Tapager v. Birmingham, Civil Actions No. 284

• Decision Date: 16 January 1948
• Docket Number: Civil Actions No. 284,375.
• Parties: TAPAGER v. BIRMINGHAM (two cases).
• Court: U.S. District Court — Northern District of Iowa

75 F. Supp. 375

TAPAGER v. BIRMINGHAM (two cases).

Civil Actions Nos. 284, 375.

District Court, N. D. Iowa, Central Division.

January 16, 1948.

COPYRIGHT MATERIAL OMITTED

Leslie L. Boomhower, of Mason City, Iowa, for plaintiff.

T. E. Diamond, U.S. Dist. Atty., and Wm. B. Danforth, Asst. U. S. Dist. Atty., both of Sioux City, Iowa, and Ruppert Bingham, Sp. Asst. to Atty. Gen., for defendant.

GRAVEN, District Judge.

Cases involving the question of whether certain salesmen and salesman-collectors, whose sales activities consisted of selling household furnishings, had the status of employees under the Social Security Act and the Federal Unemployment Tax Act. These two actions which were consolidated for the purpose of trial were brought by R. W. Tapager as a taxpayer for the recovery of and relief from collection of taxes, penalties, and interest assessed on him by the defendant, E. H. Birmingham, Collector of Internal Revenue for the District of Iowa. The taxes were assessed under Title IX of the Social Security Act, as amended, relating to taxes on employers of eight or more, and under the Federal Unemployment Tax Act. 42 U.S.C.A. § 1101, 26 U.S.C.A. Int.Rev.Code, § 1600.

The plaintiff paid under protest the amount of such taxes for the years of 1936, 1937, 1938, and 1939, and filed claims for refund therefor. The Collector has been and is asserting that the plaintiff owes such taxes for the years of 1941, 1942, and 1943, and has been proceeding to enforce the collection of them. In Civil No. 284, the plaintiff seeks to recover the amount of the taxes paid under protest for the year of 1936. In that same action the plaintiff asks that the Collector be enjoined from collecting or attempting to collect the claimed taxes for the years of 1941, 1942, and 1943. In Civil No. 375, the plaintiff seeks to recover the taxes paid under protest for the years of 1937, 1938, and 1939.

The plaintiff is a resident of Mason City, Cerro Gordo County, Iowa. He is now and, for a number of years, has been engaged in the household furnishing business under the trade name of R. W. Tapager & Company. At various times during the tax periods involved, the plaintiff maintained stores at Mason City, Iowa, Marshalltown, Iowa, Waterloo, Iowa, Cedar Rapids, Iowa, Muscatine, Iowa, Austin, Minnesota, and Rock Island, Illinois. In 1943, the last tax period in question, he maintained stores only at Cedar Rapids, Waterloo, and Mason City, Iowa. During the tax periods in question, the plaintiff was engaged in the sales distribution of curtains, silverware, linoleum, and related household furnishings purchased by him. The plaintiff, in connection with his business operations, employed bookkeepers, auditors, and managers whose status as employees under the Social Security Act is not here in controversy. The plaintiff employed some persons who sold goods in the plaintiff's stores and who were paid salaries. The status of those employees under the Social Security Act is not here in controversy. The controversy in these cases is over the status under the Social Security Act of those whose activities in the plaintiff's business distinguished them as salesmen and salesman-collectors.

The number of the plaintiff's employees during the tax period in question, aside from those whose status is in question, has always been below eight. If those whose status is in question did not have the status of employees under the Social Security Act, then the plaintiff was not subject to the taxes herein involved. If, however, they did have the status of employees, then the plaintiff was subject to the taxes involved.

