Monday, June 18, 2007

IRS Update on APU Units

The IRS states that the addition of an APU within six months of the purchase date of the tractor is subject to FET tax. For that matter, anything that is added to the tractor within the first six months from the purchase date is subject to FET if the aggregate amount of the addition is $1,000 or more.

Friday, June 01, 2007

Independent Contractor vs. Employee: Are You Sure Your Company is in Compliance?

A recent case handed down by the Federal tax court concerns an Ohio corporation – Peno Trucking, a 15-unit fleet – leased on to a larger carrier, Ohio Transport Corp. The issue was whether Peno could successfully uphold a workers compensation court case holding that drivers of Peno trucking were independent contractors (rather than employees) per an IRS assessment for payroll taxes. The tax court ignored the compensation court case holding and classified the drivers as employees.
Highlights of the case include the following: Peno hired drivers as independent contractors by paying them a percentage of each hauled load. A contract between Peno and its drivers provided that Peno would not direct, in any manner, the means or method by which the owner/operator performed his occupation and that the independent contractor would work directly with Ohio Corp to transport goods.
However, the facts of what actually happened superseded Peno’s contract language. Peno’s lease with Ohio Transport required that Peno be responsible for hiring drivers; overseeing drivers’ work; confirming that work was performed according to the lease; and directing, supervising, paying, disciplining and discharging drivers. The main factor “for employee status” as determined by the court was that Peno controlled the loads drivers hauled, controlled the places to which freight was delivered, required the drivers to maintain driver logs, and required drivers to carry beepers. These factors thus indicated “control” over drivers’ activities.
Specifically, the six factors the court reviewed in its decision to consider drivers employees vs. independent contractors were:
1) Investment in facilities—though the driver provided his/her own tools and licenses, Peno invested in the tractors and trailers.
2) Profit or loss—while drivers received 23% - 27% of a hauled load, earnings were dependent on the number of loads hauled, thus no opportunity for profit Since Peno incurred all debt for equipment and maintained a contract with Ohio Corp, the profit motive was Peno’s to enjoy.
3) Right to discharge—Peno argued that Ohio Corp could only terminate a driver, but Peno admitted in a court proceeding that Peno retained the right to discharge a driver and that a driver could terminate his/her relationship with Peno.
4) Integral part of business—the court found that drivers were essential to Peno’s operations (i.e., necessary for hauling freight), thus supporting the employer-employee relationship.
5) Permanency of the relationship—the court found that drivers worked in the normal course of the business, thus their relationship with the company was not transitional in nature.
6) Relationship by contract—the written agreement between contracted drivers and Peno was outweighed by a variety of circumstances (e.g., degree of controls, company investment in trucks, the drivers’ lack of risk assumption, the company’s ability to discharge, the fact that drivers were an integral part of the business, and the permancey of the driver relationship), thus overriding the contract and the work comp ruling.

Full text of this case is available. For more information or to review the case documents, please contact Deanna Lovelady via e-mail at deanna.lovelady@bellandcompany.net or call 501.753.9700.