          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


King’s Kountry Korner, LLC,            :
                        Petitioner     :
                                       :
                  v.                   :   No. 2139 C.D. 2014
                                       :   SUBMITTED: May 15, 2015
Department of Labor and Industry,      :
Office of Unemployment                 :
Compensation Tax Services,             :
                        Respondent     :


BEFORE:     HONORABLE BONNIE BRIGANCE LEADBETTER, Judge
            HONORABLE RENÉE COHN JUBELIRER, Judge
            HONORABLE PATRICIA A. McCULLOUGH, Judge


OPINION NOT REPORTED

MEMORANDUM OPINION BY
JUDGE LEADBETTER                           FILED: October 14, 2015


            King's Kountry Korner, LLC (Kountry Korner) petitions for review of
the order of the Department of Labor and Industry (Department) denying Kountry
Korner's petition for reassessment of unemployment compensation contributions,
interest and penalties assessed by the Office of Unemployment Compensation Tax
Services (Tax Services). We are asked to decide (1) whether members of Kountry
Korner, a limited liability company, who each owned a 1% interest and received
remuneration for services provided to Kountry Korner, should be deemed
employees of Kountry Korner for the purpose of the unemployment compensation
tax under the Unemployment Compensation Law (Law), Act of December 5, 1936,
Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. §§ 751 - 914; and (2)
whether the payments made by Kountry Korner to parents of Amish children who
provided services to Kountry Korner should be considered "wages" under Section
4(x) of the Law, 43 P.S. § 753(x), subject to the unemployment compensation tax.
We affirm.
               The tax agent for the Tax Services, Peter Gill, audited Kountry Korner
for the first quarter of 2008 through the fourth quarter of 2011. On October 17,
2012, the Tax Services reclassified certain individuals as Kountry Korner's
employees and assessed unemployment compensation contributions, interest and
penalties in the amount of $28,139.41.            Kountry Korner filed a petition for
reassessment. At a hearing held on July 15, 2014, the tax agent, Gill, and Kountry
Korner's member and assistant manager, Michael King, testified.
               The Department made the following factual findings. Kountry Korner
is a limited liability company and operates two retail furniture stores in
Burgettstown and Lancaster, Pennsylvania. Kountry Korner was established in
August 2005 as a general partnership. At that time, Kountry Korner's general
partner and managing member, Raymond King, held a 93% interest, and seven
other members each held a 1% interest. Raymond King executed the assumption
agreement and assigned the partnership's assets, liabilities and legal rights to
Kountry Korner. As of 2009, Raymond King owned 90% of Kountry Korner's
interest, and ten other members each owned a 1% interest.1 Raymond King's
beginning balance with Kountry Korner in 2009 was $376,240. After making
capital contributions of $200,000 and reporting a loss of $47,483, his ending
capital account balance in 2009 was $528,757. Kountry Korner's new members
each contributed $100 and then withdrew that amount. In 2011, seven members
owning a 1% interest contributed $2000 to Kountry Korner's business, and the

   1
       The Department did not reclassify Raymond King as an employee.



                                              2
remaining three 1% members contributed $3000.
              For tax years 2008 through 2011, Kountry Korner filed federal tax
returns as a partnership and reported "guaranteed payments," i.e., compensation
paid to Kountry Korner's members for working at its stores as salespersons or
doing delivery work. Department's Finding of Fact No. 10.2 The guaranteed
payments were "based on the time and effort that a person is putting into the
business." Id. at No. 12. Kountry Korner issued 1099 federal tax forms to the
parents of Amish children who worked at or around its stores.
              The Department denied the petition for reassessment, concluding that
the Kountry Korner's members who owned a 1% interest and received
remuneration for services should be deemed employees subject to the
unemployment tax under Section 4(l)(2)(B) of the Law, 43 P.S. § 753(l)(2)(B).
The Department also noted that under Section 8925(a) of the Limited Liability
Company Law of 1994 (Limited Liability Company Law), as amended, 15 Pa. C.S.
§ 8925(a), a domestic or foreign limited liability company is deemed a corporation,
and that a member of such company is deemed a shareholder of a corporation
eligible for unemployment benefits.           In addition, even if a limited liability
company is not required to file a federal corporate income tax return, those taxes
must still be computed in Pennsylvania as if such a federal return had been filed.
Id. The Department rejected Kountry Korner's argument that limited liability
companies should be taxed as partnerships in Pennsylvania because they are
required to file a form PA-65 to elect to file federal tax returns as a partnership.
The Department noted that the instructions to the form PA-65 form itself stated

    2
      Under federal tax law, a limited liability company with two or more members can elect to
be classified as a partnership. 26 C.F.R. § 301.7701-3(b)(1)(i).



