Petition for Writ of Certiorari — Air Terminal Cab, Inc. v. United States

neeQeas eee ae

33 FILE copy | °F

MICHAEL ROR NN

.

‘-

IN THE

SUPREME COURT OF THE UNITED STATES

wo 8-33

5 lee

AIR TERMINAL CAB, INC.,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

AIRWAY TAX! COMPANY, INC.,

Petitioner,

v

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals for the

Eighth Circuit

LASHLY, CARUTHERS, THIES, RAVA &

HAMEL

WILLIAM |. RUTHERFORD

WILLIAM E. BUCKLEY

818 Olive Street, Suite 1300

St. Louis, Missouri 63101

Attorneys for Petitioners

St. Louis Law Printing Co., Inc., 812 Olive Street 63101 314-231-4477

a

a :

INDEX

Page

Ns ne ee ee oe ein aa ain iow wa ee Mace 1

Citations to opinions below .......................-. 1

ER ie ors ke CUE Gai ante se ala wemie dies 2

eee Ce eek ieede vena kee e ma dine 2

Statutes, regulations and revenue rulings involved... 3

SEE LLL LA LP EE 3

Reasons for granting the writ ...................... 3

I 9

Appendix A—Statutes, regulations and revenue rul-

re oe cea ada aman a ngian's kone Ks A-1

Appendix B—QOpinions in the Courts below .........2 A-11

Appendix C—Conflicting decision .................. A-37

Cases Cited

Keonomy Cab Company v. Fahs, 174 F.2d 321 (5 C.A.

ERR A CRAG REI Na A We ee en ee 6

New Deal Cab Company v. Fahs, 174 F.2d 318 (5 C.A.

ie an eal, eee kus cab etees ckienne ws 6

Party Cab Company v. United States, 172 F.2d 87 (7

eae Age ci tee en Gat co Ne. 3 4,5,6,8

United States v. Fleming, 293 F.2d 953 (5 CLA. 1961) 4,6

United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91

ee ee eee ee 7

United States v. Webb, 397 U.S. 179, 90 S.Ct. 850, 25

Ld. 2d 207 (1970)

Ae pn

& SE DRACAA EI 01 ea see

Statutes, Regulations and Revenue Rulings

Statutes:

We Mma MUNCIE ooo ko so coe ov nc cence ha. 3

IN, BO orcs wc Gi dod vedo eoc ae dec enc. 3

| 3

Treasury Regulations:

sss my RO OE REO Pa ARETE are 3

psi inh EEE OE TE On Pe 3

ss ss ARR EE ean 3

Revenue Rulings:

Rev. Rul. 66-267, 1966-2, Cum. Bull. 443 .......... 3, 6

Rev. Rul. 71-572, 1971-2, Cum. Bull. 347 ..... 0... 3, 6,8

IN THE

SUPREME COURT OF THE UNITED STATES

Re rcacteas

AIR TERMINAL CAB, INC.,

Petitioner,

V

UNITED STATES OF AMERICA,

Respondent.

AIRWAY TAX! COMPANY, INC.,

Petitioner,

V

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals for the

Eighth Circuit

Petitioners Air Terminal Cab, Ine. and Airway Taxi,

Ine. pray that a Writ of Certiorari be issued to review the

judgment of the United States Court of Appeals for the

Kighth Circuit entered in these consolidated cases on

May 22, 1973.

CITATIONS TO OPINIONS BELOW

These cases originated in the United States District

Court for the Eastern District of Missouri and were sub-

mitted to the Court on stipulated facets. The United States

Bez. CARPE iiss

Distriet Court Opinion is reported at 341 F.Supp. 1257

(E.D. Mo, 1972) and is ineluded in Appendix B attached

hereto, p. A-22. The Opinion of the United States Court of

Appeals for the Eighth Cireuit is as yet unreported and

is included in Appendix B attached hereto, p. A-11.

JURISDICTION

The judgment of the United States Court of Appeals

for the Eighth Cireuit was entered April 30, 1973 (R. II,

p. 12). Rehearing was denied May 22, 1973 (R. IT, p. 29).

