IN RE: BUILDING MAINTENANCE SPECIALISTS

Commissioner of the Employment Security Department.December 12, 2014

Empl. Sec. Comm'r Dec.2d 995 (WA), 2014 WL 10077629
Commissioner of the Employment Security Department.
State of Washington.
*1 IN RE: BUILDING MAINTENANCE SPECIALISTS
*1 Case No. 995
*1 Review No. 2014-1733
*1 Docket No. 012014-01273
*1 December 12, 2014
 
DECISION OF COMMISSIONER
 
*1 On May 17, 2014, EMPLOYMENT SECURITY DEPARTMENT, by and through Neil Gorrell, Unemployment Insurance Director, petitioned the Commissioner for review of an Initial Order issued by the Office of Administrative Hearings on April 25, 2014. On June 24, 2014, the interested employer's Reply was received by the Commissioner's Review Office. Pursuant to chapter 192-04 WAC this matter has been delegated by the Commissioner to the Commissioner's Review Office. Having reviewed the entire record and having given due regard to the findings of the administrative law judge pursuant to RCW 34.05.464(4), we adopt the Office of Administrative Hearings' findings of fact and conclusions of law, except Conclusion of Law No. 15. We further enter the following.
 
ADDITIONAL CONCLUSIONS OF LAW
  
I
 
*1 There are two issues in this case: First, whether Angelica Rodriguez was an employee or an independent contractor of the interested employer, Building Maintenance Specialists, LLC (BMS); second, whether a portion of the penalties and interest assessed for the period in question should be waived pursuant to applicable statutes and regulations.
 
II
 
*1 The Office of Administrative Hearings held that Angelica Rodriguez performed personal services for BMS in covered employment pursuant to RCW 50.04.100 and that she did not meet the “independent contractor” tests under RCW 50.04.140. See adopted Conclusions of Law Nos. 1-10. Accordingly, BMS must pay contributions on wages paid to Angelica Rodriguez during the period in question pursuant to RCW 50.24.010. The Department does not challenge these conclusions in its Petition for Review. Instead, the Department challenges the Office of Administrative Hearings' decision to waive the penalties and interest for the period of January 1, 2007 through February 1, 2011.
 
III
 
*1 RCW 50.12.220(6) provides that penalties shall be waived if adequate information has been provided to the Department and the Department has failed to act or has advised the employer of no liability, a ground commonly known as ““mandatory waiver of penalties.” Similarly, RCW 50.24.040 provides that interest may be waived if adequate information has been provided to the Department and the Department has failed to act or has advised the employer of no liability, a ground commonly known as “discretionary waiver of interest.”
 
IV
 
*1 In this case, there is no evidence to show that: (1) prior to the audit, BMS provided the Department with any information (adequate or otherwise) on its business model involving the alleged “independent contractors”; (2) the Department had failed to act upon any information provided by BMS; or (3) the Department had advised BMS of no liability based upon any information provided by BMS. As such, BMS is not eligible for mandatory waiver of penalties pursuant to RCW 50.12.220(6) or discretionary waiver of interest pursuant to RCW 50.24.040.
 
V
 
*2 Additionally, RCW 50.12.220(6) provides that penalties may be waived for “good cause” if the failure to file timely, complete, and correctly formatted reports or pay timely contributions was not due to the employer's fault, a ground commonly known as “discretionary waiver of penalties.” WAC 192-310-030(7) sets out the perimeter of the discretion within which waiver of penalties may be granted; and we will address this perimeter in the following conclusions of law.1
 
