October 2002
Off-road equipment may be susceptible to four excise taxes, eliminating previous exemption
By Angie Moehlman
The Internal Revenue Service (IRS) recently proposed a rule that will terminate tax exemptions for non-farm, off-road equipment. According to the IRS, the proposed rule would subject equipment to a new vehicle excise tax (currently 12 percent of the purchase price); motor fuel user fees (18.4¢ per gallon on gas and 24.4¢ on diesel); tire excise tax on heavy duty tires; and an annual heavy vehicle tax (based on weight and capped at $550). Under the proposed rule, if equipment can drive on the roads without a special permit, then it is considered taxable. Equipment such as mobile drilling units, digger derricks, concrete pumpers, mobile cranes, aerial lift trucks, and other specialized equipment mounted on truck chassis would be taxed at purchase, at the fuel pump, at the tire dealer, and annually on weight, according to the Mobile Machinery Coalition.
The Mobile Machinery Coalition is made up of affected interest groups who are participating in the effort for withdrawal of the proposal. Current coalition members include the Associated Equipment Distributors, Associated General Contractors of America, Association of Energy Service Companies, Association of Equipment Manufacturers, International Association of Drilling Contractors, Key Energy Services, Inc., National Federation of Independent Business, National Ground Water Association, and the National Stone, Sand and Gravel Association (NSSGA).
The IRS defines a highway vehicle as “any self-propelled vehicle, or any trailer or semitrailer, that is capable of transporting a load over the the public highway. In determining whether a vehicle is capable of transporting a load over the public highway, it is immaterial that the vehicle is capable of performing other functions, that the load is permanently mounted on the vehicle, or that the load is towed instead of carried.”
Pamela Whitted, vice president of government affairs for NSSGA, states that the obscurity of the proposal is cause for concern. “It is very vague, and that is our greatest concern,” said Whitted.
Industries across the nation are sitting up and taking notice of what the proposed rule may mean to them. Any industry with mobile heavy equipment will face increased taxes. Affected industries include oil drilling, water drilling, utilities, commercial construction, timber, tower erectors, equipment leasing, and mining.
Small businesses, regardless of industry, will experience the greatest impact under the proposed rule. “The impact on small businesses will be particularly devastating,” said Whitted. The Office of Advocacy of the Small Business Administration is concerned about the effect the rule could have on smaller businesses and has generated interest in the public and with various interest groups.
“Of course, smaller businesses will not be the only ones impacted by the proposed rule,” said Whitted. “Large businesses will also feel the effect on their bottom line.”
An IRS spokesperson said at an industry conference that the proposal would mean at least $100 million annually in higher taxes, but some estimates suggest that eliminating the mobile machinery exemption may cost businesses as much as $500 million per year.
Manufacturers of mobile machinery equipment will also experience a significant impact. Because eliminating the mobile machinery exemption will increase the purchase cost of equipment by 12 percent, it is suggested that manufacturers will experience dampened investment in new equipment. The proposed rule would also eliminate the effective reduction in taxes which equipment purchasers experience under the special depreciation provisions of the economic stimulus program, enacted as part of the post-Sept. 11 stimulus bill.
The comment period was originally scheduled to close Sept. 4, 2002, but in response to several requests, including requests from the Small Business Administration, the House Small Business Committee, and Senator Kit Bond, the comment period was extended to Dec. 3, 2002. The IRS must review the comments it receives, but at the end of the comment period, the IRS could make the rule effective as proposed, withdraw the rule, or revise the rule in its final form. The content and amount of public comment the IRS receives should have a significant influence on the outcome of the proposal, according to the Mobile Machinery Coalition.
“The proposed rule will extend well beyond the aggregates industry;” said Whitted. “The impact will be significant to many industries.”
Exercise Caution When Using Contractors
To cover your assets, set up an independent contractor compliance program
By Willa P. Perlmutter
We have a terrific client, a mine owner and operator, which runs a clean operation with an enviable safety record, but which got tagged by MSHA when a contractor’s employee was killed on the job.
The deceased worked for the company our client had hired to remove overburden in preparation for quarry production at some point in the future. He was hauling material uphill when the brakes failed and his scraper rolled backwards over the edge of the haul road.
MSHA concluded that the accident was caused by the contractor’s failure to maintain the scraper in safe operating condition because the service and the parking brakes were not maintained to allow the driver to control the scraper. MSHA also found that the contractor’s failure to conduct effective pre-shift equipment inspections and the failure to build adequate berms on the haul road contributed to the accident.
