Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-63

1957-1 C.B. 321

IRS Headnote

Individuals sell ice cream products for a corporation from refrigerated trucks furnished and serviced by it. They perform the services personally and receive as remuneration therefor a percentage of their gross sales. They are assigned designated territories and are required to detove their full time to the business of the corporation. Their services may be terminated by the corporation for failure to produce an adequate volume of business or for improper conduct on the job. The corporation pays all operating expenses of the trucks. Held , such individuals are employees of the corporation for Federal employment tax purposes.

Other individuals sell ice cream products which they obtain from a distributor on consignment. These individuals rent the trucks used in such activity from the distributor on a day-to-day basis and pay for the gasoline consumed. The trucks are loaded daily at the distributor's plant with merchandise selected by such individuals. They endeavor to sell the merchandise at fixed prices in residential areas chosen by them. They are remunerated on a commission basis and are not required to give the distributor first call on their services. Held , such individuals are not employees of the distributor for Federal employment tax purposes.

Full Text

Rev. Rul. 57-63

The Internal Revenue Service has been requested to determine the status, for Federal employment tax purposes, of individuals engaged in selling ice cream products at retail from refrigerated trucks under the conditions described below.

Case 1 .

In this case, a corporation is engaged in the business of selling ice cream products through vendors who are engaged after personal application on their part. These vendors sell the ice cream products from refrigerated trucks, usually in residential areas. The corporation furnishes the trucks and hucksters' licenses and pays all operating expenses of the trucks. The vendors are required to be licensed and experienced drivers, perform the services personally, and conduct themselves in an exemplary manner in dealing with the public. Each vendor is assigned a truck and is required to report to the corporation's plant by noon of each day for loading, icing, and servicing the truck. Each vendor signs for the merchandise when loaded on his truck and turns in to the corporation the receipts of the previous day. The vendors are paid a stated percentage of their gross sales each week. They are not allowed advances or a drawing account. They are expected to devote their full time to the business of the corporation. Although they are assigned designated territories, they may cover adjacent territories if on a particular day it is found that business is poor in the assigned territory. The corporation may terminate the agreement with a vendor at any time for failure to produce an adequate volume of business or for improper conduct on the job. Also, the vendor may terminate his agreement with the corporation at any time.

Under section 3121(d)(2) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954) the term `employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee /1/. The guides for determining whether, under such rules, an employer-employee relationship exists are found in section 31.3121(d)-1(c) of the Employment Tax Regulations.

Upon application of the provisions of section 3121(d)(2) of the Act and the regulations referred to above, it is concluded that the corporation exercises such direction and control over the vendors in the performance of their services as is necessary, under the usual common law rules, to constitute an employer-employee relationship and that such individuals are employees of the corporation for purposes of the Federal Insurance Contributions Act, supra .

Case 2 .

In this case, the distributor of ice cream products engages vendors to sell its products in residential and other areas. Each vendor pays a daily rental charge for the use of a refrigerated truck furnished by the distributor. The vendor also pays for the gasoline used in the operation of the truck. He reports to the distributor's plant each morning to pick up and load his truck with merchandise selected in accordance with his own order. The vendor then drives the truck to residential areas where he endeavors to sell the merchandise at prices fixed by the distributor. He is not required to observe regular working hours, sell a minimum quota of merchandise, or to restrict his sales activities to a specified territory. The merchandise is accepted by the vendor on consignment and he is compensated on a commission basis. The vendor settles for the merchandise sold and returns any unsold merchandise when he returns to the distributor's plant each evening. The vendors work on a day-to-day basis and the distributor does not have preferred call on their services.

Applying the provisions of section 3121(d)(2) of the Act and the applicable regulations referred to above to the factual situation in Case 2 , it is held that the distributor neither exercises nor has the right to exercise such control over the vendors in the performance of their services as is necessary under the usual common law rules to establish the employer-employee relationship. Accordingly, the individuals are not employees of the distributor for purposes of the Federal Insurance Contributions Act.

These conclusions are also applicable for purposes of the Federal Unemployment Tax Act and the Collection of Income Tax at Source on Wages (chapters 23 and 24, respectively, subtitle C, Internal Revenue Code of 1954).

/1/ The provisions of section 3121(d)(3)(A) of the Act to not either Case 1 or Case 2 for the reason that ice cream products are not within the classification of products specified in that section.