Jurisdiction is invoked under 28 U.S.C., Section 1254(1).

The jurisdiction of the United States District Court for

the Fastern District of Missouri was originally invoked

because these cases arise under the Internal Revenue Code.

QUESTIONS PRESENTED

1. Whether taxicab companies which own twelve taxi-

cabs each, which maintain no telephones or telephone di-

rectory listings, no office, no garage, no radio dispatch

facilities, which do no media advertising and have no

supervisory personnel, and which share with the taxi driv-

ers on a percentage basis the fares received, have ‘‘con-

trol’? over the manner or means of the operation of the

taxicabs in such a fashion as to render the companies liable

for employment taxes on the portion of the fares retained

by the taxicab drivers.

2. Whether the employer-employee relationship between

taxicab companies and drivers operating company-owned

taxicabs on a fare sharing arrangement is to be determined

on the basis of the presence or absence of control by the

companies over the drivers while they are operating the

taxicabs or on the basis of general situational facts such

as operation of the cabs in an area restricted by licenses,

the driving of regular shifts, and the duty of the taxicab

drivers to list fares in order to divide them on a percentage

basis with the taxicab company.

STATUTES, REGULATIONS AND

REVENUE RULINGS INVOLVED

STATUTES

26 U.S.C. 8121(d) (2);

26 U.S.C. 3401(¢);

26 U.S.C. 3306(1).

TREASURY REGULATIONS

31.3121(d)-1;

31.3401(¢)-1;

31.3306(1)-1.

REVENUE RULINGS

Rey. Rul. 66-267, 1966-2, Cum. Bull. 443;

Rev. Rul. 71-572, 1971-2, Cum. Bull. 347.

STATEMENT OF THE CASE

The taxpayers, Air Terminal ¢ ‘ab, Inc. and Airway Taxi

Company, Ine., brought these cases, now consolidated,

the United States District Court for the Eastern wre

of Missouri for refund of Federal Withholding, FICA and

FUTA taxes, penalties and interest assessed against the

taxpayers by the Internal Revenue Service.

The taxpayers’ operations are essentially the same. Bach

is a taxieab company operated from the home of its re-

spective preside nt. Kach owns only twelve taxicabs and

each leases the taxieabs to taxi drivers under an arrange-

ment by means of which the driver records the fares re-

ceived, deducts the amount paid by him for gasoline during

<1

his operation of the taxieab and remits fifty per cent of

the balance to the taxicab company by leaving it in a metal

box located at an independent service station where taxis

are parked when not in use. Taxpayers maintain no offices,

no garage, no mechanics and no supervisory employees.

They maintain no radio or telephone dispatcher and the

taxis, although they are equipped with meters, are not

equipped with radios. The taxicab companies do not ad-

vertise and do not have telephone numbers listed in the

telephone directory. The drivers do not report regularly

to the presidents of the respective companies. The presi-

dents have other business interests and devote only part

time to the companies. The drivers are members of the

Teamsters Union. There is a Union contract. The drivers

work regular shifts and have certain fringe benefits. The

taxicabs are operated under licenses issued to the taxpay-

ers by St. Louis County, which licenses restrict operation

of the taxicabs to the unincorporated areas of St. Louis

County. The primary source of taxicab business in the un-

incorporated areas of St. Louis County for which radio

dispatch facilities are unnecessary is the pick-up of pas-

sengers from Lambert Air Field. That is the primary

source of business for the drivers of taxpayers’ cabs, al-

though they do, by agreement with passengers, pick them

up elsewhere, and although they do, from time to time, on

a negotiated basis, transport passengers to points as much

as one hundred fifty miles from the St. Louis area.