VI
 
*2 WAC 192-310-030(7)(d) provides that:
*2 The department will not waive late penalties if the employer has been late with filing or with payment in any of the last eight consecutive quarters immediately preceding the quarter for which a waiver is requested. If an employer has been in business for fewer than the eight consecutive quarters, then all preceding quarters must have been filed and paid on time and a one-time only waiver may be granted.
*2 By its own terms, WAC 192-310-030(7)(d) operates as a bar for discretionary waiver of penalties with regard to a particular quarter when an employer does not have a clean history of timely payment and/or timely report. WAC 192-310-030(7)(d) is intended for the Department to look into an employer's account history, to determine whether a chronic pattern of late report or late payment exists, and to consider granting a one-time waiver for a particular quarter only if the employer has been compliant in its recent account history. Significantly, the WAC 192-310-030(7)(d) bar for discretionary waiver is premised upon the understandings that waiver should be considered on a quarter-by-quarter basis and that a subsequent quarter of lateness is a separate and distinct incident from a prior quarter of lateness. This separate and distinct nature of the late quarters is derived from the fact that each quarter becomes due on its own schedule and the fact that each quarter could be late for a (potentially) different reason. Inevitably, these understandings lead us to the conclusion that the WAC 192-310-030(7)(d) bar for discretionary waiver cannot apply in situations where several consecutive quarters are all deemed late simultaneously and for the same reason as a result of a Department's audit. In such situations, the several consecutive quarters must be treated as one single incident of lateness for consideration of discretionary waiver of penalties.
 
VII
 
*2 Here, BMS did not register with the Department or begin to file quarterly tax and wage reports until February 2011, although it had been in business since 1997. See Department's Exhibit 16. The Department audited BMS for a five-year period of 2007 through 2011, and discovered unreported wages paid to various individuals during the audit period at issue. See Department's Exhibit 4. Accordingly, BMS was late with both payments and reports, and was assessed the respective penalties for each and every quarter of 2007 through 2010; BMS continued to incur late payment penalties (but no late report penalties) from the first quarter of 2011 through the third quarter of 2012. See Department's Exhibit 2. Because all quarters at issue are deemed late and thus assessed penalties simultaneously and for the exact same reason (i.e. employees were erroneously classified as independent contractors) as a direct result of the Department's audit, we will treat all quarters at issue as one incident of lateness and do not apply WAC 192-310-030(7)(d) to bar consideration of discretionary waiver of penalties for these quarters.
 
VIII
 
*3 Now, we turn to WAC 192-310-030(7)(a)(i) - (vii), which define the circumstances under which an employer may establish “good cause” to qualify for discretionary waiver of penalties. Initially, we note that none of the seven enumerated circumstances under WAC 192-310-030(7)(a) apply to the facts of this case. However, because the seven specific circumstances enumerated under WAC 192-310-030(7)(a) are non-exclusive, the Department and the Office of Administrative Hearings have the discretion to consider additional relevant facts and circumstances in adjudicating an employer's request for discretionary waiver of penalties.
 
IX
 
*3 In this case, BMS argues that it has complied with the law “in good faith” (see Department Exhibit 3, p. 1) and that it has become out of compliance only because its business operates in a “confusing” and “grey” area of law. See BMS's Memorandum in Response to Department's Petition for Review, pp. 2-3. BMS essentially invites us to add another circumstance to WAC 192-310-030(7)(a) under which an employer may establish “good cause” if the employer has made a good faith effort to comply with the law. We decline BMS's invitation because a different provision under WAC 192-310-030(7) has already dealt with this type of “good faith” circumstance.
 
X
 
*3 WAC 192-310-030(7)(b) specifically provides that:
*3 The department may waive late penalties if it finds the employer to be out of compliance during an employer-requested audit, but the department decides the employer made a good faith effort to comply with all applicable laws and rules[.] (Emphasis added.)
*3 In order to qualify for this “good faith” waiver of penalties, an employer must have requested and initiated the audit. In this case, BMS was made aware that it had potentially misclassified employees as independent contractors, by the time the Department of Labor and Industries issued its audit report in January 2011. See adopted Finding of Fact No. 12. Although BMS immediately took steps to register with the (Employment Security) Department the following month (i.e. February 2011), its efforts fell short of the requirements to qualify for the ““good faith” waiver of penalties under WAC 192-310-030(7)(b). In addition to registering with the Department, BMS should have requested an audit of its business by the Department, rather than waiting for the Department to initiate the audit over a year later in May 2012. See adopted Finding of Fact No. 15. For all these reasons, we must conclude that BMS is not eligible for the “good faith” waiver of penalties pursuant to WAC 192-310-030(7)(b).
 