The first group whose status is in controversy consisted of those referred to as salesmen. The salesmen worked either full or part time. They were not allowed to sell in the stores maintained by the plaintiff. They sold goods furnished to them by the plaintiff, to customers who were contracted in their homes, and other places. The goods were either sold outright for cash or were placed with a customer under a rental agreement by which the customer could, through the payment of rent, acquire ownership of the goods. The price at which the goods could be sold or rented was fixed by the plaintiff. The plaintiff checked goods out of his stores to the salesmen for use as samples, for sale, or for placing with a customer under rental agreements. In all cases when goods were checked out to a salesman, he signed an agreement that the goods were held by him as a bailee in trust, and that, except as bailee, he had "no interest, title, or ownership in said goods." Under that agreement a salesman either had to return the goods or the minimum agreed price thereof, or a contract for their sale or rental. The salesmen were paid on a commission basis of ten per cent or twenty per cent of the price of the goods sold, varying according to the different kinds of goods involved. Salesmen received commissions both on outright sales and on goods placed with a customer under a rental agreement. Where goods were sold outright, the salesmen retained their commission from the purchase price and turned in the balance to the plaintiff. Where goods were placed with a customer under a rental agreement, the salesmen generally retained their commission from the down payment. In cases where the amount of the down payment was insufficient to cover the commission due, the salesmen could draw upon the plaintiff for the balance of the commission. In such cases the salesmen signed an I.O.U. to the plaintiff. The I.O.U. would be cancelled when the plaintiff received sufficient payments from the customer to equal the commission. Where goods were placed with a customer under a rental agreement by a salesman, the salesman was not authorized to collect any payments except the down payment.

The second group whose status is in controversy consisted of those referred to as salesman-collectors. The salesman-collectors sold goods in the same manner as the salesmen. Such salesman-collectors had the additional duties of collecting the rentals due under the rental agreements turned in by the salesmen and of repossessing goods where there was a default in rental payments. Such salesman-collectors, in addition to receiving the commissions paid to salesmen, also received commissions on collections of rental payments. In a few instances such salesman-collectors were placed on a salary or given a guaranteed drawing account. Under the drawing account arrangement, the salesman-collectors were guaranteed a weekly minimum amount. If the commission of such salesman-collectors did not come up to the minimum, they would give the plaintiff an I.O. U. for the difference. Such salesman-collectors were expected to make up the difference by future commissions. The turnover of the sales force was generally high, with only a small number of sales personnel remaining in the work for any long period of time. No particular hours were prescribed by the plaintiff for either part time or full time work. Many of the sales force owned automobiles which they used in connection with their work, personally paying the cost and expense of their operation. The plaintiff had liability insurance written upon such automobiles. Those policies ran in favor of the plaintiff and the owner of the automobile. The plaintiff in the first instance paid the premiums on such policies, but was eventually reimbursed therefor by the owners of the automobiles. It does not appear that it was a requirement of the plaintiff that the salesmen own or have the use of an automobile.

The area in which the members of the sales force were permitted to sell was for all practical purposes unrestricted. The area covered by a salesman-collector was necessarily governed somewhat by the areas covered by the salesmen whose transactions gave rise to collections. The members of the sales force were given no orders or lists of prospective customers, and generally no particular area was mapped out for them to cover. The plaintiff could at any time demand back his goods from any member of the sales force and terminate relations with him. The plaintiff testified that grounds for terminating the relationship were embezzlement, dishonesty, drunkenness, laziness, or the committing of a misdemeanor. The members of the sales force were expected to report at a particular store of the plaintiff once a week as to their recent sales and rental agreements. While there existed a general understanding that they were to report once a week, where the members of the sales force had no duties except selling, the time for reporting often varied with the amount and extent of their sales activities. The salesman-collectors were required to turn in their collections once a week, at which time they would be paid their commissions. In cases of dafault under rental agreements, repossessions were made of the goods involved, either by the salesman-collectors or by the store managers acting either on their own volition or on orders from the plaintiff. The functions performed by the salesmen and salesman-collectors were of great importance in the sales distribution of the goods handled by the plaintiff, and the activities of the salesmen and salesman-collectors were closely integrated into the plaintiff's business.

The Social Security Act was originally enacted in 1935. Title IX of that Act imposed taxes on employers of eight or more. In 1939 the provisions of the Social Security Act relating to such taxes were coordinated into the Internal Revenue Code and now appear in Subchapter C, Title 26, U.S.C.A. Int. Rev. Code. The provisions of that Subchapter relating to such taxes are known as the Federal Unemployment Tax Act.

Under the Social Security Act and the Federal Unemployment Tax Act, it is provided that a taxpayer may credit against the taxes imposed by those acts payments made by him into a state unemployment fund up to ninety per cent of the taxes. The State of Iowa has made...