92-1880 - Withholding




dba XXXXX, :

Petitioner, ) FINDINGS OF FACT,






) Account No. XXXXX

Respondent. :



This matter came before the Utah State Tax Commission on XXXXX for a formal hearing. Lisa L. Olpin, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner was XXXXX XXXXX, president of XXXXX Inc. and XXXXX, an accountant for Petitioner. Present and representing Respondent was XXXXX, Assistant Utah Attorney General.

Based upon the testimony and evidence presented at the hearing, the Tax Commission makes its findings of fact:


1. The tax in question is withholding tax.

2. The audit period spans XXXXX through XXXXX.

3. At issue in this matter is whether or not Petitioner should have classified 82 of its workers as employees rather than independent sub-contractors, thereby requiring Petitioner to have deducted withholding tax on paychecks.

4. The Auditing Division determined that these 82 Petitioners were actually employees. As such, Auditing assessed Petitioner $$$$$ in withholding taxes, $$$$$ in penalties and $$$$$ in interest. Petitioner was then credited $$$$$ for withholding tax payments that some of these workers reported back to the Tax Commission for the audit period.

5. As of the date of the hearing, Petitioner owed a balance of $$$$$ which includes the penalty and interest assessments above.

6. Petitioner is a drywall business. It bids on the hanging and finishing of drywall in construction projects.

7. Petitioner retained a team of its own employees to hang the drywall. Sometimes these employees were persons Petitioner trained for the work. The employees were paid on an hourly basis.

8. Mr. XXXXX, president of XXXXX Inc., stated that 60% of his work force were XXXXX employees. The remaining 40% were considered subcontractors. At issue is whether or not these supposed subcontractors were truly independent contractors or XXXXX employees.

9. Whenever Petitioner needed drywall workers above and beyond its employees, it would contact drywallers by phone or mail. Sometimes they would have already called Petitioner looking for work.

10. Mr. XXXXX would then give these workers the individual option of signing a statement requesting that they be treated as independent contractors as many of them wanted to do.

11. These signed statements read as follows: "I, hereby request from XXXXX, Inc., that I be treated as an independent contractor and do not want FICA, federal or state taxes withheld from my income earned. I agree that I will pay for my own taxes, being self employed and will also agree not to apply for unemployment compensation based on any income I may receive from you."

12. Petitioner told these workers where a particular job was located and given a date to complete the dry wall. They worked their own hours.

13. They supplied their own tools and equipment, including nails and screws. If they wanted, they were able to purchase the nails and screws from Petitioner at a reduced cost. They drove their own trucks. Petitioner supplied only the sheetrock and scaffolding.

14. Petitioner checked the quality of the work performed and occasionally fired a worker for poor workmanship. If work was not done to Petitioner's satisfaction or if a worker had abandoned a job, Petitioner would finish the work and suffer any damages incurred. Petitioner, as the general contractor, took full responsibility for the quality of work.

15. Petitioner did not seek recourse from a worker for walking off of a job or poor work because the worker usually did not have the money to pay anyway. Petitioner would just not hire the person(s) in the future.

16. Petitioner paid these classified independent contractors on a weekly basis per job or per amount of square footage of drywall installed.

17. Workers assigned out of state also received a subsistence amount included in their pay. While Petitioner provided lodging, most of these workers elected to sleep in their trucks.

18. The workers worked in crews of two or three. XXXXX employees worked apart from the designated independent contractors. If a lone worker was hired, Petitioner treated the worker as an employee.

19. None of the workers had an investment interest in Petitioner's corporation.

20. In some instances, a designated independent contractor would bring helpers with him to do the work. Depending on the arrangement, Petitioner would just pay the so-called independent contractor who would then pay his helpers. Of the 82 workers in question in the audit, however, all 82 were directly paid by Petitioner whether they were designated "independent contractors' helpers" or not.

21. In addition to contesting the re-classification of the 82 independent contractors to employee status in general, Petitioner addressed three workers specifically: XXXXX, XXXXX and XXXXX.

22. XXXXX, a drywall hanger, was engaged by Petitioner to put drywall in a home. Mr. XXXXX brought four helpers with him, namely his brother XXXXX, XXXXX, XXXXX and an underage boy.