XI
 
*3 Having decided that BMS is not eligible for discretionary waiver of penalties pursuant to RCW 50.12.220(6) and WAC 192-310-030(7), we now turn to the remaining arguments advanced by BMS.
 
XII
 
*3 BMS argues that “[r]etroactive application of penalties and interest going back five years is inappropriate ....” See BMS's Memorandum in Response to Department's Petition for Review, p. 2. The argument is not persuasive. Generally speaking, the Department is authorized to issue a tax assessment on delinquent taxes for up to three years after a tax return is filed. However, the three-year statute of limitations is not applicable in situations where an employer has failed to file a tax return with the Department. See RCW 50.24.190. Here, BMS did not register with the Department or otherwise file any tax returns until the first quarter of 2011. As such, the three-year statute of limitations does not apply to the period prior to 2011. The Department's decision to audit the employer for five years is certainly not unreasonable, especially considering the fact that the Department could have gone back to 1997 when BMS first registered its business with the Secretary of State. See BMS's Exhibit 4, p. 1.
 
XIII
 
*4 BMS further argues that the Department has failed to “adequately educate business owners and tax professionals operating in this state” as to the correct interpretation and application of relevant statutes and regulations. See Department's Exhibit 3, p. 1. This argument implies that the Department somehow has a responsibility to provide such training and education to business owners and tax professionals. BMS does not cite any legal authorities in support of its position; and we could find none. As a matter of fact, BMS's argument in this regard runs contrary to our long-standing jurisprudence holding each and every employer in this state responsible for operating its business within the bounds of law. See In re Bridges, Empl. Sec. Comm'r Dec.2d 478 (1979) (the employer is chargeable with knowledge of the regulations having direct application to its enterprise); In re Pope, Empl. Sec. Comm'r Dec. 949 (1973) (the employer is presumed to know and operate within statutory standards having direct application to its enterprise). Whenever there is any doubt as to the correct application of law to a business, it is incumbent on the business owner to seek advice from the Department so as to resolve the ambiguity at the earliest opportunity; in other words, a business owner should not maintain a wait-and-see attitude and fortuitously hope that a Department's audit will not be forthcoming.
 
XIV
 
*4 Finally, BMS argues that, pursuant to WAC 192-310-030(10)(b), the Department has the discretion to waive penalties on its own motion without requiring a request from the employer if the Department finds that the penalty was caused by the Department's own error or for other good cause. BMS asks us to interpret this “good cause” provision to mean “what is right in the interest of justice and fairness given the totality of circumstances.” See BMS's Memorandum in Response to Department's Petition for Review, p. 5. BMS has advanced a compelling case in equity with respect to the Department's handling of its account. As a quasi-judicial body, the Commissioner's Review Office, however, does not have inherent equitable powers unless specifically granted by the legislature. See In re Geise, Empl. Sec. Comm'r Dec.2d 829 (1991) (administrative law judges and review judges have no inherent equitable powers and can exercise such authority only where specifically permitted by rule or court order). The Employment Security Act, Title 50 RCW, authorizes us to make decisions on the basis of equity in only one circumstance, not applicable in this case. See RCW 50.20.190(2).
 
XV
 
*4 Even if we were allowed to consider equities, the Department, being the rightful holder of unemployment compensation fund, is entitled to have its position considered as against the taxpaying employer's position. This is because contributions to fund the payment of unemployment benefits are paid by employers into a public account (see chapters 50.16 and 50.24 RCW) and the state, through the Employment Security Department, is charged with ensuring the integrity of that fund. See RCW 50.16.010; State v. Cont'l Baking Co., 72 Wn.2d 138, 141-42, 431 P.2d 993 (1967); In re Eversole, Empl. Sec. Comm'r Dec.2d 706 (1982). The evidence in the case before us does not clearly show that the balance of equity tips more in favor of BMS than in favor of the Department. As such, we would still deny BMS's request for waiver of penalties on the basis of equity, even if we had such power.
 
XVI
 
*5 In light of the foregoing, we conclude that BMS is not eligible for waiver of penalties and interest for all quarters in question pursuant to RCW 50.24.040, RCW 50.12.220(6), and WAC 192-310-030(7). The Office of Administrative Hearings' decision to the contrary is hereby modified accordingly.
 
