*2371 Compensation received by an architect for professional services rendered to the Board of Education of Atlanta, Ga., held not to be exempt from taxation under section 1211 of the Revenue Act of 1926.
*568 The respondent has asserted a deficiency in income tax for 1923 of $2,247.05. The single question to be determined is whether an amount of $18,000 received by petitioner in 1923 as compensation for services rendered to the Board of Education of Atlanta, Ga., is exempt from income tax.
FINDINGS OF FACT.
The petitioner is an architect residing in Atlanta, Ga., where he has been engaged in the practice of his profession since 1905.
In the latter part of 1921 or early in 1922, a bond issue was authorized by the city of Atlanta in the approximate amount of $4,000,000, to provide for constructing, remodeling, and making additions to public school buildings in that city. The work was to be done under the supervision of the Board of Education, an elective body of citizens serving without pay. The board had no member*2372 with sufficient technical knowledge to pass upon and approve plans for the new buildings and equipment or to see that contracts were let and the work done at fair prices. Accordingly, upon recommendation of the Board of Education, the city of Atlanta, through the mayor, entered into a contract with the petitioner, which provides in part as follows:
This agreement entered into this 31[st] day of January, 1922, between the city of Atlanta, a corporation, hereinafter represented by the Board of Education, *569 whose duty it shall be to see that this contract is fully performed and to represent the said city in the carrying out thereof, party of the first part, and A. Ten Eyck Brown, of Fulton County, Georgia, party of the second part.
WITNESSETH: That the party of the first part does hereby engage the services of party of the second part as supervising architect for the school buildings of various characters, which are to be erected, remodeled and added to by the party of the first part, in the city of Atlanta, and which are to be paid for out of the moneys to be received from the sale of bonds which are to be issued and sold by the city of Atlanta as provided in the recent*2373 bond election. The compensation of party of the second part for the services to be rendered by him under this contract shall be as stated in the 12th and 10th paragraphs hereof.
The duties of the second party, under this contract, are to be entirely of a supervisory, advisory and administrative character and he shall devote such time and attention thereto as may be necessary to the proper performance of said duties, which in general will be as follows:
First. He shall make a comprehensive study of the report which is to be made by experts in the employ of the party of the first part, which report is to consist of an educational and physical survey of the existing school system and the buildings in the City of Atlanta, and which will determine the number, character and location of new buildings which are to be erected, as well as the alterations of, or additions to, existing buildings.
Second. He shall investigate existing school buildings in the principal cities thruout the country to be hereafter designated by the party fo the first part and other places of his own selection, which are of such a nature as will demonstrate the most modern methods of school operation and*2374 construction, so that the best ideas and features that have been developed can be accumulated and incorporated as far as practicable in the buildings under contemplation by the party of the first part, under the aforesai school building program.
Third. After a general scheme has been developed from the data secured by the above methods, the party of the second part will assist the party of the first part in the selection of architects who will prepare the preliminary layouts, plans, details and specifications for the above mentioned buildings, including structural, mechanical and electrical plans and specifications, the necessary layouts for equipment of various characters and kinds that may be required by the party of the first part and who will supervise the actual construction of the new buildings and the alterations or additions to present buildings, under the general supervision of the party of the second part, until the final completion and acceptance of the same.
Fourth. After the selection of the above architects by the party of the first part, based on the qualifications of the various architects under consideration, party of the second part will organize a systematic*2375 method, first, for the administration of the entire work, and second for the preparation of the preliminary layouts of the various buildings, so that the methods to be adoped by all of the architects shall be standardized as nearly as possible as to design, detail of construction and materials used. These preliminary layouts shall also be carried to such a point that careful preliminary estimates of cost may be developed before the final working drawings, specifications and details are commenced in the office of the architects to whom the various buildings will be allocated. Party of the second part shall also endeavor to perfect such an agreement among the aforesaid architects as will result in complete cooperation among them and between them and the party of the *570 second part, so that all ideas and features that may be developed and which may be found to be of value shall be used in the perfection of the plans, details and construction of any and all of the various buildings.
