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Mayer v. United States

decided: June 20, 1980.


On Appeal from the United States District Court for the Western District of Wisconsin. No. 75 C 428 -- Robert W. Warren, Judge .

Before Fairchild, Chief Judge, and Cummings and Pell, Circuit Judges.

Author: Cummings

Plaintiff Wisconsin meatpacker and its Pennsylvania subsidiary sued to recover with interest alleged overpayments of $69,958.03 assessed against plaintiffs and Alpha Technical Services, Inc., a defunct subsidiary of the Wisconsin corporation, under the employer withholding provisions of the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and income tax laws.*fn1 Relying on the Supreme Court's then recent decision in Central Illinois Public Service Co. v. United States, 435 U.S. 21, 98 S. Ct. 917, 55 L. Ed. 2d 82, the district court granted summary judgment for plaintiffs. On appeal, the Government challenges that judgment insofar as the FICA and FUTA withholding taxes are concerned. We affirm.

The facts material to our consideration are not in dispute. During 1969 and 1970 plaintiffs and Alpha provided approximately 863 automobiles, leased on a fleet basis, to some of their salesmen, livestock procurers, and grocery product salesmen who, as determined by division executives, needed automobiles in performing their jobs.*fn2 Each such employee was informed that the car was primarily for business use and that any personal use was expected to be incidental. The company required the employees to file standard expense reports, showing separately the business miles and personal miles accumulated during each week. Employees thereafter received reimbursement from the companies for all expenses incurred in operating the automobiles, less a charge of 31/2› to 4› per mile for each mile of personal use. This charge was intended to reimburse plaintiffs and Alpha "for incremental costs which resulted from any personal use of operating the automobile" (par. 8(3) of complaint).*fn3

After an audit of the program, the District Director of the Internal Revenue Service in Madison, Wisconsin, determined that the charge for personal miles deducted from the reimbursement paid the employees failed to cover the companies' allocated costs for the personal use, including the employees' share of lease amortization, insurance, taxes and licensing. He found that the proper charges for 1969 should have been 11› per mile in the case of the Wisconsin plaintiff, 91/4› per mile in the case of the Pennsylvania plaintiff, and 101/2› per mile in the case of Alpha and for 1970, 113/4› per mile, 111/4› per mile and 103/4› per mile respectively. He concluded therefore that the employees had received compensation from the company equal to the difference between the actual cost and the cost charged,*fn4 that this compensation amounted to "wages" for purposes of FICA, FUTA and income withholding taxes, and that the companies were liable for the resulting deficiencies in their withholdings under the statutes. After paying the additional assessments, plaintiffs filed claims for refunds, which were disallowed in full. This lawsuit followed.

The theory of the complaint was that the employees did not receive compensation since they had been charged the fair market value for use of the automobiles for personal purposes. In the alternative, the complaint asserted that even if the employees received compensation through use of the automobiles for personal purposes, the compensation was not "wages" for purposes of FICA, FUTA and income withholding taxes. While the case was pending in the district court, the Supreme Court decided Central Illinois Public Service Co. v. United States, 435 U.S. 21, 98 S. Ct. 917, 55 L. Ed. 2d 82. In Central Illinois, the Court held that reimbursement for lunch expenses of employees on company travel did not constitute "wages" subject to federal income tax withholding, even though the reimbursement assertedly represented income to the employees. It reasoned that "income" and "wages" are discrete concepts under the Internal Revenue Code, the former being an expansive term, the latter one that Congress had intentionally chosen to be "narrow and precise." 435 U.S. at 31, 98 S. Ct. at 922. That decision, based in part on legislative history (435 U.S. at 26-27), prompted plaintiffs to file a motion for summary judgment. Thereafter the Government conceded that any unreimbursed value of the use of company cars by plaintiffs' employees did not constitute "wages" subject to income tax withholding, but, because Central Illinois did not involve FICA and FUTA taxes, it maintained that the alleged compensation should still be considered "wages" for purposes of those taxes. The amounts left in issue were $9,318.18 for FICA tax and $262.39 for FUTA tax.

In granting summary judgment for plaintiffs, the district judge filed a supporting memorandum noting that the definitions of "wages" in FICA and FUTA were nearly identical to the income tax withholding definition. Although acknowledging minor departures in the language, he rejected the Government's assertion that these differences reflected a distinction between FICA and FUTA "wages" on the one hand and income tax "wages" on the other, supposedly based on differences in the purposes of the taxes and in collection procedures. Judge Warren also noted that

"(t)o hold that the slight differences in the wording of the definitions of wages constitutes a difference in intent would prevent employers from being able accurately to predict what should be withheld for income tax purposes and what should be withheld for FICA and FUTA purposes. Such a result would be unfair." (App. B at 7a.)

He thus held that the word "wages" has the same essential meaning under all three statutes. The Government then took this appeal.

The Meaning of "Wages" Under FICA and FUTA

Central Illinois, supra, stands for the proposition that the concepts of "wages" and "income" are not identical for purposes of the tax laws. In particular, the Court in Central Illinois held that Congress used the narrower term "wages" in describing the source of an employer's withholding obligations because of Congressional concern for "simplicity" and "ease of administration" in the withholding context, where the employer is burdened with secondary liability for the taxes withheld. Noting that the meal stipends at issue in that case were not even clearly within the definition of income at the time they were provided, the Court found the "intentionally narrow and precise" concept of wages too narrow to comprise the additional income that those stipends now appeared to represent. 435 U.S. at 31, 98 S. Ct. at 922.

In this case, the Government has conceded that the value of the automobile use, like the meal stipends in Central Illinois, should not be included in the "wages" of the employees for income tax withholding purposes (Br. 4, 9). It follows, then, that the remuneration is not "wages" for FICA and FUTA purposes if the withholding provisions of those statutes are treated as in pari materia with the comparable income tax provisions. The Government's case depends primarily on its assertion that the provisions should not be so treated and that Central Illinois does not suggest otherwise. Although Central Illinois admittedly did not reach the specific issue of this case, its discussion of "wages" represented an effort to delineate the concept embodied in that term as it appears in the tax laws. That the FICA and FUTA statutes employ the same term in an identical context strongly suggests that the general concept Congress intended to apply here was the same.

It is, moreover, highly significant that the Court in Central Illinois specifically approved the Fourth Circuit's decision in Royster Co. v. United States, 479 F.2d 387 (1973), in which the similarity among the three withholding statutes was expressly noted and in which that court found the remuneration at issue reimbursement for the cost of meals its salesmen purchased during their days on the road not to be wages under all three statutes.*fn5 The court's assumption that the three provisions embodied the same concept undoubtedly stemmed from its description of the three statutes as follows:

"Concerning FICA. 26 U.S.C. §§ 3101 and 3102 impose a tax for old age, survivors, disability and hospital benefits and require the employer to collect such taxes from the wages of the employee. § 3121(a) defines "wages' within the meaning of §§ 3101 and 3102 as "all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.' Concerning FUTA. 26 U.S.C. § 3306(b) likewise defines "wages' as "all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.' For the purposes of withholding income tax by the employer, 26 U.S.C. § 3401(a) defines wages: "For purposes of this chapter, the term "wages" means ...

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