The contractor was a small business that had worked with a number of mines in the past and had its own MSHA ID. It had been given a clearly-delineated area in which to carry out its operations and the discretion to plan for itself how to meet its obligations under the contract. By all accounts, our client was entirely reasonable in relying on the contractor’s ability to comply with safety regulations.
Indeed, our client did not have the capacity to do any part of the job that the contractor was expected to do: they did not have their own scrapers, so maintaining the haul road was left up to the contractor, who not only kept that kind of equipment, but also employed the operators qualified to operate it. Employees of the contractor, not our client, regularly traveled the roads, and the contractor assumed responsibility for building and maintaining the roads and for adapting them as work progressed.
In fact, at the time of the accident, our client had ceased production operations at the worksite. The plant had been closed down and was being made ready for its anticipated move to another site, which had been scheduled to occur on the day of the accident. When the accident happened, our client’s crew was in the process of moving the jaw crusher out of the quarry. None of our client’s employees were anywhere near the accident site at any time on that day.
As a result of the accident, the contractor received a number of enforcement orders from MSHA, including seven 104(d) citations. Our client also received two 104(d) orders in the course of the investigation. Both alleged high negligence and an unwarrantable failure to provide berms on two haul roads in the quarry. MSHA proposed penalties that must have seemed high even to the government.
Our client was understandably upset by the MSHA action and saddened by the driver’s death. However, the company did not think that it was responsible for the accident and saw the orders as targeting them unfairly as the larger company. Still, under the Mine Act (as interpreted by MSHA and upheld by the courts), an operator can be held legally responsible — a concept known as “strict liability” — for any violations that occur at the site, regardless of whether the violation was caused by the operator or by a contractor. Even when the contractor receives a citation for violating a particular standard, MSHA has the discretion to cite the operator for the same thing.
MSHA’s Program Policy Manual says that an enforcement action against an operator for a contractor’s violation is appropriate “(1) when the production- operator has contributed by either an act or by an omission to the occurrence of a violation in the course of an independent contractor’s work; (2) when the production-operator has contributed by either an act or omission to the continued existence of a violation committed by an independent contractor; (3) when the production-operator’s miners are exposed to the hazard; or (4) when the production-operator has control over the condition that needs abatement. In addition, the production-operator may be required to assure continued compliance with standards and regulations applicable to an independent contractor at the mine.”
As a practical matter, this means that even though the Commission reviews the facts of each case separately in determining the operator’s liability, when a contractor does something that results in a violation or worse, an accident, the mine operator stands to lose, even where, as in the case of our client, it hired an experienced, reputable contractor to do the job and was not involved in the cause of the accident.
Given that the strict liability enforcement of the Act is unlikely to change in our lifetime, a production-operator has to look seriously at what it can do to minimize the chances that it will be held legally and financially responsible for another company’s failures.
One thing an operator can do is re-evaluate its policies for workplace inspections and examine its relationship with, and oversight of, independent contractors. We encourage our clients to select contractors using minimum predetermined regulatory compliance programs; established insurance coverage; and environmental, safety, and health criteria. Then, operators should create a written contact or purchase order to use with every one of their independent contractors that clarifies (to the greatest extent possible) the contractor’s obligations.
The contract or purchase order language should name MSHA, OSHA, and EPA specifically (especially requiring compliance with training and inspection regulations). The contract could also include provisions for the contractor to indemnify the operator and pay its defense costs (and any defense costs of its management employees) in situations where the contractor’s actions expose the operator to potential liability.
The contract and company policy should describe the manner in which the contractor’s responsibility to comply with federal regulations will be examined and enforced by the operator in a way that does not render the operator the employer of the contractors’ employees but still provides an effective means for deterring violations.
You can require the contractor to certify that all its employees are appropriately trained and to certify daily and in writing that safety and health checks have been conducted in accordance with applicable standards and that any appropriate remedial steps have been taken. You can include a provision stating that a designated management representative will audit these records on a daily basis to verify that the standards are met and to ensure that, if necessary, the contractor takes immediate corrective action to abate the violation. The operator can also reserve the right to take appropriate steps to correct the violation if the contractor fails to abate and to charge the cost to the contractor.
Some of our clients have even asked us to insert contract provisions that permit them to fine the contractor for violations as a means of enforcing the compliance requirements without necessarily firing the contractor (sometimes a difficult proposition). However, a contract between the operator and a contractor should always reserve the right of the operator to terminate the contract if it has trouble getting the contractor to comply with government regulations on a regular basis.
In other words, MSHA-covered operators should put into writing an independent contractor compliance program that starts with the selection process, is incorporated in the contract itself, and is reinforced by written procedures at the site.