                                              3
that the limited liability companies conducting business in Pennsylvania must file
the RCT-101 (PA Corporate Tax Report).
               The Department further concluded that Kountry Korner failed to
establish that the Amish children who worked at its stores were not subject to its
control and direction in their work performance and were engaged in an
independently established trade, occupation, profession or business.                         The
Department rejected Kountry Korner's attempt to invoke "the 4029 exemption" for
religious groups opposing public or private insurance. July 15, 2014 Hearing,
Notes of Testimony (N.T.) at 36; Reproduced Record (R.R.) at 51a.                            The
Department stated that such exemption may be available only to federal Social
Security and Medicare taxes. Kountry Korner's appeal to this Court followed.
               Kountry Korner challenges the Department's determination that its
members who received remunerations for services should be subject to
unemployment compensation tax as employees. Kountry Korner insists that it
should be treated as a partnership and that its members should be deemed self-
employed.3
               The provisions of the Law must be liberally and broadly construed to
achieve its objectives of ensuring that employees who become unemployed
through no fault of their own are provided with some semblance of economic
security. Wedner Unemployment Compensation Case, 296 A.2d 792, 796 (Pa.
1972).


    3
      A "partnership" is defined as "a domestic or foreign general partnership, joint venture,
limited partnership, limited liability company, business trust or other unincorporated entity that
for Federal income tax purposes is classified as a partnership." Section 301 (n.0) of the Tax
Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, added by Section 4 of the Act
of August 31, 1971, P.L. 362, 72 P.S. § 7301(n.0).



                                                4
             The term "employment" is broadly defined as "all personal service
performed for remuneration by an individual under any contract of hire, express or
implied, written or oral, including service in interstate commerce, and service as an
officer of a corporation." Section 4(l)(1) of the Law, 43 P.S. § 753(l)(1). Once it
has been shown that an individual has performed service for wages, he or she is
presumed to be an employee. Section 4(l)(2)(B) of the Law; Cameron v. Dep't of
Labor & Indus., Bureau of Emp'r Tax Operations, 699 A.2d 843, 846 (Pa. Cmwlth.
1997). The burden then shifts to the employer to establish an exemption from
employment. Hoey v. Dep't of Labor & Indus., Bureau of Emp't Sec., 499 A.2d
1124, 1127 (Pa. Cmwlth. 1985).
             Section 4(l)(2)(B) of the Law provides for the following exemption
from employment:
                    Services performed by an individual for wages
             shall be deemed to be employment subject to this act,
             unless and until it is shown to the satisfaction of the
             department that—(a) such individual has been and will
             continue to be free from control or direction over the
             performance of such services both under his contract of
             service and in fact; and (b) as to such services such
             individual is customarily engaged in an independently
             established trade, occupation, profession or business.
It is the right or authority to exercise control or to interfere with the work of
another, not the actual control, that creates an employment relationship. Cameron,
699 A.2d at 846. In order to discern whether the employees were truly employees
or independent contractors, it is necessary to look beyond the contract between the
employer and the employees to the true facts of the employment. Hoey, 499 A.2d
at 1127.
             Kountry Korner's managing member, Raymond King, had "the
authority to … [m]onitor, supervise, manage and control the business activities of


                                         5
the Company and its employees." Section 3.7(a) of the Operating Agreement;
Supplemental R.R. at 13b. Kountry Korner's witness, Michael King, conceded that
the guaranteed payments received by Kountry Korner's members were
"compensation for services performed" at the stores as sales representatives or as
delivery persons. Kountry Korner's Brief at 8. Indeed, Finding of Fact No. 17
reflects that the members, each of whom had a 1% share, received compensation
varying from $1425 to $95,485. Because the members performed services for
wages, the burden shifted to Kountry Korner to establish that they were not subject
to its control or direction over their performance and that they were customarily
engaged in an independently established trade, occupation, profession or business.
Section 4(l)(2)(B) of the Law. As the Department correctly noted, Kountry Korner
did not present any evidence to meet its burden.
             Section 8925(a) of the Limited Liability Company Law provides in
relevant part:
             For the purposes of the imposition by the Commonwealth
             of any tax or license fee on or with respect to any
             income, property, privilege, transaction, subject or
             occupation, a domestic or foreign limited liability
             company that is not a domestic or qualified foreign
             restricted professional company shall be deemed to be a
             corporation organized and existing under Part II (relating
             to corporations), and a member of a company, as such,
             shall be deemed to be a shareholder of a corporation. …
             For purposes of the corporate net income tax and the
             capital stock and franchise tax, such a company shall be
             considered a "corporation" and an "entity" as defined in
             Articles IV and VI of the act of March 4, 1971 …, known
             as the Tax Reform Code of 1971, and, if such a company
             is not required to file a Federal corporate income tax
             return, those taxes shall be computed as if such a Federal
             return had been filed. [Emphasis added.]
A corporation is defined to include a limited liability company. Section 401(1)(iii)


