Rev. Rul. 55-593

An inquiry has been received whether owner-drivers of trucks and drivers of rented trucks who deliver merchandise for a company are its employees for purposes of the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939).

A company operates a number of appliance stores and, until the latter part of 1953, owned trucks and employed drivers to deliver merchandise purchased by its customers. At that time, the company offered the drivers and their helpers an opportunity to purchase the trucks and to make deliveries at certain rates established for each type of appliance and merchandise delivered. Some of the drivers purchased trucks from the company by executing a promissory note for the value of the truck purchased, payable at a minimum rate each week for a period of three years. Each note was secured by a mortgage executed on a standard form on which the owner-driver agreed to operate exclusively for the company for 3 years pursuant to a trucking agreement. It was further agreed that in the event of default in the performance of the services, or the provisions of the agreement, the entire balance remaining unpaid under the mortgage shall immediately become due and payable.

Under the trucking contract, the company agreed to pay and the owner-driver agreed to accept a certain flat rate for each type of appliance and merchandise delivered by the owner-driver. The contract specified there would be no charge for merchandise not delivered; the owner-driver would keep the truck in his own custody, exercise reasonable care in using it, and, at his own expense, keep it clean, polished and in good working order; the owner-driver would pay for all gasoline, oil and other supplies needed to operate the truck efficiently, and would pay all license fees and taxes required for the trucking operations; the owner-driver would employ as helpers, during the period of the agreement, only members in good standing of a local union; the owner-driver would provide and pay for certain insurance coverage specified in the agreement, the policies of which would be submitted to an outside firm for approval; and all money collected by the owner-driver from the company's customers would be considered a truck fund and would not be mingled with the funds of the owner-driver. The contract is effective for 3 years from the date of execution, may not be assigned or sublet without the written consent of the company, and may not be modified except by consent of the parties thereto in writing.

Under section 1426(d)(2) of the Act the term `employee' means any individual who, under the usual common law rules, has the status of an employee.

Section 408.204 of Regulations 128 provides that generally the legal relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but as to the detail and means by which the result is accomplished. An individual who is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result is an independent contractor and is not, as to such services, an employee under the usual common law rules.

In the case of the United States v. Mutual Trucking Co. , 141 F.(2d) 655, the taxpayer, a common carrier by motor vehicle, engaged truck owner-operators, under contracts, to transport loaded trailers in interstate commerce between points designated by the trucking company. The owner-operators hauled exclusively for the company and were paid a flat rate for each trip in accordance with a printed schedule. The compensation of such drivers, the cost of maintenance and repairs, and the cost of operation were borne solely by the truck owners. In compliance with contractual obligations, insurance coverage, both property damage and personal liability was carried by the individual owner-operators. The trucks carried plates secured by the trucking company from the Interstate Commerce Commission, but each owner-operator obtained his own State license plates and driver's license. All drivers of trucks were required to register at stations maintained by the company on principal routes for the purpose of checking the time of trips. Drivers were required to file `daily logs' indicating the number of driving hours, thus enabling the company to ascertain the progress of loads at a given time. The Court held that, on the basis of these facts, the owner-operators were independent contractors. The facts in the case of Carter H. Harrison v. Greyvan Lines, Inc. , 331 U.S. 704, Ct. D. 1688, C.B. 1947-2, 167, are substantially similar to those in the case of the Mutual Trucking Co., and the Supreme Court of the United States held that the drivers in that case were likewise not employees.

In a ruling published as S.S.T. 403, C.B. 1940-2, 250, certain truck owners and drivers performing services in delivering coal for a company were held to be employees of the company for Federal employment tax purposes. Although the drivers in that case paid the expenses incurred in their operations, they were under the direction and control of the company and were required to observe the same rules, regulations, and instructions as were the drivers of the company-owned trucks who were conceded to be the company's employees.

In the instant case, no control over the owner-drivers is contemplated by the agreement or practiced in the performance thereof. The default provisions of the contracts impose no more restraint than exists generally in the cases of contractors who furnish performance bonds or who execute similar contracts containing forfeiture clauses whereby they may be penalized in the event of default or sued to fulfill their obligations under such contracts. It is held therefore that the owner-drivers are not employees of the company for Federal employment tax purposes but are independent contractors and are employers, for purposes of such taxes, of any assistants they engage to perform services under their direction and control.

In addition to the owner-drivers referred to above, the company engages other drivers who rent their trucks from a trucking firm. they pay the firm a flat rate each day for the use of the trucks and perform their services under circumstances substantially the same as those present in the case of the owner-drivers. Accordingly, the drivers of the rented trucks are held not to be employees of the company for Federal employment tax purposes and are the employers for purposes of such taxes for any assistants they may engage to perform services under their direction and control