XVII
 
*5 Finally, BMS may contact the Department's Unemployment Tax Collection Unit to make an offer to repay less than the full amount of its contributions, interest, and penalties pursuant to WAC 192-330-120. BMS needs to specify the amount it offers to repay and be prepared to provide financial and other information in support of its offer.
*5 Now, therefore,
*5 IT IS HEREBY ORDERED that the Initial Order issued by the Office of Administrative Hearings on April 25, 2014, is AFFIRMED on the issue of independent contractor exemption. Angelica Rodriguez performed personal services for BMS in covered employment pursuant to RCW 50.04.100 and her services are not exempted from coverage under the “independent contractor” tests of RCW 50.04.140. The Initial Order is MODIFIED on the issue of waiver of penalties and interest. BMS's request for waiver of penalties and interest for all quarters in question is DENIED pursuant to RCW 50.24.040, RCW 50.12.220(6), and WAC 192-310-030(7). The Order and Notice of Assessment issued by the Department on March 11, 2013 is AFFIRMED. BMS is liable for contributions, penalties, and interest assessed pursuant to RCW 50.24.010 in the amount of $10,604.04 for the four calendar quarters each of 2007, 2008, 2009, 2010, and 2011; and for the first three calendar quarters of 2012.
*5 Dated at Olympia, Washington, December 12, 2014.
*5 S. Alexander Liu
*5 Deputy Chief Review Judge Commissioner's Review Office

RECONSIDERATION

*5 Pursuant to RCW 34.05.470 and WAC 192-04-190 you have ten (10) days from the mailing and/or delivery date of this decision/order, whichever is earlier, to file a Petition for Reconsideration. No matter will be reconsidered unless it clearly appears from the face of the Petition for Reconsideration and the arguments in support thereof that (a) there is obvious material, clerical error in the decision/order or (b) the petitioner, through no fault of his or her own, has been denied a reasonable opportunity to present argument or respond to argument pursuant to WAC 192-04-170. Any request for reconsideration shall be deemed to be denied if the Commissioner's Review Office takes no action within twenty (20) days from the date the Petition for Reconsideration is filed. A Petition for Reconsideration together with any argument in support thereof should be filed by mailing or delivering it directly to the Commissioner's Review Office, Employment Security Department, 212 Maple Park Drive, Post Office Box 9555, Olympia, WA 98507-9555, and to all other parties of record and their representatives. The filing of a Petition for Reconsideration is not a prerequisite for filing a judicial appeal.

