A California auto body business received a favorable decision by the U.S. Tax Court, finding seven of its ten workers were properly classified as independent contractors.
Action Auto Body had ten persons who performed a variety of jobs, including mechanics, auto body repair technicians, painters, and secretaries. Action Auto Body had classified all workers as independent contractors and had paid them weekly by check, but the amounts varied depending on commissions earned and the type of worker performed each week.
In the memorandum opinion, Judge Wherry evaluated the facts and circumstances of the case and the general factors used to determine a workers classification that includes:
- The degree of control exercised by the principal
- Which party invests in work facilities used by individuals
- The opportunity of the individual for profit or loss
- Whether the principal can discharge the individual
- Whether the work is part of the principal’s regular business
- The permanency of the relationship, and
- The relationship the parties believed they were creating.
The court found that workers who perform auto work were not control by Action Auto Body because the workers could work at their own pace and could come and go as they wished. However the person performing secretarial services were controlled.
In analysis of investment in the work facilities, Action Auto Body had argued that each auto worker provided their own tools, however this evidence was not included in the stipulated facts and were not considered. Instead, the court noted that the auto body shop owned sprayers, a framing machine, and lift equipment that were used by the auto workers. The court weighed this factor in favor of an employee-employer relationship.
Despite finding a few other factors also in favor of an employee classification, the court held that the seven auto workers were properly classified as independent contractors and only the three secretarial workers were employees.
Action Auto Body is liable for paying employment taxes related to the three employees and a penalty for failure to pay.
Full Opinion – Keller v. Commission of Internal Revenue