597 F.2d 1348 | Ct. Cl. | 1979
Lead Opinion
delivered the opinion of the court:
This tax case is before the court on cross-motions for summary judgment on stipulated facts. The plaintiff is suing for itself and as successor by merger to Tropicana Casino, Inc., the latter having operated a casino on the former’s hotel premises at Las Vegas, Nevada. The issues concern calendar year 1971 taxes of the sort commonly designated as FICA (Federal Insurance Contributions Act) and FUTA (Federal Unemployment Tax Act), assessed with respect to employees’ wages. Both taxpayers had large staffs: culinary workers, bartenders, waiters, carpenters, plumbers, electricians, gardeners, parking lot attendants, etc., whose wages (excluding the alleged wages in dispute) did not exceed $7,800 per year. Most of these were required to wear uniforms which the employer furnished free of charge. All were allowed at least one meal per day, some two, without charge, at an employees’ cafeteria. Plaintiff says the value of each meal was 45 cents, defendant $1.25. Some employees, of those involved, were union members whose collective bargaining agreements called for these meals and specified a minimum quality: "palatable, wholesome, and comparable in quality to those served to customers.” Other unions did not have any agreement concerning meals, and some employee categories were nonunion, but management treated all alike in this respect. The eating place for all was a windowless basement cafeteria, off limits for guests.
Management used 45 cents as an addition to or part of "wages” in computing the FICA and FUTA taxes. Defendant on audit insisted that the proper figure was $1.25. Where it got that figure the stipulation does not show, but by the collective bargaining agreements already mentioned, management could at its option pay $1.25 in lieu of each free meal. The stipulation does not reflect that this option was ever exercised. Plaintiff in its "protest” said the $1.25 was a penalty, but this is not stipulated.
Plaintiff now contends that the involved meals were not "wages” or not "remuneration” in any part. Thus the taxes were, according to it, overpaid from the beginning, even so far as based on the 45 cents meal value. Whether it made a proper claim for refund as to that is an issue in the case. There is no question that it paid on demand the additional taxes due on the $1.25 rate and that it has properly claimed refund as to them, having paid the employees’ portion, without withholding, as well as its own. It is conceded that ordinary income taxes are not applicable: by virtue of I.R.C. § 119, the "convenience of the employer” test is incorporated in statute law and is decisive there. Plaintiff collected from employees by withholding the portion of the FICA taxes applicable to them, on the 45 cents value, but it disclaims any intent to sue here as their surrogate. Thus there are at issue here, on the 45 cents value, only the employer’s portion of the FICA tax paid,
Our determinations make it unnecessary to decide whether the 45 cents or the $1.25 values are correct, and there is no triable issue of fact as to any value under 45 cents or over $1.25. They set for our purposes the minimum and maximum value of the meals, so far as value may be pertinent. Defendant made some faint effort to suggest the meals might be worth over $1.25, because of the contract requirement, with some unions, that meals be "comparable in quality to those served to customers.” But there is nothing to show what was served customers. Meals taken by many people in the middle of their working day are but snacks, and no doubt customers, even wealthy ones, also wanted snacks very often. Plaintiff may have operated Lucullan gourmet restaurants, but there was also a coffee shop. We need not assume an issue as to any higher value in the absence of any effort to prove the IRS was in error in setting the value at $1.25. There is thus nothing to show that some unions exacted, for their members, any more than a $1.25 meal would normally imply. We are not required, as judges, to forget all our knowledge of how things are, and we know that nobody, in 1971, could have bought a Lucullan gourmet meal for $1.25, even in Las Vegas, Nevada. At that value, the meals "represented an average of 8.3 percent of employee’s gross wages,” per the stipulation.
We hold that the involved meals were not "remuneration” and, therefore, not "wages.” Both are terms of art which require, beyond mere semantics, a careful analysis of the context in which Congress uses them and the meanings they have been given, both in regulations and in decided cases.
For FICA and FUTA purposes, as well as for income tax withholding, "wages” are "all remuneration for employment * * * including the cash value of all remuneration paid in any medium other them cash; * * *.” I.R.C. §§ 3121(a), 3306(b), 3401(a). The provision of I.R.C. § 119 excluding from gross income the value of meals and lodging furnished an employee, on the business premises of the employer and for his convenience, does not apply by its terms to FICA and FUTA taxes.
