Quintanilla v. Commissioner, TC Memo 2016-5.The Tax Court found that an individual who was covered by a union contract was nevertheless an independent contractor for federal tax purposes in the case of the
Mr. Quintanilla worked on various television commercials and provided specialized skills. The Court noted he had a rather “simplified” accounting system, described as follows:
Both Quintanilla and his accountant credibly testified about their recordkeeping and tax-preparation routine. Quintanilla diligently collected receipts and made notes about his expenses. He then organized them in envelopes by category and handed them over to his mom, who acted as his bookkeeper. Quintanilla or his mom gave the accountant all the documentation that he asked for. Quintanilla also relied on his accountant and had no reason to question his competency.
Commercial productions generally involve very short term specific jobs, and Mr. Quintanilla had his own specialized skills described as follows:
Quintanilla may not have been very sophisticated in his business bookkeeping, but he was highly skilled in his field, which is production work on advertisements and TV commercials. In 2009 and 2010 he worked on a number of projects that lasted from one day to over a month for a variety of production companies. We have no doubt that he possesses unique skills that are valuable to this industry.
His skills don't fit snugly within the industry's usual classifications, and Quintanilla's titles varied from job to job. They included "driver", "hyphenate driver," and "set dresser." Each of these titles has a defined meaning in the industry: A "driver" drives people, props, or other equipment and may or may not provide his own vehicle. A "hyphenate driver" is a driver who can also do a second job such as build sets or provide other services. A "set dresser" can build or paint a set, move sets or furniture, or act as a foreman and oversee a crew who do these things. But the roles on the smaller crews of commercial shoots blur, and Quintanilla's title for a job did not always accurately describe what role he filled.
We find that the production companies that hired Quintanilla hired him to build sets. They expected him to provide any tools he needed to complete the job. Quintanilla has an enormous collection of tools -- which he stores in two 40-foot steel containers -- that travels with him to jobsites. These containers are also packed with machinery that Quintanilla uses to fabricate pieces of sets on the spot. He described these containers and had photos that showed machinery including power tools, specialty sanders, sledgehammers, welders, a nail gun, and more. Some were quite expensive: He owned a German specialty sander that cost more than $2500, and four welders that cost $3500 each. He also rents some equipment, and his choice to buy or rent is his own.
Production companies are very interested in the specific person they hire for a job, but the industry works in a rather unique fashion. As the Court describes:
It's common practice for production companies to hire people they know to work on their projects, but these companies often outsource the paperwork to firms that specialize in back-office chores. In 2009 and 2010 these payroll companies included GEP Commprod Services, LLC, CAPS, Inc., Team Alternatives, Monarch Consulting, and FSI Processing, Inc. Production companies typically use the same handful of payroll companies. Thus, Quintanilla might be paid by the same payroll company for six months, but actually be working on 20 or more projects run by many different production companies.
Mr. Quintanilla incurred substantial expenses which makes the question of independent contractor vs. employee important—if he is an employee those expense are deductible only as itemized deductions, subject to the 2% of adjusted gross income limitation and not deductible for alternative minimum tax purposes. However, if he is an independent contractor those expenses would be fully deductible in computing adjusted gross income and also allowed in computing adjusted gross income.
Sometimes Mr. Quintanilla worked in his own name and sometimes in his S corporation. The items before the court involved those cases where he worked in his own name. The Court found that since the production companies were interest in Jorge Quintanilla’s skills and obtaining them specifically in either case, there was little practical difference in the relationship.
However, as the Court noted:
There was, however, a difference in the paperwork involved. When a production company hired Quintanilla as an individual, it would generally issue him a Form W-2, Wage and Tax Statement. And the company listed on the Form W-2 as the employer was usually a payroll company. Even a tiny bit of questioning showed that his situation is much different from most taxpayers who get a W-2 from their employer, and nobody involved in this case thinks the payroll company had any control whatsoever over how Quintanilla did his work. Indeed, Quintanilla often performed different jobs for different production companies while being paid by the same payroll company. He was hired for more than 80 different jobs by production companies in 2009, but some of these production companies hired him for multiple jobs at different times throughout the year. The same was true in 2010.
Using the general tests for employee vs. independent contractor the court noted that, despite getting a W-2 from a payroll company, the relationships fell into the independent contractor category. Specifically Mr. Quintanilla had a large degree of control over what he did, provided all of the tools used, had an opportunity to earn a profit or loss, and the fact that, while perhaps continuing to be paid by the same payroll company, he would work for a large number of different production companies on very short term projects.
But the IRS noted that Mr. Quintanilla was a union member. As the Court noted:
So far, then, the usual factors don't help the Commissioner much. But he has one very strong argument left: Quintanilla is a union member, and many of his jobs were priced at rates set through collectively bargained contracts. Union contracts typically provide that workers are employees and not independent contractors. See generally Kraus v. Commissioner, T.C. Memo. 2003-10.
But, as with other factors in this case, the court found Mr. Quintanilla wasn’t a normal union employee. The Court pointed out:
Quintanilla credibly explained that he and many of his peers in the industry join unions mainly to obtain health insurance and to a lesser extent to appear on call boards. His experience was typical -- he was a member of a union and received his health insurance from it. That union required Quintanilla to show a minimum number of hours to receive this insurance. But neither the union contracts nor the production companies gave him vacation days or sick time. As Quintanilla credibly explained, if he wanted a vacation he would just not answer his phone. And the union contracts even excluded fixed wages and working conditions from their coverage -- they expressly reserved the power of employees to cut better deals if they could. Quintanilla testified that all of his jobs came from personal connections and not one came from a union call board.5 See Susan Christopherson & Michael Storper, "The Effects of Flexible Specialization on Industrial Politics and the Labor Market: The Motion Picture Industry," 42 Indus. & Lab. Rel. Rev. 331, 335 (1989) (describing the roster system as an intermediary labor market for temporary employment in relation to craft jobs.) At times he was paid union rates, but at other times he negotiated his fee.
Quintanilla credibly testified that everything in Hollywood is a negotiation, and contracts are discussed daily. At times a studio even uses another studio's stage if the price is lower than the rate for its own stage. Continual negotiations and ever-changing contracts are evidence that the studios didn't intend to make a permanent relationship. Employers don't negotiate with their employees daily.
Thus the Court concluded that Mr. Quintanilla was properly treated as an independent contractor on his individual income tax return.