The taxpayers each paid Withholding, FICA and FUTA

taxes for a single quarter. The taxpayers brought suit for

refund of the taxes paid and the Government. counter-

claimed for the balance of the taxes assessed for the period

of time in question, 1965 through 1968. The District Court

held for the taxpayers on the authority of Party Cab Com.

pany v. United States, 172 F.2d 87 (7 (C.A. 1949) and

United States v. Fleming, 293 F.2d 953 (5 C.A. 1961), be-

eause the taxpayers did not have the requisite ‘‘contro!”’

cme aes

* under the

provisions of the Internal Revenue Code and applicable

regulations. The United States Court of Appeals for the

Kighth Circuit reversed and petitioners, plaintiffs in the

Distriet Court and Appellees in the United States Court

of Appeals for the Kighth Cireuit, bring this Petition for

Writ of Certiorari.

over the drivers to render them ‘‘employees’

REASONS FOR GRANTING THE WRIT

1. Party Cab Company v. United States, supra, has been

until now, the lead case governing the status of taxicab

drivers for the purposes at hand, and succeeding cases,

Treasury Regulations and Internal Revenue Rulings have

been consistent with it. It turns upon the following hold-

ing:

“The matter of control which is material is that

which the plaintiff exercised over the drivers during

the period they were in possession of the cabs rather

than what the plaintiff might do either prior or subse-

quent to such period. Considered in this light, any con-

trol exercised by the plaintiff was quite meagre.”’

(le. 172 F.2d 92, Appendix C, p. A-48)

The United States Court of Appeals in the Fighth Cireuit

in the instant case based its decision that the drivers of

petitioners’ taxicabs were ‘employees’? upon the follow-

ing holding:

‘On the other hand, the drivers had regular work-

ing hours, were limited as to where they could pick up

customers, could not use cabs for their personal use,

were required to account for fares by submitting ‘trip

sheets,’ and were required to split (after deducting

amounts spent for gas and oil) their fares evenly with

appellees... Where a company has a general meas-

ure of control over the manner in which services of

a

their taxicab drivers are performed, such as cperation

in a restricted territory, control of hours worked, and

the governing of income to the drivers, the employer-

employee relationship exists for purposes of the federal

employment taxes. (Appendix B, pp. A-19-A-20).

The decision is in conflict with Party Cab Company v.

United States, supra.

2. The issues here presented are of importance to the ad-

ministration of the Federal Tax Laws as applied to the

taxicab industry throughout the nation. The history of

the Internal Revenue Department’s position on these is-

sues has been one of litigation and acquiescence in adverse

result (R. I, p. 113). It is believed that the decision of the

United States Court of Appeals for the Eighth Cireuit in

the instant case represents a substantial departure from

the principles announced in the Party Cab Company case,

supra, and followed in United States v. Fleming, 293 F.2d

953 (5 C_A. 1961); New Deal Cab Company v. Fahs, 174 F.

2d 318 (5 C.A. 1949); and Economy Cab Company v. Fahs,

174 F.2d 321 (5 C_A. 1949), as well as in the rulings of the

Internal Revenue Service (Rev. Rul. 66-267 [1966-2 Cum.

Bull. 443]; Rev. Rul. 71-572 [1971-2 Cum. Bull. 347], at-

tached hereto in Appendix A, pp. A-3 and A-7). It is

believed that if left undisturbed, the opinion in the court

below will quickly result in changes in both the published

and the unpublished positions of the Internal Revenue

Service with disastrous results to small business taxpayers

such as these petitioners.

3. The opinion and decision of the United States Court

of Appeals for the Eighth Circuit is believed to be in error

for three reasons.

First, the court below predicates a finding of ‘‘control”’

by taxicab owners over taxicab drivers on regular shifts,

license restrictions, and the necessity for an accounting

where rental is on a percentage basis. The first two of these

indicia are necessary ingredients of the operation of any

company-owned taxicabs in a large metropolitan area, and

the latter is a necessary ingredient of any such operation

where the proceeds of the operation of the taxicab are di-

vided between the owner and the driver. Such a decision

is tantamount to a holding that virtually all taxicab driv-

ers are ‘‘employees.”*

Second, the court below was in error in drawing even

general indications of ‘control’? from the work schedule

provisions of the Teamster contract and the area restric-

tions of taxicab operation. The Teamster contract sets

maximum and minimum schedules which bind both driver

and owner, ‘‘requiring,’’ for example, not only that the

driver drive the taxicab a minimum of nine hours per day,

five days per week, but that the owner make the taxicab

available for operation nine hours per day, five days per

week (R. I p. 73). The area restrictions are quite clearly

restrictions imposed by the licenses issued by St. Louis

County, not restrictions imposed by the employers (R. I

p. 55). As indicated, the trip sheet is a necessary device

for computing the percentage division of the proceeds and

can in no sense be an indication of *‘control’’ by the taxi-

cab owners.

