Livezey v. Commissioner

*806 The Commissioner determined a deficiency in income tax for the calendar year 1923 of $355.09. The petitioner filed his petition seeking a redetermination of such deficiency and alleging that the Commissioner erred in holding the petitioner was not an officer or employee of the State of West Virginia, and that certain payments for services made by such State were not exempt from Federal income tax.

FINDINGS OF FACT.

Petitioner is and during the year 1923 was an attorney at law residing at Huntington, W. Va.

On September 1, 1921, E. F. Morgan, Governor of West Virginia, appointed petitioner attorney for the Public Service Commission, *807 which position he has held continuously ever since, including the taxable year in question. The appointment reads as follows:

SEPTEMBER 1, 1921.

Honorable FRED M. LIVEZEY,

Charleston,*2787 West Virginia.

My DEAR Mr. LIVEZEY: I am pleased to advise you that you have been appointed Attorney for the Public Service Commission of West Virginia and expected to assume the duties of said position on September 1, 1921.

With kindest regards, I am,

Yours very truly,

(Signed) E. F. MORGAN,

Governor.

EFM-M

Petitioner accepted the appointment, discharged the duties, and his salary was fixed at $5,000 per year, payable monthly, by order of the commission. He received that amount as salary during 1923.

The services rendered during 1923 consisted of being legal adviser to the commission and rendering written opinions on legal questions submitted to him by it, representing the commission in all litigation in the State and Federal courts, and appearing in hearings before the commission when specially requested, or when the people were not represented.

Petitioner's employment was continuous and his duties and services were of a miscellaneous character such as usually appertain to a legal adviser or assistant to a public service commission, exercising governmental functions.

During 1923 petitioner was engaged in the practice of law in a partnership and resided*2788 at Huntington, W. Va. The principal office of the Public Service Commission was at Charleston, the State capital, about 50 miles away. Petitioner visited the office of the commission on an average of twice a week, but did a great deal of his work at his office in Huntington, such as the preparation of written opinions, legal documents, briefs, and similar papers. He was not required by the commission to spend any specific number of days at the office, or hours in his work, but merely to perform his required duties in a reasonable time.

It was his custom to give preference to his official duties over the demands of his private practice, except in an emergency. The nature of the questions propounded by the commission related to the regulation of public utilities, the fixing of rates and the regulation of their duties and responsibilities to the public and the trial of cases before the commission and the courts related to the exercise of governmental functions. In the preparation and trial of cases he conferred with the commission as to the facts and the policy to be *808 assumed by the commission, which was largely determined and controlled by the commission.

Chapter*2789 150, Barnes' West Virginia Code, 1923, provides for the establishment and appointment by the Governor of a Public Service Commission of that State and prescribes its duties, powers and jurisdiction. Its jurisdiction extends to the making of rates, hearing of complaints against and general supervision and control over public utilities such as common carriers, telegraph, telephone and pipe line companies, gas and electric companies, water companies, and municipalities or other agencies engaged in similar public service. The commission is given power to appoint a secretary and such other employees as may be necessary to carry on its business and to fix their compensation.

In section 1 of chapter 150, it is provided:

The attorney general shall perform legal services under this act when required by the commission; provided, however, that the governor may appoint counsel for the commission, who shall act as legal adviser to the commission, and who shall perform such other legal services in representing the people in matters under the jurisdiction of the commission as the governor shall direct. It shall be the duty of such counsel to appear for the people in all cases where they are*2790 not represented by counsel, but he shall not have control of cases, either before the commission or on appeal therefrom, where the people are represented by counsel. The compensation of such counsel shall be fixed by the commission and he shall be paid as other employees of the commission.

Petitioner was an employee of the State of West Virginia during the year 1923.

OPINION.

MILLIKEN: Section 1211 of the Revenue Act of 1926 is as follows:

Any taxes imposed by the Revenue Act of 1924 or prior revenue acts upon any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any state or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to the statutory period of limitations properly applicable thereto, be abated, credited, or refunded.

The question of whether or not a taxpayer is a state official, or employee, or an independent contractor who rendered services for the State, has been before the courts and this Board in a number of cases. The compensation of a state official or employee is exempt from income taxation*2791 while that of the independent contractor is not. The difficulty in most cases is to distinguish a state employee from an independent contractor, and each case must depend largely upon its facts. The chief distinction is that the state official or employee is in the regular continuous service of the State, with varied duties and transactions, while the independent contractor is engaged to render a particular service in one or a number of specific *809 transactions and is free to determine what is to be done and the manner of performance. This distinction is pointed out in Louisville, Evansville & St. Louis R.R. Co. v. Wilson,138 U.S. 501, as follows:

The terms "officers" and "employees" both, alike, refer to those in regular and continual service. Within the ordinary acceptation of the terms, one who is engaged to render service in a particular transaction is neither an officer nor an employee. They imply continuity of service, and exclude those employed for a special and single transaction. An attorney of an individual, retained for a single suit, is not his employee. It is true, he has engaged to render services; but his engagement is rather that*2792 of a contractor than that of an employee.

