Internal Revenue Service
Revenue Ruling
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smRev. Rul. 55-31
1955-1 C.B. 476
IRS Headnote
Guides to used in determining the status of traveling or city salesmen under section 1426(d)(3)(D) of the Federal Insurance Contributions Act.
Full Text
Rev. Rul. 55-31
1. Mimeograph 6583, C.B. 1951-1, 97, in part, outlines the general application of the provisions of the Federal Insurance Contributions Act (subchapter A, chapter 9, of the Internal Revenue Code of 1939) in the case of traveling or city salesmen.
2. Paragraph 6 of Mimeograph 6583 sets forth the conditions under which a traveling or city salesman (other than an agent-driver or commission driver) who is not an employee under the usual common-law rules, is considered an employee under section 1426(d)(3)(D) of the Act, with respect to services performed after 1950.
3. The purpose of this Revenue Ruling is to supplement paragraph 6 of the Mimeograph by providing a definition or general interpretation of certain terms appearing therein, and by giving examples of factual situations for purposes of section 1426(d)(3)(D) of the Act:
(a) Full-time basis .-A traveling or city salesman whose entire or principal business activity is the solicitation of orders primarily for one principal from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations. Generally, a traveling or city salesman will be presumed to meet the `principal business activity' test in any calender quarter in which he devotes 80 percent or more of his working time and attention to the solicitation of orders for one principal from wholesalers and/or the other customers specified for merchandise for resale or supplies of the requisite character.
(b) Wholesalers .-Those who buy merchandise or commodities in comparatively large quantities and sell such merchandise or commodities to jobbers, retailers, etc., as distinguished from the ultimate consumers, in smaller quantitles for the purpose of resale. Wholesalers do not process the merchandise in any way that would cause it to lose its identity. It is the character of their selling, not their buying, which characterizes these as whole-salers.
(c) Retailers .-Those who sell merchandise or commodities to the ultimate consumers, usually in small parcels or quantities. For purposes of this definition, a merchant will not lose his classification as a retailer merely because he may perform a service function, or a processing or manufacturing operation, with respect to the merchandise or commodity which he sells. The distinguishing feature of a retailer is the fact that he sells to the ultimate consumers.
(d) Contractors .-Those who, for a fixed price, undertake the performance of work on an independent basis usually on a large scale, whether for the public, a company, or an individual, such as, construction contractors and certain service organizations. These include, among others, electrical, plumbing, painting, building, highway, window washing, wall cleaning and delivery service contractors.
(e) Operators of hotels, restaurants or other similar establishments .-The phrase `other similar establishments' refers solely to establishments similar to hotels and restaurants and usually is limited to establishments whose primary function is the furnishing of food and/or lodging.
(f) Merchandise for resale .-Goods, wares, and commodities, which ordinarily are the objects of trade and commerce, whether at wholesale or retail, and which are purchased for the purpose of selling to others in substantially the same from as acquired. This term includes tangible materials which do not lose their identity between the time of purchase and the time of sale while in the hands of the vendor.
(g) Supplies for use in the customers' business operations .-Means principally articles consumed in conducting or promoting the customers' businesses. Generally the term `supplies' includes all tangible items which are not `merchandise for resale' or capital items. Services, such as radio time, advertising space, etc., are intangible items and not within the definition. However, calendars, advertising novelties, etc., used by the advertiser in his business constitute `supplies.'
4. The following types of customers usually are not included in those designated in section 1426(d)(3)(D) of the Act: manufacturers, schools, hospitals, churches, and institutions, municipalities and State and Federal governments. However, an entity which is not included in the type of customers specifically designated may, through a unit of its organization, carry on a clearly identifiable and separate business which is in the included category. For example, where an entity, such as a college, university or other school, is engaged principally in activities not in connection with retail distribution of commodities, but through a unit of its organization, such as a bookstore, carries on a clearly identifiable and separate business, such separate unit, as such, is a `retailer' within the meaning of section 1426(d)(3)(D).
5. The following examples, in each of which it has been established that the salesman is not an `employee' under the usual common law rules, illustrate the application of the above terms in determining the status of traveling or city salesmen under the statutory test provided in section 1426(d)(3)(D) of the Act. (In each such case the salesman solicits orders regularly and exclusively for one principal, transmits the orders to such principal, operates under an arrangement whereby substantially all of the services are performed by him personally, and has no substantial investment in facilities (other than transportation facilities) used in the performance of his services.)
Example 1 . The salesman performs sales services for a company engaged in publishing catalogs and from lumber dealers. The solicits orders for the catalogs exclusively from lumber dealers. The catalogs are purchased by the lumber dealers either for resale purposes or for free distribution to their customers. The lumber dealers are `wholesalers' or `retailers' within the meaning of those terms as used in section 1426(d)(3)(D) of the Act. The catalogs for resale constitute `merchandise for resale' and those purchased for free distribution constitute `supplies for use in the customers' business operations.' The salesman meets the statutory test provided in such section 1426(d)(3)(D) and is an employee of the company for purposes of the taxes imposed by the Act.
Example 2 . The employer is a wholesale distributor of automotive parts and a rubberseal compound to be inserted in automobile or truck tire tubes. The salesman spends all of his working time in soliciting orders for the distributor's products from retail automobile dealers, operators of gasoline service stations and repair shops, and automobile fleet owners. Some of the dealers have shops at which only ordinary repair work incident to the sale of automobiles is performed. The operators of the other repair shops are engaged primarily in repairing automobiles and tires and sell no automotive parts other than those installed by them and no rubberseal compound except that inserted in their customers' tire tubes.