23. Mr. XXXXX testified that Mr. XXXXX supervised these four helpers and paid them himself. On one occasion, Mr. XXXXX recalled paying XXXXX directly because he was leaving the state.

24. The audit report shows that Petitioner paid XXXXX $$$$$ directly in the 2nd and 3rd quarters of XXXXX.

25. Mr. XXXXX checked on Mr. XXXXX's work in XXXXX once or twice a week. He was concerned that Mr. XXXXX left his helpers unsupervised at times. If Mr. XXXXX wanted some work re-done, sometimes Mr. XXXXX would do it and sometimes not.

26. At one point, Mr. XXXXX told Mr. XXXXX to get rid of the underage helper for fear "they'd be in trouble if he got hurt."

27. As described earlier, Petitioner provided Mr. XXXXX all of the drywall, but none of the tools, equipment, nails or screws. Neither did Petitioner control the hours Mr. XXXXX worked.

28. Petitioner also specifically addressed the re-classification of independent contractor XXXXX to employee status.

29. Mr. XXXXX, a carpenter, performed metal framing for Petitioner in XXXXX, XXXXX and in Salt Lake City. Mr. XXXXX had his son help him with work. Petitioner, however, considered Mr. XXXXX an independent contractor and paid only Mr. XXXXX and not the son for the work.

30. Lastly, Petitioner specifically challenged the re-classification of independent contractor XXXXX to employee status.

31. Petitioner hired Mr. XXXXX as an employee. Later, Mr. XXXXX left Petitioner to work for XXXXX, an independent contractor. Mr. XXXXX trained Mr. XXXXX in drywall installation.

32. Mr. XXXXX was then hired by Petitioner as an independent contractor. Mr. XXXXX worked for Petitioner with several of his own helpers.

33. Later, Mr. XXXXX left northern Utah for St. George and Mr. XXXXX took over his account with Petitioner. At times, Mr. XXXXX had as many as twelve helpers under him doing a job for Petitioner.

34. Petitioner paid Mr. XXXXX's helpers directly according to the amount Mr. XXXXX instructed.

35. At times Mr. XXXXX let go his own helpers who Petitioner thought were doing a good job. Mr. XXXXX, however, felt he had no control over the situation as these workers were Mr. XXXXX's helpers, not his own.

36. Mr. XXXXX also knew that Mr. XXXXX did not have a contractor's license at the time.

37. State Tax Commission employee, XXXXX, testified that she had spoken with Mr. XXXXX prior to the hearing date. He told her that he had to babysit his workers because they were irresponsible at times. It is unclear, however, if Mr. XXXXX was referring to his employees or his supposed independent contractors or both.

38. Further, the Auditing Division had questionnaires that some of the 82 workers in question responded to. These questionnaires, however, were not offered into evidence and are not a part of this record.

39. In closing, Petitioner argued that the 82 workers, and in particular Mr. XXXXX, Mr. XXXXX and Mr. XXXXX, are independent contractors based upon Mr. XXXXX's testimony. At the very least, Petitioner asked that the penalty amount be waived as Mr. XXXXX acted reasonably in handling these workers as independent contractors under the facts before him at the time.

40. The Auditing Division, on the other hand, advised the Tax Commission to consider the 20 point criteria outlined by the Internal Revenue Service at Revenue Rulings 87-41 in making its determination. Respondent contends that Petitioner has not met its burden in showing that the workers in question are independent contractors as opposed to employees.


Applicable Utah law is found at Utah Code Ann. Section 59-10-402

(1) which states the following:

"Each employer making payment of wages shall deduct and withhold from wages an amount to be determined by a commission rule which will, as closely as possible, pay the income tax imposed by this chapter."

The terms "employee" and "employer" are defined at Utah Code Ann. Section 59-10-401(1,2) and are listed below:

(1) "Employee" means and includes every individual performing services for an employer, either within or without, or both within or without the state of Utah, or any individual performing services within the state of Utah, the performance of which services constitutes, establishes, and determines the relationship between the parties as that of employer and employee, and includes offices of corporations, individuals, including elected officials, performing services for the United States Government or any agency or instrumentality thereof, or the state of Utah or any county, city, municipality, or political subdivision thereof.

