Liberman v. Gallman, 41 N.Y.2d 714 (1977)
The determination of whether an individual is an employee or an independent contractor for tax purposes hinges on the degree of control and direction exercised by the employer over the individual’s work; the greater the control, the more likely the individual will be deemed an employee.
Summary
This case concerns whether a shoe salesman, Liberman, was an employee of Reider Shoe Manufacturing Company or an independent contractor for the purpose of New York’s unincorporated business tax. The New York Court of Appeals reversed the Appellate Division’s decision, holding that the State Tax Commission’s determination that Liberman was an independent contractor was supported by sufficient evidence. The court emphasized that Reider did not exercise sufficient control over Liberman’s sales activities, particularly the manner in which he solicited business. This lack of control, combined with Liberman’s responsibility for his office expenses and Reider’s failure to withhold income taxes, supported the Commission’s finding that Liberman was an independent contractor and thus subject to the unincorporated business tax.
Facts
Max Liberman, a shoe salesman, worked exclusively for Reider Shoe Manufacturing Company, soliciting orders from retail outlets. He received commissions on sales and additional commissions for design and merchandising assistance. Liberman maintained an office in New York City, bearing both his and Reider’s names, and was responsible for rent, though costs were shared. He traveled extensively, selecting locations and timing of visits, but reported frequently to Reider. Reider occasionally directed him to visit specific areas or customers and emphasized the sale of certain shoe styles. Reider deducted Social Security and disability benefits taxes from Liberman’s commissions but did not withhold income taxes.
Procedural History
The State Tax Commission found Liberman deficient in unincorporated business taxes for 1960-1963, determining he was an independent contractor, not an employee. Liberman initiated an Article 78 proceeding to review this determination. The Appellate Division initially annulled the Tax Commission’s determination. The New York Court of Appeals reversed the Appellate Division’s judgment, confirming the Tax Commission’s original determination and dismissing Liberman’s petition.
Issue(s)
Whether the State Tax Commission erred as a matter of law in determining that Liberman, a shoe salesman, was an independent contractor rather than an employee of Reider Shoe Manufacturing Company, making him subject to the unincorporated business tax.
Holding
No, because the State Tax Commission’s determination was supported by sufficient evidence demonstrating that Reider did not exercise enough control over Liberman’s sales activities to establish an employer-employee relationship.
Court’s Reasoning
The court emphasized that the taxpayer bears the burden of proving entitlement to a tax exemption. Citing People ex rel. Savings Bank of New London v. Coleman, 135 N.Y. 231, 234, the court stated that an exemption from taxation “must clearly appear, and the party claiming it must be able to point to some provision of law plainly giving the exemption”. The court deferred to the Tax Commission’s determination, stating that a court must confirm the Tax Commission’s determination if there are any facts or reasonable inferences from the facts to sustain it. The court noted the key distinction between an employee and an independent contractor lies in the degree of control exercised by the employer. “The distinction between an employee and an independent contractor has been said to be the difference between one who undertakes to achieve an agreed result and to accept the directions of his employer as to the manner in which the result shall be accomplished, and one who agrees to achieve a certain result but is not subject to the orders of the employer as to the means which are used.