In a situation like the one that our clients faced is there anything you as an operator can do to guarantee that MSHA comes after the contractor and not after you? To be honest, probably not. On the other hand, the way you plan in advance to share responsibility for compliance with health and safety regulations could be a key factor in reducing the negligence assigned to your company by MSHA and saving your company serious heartburn — and dollars that no doubt can be spent better elsewhere — when MSHA comes to call.
Willa B. Perlmutter has been an associate with the Environment, Health, and Safety practice group at the law firm of Patton Boggs LLP in Washington since 1997, focusing on mining law. The firm’s website is located at www.pattonboggs.com.
Federal Mine Safety and Health Review Commission
By Adele L. Abrams, Esq. CMSP
Operator Responsible For Contractor Training Lapse
A recent Administrative Law Judge (ALJ) decision affirms that the mine’s production-operator will be held liable for an independent contractor’s failure to comply with mandatory new miner training and task training requirements. In Cannelton Industries Inc. (ALJ Barbour, Aug. 23, 2002), the Chief ALJ supported MSHA’s decision to cite the operator because the untrained contractor operated a truck in areas where Cannelton’s employees and members of the public were present.
ALJ Barbour cited the 4th Circuit’s 1998 Mingo Logan decision, which stated: “holding production-operators liable for the training violations of their independent contractors encourages production-operators to employ only those independent contractors with exemplary health and safety records, thereby promoting the protective purposes of the Mine Act.” The ALJ added that affirming the citations would also promote “production-operator oversight and . . . encourage contractor compliance.”
MSHA issued two citations under 30 CFR Part 48 after an employee of a subcontractor overturned his haul truck and was fatally injured. Although Judge Barbour acknowledged that the evidence did not establish an “unequivocal causal link” between the accident and the lack of miner training, he agreed with MSHA that the violations were significant and substantial, noting that the training failure made the victim “a danger to himself and to others.” Although the deceased worker was experienced in operating haul trucks, he apparently had not driven a loaded truck for a number of months, was unfamiliar with the use of a retarder, and was totally unfamiliar with the steep road on which he operated the vehicle.
With respect to Cannelton’s negligence, the ALJ found that while the production-operator had tried to exercise some oversight, its procedures were not sufficient to be effective. The company relied on the contractor to be responsible for training its drivers. There was nothing wrong with such reliance, however, the efforts to monitor the contractor’s compliance were “woefully inadequate” because Cannelton did not systematically check to ensure the contractors were properly trained by a certified trainer. Some training had been provided, but the instructor was not MSHA-approved, as required under Part 48. The training also was improperly documented and did not cover all mandatory subjects. In addition, the deceased worker was permitted to operate his truck before all task training had been completed, which constituted a violation of Part 48.27.
MSHA had proposed a $25,000 penalty for the new miner training citation under Part 48.26, which the ALJ reduced to $5,000. The penalty for the task training citation was reduced from $20,000 to $4,000. The company also received a citation for failure to ensure that the equipment was safe, under coal standard 30 CFR §77.404(a). The ALJ affirmed that citation, but reduced the penalty from $20,000 to $1,500.
“Informant’s Privilege” Protects Former Employees
Former miners who have left the industry are still protected by the “informant’s privilege” and their identity as witnesses does not have to be disclosed until two days before the start of a hearing, ALJ Manning held in Secretary of Labor o/b/o Richard M. Bundy v. Kennecott Utah Copper Corp. (Aug. 22, 2002). The ruling came in a discrimination case against the mine operator, which terminated a miner who refused to work overtime because he was “too tired to work safely.”
During the trial, Kennecott filed a motion to exclude the testimony of two former employees because the individuals had not been included on the Secretary’s witness list provided in response to the court’s prehearing order, nor were they listed in the response to Kennecott’s interrogatories. Both men had been employed at Kennecott on the day that Bundy’s termination occurred, but had since left the industry. Kennecott argued that there was little chance of retaliation against the two men because they no longer worked as miners and claimed that Commission Rules 61 and 62 only apply to individuals who are currently employed in mining operations. The Secretary countered that there was still the possibility for retaliation and that they deserved the same protections as current employees, based on the Commission’s decision in Bright Coal Co., 6 FMSHRC 2520 (1984).
The term “miner” is defined in Section 3 of the Mine Act as “any individual working in a coal or other mine.” (30 U.S.C. §802) Commission Rule 61 provides that a judge shall not, except in extraordinary circumstances, order a person to disclose to an operator or his agent the name of an informant who is a miner. Rule 62 provides that a judge shall not, “until two days before a hearing, disclose or order a person to disclose to an operator or his agent the name of a miner…whom a party expects to summon or call as a witness.”