JUDICIAL REVIEW

*6 If you are a party aggrieved by the attached Commissioner's decision/order, your attention is directed to RCW 34.05.510 through RCW 34.05.598, which provide that further appeal may be taken to the Superior Court within thirty (30) days from the date of mailing as shown on the attached decision/order. If no such appeal is filed, the attached decision/order will become final. If you choose to file a judicial appeal, you must both:
*6 Timely file your judicial appeal directly with the Superior Court of the county of your residence or Thurston County. If you are not a Washington state resident, you must file your judicial appeal with the Superior Court of Thurston County. See RCW 34.05.514. (The Department does not furnish judicial appeal forms.) AND
*6 Serve a copy of your judicial appeal by mail or personal service within the thirty (30) day judicial appeal period on the Commissioner of the Employment Security Department, the Office of the Attorney General, and all parties of record.
*6 The copy of your judicial appeal you serve on the Commissioner of the Employment Security Department should be served on or mailed to: Commissioner, Employment Security Department, Attention: Agency Records Center Manager, 212 Maple Park Drive, Post Office Box 9046, Olympia, WA 98507-9046. To properly serve by mail, the copy of your judicial appeal must be received by the Employment Security Department on or before the thirtieth (30th) day of the appeal period. See RCW 34.05.542(4) and WAC 192-04-210. The copy of your judicial appeal your serve on the Office of the Attorney General should be served on or mailed to the Office of the Attorney General, Licensing and Administrative Law Division, 1125 Washington Street SE, Post Office Box 40110, Olympia, WA 98504-0110.
STATE OF WASHINGTON OFFICE OF ADMINISTRATIVE HEARINGS FOR THE EMPLOYMENT SECURITY DEPARTMENT
In re:
DOCKET NO: 012014-01273
BUILDING MAINTENANCE SPECIALISTS,
INITIAL ORDER
Petitioner
*6 Result: The Department's Order and Notice of Assessment is AFFIRMED as to the employee tax. The Department's decision to deny waiver of penalties and interest is AFFIRMED in part and DENIED in part. The amount of the penalties and interest is remanded back to the Department for calculation in accordance with this Order. Read the full order below for details.
*6 Hearing: This case was heard by Administrative Law Judge Juliana K. Weber on April 17, 2014 at Spokane Valley, Washington after notice to all interested parties,
*6 Persons Present: Employer's Attorney Vanessa Zink; Employer Kenneth Zink (President), Employer witness Krystal Schwartze (CPA); Employment Security Department Legal Appeals Representative Walter Smith, Department witness Phyllis Chandler (Tax Specialist).
*6 Exhibits: The Administrative Law Judge (ALJ) admitted Department Exhibits 2 through 21 and the Employer's Exhibits 1 through 9.
*7 The purpose of the hearing was to determine whether
*7 • The person for whom contributions are assessed is an employee pursuant to RCW 50.04.100 and RCW 50.04.140 and therefore the Order and Notice of Assessment issued pursuant to RCW 50 24.070 properly holds the employer liable for unemployment tax contributions, interest and penalties in the amount of $10,604.04; and
*7 • Whether waiver of the penalties and interest in the Order and Notice of Assessment should be granted.
*7 After considering all of the evidence, the Administrative Law Judge enters the following Findings of Fact, Conclusions of Law and Initial Order.

FINDINGS OF FACT

*7 1. On March 11, 2013, the Employment Security Department (Department) issued an Order and Notice of Assessment to the employer. Exhibit 2. The employer is the Appellant in this matter and filed a timely appeal on April 4, 2013,
*7 2. The employer is in the business of brokering building maintenance and janitorial services to property owners and managers at a set monthly cost based on square footage. The employer business was opened in 1997 and is owned and operated by Kenneth and Betty Zink.
*7 3. In or around July, 2010, the employer owner, Kenneth Zink, met an individual, Angelica Rodriguez, at a local Casino while she was performing janitorial services in the restrooms. As a business owner in the janitorial service industry, Mr. Zink was impressed with Ms. Rodriguez cleaning performance and offered for her to come and work for his company. Ms. Rodriguez did not have a business card, but informed Mr. Zink that she did have her own cleaning business registered with the State of Washington as The Club Cleaning Services. Ms. Rodriguez business was a sole proprietorship registered in June, 2010 with the State.