Defendant cited in its original brief, quoted from and relied heavily on, the decision in Central Illinois Public Service Co. v. United States, 540 F.2d 300 (7th Cir. 1976), the decision reversed after the brief was written by the Supreme Court’s decision above discussed. The Seventh Circuit called "unpersuasive” and elected to go into conflict with Royster v. United States, 479 F.2d 387 (4th Cir. 1973). That case holds that reimbursement to salesmen for meals eaten while on the road was not "wages” because not "remuneration,” noting that the reimbursement served the employer’s purpose of deterring the salesmen from returning home to eat and thus enhancing their reimbursable
Our decisions in other fact situations stress the divergence between "income” and "wages” and the lesser coverage of the latter word. Peoples Life Ins. Co. v. United States, 179 Ct. Cl. 318, 373 F.2d 924 (1967) (employer paid employees’ expenses for attending conventions of such employees); Humble Oil & Refining Co. v. United States, 194 Ct. Cl. 920, 442 F.2d 1362 (1971) (reimbursement for moving expenses to employer’s new headquarters); Humble Pipe Line Co. v. United States, 194 Ct. Cl. 944, 442 F.2d 1353 (1971) (same); Allstate Insurance Co. v. United States, 209 Ct. Cl. 1, 530 F.2d 378 (1976) (reimbursement for indirect moving expenses; cites with approval and follows Royster, supra.)
Besides reversing the result in Central Illinois, supra, the Supreme Court also took the trouble to disapprove certain language of the court below, saying—
An expansive and sweeping definition of wages, such as was indulged in by the Court of Appeals, 540 F.2d, at 302, and is urged by the Government here, is not consistent with the existing withholding system. As noted above, Congress chose simplicity, ease of administration, and confinement to wages as the standard * * *. [435 U.S. at 31.]
The disapproved definition is, among several statements at 540 F.2d 302, apparently the following:
Remuneration for services cannot be viewed this narrowly. [I.e., as in Royster.] The employment relationship is a two-sided bargain, with the employee’s services being given for a total package of remuneration, including salary, pension, paid vacation time and other remuneration such as reimbursed lunches. * * *
It may be noted, as will be more fully developed later, even the Treasury does not contend that every expense incurred by the employer that tends to make the job more acceptable to the employee, constitutes "remuneration” and "wages.”
1. With respect to the non-union employees, and the union ones whose unions did not bargain for free meals, the concept of an exchange of services for a "total package of remuneration” must be rejected as fictitious. With respect to the union members whose unions obtained commitments for free meals, the stipulation does not state whether such commitments preceded or followed adoption of a company policy for free meals. There is nothing to show that negotiations ever weighed free meals with cash wages and other benefits, as a total package, or that proposals by either side respecting such meals weighed their value against other elements of the total compensation. While the management realized the free meals would help to attract and hold employees, the stipulation makes it clear that the principal reason for the free meals was the aid they gave in implementing company policy.
2. Defendant conceded that the meals were furnished for the convenience of the employer. The principal reason was to keep uniformed employees out of the public restaurants of the hotel except in line of duty, and from leaving the hotel in uniform to purchase meals elsewhere; on the other hand, to avoid expense of time (we suppose on pay status) changing in and out of uniform in the middle of the work day. Also, the free meals facilitated keeping lunch periods down to 30 or 45 minutes. The free meals thus tend to make feasible company policies that otherwise would be irksome and difficult to enforce.
3. There is nothing to show that any work is done or service rendered by the employee while he is consuming the free meal. He is not lured into the cafeteria for the purpose of extracting any benefit for the employer while he is there, except the negative benefit already stated, of his not being in some other place. No employee is required to eat in the cafeteria, and there is nothing to suggest that "brown-bagging” would not be an acceptable alternative.
4. Certain kinds of employment may have as their incidents such massive quantities of free food or lodging or both as to compel the inference that the cash wage could not but be set lower in light of these emoluments, i.e., that
5. The value of the free meal did not have any fixed or established proportion to the value of the employee’s services as stated in money. The lowest paid employee might eat the most, just as he might need the most health benefits.
