Lyn Corp. v. United States, 968 F.Supp. 363, 366 (N.D.Ohio 1997) (citations omitted). By preventing the IRS from reclassifying workers without good cause, section 530 protects "individuals whom taxpayers in good faith treated as independent contractors provided the taxpayers fulfilled tax filing requirements."3 H.R.Conf.Rep. No. 95-1800, at 271 (1978), reprinted in Internal Revenue Acts, 1977-1979, at 1154 (West 1981). There is no indication in the act or its legislative history that a wider purpose was intended. Cf. Michigan Canners & Freezers,467 U.S. 461,104 S.Ct. 2518,81 L.Ed.2d 399 ( ).
We also do not think there is an actual conflict sufficient to warrant preemption. Samplers' argument that compliance with both state and federal laws is impossible is not relevant in this situation. The Federal Unemployment Tax Act (FUTA), codified as I.R.C. § 3301 et seq. (1986), clearly envisions complementary state legislation. I.R.C. §§ 3302-04. However, section 530 is not a part of FUTA and is not a mandatory federal law with which every taxpayer who may be subject to unemployment tax liability must comply; it is merely an option afforded to those who do qualify. Taxpayers who do not qualify for section 530's protections are many, and yet they easily comply with both state and federal unemployment tax laws. Samplers' inability to comply with the consistency requirement if it treats its workers as employees on its state returns does not affect its ability to comply with the overall federal scheme of unemployment taxation.
Moreover, in defining the construction of our statutory scheme, the South Carolina legislature has stated:
Nothing in [the South Carolina Employment Security Law] Chapters 27 through 41 of [Title 41] ... shall be construed to cause the Commission or the courts of this State in interpreting such chapters to be bound by interpretations as to liability or...
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