Third, this Court, in United States v. Silk, 331 U.S. 704,

67 S.Ct. 1463, 91 L.Ed. 1757 (1947), announced a rationale

for making the determination of ‘‘employee”’ status some-

what broader than the ‘‘common law’? test. The Treasury

Department quickly proposed a regulation broad in scope,

basing its position on this Court’s opinion in United States

v. Silk, supra. The Congress rejected that regulation by

amending the then Section 1101(a)(6) of the Social Se-

curity Act defining ‘‘employee*’ to exclude those who were

not employees under the common law rules. President Tru-

man vetoed the amendment expressly on the ground that

it would take certain classes of people, including ‘‘taxicab

drivers,’ out from under the coverage of the Social Se-

Bi AR i a i a Nan ie

PSTN

REY POLE LUTEAL, BEING YO

126 LAL RID ANY

ee is,

OUR Re wet

= ee

curity Act. The Congress passed the resolution over the

veto of the President (P.L. 642, 80th Congress, 2nd Ses-

sion). Shortly thereafter, the United States Court of Ap-

peals for the Seventh Circuit reached its decision in Party

Cab Company v. United States, 172 F.2d 87 (7 C.A. 1949)

that cab drivers driving company-owned taxicabs, operat-

ing from a company-owned garage under company-owned

licenses and on regular shifts, were not ‘‘employees’’ un-

der the ‘‘usual common law rules’’ because of lack of con-

trol by the cab companies over the drivers during the

operation of the taxicabs. The decision rests in large part

upon a review of the above legislative history (l.c. 172 F.2d

89-90, 92). This Court has recently reviewed the same

legislative history in United States v. Webb, 397 U.S. 179,

90 S.Ct. 850, 25 L.Ed. 2d 207 (1970) and in so doing, has

included from Senate Report No. 1255, 80th Congress,

Second Session, pages 10 and 11, the express Congressional

objection to the earlier proposed Treasury Regulation to

the effect that the broad test of ‘‘economic reality’’ would

permit untrammeled administrative discretion as to who

was an ‘‘employee’’ and who was not (l.c. 397 U.S. 188).

Reduced to its essentials, the opinion of the United

States Court of Appeals for the Eighth Circuit in the in-

stant case finds ‘‘control’’ of the taxicab drivers in the

situation of taxicab owner and taxicab driver as such. This

is the ‘‘economie reality’’ test without the name. One has

only to compare the letter ruling of the Internal Revenue

Service pertaining to Laclede and Red Top Cabs in St.

Louis (R. 1, pp. 110-114) and Rev. Rul. 71-572 (App. A.

p. A-7) with the Internal Revenue Service position in the

instant case to see untrammeled administrative discretion

in gross form. The Internal Revenue Service takes the

position that where rental taxicabs are media advertised

and the drivers regularly respond to a radio dispatcher,

the drivers are not ‘‘employees”’ if they pay a fixed rental,

while they are ‘‘employees”’ if they pay a percentage rental.

In the instant case, the Internal Revenue Service takes the

position, now affirmed by the court below, that taxicab

drivers who have virtually no contact with any super-

visory employee, garage or radio dispatcher are neverthe-

less employees because of the percentage rental arrange-

ment.

It is believed that the decision of the court below, in

permitting this kind of broad administrative discretion,

has erroneously exposed these taxpayers to ruinous assess-

ments which they could not rationally have foreseen and

will expose others to equally ruinous retroactive assess-

ments.

CONCLUSION

For the foregoing reasons, this Petition for a Writ of

Certiorari should be granted.

Respectfully submitted

LASHLY CARUTHERS,

THIES, RAVA & HAMEL

WILLIAM I. RUTHERFORD

WILLIAM E. BUCKLEY

818 Olive Street, Suite 1300

St. Louis, Missouri 63101

Attorneys for Petitioners