The automotive parts and rubberseal compound constitute merchandise for resale' or `supplies for use in the customers' business operations' within the meaning of section 1426(d)(3)(D) of the Act. The operators of gasoline service stations and the retail automobile dealers (including dealers who in conjunction with their salesrooms operate repair shops at which only ordinary repair work incident to the sale of automobiles is performed) are `retailers' within the meaning of such section. The operator of an automotive repair shop or garage who conducts a retail unit separate from his regular business, or separately identified, likewise is with respect to such unit a `retailer.' However, generally the operator of a repair shop or garage who has no such unit is not a `retailer' or other customer of the type specified in section 1426(d)(3)(D). The automobile or truck fleet owners who operate delivery service businesses and contract with merchants to deliver packages or the owners of trucks used in fulfilling hauling contracts are `contractors' within the meaning of section 1426(d)(3)(D). However, the owner of a fleet of taxicabs or limousines used for transporting passengers or the owner of automobiles or trucks rented for driving by the renters thereof is not deemed to be a `contractor.'
Inasmuch as the salesman solicits orders from some customers who are not retailers, contractors or others of the types specified in section 1426(d)(3)(D), it is clear that his `entire business activity' is not the solicitation of orders from the requisite types of customers. Then it is necessary to determine whether his `principal business activity' is the solicitation of orders for one principal from the requisite types of customers. The salesman estimates that he devotes 80 percent of his working time to soliciting orders for the distributor from the requisite types of customers in each calendar quarter and that these activities are the principal source of his income. It is concluded that the salesman meets the statutory test provided in section 1426(d)(3)(D), and is an employee of the distributor for purposes of the taxes imposed by the Act.
Example 3 . The salesman performs sales services for a company which is engaged in the sale of new and used trucks and trailers. He solicits orders exclusively from trucking firms who purchase the vehicles for use in fulfilling hauling contracts. Although the trucking firms are `contractors' within the meaning of section 1426(d)(3)(D) of the Act, the trucks and trailers purchased by them are capital investments of the customers and are not `merchandise for resale' or `supplies for use in the customers' business operations.' Accordingly, the salesman does not meet all the requirements of the statutory test contemplated by section 1426(d)(3)(D), supra , and is not an employee of the company for purposes of the Act.
Example 4 . The salesman solicits orders on behalf of a company which is engaged in the manufacture of novelty jewelry. The orders for such jewelry are solicited from college bookstores, jewelry stores, newstands, drug stores, curio shops, automobile dealers, and military supply stores, including Army and Air Force post exchanges and Navy ship service stores. The products are purchased for resale by all of the customers other than the automobile dealers. Those purchased by the automobile dealers are for free distribution to their customers for advertising purposes. The college bookstores, as separate units of the college, are `retailers' within the meaning of section 1426(d)(3)(D) of the Act. The military supply stores, including Army and Air Force post exchanges and Navy ship service stores, and the operators of jewelry stores, newstands, drug stores, curio shops and automobile dealers also are `retailers' within the meaning of such section. The novelty jewelry purchased for resale constitutes `merchandise for resale' and that purchased for free distribution constitutes `supplies for use in the customers' business operations' within the meaning of section 1426(d)(3)(D). Since the salesman's entire business activity is the solicitation of order for one principal for the requisite types of items from customers specified in section 1426(d)(3)(D) and he meets other conditions in such section, he is an employee for purposes of the Act.
Example 5 . The salesman performs sales services for a company which is in the business of selling and servicing sound and projection equipment. He calls principally on schools to interest them in better teaching methods by the use of audio-visual equipment and to sell such equipment. He also solicits orders from churches. Since he solicits orders principally or exclusively from schools and churches which, as such, are not the types of customers designated in section 1426(d)(3)(D) of the Act, he is not an employee of the company for purposes of the taxes imposed by the Act.
Example 6 . The salesman performs sales services for a firm which is engaged in selling advertising on menus, folders, etc. He solicits orders for the advertising from wholesalers, retailers, contractors, and operators of restaurants, hotels, motels and similar establishments. The solicitation of orders for advertising for inclusion on menus, folders, etc., which are not made available to the advertiser involved, but are furnished to other customers of the salesman or his principal for use or distribution, does not constitute the solicitation of orders of the type contemplated by section 1426(d)(3)(D) of the Act. However, the solicitation of orders for advertising on menus, folders, or advertising specialties from wholesalers, retailers, contractors, or from operators of hotels, motels, restaurants or other similar establishments, which are used by such customers for use in their business operations (including good will novelties distributed by or on behalf of the advertiser) constitute the solicitation of orders for `supplies for use in the customers' business operations.'
Although all of the customers are of the types specified in section 1426(d)(3)(D) of the Act, none of the orders are for `merchandise for resale' by the customers from whom such orders are solicited and only part of the orders are for `supplies for use in the customers' business operations.' The salesman estimates that he devotes 60 percent of his time during each calendar quarter to soliciting orders for the firm from customers for advertising for inclusion on menus, folders, etc., which are not made available to the advertiser involved and, therefore, are not `supplies for use in the customers' business operations.' It is concluded that the salesman does not meet all the requirements of the statutory test contemplated by section 1426(d)(3)(D), and is not an employee of the firm for purposes of the taxes imposed by the Act