Plaintiff argues that the "convenience of the employer” test much antedates its first introduction into statute law as § 119 of the 1954 Code, although it admits that efforts by defendant to exclude the test from FICA and FUTA cases, while applying it to income taxes, also antedates 1954. It urges that "wages” must mean the same thing for withholding for income taxes (I.R.C. § 3401) as it does in connection with FICA and FUTA taxes, because the same language is used. If plaintiff is right, since the payments pass the "convenience of the employer” test, all other tests are avoided. Defendant argues that the holding in Commissioner v. Kowalski, 434 U.S. 77 (1977) in effect is that § 119 preempts prior law on the "convenience of the employer” test making it applicable only where § 119 expressly says it is applicable, i.e., in ordinary income tax cases. We are going to assume for purposes of this opinion that defendant is right, although anything said in Kowalski must be regarded as dictum so far as concerns FICA and FUTA taxes, which were not before the Court. See comment on Kowalski in Central Illinois, supra, 435 U.S. at 24-25. Where defendant is in error, clearly, is that dethroning "convenience of the employer” as the sole test does not mean the court is required to ignore, in defining "remuneration,” whether the employer furnishes free meals
Defendant also relies on statements in Treasury Regulations on Employment Tax (1954 Code) Section 31.3121(a)-l (on FICA, but § 31.3306(b)-l on FUTA is similar):
(c) The name by which the remuneration for employment is designated is immaterial. Thus, salaries, fees, bonuses, and commissions on sales or on insurance premiums, are wages if paid as compensation for employment.
* * * * sjs
(e) * * * the medium in which the remuneration is paid is also immaterial. It may be paid in cash or in something other than cash, as for example, goods, lodging, food, or clothing. Remuneration paid in items other than cash shall be computed on the basis of the fair value of such items at the time of payment. * * *
(f) Ordinarily, facilities or privileges (such as entertainment, medical services, so-called "courtesy” discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for employment if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees. The term "facilities or privileges,” however, does not ordinarily include the value of meals or lodging furnished, for example, to restaurant or hotel employees, or to seamen or other employees aboard vessels, since generally these items constitute an appreciable part of the total remuneration of such employees.
The emphasis on certain lines is that of defendant in its brief.
Careful reading of these passages will show that the regulation admits that "remuneration” is the test of what "wages” include, and that "remuneration” does not include all non-cash benefits the employer confers. As regards food and lodging furnished without charge, they are not "wages” unless they are "remuneration,” and the regulation admits that not all food and lodging benefits are "remuneration.” Only "ordinarily” and "generally” they are, because "generally” they constitute an appreciable part of the "total remuneration.” Thus they are "remuneration” because they are part of "remuneration.” The
Viewed as a hunting license to authorize IRS agents to flush up additional revenue from employers, the regulation is brilliantly conceived. As a guide to employers in their relations with employees, it is nearly worthless. Congress intended by the use of the word "wages” to set a standard that was "intentionally narrow and precise.” Central Illinois, supra, 435 U.S. at 31. "Because the employer is in a secondary position as to liability for any tax of the employee, it is a matter of obvious concern that, absent further specific congressional action, the employer’s obligation to withhold be precise and not speculative.” Ibid. The Court then refers to a passage in our Humble Oil & Refining Co. case supra, 194 Ct. Cl. at 933, 442 F.2d at 1369-70, which rejects the imposition of retroactive liability on an employer for not withholding when the duty to withhold was not clearly spelled out when the alleged wages were paid. The concurring opinions in Central Illinois further stress this theme of retroactivity.
We think in any case when the only guide to Treasury policy was the unsatisfactory regulation above quoted, the employer should not be assessed for not withholding unless
Defendant points out that the above regulation was quoted and applied to make FICA and FUTA taxes apply to free meals for restaurant employees in S. S. Kresge Co. v. United States, 379 F.2d 309, 310 (6th Cir. 1967). That circuit, however, did not have, as we do, the benefit of the criteria to apply to regulations in this area, as prescribed in Central Illinois, supra, and the circuit says the regulation creates a "presumption” of taxability in such cases, which perhaps it does, but perhaps the presumption was impossible to rebut because the court had not been taught to exclude from its analysis the broad and sweeping definition of "wages,” rejected in Central Illinois.