(b) The party of the first part shall have the right and authority to have the drawings, plans and specifications in the case of any buildings, including the architectural and engineering features*2376 thereof, reviewed by school experts or other experts of its own choosing in consultation with the party of the second part.
Fifth. On the completion of the necessary drawings, specifications etc. for securing estimates, party of the second part will advertise formally for bids from contractors, which bids shall be submitted to the party of the first part.
Sixth. Upon the acceptance by party of the first part of any bid for any of the work, the party of the second part shall prepare the standard contract documents, bonds, and other legal papers necessary for the proper evidencing of the contract between the builders and the party of the first part.
Seventh. Although the structural, mechanical and electrical engineering and other technical assistance and supervision of actual construction of each building shall be performed by the architect or architects to whom it is allocated, or their competent employees, the party of the second part shall have the authoriy, and it shall be so stated in the uniform contracts to be executed between party of the first part and the aforesaid architects, to require on each building additional structural, mechanical and electrical engineering*2377 and other technical assistance, as well as superintendence or inspection, and the cost of the same on each building shall be borne by the architect to whom said building is allocated.
Eighth. (a) Payments to be made to the contractors on all of the buildings shall be made when due by the party of the first part, only upon certificate of the party of the second part. No additions to, or deductions from, the contract amounts or changes in the contract conditions shall be made except upon a certificate of the party of the second part.
* * *
Ninth. Party of the second part shall, in connection with his office, employ the necessary assistance for the proper performance of his services as herein set forth, and shall keep in his office copies of all preliminary layouts, working drawings, details, specifications and reports, which shall be supplied by the aforesaid architects on the buildings allocated to them, planned or under construction, together with the records of all operations, reports upon same and accounts with the various contractors and the various architects. The above material shall be subject at all times to the inspection of the party of the first part, or its authorized*2378 representative.
Tenth. The party of the first part shall have the right during the progress of the work, if in its judgment it shall be desirable, to require the preparation of plans, specifications, details, etc. for any of the new buildings, or existing buildings to be altered or added to, to be prepared by the party of the second part; in which case, the party of the second part shall perform, in addition to his service as supervising architect, the same services as the various architects to whom individual buildings are allocated; for which service party of the second part shall receive in addition to his fee as supervising architect as hereinafter stated, the same fees which are to be received by the various architects to whom buildings are to be allocated as herein provided or as may be agreed upon.
Eleventh. * * * (b) Blue prints or copies of all plans, drawings, specifications accepted by the first party for any part of the work carried on under this contract shall become the property of the party of the first part.
*571 Twelfth. * * * (b) One per cent upon the cost of the entire construction work to be done hereunder, shall be paid to party of the second*2379 part. This fee shall be paid to the second party during the progress of the entire planning and construction work in installments every sixty days beginning sixty days from the date of the execution of this contract.
For the purpose of computing the amounts of such installment payments the party of the first part shall first estimate approximately the total amount to be expended in construction work in carrying out the building program to which this contract refers. The approximate period of time in which the contemplated building program can be completed shall then be estimated. The total amount which would be due the second party upon the estimated cost of the total construction work shall then be divided into as many parts as sixty is contained in the total number of days in which it is estimated said work can be completed, and an amount equal to one of said parts shall be paid to the second party every sixty days as above provided. The above method shall, however, only be adopted in arriving at the amount of said installment payments until the time when the total cost of said work can be definitely ascertained by the letting of all contracts and the issuing of all orders*2380 covering the entire building program, at which time the total amount of the fee due the second part, as well as the number of sixty day installments in which it shall be paid, shall be definitely determined.
* * *
Thirteenth. (a) In order to protect the interest of the party of the first part in the event the party of the second part should die, or for any reason become incapacitated during the life of this agreement, party of the second part shall take out a life and disability insurance policy in the amount of $10,000 which policy shall be made payable to the party of the first part as beneficiary. In case the party of the second part does not become incapacitated during the life of this contract, the beneficiary of said policy shall, at the termination of this contract, be changed as desired by the party of thesecond part.
(b) In case of the death of the party of the second part prior to the completion of this contract, as much of the proceeds of the above policy as may be necessary shall be used by the party of the first part in employing others to perform whatever balance of the services agreed in this contract to be performed by party of the second part, may then remain*2381 unperformed, and the balance of the proceeds of said policy shall be paid over to the heirs or assigns of the party of the second apr.
Fourteenth. (a) It is agreed that either party to this contract may, for good and sufficient reasons, terminate the same upon sixty days' written notice to the other party, which sixty days' notice shall only date from the day upon which the party desiring to terminate the contract shall have afforded to the other party an opportunity to hear and to discuss with him or them the reason why such termination is desired.
(b) In the event this contract be cancelled by either party, it is agreed that the party of the second part shall receive at the time of the cancellation compensation for the services rendered up to such date, and for the purpose of affording a method by which the value of the services rendered by him up to the date of such cancellation may be ascertained, it is agreed that his services and the fee which he is entitled to receive therefor shall be divided into thirds, as follows: The first third for the performance of which he shall be entitled to receive one-third of the total fee, shall consist of the preliminary work which shall*2382 include the duties enumerated under the first, second, third and *572 fourth sections of this contract as so numbered. The second third for the performance of which he shall be entitled to receive one-third of the total fee, shall consist of his services in connection with the duties enumerated in sections fifth and sixth of this contract as numbered. The last third for the performances of which he shall be entitled to receive one-third of the total fee, shall be for his services rendered in connection with the issuance of certificates upon the work to the various contractors and architects and the general supervision of the construction work upon all buildings to completion.
* * *
After making an educational survey of the Atlanta school system, Doctors Englehard and Strayer of Teacher's College, Columbia University, recommended the construction of approximately 18 additional school buildings and the repairing of numerous buildings then in use. Pursuant to the above contract, the petitioner prepared a program for such work and in conjunction with the Board of Education assigned the projects to various architects in Atlanta, who were known as "project architects." Each*2383 of the architects prepared a sketch of the proposed structure which was referred to petitioner for his approval. When finally approved, such sketches formed the basis for working drawings and specifications which were likewise submitted for petitioner's approval. Bids on a cost-plus basis with an "up-set" price were then received and tabulated by the petitioner. The bids were opened in public and contracts were made with the lowest bidders. The "up-set" price was used as a guaranty limit with the agreement that the buildings should not exceed this cost and that all savings from such amount should be divided 75 per cent to the city and 25 per cent to the contractor.
Under the terms of the contracts which were prepared by the petitioner and signed by the builders and the mayor of Atlanta, no subcontracts could be entered into and no materials could be purchased without first submitting bids to the petitioner and obtaining an award or a purchase order. On account of the character of the contracts, it was necessary for the petitioner to inaugurate a system of inspection, checking, bookkeeping and auditing which required an office force of considerable size. A part of the clerical*2384 force was furnished by the comptroller of the city, who was supposed to do the bookkeeping and auditing work, but was unable to do so because of an insufficient office force.
While the state work was in progress, petitioner was in close contract with W. A. McCalley, who was a member of the Board of Education and chairman of the building committee. He furnished the board with advice on technical matters and carried out in detail the general instructions and policies of the board.
Prior to entering into the above contract with petitioner, the Board of Education had a "Superintendent of Construction and
*573 Buildings" on its staff who was an engineer, but he had proved inefficient and was discharged about twelve months before the school bond issue was voted. No one was appointed to the vacancy created. The petitioner was not appointed to that position because it would then have been necessary to pay his compensation from the regular Board of Education funds rather than from the bond issue.
During 1923 the city of Atlanta paid petitioner $18,000, from the proceeds of the school bonds, as compensation for services rendered. In his income-tax return for that year, *2385 he reported such amount in his gross income, but deducted it as a "fee from the city of Atlanta" in arriving at the net income from his profession. Upon audit of the return, the respondent determined such amount to be taxable income and disallowed the deduction.
The petitioner maintained his own office and employed a staff of architects and clerks, who assisted him in his professional activities. He maintained his private practice throughout the taxable year and reported as gross income from his profession the amount of $83,586.07, which includes the $18,000 received from the city of Atlanta. Some undetermined portion of his professional income resulted from work done during the previous year. He claimed and has been allowed a deduction of $37,458.87 for salaries and wages paid. In 1924, when he was finishing up the loose ends on the city projects, he reported gross income of $41,076.37, and deducted $22,239.14 for salaries and wages paid.
OPINION.
LANSDON: The only question to be determined in this proceeding is whether the petitioner was an employee of the city of Atlanta within the meaning of section 1211 of the Revenue Act of 1926, which provides:
Any taxes imposed*2386 by the Revenue Act of 1924 or prior revenue Acts upon Any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any State or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to the statutory period of limitations properly applicable thereto, be abated, credited, or refnded.
The petitioner concedes that he was not an officer of the city of Atlanta, but alleges that he was an employee of the Board of Education, which is a part of the city government of Atlanta. The respondent concedes that the Board of Education is a political subdivision of the State of Georgia within the meaning of section 1211 above.
The facts disclose that the petitioner maintained his own office; employed a large clerical force and a number of assistants; was free under the contract to accept other employment; received as compensation *574 a certain percentage of the total cost of the construction; was required to give no certain amount of time to the city; and was only bound to perform his duties under the contract in accordance with*2387 his best professional skill and judgment. On his income-tax return for 1923 he reported income from his profession, aside from that received under the above contract, in a total amount almost four times that paid to him by the Board of Education.
We are of the opinion that petitioner was an independent contractor and that the respondent correctly included as taxable income the amount of $18,000 received from the city of Atlanta. ; ; ; ; ; ; ; ; and .
Reviewed by the Board.
Decision will be entered for the respondent.
TRAMMELL, dissenting: In my opinion no weight should be attache to the fact that the petitioner received during the taxable year and in the subsequent year a substantial*2388 income from his private business. In the taxable year the petitioner received income from his private business transacted prior thereto and in the subsequent year only a portion of the year was devoted to his duties to the school board.
These facts do not indicate that all of the petitioner's time during the taxable year and while engaged in school board work was not devoted to that work. Nor do they indicate that the petitioner during the taxable year carried on private business through his employees or office associates.
In any event, all of the petitioner's time necessary for the performance of his duties was devoted to work for the school board, and while the terms of his contract did not prevent private employment, in effect he was not permitted to do other work for lack of time, his duties consuming his time. Yet the element of time and the fact that he could do other work is not an essential factor in determining whether he was an employee or independent contractor. Such facts are evidentiary only and are not determinative. A person under certain circumstances clearly could be an employee and yet not be required to devote all his time to the employment and he could*2389 do other work without relieving the employer of the responsibilities arising from the relationship of employer and employee.
It is true that a person having an established business in which he is skilled, when rendering service for another in connection therewith *575 is usually held to be an independent contractor. But this fact is not conclusive.
The characteristics of the independent contractor are that he is a person (usually carrying on a distinct occupation) who for a stipulated compensation (usually a lump sum) undertakes to do a piece of work (usually of some magnitude) by his own forces and instrumentalities (usually supplying labor and materials) being responsible to his employer for the stipulated results but (essential characteristic) being left in control of the operation of the forces and instrumentalities by which the stipulated result is to be accomplished.
The later characteristic was considered essential and determinative of the question by the Supreme Court in the case of .
