Davis v. Commissioner

*852 These proceedings have been consolidated by order of the Board.

In Docket No. 91439, Roy F. Davis, petitioner, the Commissioner determined a deficiency of $749.85 in income tax for the year 1935. In Docket No. 91440, Mrs. Roy F. Davis, petitioner, the Commissioner determined a deficiency for the same amount for the same year.

A net loss of $1,720.23 was reported on the income tax return of each petitioner, and the deficiencies in these proceedings are due to the Commissioner's inclusion of the following items as income of each petitioner:

Each petitioner assigned only one error, which is the same in each petition and reads as follows:

Compensation received from Gregg County, Texas, *963 in the amount of $14,027.36 was erroneously considered income by the Commissioner under provisions of sec. 116 of the Revenue Act of 1934 and of article 116-2 of Regulations 86.

*853 The Commissioner, in adding the $14,027.36 to each petitioner's income, stated in his deficiency notice as follows:

Commissions received, as engineer and purchasing agent of Gregg County, Texas, in the building and construction of roads and highways, have been included as income. It is held that you are an independent contractor and not an officer or employee of a political subdivision of a State. Persons employed by a State or political subdivision thereof, under a contract for the rendering of services of a special nature and whose duties are prescribed by contract and whose work is not of a permanent or continuous character, are not officers or employees of the State under provisions of sec. 116 of the Revenue Act of 1934 and of article 116-2 of Regulations 86 and the income received under such contracts is taxable.

FINDINGS OF FACT.

Roy F. Davis and Mrs. Roy F. Davis are husband and wife and reside in Longview, Texas. Furing the taxable year, 1935, they were living together as*964 husband and wife and all their income for said year was community property. They filed separate income tax returns on a community property basis with the collector of internal revenue at Dallas, Texas.

Prior to July 1, 1935, Roy F. Davis, sometimes hereinafter referred to as petitioner, was employed as county engineer for Gregg County, Texas, at a salary of $4,200 per annum, payable monthly. He had received $2,100 of this salary for the period ending June 30, 1935. On July 1, 1935, Roy F. Davis entered into a contract with Gregg County, Texas, to supervise the construction of public roads and highways in that county, for which he was to receive compensation of 10 percent of the amounts expended under his supervision. The pertinent parts of the contract are as follows:

THAT, this agreement entered into by and between the County of Gregg, acting by and through its Commissioners' Court hereinafter called First Party, and R. F. Davis, hereinafter called Second Party:

WITNESSETH:

That in consideration of the premises and the services to be rendered by Second Party as hereinafter provided, First Party does hereby employ Second Party as its agent and representative to organize, *965 assemble and operate the necessary organization to manage and supervise the complete building and construction of the roads and highways embraced in the Gregg County Road System, to-wit:

Finishing of the Construction and building of the Judson Road, and asphalting contemplated on present bond issue roads and such other roads as the Commissioners' Court of Gregg County shall decide to construct from time to time and to procure, assemble and operate for, and at the expense of, said county all of the necessary organization, labor, machinery, tools, teams, equipment, facilities, supplies and foreman, and to do any and all things necessary and proper to enable First Party to build and construct said roads in accordance with the plans, specifications and drawings furnished by the County Highway Engineer, subject, however, to the supervision, direction and instructions of the Commissioners' Court of said County. All of whic said organizations, labor, materials, *854 freight, machinery, tools, teams, equipment, facilities and supplies shall be paid for by the First Party under such terms and conditions as it may authorize and direct. In the organization, selection and acquisition*966 of same Second Party shall render to First Party his best advice, assistance and aid in securing for First Party the best and most advantageous price, terms and conditions.

First party shall also pay the cost of all deposits, rentals, employers' liability insurance bonds, insurance premiums, royalties, office expense, transportation charges, and all other expenses and charges which may be incurred and incident to the building of said roads under this agreement: Provided, however, any and all expenditures under this agreement shall be subject to the approval of the Commissioners' Court or some duly authorized officer thereof.

