Was a fixed-salary manager personally liable for a veterans organization's salvage-business sales tax?

Plain-English summary

California legal staff concluded that the assessed manager of a secondhand salvage business was an employee of the veterans organization, not an independent operator personally liable for the business's sales tax.

The long-term contract called for employment at a fixed wage, while the organization retained the business profits and demonstrated ultimate control through its own statewide contract. The manager's guarantee against business debts and misstatements about employment and income taxes did not outweigh the broader evidence of employment.

Staff recommended canceling the determination against the manager.

Common questions

Who received the business profits?

The organization.

Did the manager's debt guarantee make him the business owner?

No.

What was the recommended result?

Staff recommended that the Board cancel the assessment against him. The letter does not report a final Board decision.

Citations and references

• Employment contract — fixed salary and employee designation discussed
• Organization's statewide contract — evidence of retained control cited

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0060.pdf

Original ruling text

STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION

170.0060

April 29, 1965
Gentlemen:

This is to inform you of the position we have taken with respect to the petition for redetermination of “X”. After reviewing your arguments and the various contracts and other documents in our file, we have concluded that “X” was an employee of “Y”, not an independent contractor. In the first place, the contract calls for “X”’s employment. The fact that the contract was for a long term at a fixed wage is indicative of the fact of employment. Even though “X” guaranteed no debts would be incurred, “Y” was entitled to the profits from the business. We also note that during this period “Y” entered a contract with the statewide organization, showing their control of the business. “X” apparently misrepresented himself in regard to employment and income taxes; but the greater preponderance of evidence shows that he was an employee. Since this is our conclusion, we will recommend to the Board that the determination against your client was improper and the tax should be redetermined by cancellation of the assessment against “X”. Very truly yours John H. Knowles Associate Tax Counsel JHK:ls

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