*7 4. In July, 2010, Mr. Zink and Ms. Rodriguez made a verbal agreement for Ms. Rodriguez's business, The Club Cleaning Services, to perform janitorial and maintenance services at three or four of Building Maintenance's client buildings.
*7 5. Ms. Rodriguez was to perform the work for these buildings according to her own schedule and per the property owner/manager's specifications. Mr. Zink did not schedule Ms. Rodriguez's work or oversee the work or inspect the work once it was completed. If the client complained about the work then Mr. Zink could cancel Ms. Rodriguez's services or transfer her to another client building.
*7 6. Ms. Rodriguez could hire any workers that she needed to complete the work for the buildings. Ms. Rodriguez used her husband to help her complete the work.
*7 7. Mr. Zink did not provide the cleaning supplies to Ms. Rodriguez, but rather he would sell the supplies to the building owner/manager at a profit and then Ms. Rodriguez could use the supplies at the building location.
*7 8. When the work was complete, Ms. Rodriguez provided Mr. Zink with an invoice. The clients paid Building Maintenance, and then Mr. Zink kept a management fee of 30% and paid the remaining 70% to Club Cleaning Services.
*8 9. Ms. Rodriguez was issued a 1099 by Building Maintenance for the 2010 and 2011 tax years.
*8 10. In 2010, of the earnings reported to the Department of Revenue by The Club Cleaning Services, 86% were earnings received from the employer Building Maintenance In 2011 no earnings were reported by The Club Cleaning Services.
*8 11. In 2010, the Department of Labor and Industries conducted an audit of the employer business for the tax years from 2007-2010.
*8 12. The Department of Labor and industries provided the employer with their findings on January 26, 2011. The findings indicated that the employer's subcontractors did not meet all the requirements of the independent contractor test.
*8 13. Prior to this audit by the Department of Labor and Industries the employer thought that they were in full compliance with the applicable employment laws and consulted regularly with their CPA on this issue. The employer was not intentionally trying to avoid their tax obligations, but rather thought that their subcontractors fully satisfied the requirements of being independent contractors.
*8 14. In February, 2011, the employer opened an account with the Employment Security Department, showing that it would be hiring employees as of February 1, 2011, due to the audit findings from the Department of Labor and Industries.
*8 15. On or about May 16, 2012, the Employment Security Department (ESD) tax specialist, Phyllis Chandler, advised the employer that ESD was conducting an audit of the employer's business. Ms. Chandler requested that the employer provide largely the same information that the employer had already provided to the Department of Labor and Industries for their audit.
*8 16. Ms. Chandler met with the employer's CPA on or about May 22nd and the employer, Mr. Zink, gave Ms. Chandler permission to review all the documents and records already provided to the Department of Labor and Industries,
*8 17. Thereafter, Mr. Zink referred Ms. Chandler to their business attorney for any additional information. The employer cooperated with supplying information to Ms. Chandler for the audit
*8 18. In February, 2013, ESD completed the audit of the employer business. The audit period was from the first quarter of 2007 through the fourth quarter of 2011. The Department reclassified seven individuals, previously considered by the employer as independent contractors, as employees. One of the seven individuals was Ms. Rodriguez. The Department found the total amount of taxable wages for Ms. Rodriguez for 2010 to be $12,545.00. Exhibit 14. The Department found the total amount of taxable wages for Ms. Rodriguez for 2011 to be $1,275.00. Exhibit 15.
*8 19. On March 11, 2013, the Department issued an Order and Notice of Assessment in the amount of $10,604.00, including penalties and interest dating back to 2007. Exhibit 2. The Order included taxes on other individual subcontractors not at issue in the employer's appeal.
*8 20. The employer filed a timely appeal of the Order and Notice of Assessment on April 4, 2013. The employer requested waiver of all penalties and interest dating back to 2007. The Department denied the request for waiver.