(2) "Employer" means a person or organization transacting business in or deriving any income from sources within the state of Utah for whom an individual performs or performed any services, of whatever nature, and who has control of the payment of wages for such services, or is the officer, agent or employee of the person or organization having control of the payment of wages. It includes any officer or department of state or federal government, or any political subdivision or agency of the federal or state government, or any city organized under a charter, or any political body not a subdivision or agency of the state.

The 20 common law factors in helping to determine whether or not an employer-employee relationship exists is found in the Revenue Rulings at 87-41. These same factors are also listed at Utah Code Ann. 35-4-22.3(3)(a-t) in different verbiage. This entire section is listed below:

(a) whether the individual works his own schedule or is required to comply with another person's instructions about when, where, and how work is to be performed;

(b) whether the individual uses his own methods and requires no specific training from the purchaser, or is trained by an experienced employee working with him, is required to take correspondence or other courses, attend meetings, and by other methods indicates that the employer wants the services performed;

(c) whether the individual's services are independent of the success or continuation of a business or are merged into the business where success and continuation of the business depends upon those services and the employer coordinates work with the work of others;

(d) whether the individual's services may be assigned to others or must be rendered personally;

(e) whether the individual has the right to hire, supervise, and pay other assistants pursuant to a contract under which the individual is responsible only for the attainment of a result or the individual hires, supervises, and pays workers at the direction of the employer;

(f) whether the individual was hired to do one job and has no continuous business relationship with the person for whom the services are performed or continues to work for the same person year after year;

(g) whether the individual establishes his own time schedule or the employer sets the time schedule;

(h) whether the individual is free to work when and for whom he chooses, or is required to devote full-time to the business of the employer, and is restricted from doing other gainful work;

(i) whether the individual uses his own office, desk, telephone, or other equipment or is physically within the employer's direction and supervision;

(j) whether the individual is free to perform services at his own pace or performs services in the order or sequence set by the employer;

(k) whether the individual submits no reports or is required to submit regular oral or written reports to the employer;

(l) whether the individual is paid by the job or on a straight commission or is paid by the employer in regular amounts at stated intervals;

(m) whether the individual accounts for his own expenses or is paid by the employer for expenses;

(n) whether the individual furnishes his own tools or is furnished tools and materials by the employer;

(o) whether the individual has a real, essential, and adequate investment in the business or has a lack of investment and depends on the employer for such facilities;

(p) whether the individual may realize a profit or suffer a loss as a result of services performed or cannot realize a profit or loss by making good or poor decisions;

(q) whether the individual works for a number of persons or firms at the same time or usually works for only one employer;

(r) whether the individual has his own office and assistants, holds a business license, is listed in business directories, maintains a business telephone, or advertises in newspapers or does not make services available except through a business in which he or she has no interest;

(s) whether the individual may not be fired or discharged as long as he produces a result which meets contract specifications or may be discharged at any time; and

(t) whether the individual agrees to complete a specific service, and is responsible for its satisfaction or is legally obligated to perform the service, or may terminate his or her relationship with the employer at any time.

Penalties are addressed at Utah Admin. RuleR865-9I-16(F):

"If the employer fails to withhold the tax under Utah Code Ann. Section 59-10-406, and thereafter, the income subject to withholding is reported and the resulting tax is paid by the recipient, any tax required to be withheld shall not be collected from the employer. However, this rule does not relieve the employer from liability for penalties or interest associated with

failure to withhold."


In this case, the testimony of Petitioner's witness, XXXXX, is uncontroverted as Respondent did not present opposing evidence. At issue then, is the proper application of the law to the facts.

Compelled to consider the limited evidence given in light of relevant law, the Tax Commission finds no alternative other than to accept on this occasion Petitioner's classification of the 82 workers in question for the audit period XXXXX-XXXXX as independent contractors. Other Utah Supreme Court cases with similar fact patterns and like conclusions are found at XXXXX XXXXX. v. Unemployment Compensation Division, 22 Utah 2d 338 (1969) and XXXXX dba XXXXX v. Department of Employment Security, 681 P. 2d 1273 (Utah 1984).

The Commission, therefore, orders the Auditing Division to amend its audit to reflect this determination. Petitioner is not obligated to pay the tax, penalty or interest amounts as currently assessed. It is so ordered.

DATED this 11th day of August, 1993.


W. Val Oveson* Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer*

Commissioner Commissioner