Thus we conclude that in calendar 1971 plaintiff was not obliged to withhold and pay FICA and FUTA taxes based on the theory the free meals it furnished employees were "wages.”
There still remains the issue of the timeliness of plaintiffs claim for refund. That issue applies only to the taxes on the meals as "wages” at the 45 cents valuation, which plaintiff timely paid. It is conceded that plaintiff did file timely requests as to the additional amounts it paid to make up the tax on meals at $1.25. In 1973, after a dispute had arisen on audit, plaintiff filed a "protest” defending the 45 cents valuation but also asserting that FICA and FUTA taxes did not apply to the meals at all. Unless this "protest” is taken as a request for refund of the original tax, no timely such request was ever filed, since the 1975 formal claims were more than three years after the returns and more than two years after payment. IRC § 6511 (a).
The 1973 "protest” cannot be taken as an informal claim for refund of the FICA taxes for the reason that, if it requested any refund of the original payments, it did so only for the employer’s share. Plaintiff never purported, and does not purport now, to be seeking any adjustment on
The FUTA taxes fall wholly on the employer, and, therefore, the question of overdeducting from employees
A curious feature of this case is that in midst of briefing of the summary judgment motion, defendant filed checks totaling $41,609.12 with our clerk, together with a motion to dismiss. The motion asserted that defendant had tendered refund of the full amount due, with interest; therefore, there was no money claim before the court; therefore, by the doctrine of United States v. Testan, 424 U.S. 392 (1976), we lacked jurisdiction. By order dated October 2, 1978,* we held that we had jurisdiction, citing Church of Scientology of Hawaii v. United States, 485 F.2d 313 (9th Cir. 1973), that Testan did not apply, but that plaintiffs expectation of a res judicata or collateral estoppel effect from the anticipated decision was not a sufficient reason for trying a case when no money was at stake. We ordered suspension. By order of October 26, 1978,
Accordingly, defendant’s cross-motion for summary judgment is granted with respect to the FICA tax payments for 1971 based on the 45 cents value of the meals, and the petition with respect to that issue is dismissed. The said motion is denied with respect to all other issues. The plaintiffs motion for summary judgment is granted with respect to all the 1971 FUTA taxes in dispute and with respect to the 1971 FICA taxes as assessed on the meal values over 45 cents, as explained in the opinion. In other respects the plaintiffs motion for summary judgment is denied. Interest is to be paid according to law and penalties are to be refunded conformable to our decision. Judgment for plaintiff is entered to the extent our conclusions require. The cause is remanded to the trial division for proceedings under Rule 131(c) to determine the amount of recovery.
Reported at 218 Ct. Cl. 657 and 659, respectively.
Concurrence Opinion
concurring in the result:
Although there is a non-frivolous argument that, despite the stipulation of the facts, we should remand for a trial on the main issue of whether the meals constituted compensation or remuneration, I agree with the court that, since the parties have presented the matter on that stipulation and do not particularize any further facts to be developed, we can and should decide the question on the record now before us. However, I cannot join the court’s opinion on that issue
My sole ground for concurring in the result is that, on the particular facts now before us, the meals were not compensation or remuneration to the employees (and accordingly, by its own terms, outside the coverage of Treasury Regulation §§ 31.3121(a)-l and 31.3306(b) — D- The facts which lead me to that conclusion are set forth in the "non-excess” portion of the court’s opinion and I need mention only the following: the small value of the meals even in 1971; the absence of any indication that the employees were getting more than that relatively low value; the employers’ own purposes in furnishing the meal; the relatively low percentage of the employees’ total remuneration which is involved. The regulation excludes from remuneration "facilities or privileges” "if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees.” The meals involved here fit well within that category.
In accordance with the opinion of the court, a stipulation of the parties, and a memorandum report of the trial judge as to the amount due, it was ordered on July 13, 1979 that judgment for plaintiff be entered for $26,349.18.
I do join the segment of the court’s opinion dealing with the adequacy of the refund claim.
Including the parties’ complicated efforts, on the one hand, to terminate this case
The IRS never made any effort to include the value of uniforms furnished to employees even though a union agreement seemed to value the daily worth of a uniform at $1.00 (the agreement provided for plaintiffs to pay that amount for each day they failed to furnish a uniform).