ALJ Manning found that this applied to all miners who are called as witnesses, including miners who are not informants and informants who are no longer employed in the mining industry at the time of the hearing.
The Bright decision held: “a person’s status as an informer is not dependent on whether that person is an employee of a mine operator.” ALJ Manning noted that the Commission has interpreted the informant’s privilege broadly and, consequently, he was prohibited by case law from revealing the identity of informants who are not miners. He noted that because the informant’s privilege was a qualified one, if the judge determined that the privilege applied, he must balance the mine operator’s need for the information against the Secretary’s need to maintain the privilege to protect the public’s interest.
Under the facts in the Kennecott case, the judge found this balancing test did not apply. Moreover, although the Secretary did not comply with Rule 62 because she provided the witness names less than two days prior to trial, ALJ Manning held that Kennecott failed to establish actual prejudice caused by the delay and denied its motion to strike the witnesses’ testimonies.
Ironically, despite the informants’ testimonies, the ALJ ultimately ruled that Bundy’s refusal to remain at the mine for overtime was not reasonable and, therefore, was not protected activity under Section 105(c) of the Mine Act. The discrimination complaint against Kennecott was dismissed because the company properly terminated the worker for insubordinate behavior (leaving the mine rather than staying to resolve the dispute pursuant to the collective bargaining agreement, and using abusive language toward his supervisor).
Section 105(c) Claim Can Follow Arbitration
A miner who received a back pay award of nearly $53,000 through arbitration with his former employer was able to bring a separate action under Section 105(c) of the Mine Act to seek additional payments. In John R. Peterson v. Sunshine Precious Metals, Inc. (ALJ Cetti, Aug. 9, 2002), the miner (Peterson) was terminated in September 1997 while employed as a contract miner and filed a timely complaint with MSHA. He was reinstated at the mine in October 1998, as part of an arbitration finding and settlement agreement, which his union obtained on his behalf.
Just prior to the miner’s discharge, events transpired concerning abatement of a citation related to ventilation problems at the mine and the miner’s failure to perform the necessary abatement work. The worker was terminated for failing to follow a direct order, but the arbitrator disagreed and stated that the mine operator had to establish something more to show a “deliberate refusal” than the testimony provided.
Following the arbitration settlement, the miner initially sought “pain and suffering” compensation — which is unavailable in Mine Act proceedings — and then requested additional payments or losses resulting from his discharge. The ALJ found that Peterson had been paid in full for all economic losses arising from his termination and dismissed the pro se complaint because the miner failed to provide credible evidence of protected activity prior to his discharge.
Part 46 Task Training Citation Dismissed
ALJ Schroeder dismissed a Part 46 “task training” citation issued to Dacotah Cement, finding that MSHA’s allegation that an accident involving a pressurized hose did not mean that the miners were not adequately task trained. The January 2001 accident injured one worker, who told MSHA that he had not been informed about the location of pressure relief valves. MSHA issued a citation for an alleged violation of 30 CFR §46.7. The ALJ found that the miner’s testimony as to his training was supported by statements from his supervisor, and noted that the accident was linked to carelessness or inattention rather than inadequate training.
Commission Lacks Quorum; Mine Operator Seeks Circuit Court Review
As noted in last month’s column, in August and early September 2002, the Federal Mine Safety and Health Review Commission was down to one Commissioner — Robert Beatty — after Mary Lou Jordan’s term expired, Ted Verheggen resigned, and Congress adjourned for summer recess without acting on the nominations of Stanley Suboleski and Michael Duffy. Approval of a petition for review requires two Commissioners.
Consequently, attorneys for Drummond Co. asked the U.S. Court of Appeals, 11th Circuit, to directly review an Administrative Law Judge’s order requiring reinstatement of three miners pending a merits hearing on the workers’ discrimination claims. On July 26, ALJ Weisberger held that the complaints were “not frivolous” although the mine operator claimed that the workers were terminated because of involvement in a theft ring and drug use at the mine. The mine operator obtained the information through a private investigator, and the three complainants were among 25 persons fired as a result of the findings.
Drummond Co. originally asked the Commission to suspend enforcement of the ALJ’s order but received a notice stating that the FMSHRC lacked the quorum necessary to consider the petition or the related motion to stay reinstatement.
Adele L. Abrams is a Maryland attorney who represents mine operators and contractors nationwide in MSHA and OSHA litigation, and provides safety and health training and consultation services. For more information, write to safetylawyer@aol.com or call (301) 595-3520.