Tax Type
Retail Sales and Use Tax
Description
Lease or rental of equipment
Topic
Taxability of Persons and Transactions
Date Issued
08-29-1990
August 29, 1990
Re: §1821 Application/ Sales and Use Tax
Dear*****************
This will reply to your letter dated December 18, 1989 in which you seek correction of the assessment issued for the period April 1, 1983 through February 28, 1989.
FACTS
************* ("Taxpayer") is a utilities contractor engaged in installing water and sewerage facilities in subdivisions. The Taxpayer states that an oral agreement was made between the Taxpayer and **************** ("Contractor"), for the provision of services and equipment by the Contractor. The Taxpayer paid a salary to the Contractor and other equipment operators for the six-year period under examination and provided coverage for workman's compensation. The Taxpayer contends, however, under the arrangement, the other equipment operators were employees of the Contractor, not the Taxpayer. In addition to a salary, the Taxpayer also paid the Contractor **********************monthly. The department's auditor determined this to be amounts paid for the rental of equipment for which sales tax has been assessed.
The Taxpayer is contesting the assessment based on the argument that the*********monthly payments were amounts paid for the use of the equipment with operators.
DETERMINATION
VR 630-10-57 of the Retail Sales and Use Tax Regulations provides, "... the tax applies to leases or rentals of machinery and equipment which is leased or rented without an operator." Therefore, in order to determine whether the transactions in question are subject to the tax, it is necessary to determine if the Contractor was an employee of the Taxpayer or actually an independent contractor. If the Contractor is an employee, the separate act of furnishing equipment to the Taxpayer would be deemed a taxable lease without operators.
Internal Revenue Code §§3121. 3306,and 3401 provide generally that the relationship of employer and employee exists when the person or persons for whom the services are performed have 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 also as to the details and means by which that result is accomplished. It is not necessary that the employer actually direct or control the manner in which the services are performed, it is sufficient if the employer has the right to do so.
As an aid to determining whether an individual is an employee under the common law rules, Internal Revenue Ruling 87-41 (enclosed) has set forth factors or elements to be considered in determining whether sufficient control is present to establish an employer-employee relationship.
The facts presented, with respect to the instant case demonstrate that the Contractor, although licensed as an independent contractor, was subject to the control and direction of the Taxpayer as an employee. No evidence has been presented which would indicate that the Contractor acted independently in the control and operation of his equipment while under the employment of the Taxpayer.
The manner in which the arrangement was carried out (i.e., payment of salaries to the Contractor and other operators by the Taxpayer, plus another separate monthly payment to the Contractor) indicates that the separate******* monthly payments were merely for the use of equipment. Therefore, the auditor properly determined that the separate******** monthly payments were taxable.
Based upon the circumstances in this case, I do not find sufficient justification to alter the assessment, which has been paid in full.
If you need any further information, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner