Darling v. Commissioner

FRANK W. DARLING, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FRANK W. DARLING AND MRS. FRANK W. DARLING, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Darling v. Commissioner Docket Nos. 74372, 79254. United States Board of Tax Appeals 34 B.T.A. 1062; 1936 BTA LEXIS 602; October 7, 1936, Promulgated *602 1. The compensation of petitioner as director of "Playland" park under contract with the Westchester County Park Commission of the State of New York held not exempt from Federal income tax, because petitioner was an independent contractor and operation of an amusement park is not a governmental function. 2. In the case of a joint return of husband and wife, the wife is not liable for any part of a deficiency if she had no income. Cole v. Commissioner, 81 Fed.(2d) 485. Eugene Meacham, Esq., for the petitioners. W. R. Lansford, Esq., for the respondent. ARONDELL *1062 These cases, which were consolidated for purposes of hearing, involve deficiencies in income tax for the years 1930, 1931, and 1932 in the respective amounts of $1,972, $478.97, and $1,589.17. The principal issue is the immunity from tax of compensation received by Frank W. Darling from the Westchester County Park Commission. The 1932 deficiency is proposed against both Darling and Mrs. Darling because they made a joint return for that year. At the conclusion of the hearing counsel for petitioner moved for a decision of no deficiency in the case*603 of Mrs. Darling on the ground that she was in receipt of no income during the year 1932. FINDINGS OF FACT. Mrs. Frank W. Darling, copetitioner in Docket No. 79254, had no income from any source in the year 1932. The term "petitioner" will be used hereinafter to refer to Frank W. Darling alone. During 1930, 1931, and 1932 the petitioner was director of "Playland", a recreation and amusement park on Long Island Sound at Rye Beach, New York, created by the Westchester County Park Commission, which commission was established in 1922 by the State of New York. The petitioner had designed and constructed "Playland" in 1926-1928 under a contract with the park commission and on March 1, 1928, he was retained for a period of five years to organize the corps of employees and supervise the operation of the park. He had had a great deal of experience in the construction and operation of amusement parks. The park was created primarily on the demand of Westchester County citizens to supplant a notorious privately owned amusement *1063 park which was a source of common complaint because of its unhealthy and immoral conditions. The park commission acquired over 200 acres, including*604 the old amusement park and contiguous land. About three-fourths of the land was a mosquito-infested swamp, which was eliminated by dredging an 80-foot artificial lake and filling in about 40 acres. The improvements constructed at Playland consisted of boating facilities, bath houses, a fresh water swimming pool, a wading pool and play houses for children, amusement devices, restaurants and dance places, and large picnic grounds. There was no charge for admission to Playland nor for the picnic facilities, band and orchestra concerts, circus and acrobatic entertainment which at certain hours were staged at "Free Acre", nor for fishing facilities. Band and drum corps competitions, police target matches, and Boy Scout contests were sponsored and were free to the public. At various times free swimming instructions and free classes in gardening, basketry, handicraft, etc., were conducted. A charge was made for parking, and also for the use of amusement devices such as the merry-go-round, scenic railway, etc., for the rental of boats on the lake, bathing suits, lockers, bath houses, and for food and refreshments. Charges for the various facilities on week ends when the patronage was*605 mostly metropolitan were at the level for other amusement parks, privately owned, but during the week, when the patrons were mostly from Westchester County, the charges were from 10 to 30 percent lower. The petitioner was instructed to build up as great an attendance to the park as possible so that the revenue would help make self-sustaining the Westchester County Park system as a whole, which included several nonrevenue-bearing parked highways. The petitioner had the general management and supervision of the entire park. His duties were to look after the discipline and morale of the entire corps of employees, provide for the entertainment, safety, and care of the public, and the maintenance and repair of physical properties belonging to the commission. He gave his entire time to this work and was provided with a home on the premises which he used the year around, the park being open the entire year except for a few weeks. The petitioner had sole authority to discharge employees, but in hiring employees his selection was subject to the approval of the commission. He was under the supervision of the chief executive and supervising officer of the park commission and was in daily*606 contact with him relative to all phases of the conduct of Playland. He attended the regular meetings of the commission, at which time he received directions, instructions, and authorizations. He had final authority in dealing with the negro problem, a question with which the commission preferred not to deal. *1064 The petitioner had a contract with the park commission, the purpose of which was to give him a share in the proceeds of the park as an incentive to successful operation, and to give the park employees a status of exemption from the New York civil service regulations regarding hours of employment, etc., so that the park could compete with privately owned parks. This contract provided that Darling should operate the property known as Playland for a period of five years, and the agreement was revocable by either party on 60 days' notice given between September 1 and January 1 of any year. He agreed to operate the park "on behalf of the Westchester County Park Commission in every detail of operation and to provide and pay for out of the amounts received, the cost of operating the said Park or Playland, including the necessary labor, supervision and attendance, and*607 that he will act as agent of the Park Commission in granting concessions or sub-concessions to the various parties desiring to obtain concessions with the said park known as Playland." He was to receive a percentage of the operating profits, fixed by the contract, and was guaranteed at least $15,000 a year. The method agreed upon for computing operating profit for the purpose of determining his compensation provided for the deduction from gross receipts of the charges for pay roll, public utilities, garbage disposal, maintenance of supplies, compensation and public liability insurance, and the salaries of the park police furnished by the commission, but not for the deduction of any capital expenditures or cost of fire insurance or of taxes or of interest charges on the capital investment. Petitioner was to help work out a system of accounting for the park. All receipts were to be deposited in banks designated by the park commission, and a detailed weekly report of receipts was to be furnished the commission. A revolving fund of $15,000 was to be established for the use of petitioner for paying current expenses and was to be replenished periodically by the commission by drawing*608 on the county treasurer. Weekly vouchers were to be turned in to the commission covering all expenditures made by petitioner, and no expenditure over $1,000 was to be made without the specific approval of the commission. In practice it became the policy of petitioner not to make any expenditures of over $250 without the advance approval of the commission. Petitioner and all of his subordinates who handled money were bonded by the commission. The practice was to make daily deposits of all receipts to the credit of the county treasurer of Westchester County in banks designated by him, and to deliver weekly vouchers of the receipts and expenditures in duplicate to the auditor of the commission and to the county treasurer. Employees on a wage basis were paid out of the $15,000 revolving fund established *1065 by the county treasurer for the use of Playland, but salaried employees, including the petitioner, were paid by check directly from the county treasurer. Replenishment of the revolving fund, as well as payment of the salaries, was made by the county treasurer out of the general park commission fund, which not only included receipts from Playland, but also annual appropriations*609 by the county for the use of the park commission. OPINION. ARUNDELL: The main issue here is whether the compensation received by the petitioner, Frank W. Darling, from the Westchester County Park Commission is exempt from Federal taxation. Since Mrs. Darling had no income in 1932 she is not liable for any tax in that year, although a joint return for husband and wife was filed. , reversing . We do not think that petitioner can be classed as an employee of the state, but was rather an independent contractor. . His compensation, his term of service, and certain of his rights and duties were fixed by contract with the park commission. This is not common in the employer-employee relationship, and points definitely toward the contractor status. Cf. ; ; ; affd., *610 ; ; affd., . The fact that the petitioner was to receive a percentage share in the proceeds of successful operation also indicates that he must be considered an independent contractor. Apparently, one of the objects of the contract between the petitioner and the park commission was to attain the independent contractor status in order that the park employees would be free from New York State civil service regulations. The very nature of petitioner's work as resident manager of an amusement park, we think, would preclude the detailed supervision by the employer which is necessary to the employer and employee relation. ; ; ; . We hold the petitioner to be an independent contractor. Furthermore, the operation of an amusement park is not a usual, traditional, or essential function of government. *611 ; ; ; . We take judicial notice that it is a function not commonly performed by governments either contemporaneously or historically. It is obvious that such a governmental enterprise *1066 is not necessary to the existence and continuance of the Government itself. It is not an undertaking which only a government can perform; the usual situation rather is private operation. The argument is advanced that Government creation of the amusement park Playland was necessary in the interest of public health, safety, and morals, to eliminate a notorious privately owned amusement park on the same site. It is not shown that this evil could not have been remedied by adequate regulations short of governmental operation, or that the nuisance could not have been abated in some other manner. The fact that governmental operation of a given enterprise may be preferable to private operation does not make such operation an essential or usual governmental function. *612 Although it did have some free features we do not think that Playland falls within the classification of an ordinary, nonincome-producing park such as was dealt with in ; affd., . Nor do we think that the revenue-bearing features were merely incidental to the operation of an ordinary park. See ; ; ; ; and cf. ; ; ; . The principal characteristics of Playland were those of an amusement park, including various amusement devices and facilities furnished to the public at a charge; the free picnic facilities, etc., were only incidental. The very magnitude of the compensation which petitioner received is commensurate with the responsibilities involved in supervising a large business undertaking rather than with the superintendence of an ordinary nonincome-producing park. *613 For the foregoing reasons the immunity must be denied. Reviewed by the Board. Decision will be entered under Rule 50.