Texas Co. v. Higgins
| Decision Date | 28 March 1940 |
| Citation | 32 F. Supp. 428 |
| Parties | TEXAS CO. v. HIGGINS, Collector of Internal Revenue. |
| Court | U.S. District Court — Southern District of New York |
Albert E. Van Dusen, of New York City (Leo T. Kissam, Albert E. Van Dusen, and J. Francis Hayden, all of New York City, of counsel), for plaintiff.
John T. Cahill, U. S. Atty., of New York City, Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Thomas G. Carney, Sp. Assts. to Atty. Gen., for defendant.
This action seeks a refund of social security taxes assessed and paid by the plaintiff. The taxes were assessed pursuant to Title VIII of the Federal Social Security Act of August 14, 1935, 42 U.S. C.A. § 1001 et seq. This act was amended in 1939 and is now known as the "Federal Insurance Contributions Act", 26 U.S.C.A. Int.Rev.Code, § 1400 et seq. The plaintiff paid the taxes for the calendar year 1937 and the first two quarters of 1938. The claim for refund was filed and rejected and this action for $777.66 followed.
Specifically, the assessment was made pursuant to Section 801 and 802(a) of the Federal Social Security Act which deals with "employees' taxes". The basis for the assessment is the government's claim that an employer and employee relationship existed between the plaintiff and one J. E. Thomas of Marion, Virginia from January 1, 1937, to December 31, 1937. In other words, that Thomas and anyone employed by him are employees of The Texas Company for the purposes of the taxing provisions of the Federal Social Security Act.
A contrary position is taken by the plaintiff. It urges that Thomas is an independent contractor; that any individuals engaged by him are his employees and not those of the plaintiff; that in any event, Thomas is not an employee of the plaintiff within the meaning and intent of the Federal Social Security Act. The issue therefore is the determination of the status of Thomas during the period from January 1, 1937, under a consignment agreement entered into between the plaintiff and Thomas for the sale and distribution of the plaintiff's product.
The regulations of the Bureau of Internal Revenue relating to the employees' tax and the employers' tax under Title VIII of the Federal Social Security Act designated as "Regulations 91" and refer to the meaning of employment, employees and employers. It says in part:
The government claims that a consideration of the consignment agreement read in the light of the aforesaid regulation leads to the conclusion that Thomas is an employee of The Texas Company. The question to be decided is not one of first impression. As recently as February 16, 1940, Judge Briggle of the United States District Court for the Southern District of Illinois, in the case of Indian Refining Company v. Dallman, D.C., 31 F.Supp. 455, 458, had before it the precise question raised in the present action. There the decision was in favor of the plaintiff, holding that the consignee was an independent contractor, and that the plaintiff was under no obligation to pay social security taxes for its consignee.
The government concedes that the facts in the instant case are substantially similar to the facts in the Dallman case and has not attempted to distinguish that case from the one at bar. But it is earnestly submitted that the conclusions reached there are erroneous and this court is asked for an opposite ruling. I might state that while I am not bound by that decision it is entitled to great weight. I have had the benefit of a transcript of the colloquy between court and counsel, as well as a lengthy and carefully reasoned opinion by Judge Briggle.
To consider minutely the terms and conditions of the consignment agreement at bar would serve no useful purpose and would unduly prolong this opinion. Suffice to say that from the agreement and the evidence adduced at the trial, it appears that Thomas is the sole owner of the bulk plant, real estate, tanks and personal property where the plaintiff's product is sold. That Thomas has sole control over the hiring and firing of such employees necessary for the sale and distribution of the plaintiff's product; that Thomas pays all expenses incidental to the operation of the plant, together with advertising; that Thomas personally paid the social security taxes due with respect to his employees.
The government, on the other hand, submits that Thomas was obliged to account to the plaintiff on forms provided by it; that the plaintiff has an option to terminate the agreement with Thomas...
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