Second Party shall begin the work herein specified on July 1, 1935, and diligently proceed under the direction of said Commissioners' Court so that such work may be carried on with dispatch and completed as soon as practicable. Second Party shall be on the work at all times until completed, or keep a competent man, satisfactory to First Party on the work at all times until completed.

In consideration hereof, and of the services rendered and to be rendered by R. F. Davis, Gregg County hereby obligates and binds itself to pay to R. F. Davis a sum of money*967 equal to ten percent of the total cost to the County incident to the construction of said roads.

Payment thereof to R. F. Davis by Gregg County shall be made on or before the 10th day of each month thereafter, and shall be based upon all expenditures in connection with said work which have been actually paid by said County up to and including the last day of the preceding month: Provided, however, in determining the amount due said R. F. Davis, the amount paid by the County for engineering services, the amounts paid by the County for Right of Way and amounts paid to the said R. F. Davis as compensation shall not be taken into consideration.

An itemized statement of all such expenditures shall be furnished R. F. Davis by the County each month.

It is understood and agreed that no salary shall be paid by the County to R. F. Davis, nor to any general superintendent of construction acting in the place of the said R. F. Davis.

This contract may be terminated by the County of Gregg at any time after thirty days notice to R. F. Davis.

Roy F. Davis and Gregg County carried out the contract in accordance with its terms and during the year 1935 Davis received as compensation thereunder*968 the sum of $28,054.72. Neither one of the petitioners herein returned any of that amount as taxable income, and the Commissioner determined the sum of $14,027.36 to be taxable income of each petitioner.

Petitioner was required to and did devote all of his time to carrying out the work under the terms of the contract. Clerical aid and assistance to petitioner were paid by Gregg County, Texas, and office space in the court house was furnished him by the county. Petitioner did his work in accordance with plans and specifications of the county engineer and his actual work was inspected and supervised by members of the Commissioners' Court, who were regularly at the scene of work. The funds from which petitioner was compensated were paid from taxes collected by Gregg County, Texas.

*855 After July 1, 1935, Roy F. Davis was not an employee of Gregg County, Texas, but was an independent contractor, working under the terms of the contract set out in these findings.

OPINION.

BLACK: Under the facts detailed in our findings of fact we hold that petitioner was not an employee of Gregg County, Texas, after July 1, 1935, but was an independent contractor. Prior to July 1, 1935, petitioner*969 was county engineer of Gregg County and received a salary for his services of $4,200 per annum, of which he had received $2,100 when he resigned July 1, 1935.

The Commissioner has not raised any question as to petitioner being an employee of Gregg County prior to his resignation as county engineer on July 1, 1935. The $2,100 paid to petitioner by Gregg County prior to July 1, 1935, is not involved in this proceeding, but the Commissioner has determined, and rightly so we think, that the $28,054.72, paid to petitioner for his services after July 1, 1935, and during the remainder of the year was paid him not as an employee of Gregg County, but as an independent contractor. Even prior to the Supreme Court's decision in , the Supreme Court had held that the compensation of an independent contractor paid to him by a state or a political subdivision thereof was not immune from taxation. . Cf. ; affd., 97 Fed.:2d) 549; certiorari denied, *970 .

Therefore, under the doctrine announced by the Supreme Court in , we hold that petitioner's compensation received in pursuance of the terms of his contract with Gregg County is not immune from taxation.

Petitioners in a reply brief filed with the Board subsequent to the enactment of the of that act and that under its terms petitioners are not taxable on the $14,027.36 which the Commissioner has included in the income of each for the year 1937, because such amounts were received by petitioners prior to January 1, 1938. We think the Tax Act of 1939 That act applies to thereof. There is no contention that petitioner Roy F. Davis was an officer of the State of Texas and we have held that he was not an "employee" of Gregg County, Texas, after he resigned as county engineer July 1, 1935, and entered upon his work as an independent contractor under the terms of the contract of July 1, 1935. We do not regard the decision of the Supreme Court in , and in *971 , as having any especial application to the situation which we have here.

As we have already stated we regard , as the controlling authority and the of 1939

Decision will be entered for the respondent.