                                         6
of the Tax Reform Code of 1971, 72 P.S. § 7401(1)(iii). Section 8946(a) of the
Limited Liability Company Law, 15 Pa. C.S. § 8946(a), further provides that "[a]
member or manager may be an employee or other representative of and engage in
transactions with a limited liability company to the same extent as a person who is
not a member or manager of the company."
             Where, as here, the words of a statute are clear and free from all
ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its
spirit. Section 1921(b) of the Statutory Construction Act of 1972, 1 Pa. C.S. §
1921(b). Under the clear and unambiguous language in Sections 8925(a) and
8946(a) of the Limited Liability Company Law, Kountry Korner's members are
treated as shareholders of the limited liability company and may become its
employees earning wages.       See Nu-Look Design, Inc. v. Comm'r of Internal
Revenue, 356 F.3d 290 (3d Cir. 2004) (holding that the president and sole
shareholder of the company was an employee under the plain and unambiguous
statutory language in question).
             Kountry Korner relies on the form PA-65 that a limited liability
company must file in Pennsylvania to elect to file a federal tax return as a
partnership. Kountry Korner asserts that requiring a limited liability company to
file a PA-65 "would be an indication that the LLC is reporting as a partnership or S
Corporation for tax purposes, having the guaranteed payments to be distributions
under Pennsylvania law, thereby not subject to Unemployment Compensation
Tax." Kountry Korner's Brief at 10. The PA-65 form further states, however, that
all PA S corporations and limited liability companies conducting business in
Pennsylvania must file a RCT-101 (PA Corporate Tax Report), as required by
Section 8925(a) of the Limited Liability Company Law. It is irrelevant whether



                                          7
Kountry Korner is treated as a corporation or a partnership.                   As long as the
members of the corporation are considered to be employees, they are subject to the
unemployment compensation tax under the provisions of the Law.4
               Finally, the payments made by Kountry Korner to the parents of the
Amish children were wages subject to the unemployment compensation tax. The
term "wages" is defined as "all remuneration … paid by an employer to an
individual with respect to his employment …." Section 4(x) of the Law. Kountry
Korner made the payments to the Amish parents to compensate services performed
by their children at or around the stores. Kountry Korner claimed, however, that it
paid the children's compensation to the parents "due to the 4029 exemption" for
members of religious groups. N.T. at 36; R.R. at 51a. According to Kountry
Korner, the Department has accepted such exemption for workers' compensation.
Kountry Korner, however, fails to cite any authority supporting the alleged
exemption from the unemployment compensation tax or to further develop its
argument to enable the Court to address the issue. It is well established that a
party's failure to sufficiently develop an issue in a brief constitutes a waiver of the
issue. Berner v. Montour Twp., 120 A.3d 433, 437 (Pa. Cmwlth. 2015).
               Accordingly, the Department's order is affirmed.


                                             _____________________________________
                                             BONNIE BRIGANCE LEADBETTER,
                                             Judge
Judge Cohn Jubelirer concurs.
    4
      Kountry Korner does not raise the issue of whether the provisions of the Law have been
preempted by the federal tax statutes. Suffice it to note that a federal statute may be interpreted
as preempting a state statute only if such result is clearly intended by Congress and that federal
preemption of a state's power is not favored. Bayada Nurses, Inc. v. Dep't of Labor & Indus.,
958 A.2d 1050, 1059 (Pa. Cmwlth. 2008), aff'd, 8 A.3d 866 (Pa. 2010).



                                                8
       IN THE COMMONWEALTH COURT OF PENNSYLVANIA


King’s Kountry Korner, LLC,             :
                        Petitioner      :
                                        :
                  v.                    :     No. 2139 C.D. 2014
                                        :
Department of Labor and Industry,       :
Office of Unemployment                  :
Compensation Tax Services,              :
                        Respondent      :


                                     ORDER


            AND NOW, this 14th day of October, 2015, the order of the
Department of Labor and Industry in the above-captioned matter is AFFIRMED.




                                      _____________________________________
                                      BONNIE BRIGANCE LEADBETTER,
                                      Judge