On this point it appears that no weight has been given to the uncontradicted and unimpeached oral testimony of the*2390 witnesses as to the control actually exercised by the school board over the activities of the petitioner, the administrative duties actually performed according to the direction of the board, and other facts which seem to me to be entitled to great weight, if not of controlling influence. Such testimony was not opinion evidence or conclusions of the witnesses, but actual facts within their own personal knowledge. Yet there are no findings of fact based on this testimony. The theory of the opinion and decision is contrary to this essential fact disclosed by evidence.
While the petitioner's duties were prescribed by contract and not by law, in my opinion the facts here presented are materially different from those in , where the Supreme Court held that persons engaged by contract under the facts of that case were not employees of a political subdivision of a State. In that case the individuals were employed by contract to do certain things, in the performance of which they were left free to use their judgment, skill, and discretion. They were responsible for the result to be accomplished and not the means by which it was accomplished. *2391 They were in that case not shown to have been under the direction and control of the political subdivision or its authorized representatives.
Here, the petitioner was in fact the representative of the sovereign authority, notwithstanding the fact that his duties were prescribed by the agreement. He was in effect an assistant to the Board of Education and represented it as against those with whom the board contracted to have the work performed. He was under its immediate and constant direction and control. He had no undertaking to perform in which he was responsible only for the results. Project architects had separate contracts for each project. The petitioner, *576 in behalf of and under the direction of the Board of Education, supervised the work of others and carried out the instructions of the board with respect thereto. His work was supervisory and administrative as well as advisory. Any changes made by him in plans were to carry out the wishes of the board. He could in no proper sense be said to be an "independent contractor." He was not independent as to the means or instrumentalities, but was directed and controlled as to the performance of his work.
*2392 In my opinion, under the facts he was an employee of a political subdivision of the State of Georgia. See ; affd., ; ; ; .
In my opinion, the case of , which was reversed by the Circuit Court of Appeals and affirmed by the United States Supreme Court, December 9, 1929, is distinguishable from the facts in this case. In that case Howard was employed as an attorney in suits relating to the separation of railroad grade crossings and the regulation of rates to be charged by public service corporations, and the subdivision of the State was interested in the results to be obtained without reserving to itself direction and control as to the means and instrumentalities by which the result was to be obtained.
This case is also distinguishable from the case of . In that case Sturgis was employed by contract to render "advisory service only." In this case Brown was not employed*2393 to render advisory service only. His duties were to be supervisory and administrative as well as advisory. Sturgis' services, being advisory only, were not subject to the direction and control of the political subdivision of the State.
This case is also to be distinguished from the case of . In that case Tibbetts performed part of the duties required of him under the contract and a portion thereof were performed by his employees, while in this case the city employees in the office of the comptroller of the city were required to work under the direction of the petitioner while a portion of the work in the petitioner's office was carried on by his own employees. It is most unusual that employees of the city, drawing compensation from public funds, would be directed and supervised and controlled in the performance of their work by one who was not an officer or employee of the city, but merely an independent contractor. In the case of , the taxpayer was a practicing attorney maintaining his own office, but was employed by contract by the Board of County Commissioners, which required*2394 him to attend to all legal matters for the county and to give advice concerning *577 routine matters coming before the board, including bond issues and defending or prosecuting lawsuits. He maintained his own office and was free to take other employment. This Board held that the taxpayer was an employee of a political subdivision. The court affirmed the Board in this position.
In the Metcalf & Eddy case, supra, the court said:
* * * This permitted to them liberty of action which excludes the idea of that control or right of control by the employer which characterizes the relation of employer to employee and differentiates the employee or servant from the independent contractor.
Either the actual control exercised or the reserved right of control by the State or political subdivision thereof seems to be the test laid down by the court.
From the evidence in the case it appears that control was actually exercised over the petitioner as to the method and means by which he performed his services; that he was not permitted liberty of action which is characteristic of an independent contractor; that the services were not purely advisory, but were largely administrative*2395 and directed by the school board. They were also supervisory, and the supervision by the petitioner was to see that the wishes of the board and its directions were carried out by the persons who were performing contracts with the school board. For the foregoing reasons, I dissent from the prevailing opinion.