See also Metcalf & Eddy v. Mitchell,269 U.S. 514; Robert G. Gordon,5 B.T.A. 1047; David A. Reed,13 B.T.A. 513; and Geo. I. Haight,14 B.T.A. 844.

In this case the position of attorney or counsel for the Public Service Commission is provided for by statute, the petitioner was duly appointed thereto by the Governor, and he was paid a yearly compensation by the State. This service was continuous and his duties were miscellaneous, partly prescribed by statute, partly by the Governor, and partly by the commission. He was assisting in the performance of important governmental functions and we are of opinion that he was an employee of the State of West Virginia. The mere fact that he was also engaged in private practice does not change the character of his employment with the State.

In the recent case of Blair v. Mathews, 29 Fed.(2d) 892, on appeal from this Board, the facts were similar to those in the case at bar, Mathews, the taxpayer, became County Attorney of Duval County, Florida, under a contract between him and the county commissioners, *2793 whereby for a salary of $200 a month he agreed to attend to all legal matters for the county, attending meetings of the commissioners, giving advice on routine matters coming before the commissioners and defending or prosecuting lawsuits in which the county was interested. There were approximately two meetings a week, but taxpayer was always at the beck and call of the commissioners. During the taxable year taxpayer continued his private practice and maintained a separate private law office. The court, in holding the compensation received as county attorney exempt from income tax, affirmed this Board and said:

The Board of County Commissioners is a governing body for the county. Its powers and duties are defined by statute. Revised General Statutes of Florida, 1920, Section 1475 et seq. It is empowered to represent the county in the prosecution and defense of all legal causes, to issue bonds for the purpose of erecting a court house, a jail, or to build or construct roads, to alter, lay out, maintain, establish, vacate or discontinue any road or highway within the county, to apportion and order the levy of all county taxes, and to perform other duties and acts authorized by*2794 law. It is not open to question that in *810 acquiring the right to the taxpayer's services by the contract above mentioned the Board of County Commissioners exercised a power conferred on it for governmental purposes. If that contract had the effect of making the taxpayer an employee of the county or of the Board of County Commissioners, the following provision of the Revenue Act of 1926, (44 Stat. 95130), keeps his compensation for his services as such employee from being subject to the Federal income tax:

"SEC. 1211. Any taxes imposed by the Revenue Act of 1924 or prior revenue Acts upon any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any state or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to the statutory period of limitations properly applicable thereto, be abated, credited, or refunded."

The contract bound the taxpayer for a period of two years to attend to all legal matters for the county. He was not engaged to accomplish any particular result in a way chosen by himself, but was*2795 obligated to render any legal service for the county to which at any time during the period mentioned he was assigned by the Board of County Commissioners. One whose services are so at the command of another for a definite time is an employee of the latter, though the services contracted are legal services of a lawyer, who is not forbidden to render professional services to others. Seaboard Air Line Railway v. Continental Trust Co.,166 Fed. 597.

But, whether the taxpayer was or was not an employee of Duval County or its governing body, his compensation for services rendered under the contract was not subject to the Federal income tax if in rendering those services he acted as an agency or instrumentality through which the Board of County Commissioners exercised governmental powers conferred upon it. McCulloch v. Maryland,4 Wheat. 316; Gillespie v. Oklahoma,257 U.S. 501; Metcalf & Eddy v. Mitchell,269 U.S. 514; Panhandle Oil Co. v. State,297 U.S. 218. All of the services called for by the contract were with reference to matters as to which the Board of County Commissioners*2796 exercised purely governmental powers. The taxpayer's rendition of those services was a means whereby that Board exercised those powers. There is nothing to indicate that any legal service contracted for or which was rendered by the taxpayer under the contract was in a matter as to which the Board of County Commissioners acted otherwise than in the exercise of its powers or the performance of its duties as a governing body. We are of opinion that the agency created by the contract and exercised under it was so intimately connected with the performance of governmental functions by the Board of County Commissioners that Federal taxation of the taxpayer's compensation for those services would be an unauthorized interference with those functions.

This is in accord with our decisions in the cases of John E. Mathews,8 B.T.A. 209; W. B. Mathews,13 B.T.A. 1133, where the taxpayer was the attorney for the Aqueduct Commission of Los Angeles, Calif.; Howard Webster Byers,8 B.T.A. 1191, where the taxpayer was the attorney and counsel for the Board of Waterworks of Des Moines, Iowa, and *2797 B. F. Martin,12 B.T.A. 267, where the taxpayer was a special assistant to the Attorney General of Mississippi, with the special duty of rendering service relative to common *811 carrier rate cases before the courts and Interstate Commerce Commission in which the State was a party or interested.

The compensation of $5,000 received by petitioner during 1923 for services rendered the State of West Virginia, as attorney or counsel for the Public Service Commission of that State, is not subject to taxation for income-tax purposes.

Judgment will be entered under Rule 50.