CONCLUSIONS OF LAW

*9 1. The Office of Administrative Hearings has jurisdiction to hear and decide this appeal under RCW, Chapters 50.32 and 34.05.
*9 2. The first question is whether the above-named individual worker was in employment. Specifically, whether she performed personal services, of whatever nature, for wages or under any contract, calling for performance of such services. RCW 50.04.100. If answered in the affirmative, the individual worker is in employment and the employer must pay taxes on the wages unless the services are excluded from coverage by another section of Title 50 RCW. Penick v. Employment Sec. Dep't, 82 Wn.App. at 42; Skrivanich v. Davis, 29 Wn.2d 150, 157, 186 P.2d 364 (1947),
*9 3. The test for personal service is whether the services in question were clearly performed for the benefit of another under an arrangement or agreement in which some act was to be performed, RCW 50.04.100; Penick v. Employment Sec. Dep't, 82 Wn. App. at 40. Wages are defined as remuneration and in accordance with RCW 50.04.320 remuneration means all compensation paid for personal services. The inquiry is whether there is a clear and direct connection between the personal services provided and the benefit received by the other party. Cascade Nursing Svcs., Ltd. V, employment Security Dep't, 71 Wn.App. 23, 30 - 31, 856 P.2d 421 (1993).
*9 4. Applying the facts of this case the undersigned concludes that the named worker was performing services, cleaning and janitorial services, for the benefit of the employer for wages or pursuant to a contract for wages. Thus, the requirements of the above referenced statute, RCW 50.04.100, are met. Therefore, the individual worker was in employment and subject to tax unless the employer can establish that she is exempt from the definition of employment pursuant to another section of Title 50 RCW.
*9 5. Taxing statutes are strictly construed in favor of applying the tax and closer scrutiny is required when taxes are collected for the benefit of a group that society seeks to aid, such as unemployed workers. Western Ports Transp. V. Employment Sec. Dep't, 110 Wn.App. 440, 451, 41 P.3rd 510 (2002); Penick v. Employment Sec. Dep't, 82 Wn.App. 30, 42, 917 P.2d 136 (1996) (existence of employment relationship is generally found). The exemption tests are strictly construed in favor of the application of the tax. In re All-State Construction Company v. Gordon, 70 Wn.2d 657, 425 P.2d 16 (1967).
*9 6. The party claiming the exemption has the burden of proof to show an exemption applies. Western Ports Transp., 110 Wn.App. At 451. Here, the employer bears the burden of proof of showing that an exemption to paying taxes applies.
*9 7. RCW 50.04,140(1) excludes from the definition of employment individuals so long as certain criteria are met by the employer:
*9 (1) The individual has been and will continue to be free from control or direction over the performance of the service, both under the contract of service and in fact; and
*10 (2) The service is either outside the usual course of business for which the service is performed, or the service is performed outside of all the places of business of the enterprise for which the service is performed; and
*10 (3) The individual is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service;
*10 8. The second alternative test under RCW 50.04.140(2) requires the employer to establish:
*10 (1) The individual has been and will continue to be free from control or direction over the performance of the service, both under the contract of service and in fact; and
*10 (2) The service is either outside the usual course of business for which the service is performed, or the service is performed outside of all the places of business of the enterprise for which the service is performed, or the individual is responsible, both under the contract and in fact, for the costs for the principal place of business from which the service is performed; and
*10 (3) The individual is customarily engaged in an independently established trade, occupation, profession, or business, of the same nature as that involved in the contract of service; and
*10 (4) On the effective date of the contract of service, the individual is responsible for filing at the next applicable filing period, both under the contract of service and in fact, a schedule of expenses with the internal revenue service for the type of business the individual is conducting; and
*10 (5) On the effective date of the contract of service, or within a reasonable period after the effective date of the contract, the individual has an active and valid certificate of registration with the department of revenue, and an active and valid account with any other state agencies as required by the particular case, for the business the individual is conducting for the payment of all state taxes normally paid by employers and businesses and has registered for and received a unified business identifier number from the state of Washington; and
*10 (6) On the effective date of the contract of service, the individual is maintaining a separate set of books or records that reflect all items of income and expenses of the business that the individual is conducting; and
*10 9. The above referenced requirements are in the conjunctive and therefore the employer must meet each requirement for the exception to apply. Jerome v. Employment Security Dep't, 69 Wn. App. 810, 814, 850 P.2d 1345 (1993). Contractual language stating the worker is an independent contractor is not dispositive of the issue; instead all facts relating to the work situation must be considered. Western Ports Transp. v. Employment Sec. Dep't, 110 Wn. App. 440, 451,41 P.3d 510 (2002).
*10 10. Applying the foregoing to the facts of this case the undersigned concludes that the employer has not met its burden, establishing that Angelica Rodriguez is subject to tax exemption as an independent contractor pursuant to RCW 50,04.140. In this case, Ms. Rodriguez performed janitorial services, which was clearly not outside the usual course of the employer's business. Ms. Rodriguez also performed the services in the same places of business of the enterprise for which services were performed. The employer has failed to meet the requirements of either test of RCW 50.04.140, as the employer must satisfy all of the prongs in the conjunctive. Thus, the employer has not met the requirements of RCW 50.04.140; Ms. Rodriguez fails the second prong of the test and is subject to tax.
