The opinion of the court was delivered by: LEAVY
The plaintiff, Henry Broderick, Inc., seeks a judgment for refund of taxes and interest collected by the defendant, Clark Squire, Collector of Internal Revenue. The issue presented by this controversy is whether the persons upon whose earnings the tax was collected were in fact employees within the meaning of the Social Security Act, 42 U.S.C.A. § 301 et seq., or whether they were independent contractors.
The statutes and regulations involved are: Federal Insurance Contributions Act, as amended, 26 U.S.C.A.Int.Rev.Code, §§ 1400-1432; Federal Unemployment Tax Act, 26 U.S.C.A.Int.Rev.Code, §§ 1600-1611.
Neither of the two Federal statutes referred to define the term 'employee'.
The regulation involved is designated as Section 402.204 of Regulation 106. This regulation states: 'every individual is an employee if the relationship between him and the person for whom he performs services is the regular relationship of employer and employee.'
It then provides: 'In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means or methods of accomplishing the result, he is an independent contractor.'
For the purpose of further clarifying the regulation, in April, 1943, the Acting Commissioner of Internal Revenue in Mimeograph 5504 Accumulative Bulletin, January-1943, page 1066, ruled that real estate salesmen are employees of brokers for Federal Employment Tax purposes even though their compensation is based upon commissions from sales.
The facts as disclosed by the record in this case, from documentary and oral evidence offered at the time of trial by the plaintiff -- there being no evidence offered by the defendant -- may be briefly summarized as follows:
A written agreement was entered into by the plaintiff with the persons whose remuneration became the subject of the tax herein. This agreement provided that one engaged in selling real estate in connection with the plaintiff's activities in that field must be the holder of a real estate broker's license of the State of Washington, in full force and effect. It also provided that it was the intent of the plaintiff and the persons who signed the agreement that the relationship between them was that of 'an independent contractor, and not a servant, employee, joint adventurer or partner'. The brokers agreed to sell real estate for clients of the plaintiff upon a commission basis. Such sales were made of properties listed with the plaintiff and all contractual relationships between the owner of the property and the seller of the property were with the plaintiff herein. The commission received from such activity became the property of the plaintiff. When a transaction was finally consummated and commissions were paid, the plaintiff would divide the proceeds of such commission equally between itself and the individual broker who made the sale. The plaintiff maintained an officer properly equipped with furnishings and staff suitable to serving the public as a real estate broker. It was one of the leading and well known real estate brokerage concerns in the City of Seattle enjoying the goodwill of and a reputation for fair dealing with the public. Each broker was supplied with desk room in the plaintiff's office, as well as a telephone, switchboard service and reasonable and necessary stenographic services, and the plaintiff in its sole discretion might mention in its advertising the name of the person engaged in selling. All current listings were available to such brokers; the plaintiff, however, reserving the right to place in the temporary possession of any one of them exclusive privileges of sale. Regular sales meetings were attended by both its salaried real estate salesmen and the brokers herein involved, though there was no compulsory requirement that a broker be in attendance. At these meetings discussions were had regarding matters of the business of selling, and assignments of listed property were made by the plaintiff. Any broker was free to make a choice of listings but this was subject to such limitations as the plaintiff might impose. Either the plaintiff or its brokers might terminate the relationship existing between them at will, and generally the brokers were given a free hand as to whether they would devote all or part of their time to the service of selling listed real estate for the plaintiff, although, on the other hand, if they should undertake to sell real estate for other brokers or make sales in their own name and on their own behalf they would be considered as violating the obligations they had assumed, and be discharged.
The foregoing summarizes the facts as established by the evidence in this case disclosing the nature of the services rendered to the plaintiff by the brokers and the form of remuneration paid such brokers by the plaintiff.
Plaintiff insists that there are three essential elements that must be found before the brokers could be classified as employees. There are as follows:
(1) Wages a remuneration for employment must have been paid to the brokers.
(2) These must have been paid by and from funds belonging to the plaintiff.
(3) The services must have been performed by the broker for the plaintiff as his employee.
It seems to me these facts I have found of the relationship existing between the parties, fairly meet ...