Rev. Rul. 58-46

Advice has been requested relative to the status, for Federal employment tax purposes, of an individual who performs hauling services for a company, using the company's trucks and equipment.

The company purchased two tractor-trailer type trucks to be used exclusively for the purpose of hauling its products to its customers. It entered into a contract with the operator which provides that the operator shall have the exclusive right to operate and maintain the company's equipment in hauling and delivering the company's products to its customers; shall pay all expenses in connection therewith, including the insurance coverage required by the company; shall hire and pay any necessary drivers or helpers; and shall repay the company the purchase price of the trucking equipment and any sums advanced by it for insurance premiums or other expenses, except that the company shall maintain an investment of one dollar in, and retain title to, each unit or piece of equipment in use until sold or disposed of by mutual agreement of the parties or until termination of the contract. All deliveries are to be made promptly and all delivery charges are based upon current freight rates between points of origin and delivery, the full amount thereof to be billed to the customer by the company, collected by the company, and paid over to the operator at agreed intervals. The contract may be terminated by either party upon thirty-days' written notice to the other.

The company's purpose in retaining title to the trucks is to maintain absolute control and legal ownership of the equipment in order to insure itself of a prompt delivery service, instead of having to rely on public carriers. The company has preferred call on the operator's time and efforts. He is required to operate the equipment immediately upon notice of a delivery to be made, many times upon an hour's notice. Deliveries must be made at the times and to the places specified by the company. The operator cannot refuse to make a delivery for the company without jeopardizing his relationship with it. He generally operates the equipment personally and reports only when called, the time of reporting depending upon deliveries to be made. For example, there are times when he makes no deliveries for a period of two weeks, while at other times he may operate the equipment continuously for several days. The operator files reports with the company upon completion of deliveries. When not in use, the trailer units are stored on the company's premises and the tractor units are kept in the operator's private garage to facilitate maintenance and service.

The operator's services for the company are performed under the company's name which is clearly painted on the trucking equipment. All deliveries are made directly from the company's plant to its customers. No loads are hauled on return trips. The operator is not permitted to haul anything in the company's equipment for any other persons. All permits, licenses, liability insurance, property damage insurance, etc., covering the equipment and its operation are carried in the name of the company. The premiums on all of the above insurance policies are paid by the operator. His compensation is based entirely upon tonnage hauled and he is not guaranteed a minimum amount of compensation. The operator engages, discharges, determines the remuneration of and pays all truck drivers and/or helpers required to operate the equipment.

Section 3121(d) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) provides, among other things, that the term `employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. The guides for determining, under such rules , whether an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

In Revenue Ruling 55-593, C.B. 1955-2,610, certain truck owner-drivers performing services in delivering merchandise for a company were held to be independent contractors. In that case, a company sold its trucks to certain truck drivers under an agreement whereby the drivers were required to pay the company the full purchase price of the trucks within a three-year period during which time the drivers were to provide hauling services exclusively for the company on a flat rate basis. The contract specified that there would be no charge to the company for merchandise not delivered; the owner-driver would keep the truck in his own custody, exercise reasonable care in using it, keep it clean and in good working order at his own expense, pay for all fuel and supplies needed to operate the truck, and pay all license fees and taxes required for the trucking operation. In the event of default in the performance of services or other provisions of the agreement, the entire balance remaining unpaid on the trucks would immediately become due and payable. It is the position of the Internal Revenue Service in that case that no control over the owner-drivers was contemplated by the agreement or practiced in the performance thereof, and that the default provisions of the agreement imposed no more restraint than exists generally in cases of contractors who furnish performance bonds containing forfeiture clauses whereby they may be penalized for failure to fulfill their obligations under such agreements.

In the instant case, the company has signified its intent to control its trucks and the drivers thereof by maintaining legal ownership and, in most part, actual custody of the trucking equipment. The operator is precluded from any control over or independent action with respect to the company's equipment in that he may not solicit hauling jobs from other persons, not even to avoid having an empty truck on return trips from distant points. He is confined, in using such equipment, to hauling company products exclusively. Furthermore, he is required to be on call and to be prepared on an hour's notice to make deliveries at the times and to the places specified by the company. He may not refuse to make a company delivery without jeopardizing his relationship with it. These facts clearly indicate that the operator is performing personal services for the company, that the company may call upon him at any time, and that his services are performed on a continuing basis.

Although the operator may have an investment in the trucking equipment he uses in performing hauling services for the company, that factor is not, in and of itself, a basis for concluding that an independent contractor status exists. The fact that there is an investment is not controlling in determining the status, for Federal employment tax purposes, of an individual who renders services for another. See Rev. Rul. 56-129, C.B. 1956-1, 470, at 472. Similarly, the provisions of a contract purporting to establish an individual as an independent contractor are not controlling where it is otherwise shown, by the circumstances under which the individual's services are actually performed, that such a relationship does not, in fact, exist.

It is concluded on the basis of the facts set forth above that the company exercises or has the right to exercise such control over the operator in the performance of his services for it as is necessary to establish the relationship of employer and employee under the usual common law rules. Accordingly, it is held that the operator and any individuals engaged to assist him are employees of the company for purposes of the Federal Insurance Contributions Act, supra .

The above conclusion is also applicable for purposes of the Federal Unemployment Tax Act and the Collection of Income Tax at Source on Wages (chapters 23 and 24, respectively, subtitle C, Internal Revenue Code of 1954).