*11 11. RCW 50.24.070 states that if an employer is late in paying any taxes, interest or penalties, the Department will issue an Order and Notice of Assessment. The Order and Notice of Assessment will specify the amount due. The Department will serve the Order and Notice of Assessment by a summons or by certified mail to the employer's last known address in the Department's records. Even if the employer does not receive the Order and Notice of Assessment, the employer remains liable for any tax, interest or penalties owed.
*11 12. RCW 50.12.220 and WAC 192-310-030(7) allow waiver of penalties for late payment of contributions under specified circumstances.
*11 13. The Department may, for good cause, waive penalties for late filing of a report and late payment of taxes that are due with a report. The Commissioner must decide if the failure to file reports or pay taxes on time was not the employer's fault. WAC 192-310-030(7) states in relevant part:
*11 (a) The Department may waive late penalties when there are circumstances beyond the control of the employer. These circumstances include, but may not be limited to, the following:
*11 (i) The return was filed on time with payment but inadvertently mailed to another agency;
*11 (ii) The delinquency was caused by an employee of the Department, such as providing incorrect information to the employer, when the source can be identified;
*11 (iii) The delinquency was caused by the death or serious illness, before the filing deadline, of the employer, a member of the employer's immediate family, the employer's accountant, or a member of the accountant's immediate family;
*11 (iv) The delinquency was caused by the unavoidable absence of the employer or key employee before the filing deadline. Unavoidable absence does not include absences because of business trips, vacations, personnel turnover, or terminations;
*11 (v) The delinquency was caused by the accidental destruction of the employer's place of business or business records;
*11 (vi) The delinquency was caused by fraud, embezzlement, theft, or conversion by the employer's employee or other persons contracted with the employer, which the employer could not immediately detect or prevent. The employer must have had reasonable safeguards or internal controls in place; or
*11 (vii) The employer, before the filing deadline, requested proper forms from the Department's central office or a district tax office, and the forms were not supplied in enough time to allow the completed report to be filed and paid before the due date. The request must have been timely, which means at least three days before the filing deadline.
*11 (b) The Department may waive late penalties if it finds the employer to be out of compliance during an employer-requested audit, but the Department decides the employer made a good faith effort to comply with all applicable laws and rules;
*11 (c) The Department may waive late penalties for failure to file a no payroll report for one quarter if a new business initially registered that it would have employees that quarter, but then delayed hiring its first employees until after that quarter; and
*12 (d) The Department will not waive late penalties if the employer has been late with filing or with payment in any of the last eight consecutive quarters immediately preceding the quarter for which a waiver is requested. If an employer has been in business for fewer than the eight preceding quarters, then all preceding quarters must have been filed and paid on time and a one-time only waiver may be granted.
*12 14. An employer seeking to make a penalty waiver request must request a waiver of penalties in writing, include all relevant facts, attach available proof, and file the request with a Department tax office. In all cases the burden of proving the facts in support of waiver is on the employer. WAC 192-310-030(10)(a).
*12 15. Applying the foregoing to the facts of this case the undersigned concludes that the employer has not shown a basis for waiver as listed in WAC 192-310-030(7). However, the undersigned further concludes that the list in WAC 192-310-030(7) is not exclusive, thus in the interest of fairness and justice the penalties and interest assessed by the Department are waived from the first quarter of 2007 to February 1, 2011, at which time the employer was on notice that it owed taxes for its individual subcontractors. The employer has established that they acted in good faith at all times in attempting to comply with their tax obligations. The undersigned REMANDS the amount of penalties and interest owing, from February 1, 2011 to the appeal date of April 4, 2013, to the Employment Security Department for calculation.
*12 Now therefore it is ORDERED:
*12 The Employment Security Department's Order and Notice of Assessment under appeal is AFFIRMED and the amount of penalties and interest is REMANDED to the Department for calculation in accordance with this Order.
*12 The person for whom contributions are assessed is an employee pursuant to RCW 50.04.100 and RCW 50.04.140 and therefore an Order and Notice of Assessment issued pursuant to RCW 50.24.070 properly holds the employer liable for unemployment tax contributions.
*12 The penalties and interest are waived from the first quarter of 2007 to February 1, 2011. The undersigned REMANDS the amount of penalties and interest owing, from February 1, 2011 to the appeal date of April 4, 2013, to the Employment Security Department for calculation.
*12 Dated and mailed April 25, 2014, from Spokane Valley, Washington.
*12 Juliana K. Weber
*12 Administrative Law Judge Office of Administrative Hearings
0628

Footnotes

We will not address WAC 192-310-030(7)(c) because it does not apply to the facts in this case.
Empl. Sec. Comm'r Dec.2d 995 (WA), 2014 WL 10077629
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