Kandiyohi County District Court File No. C4-02-587
Considered and decided by Willis, Presiding Judge; Toussaint, Chief Judge;
and Shumaker, Judge.
An agreement under which a lessor leased truck drivers to a lessee truck owner provided that the lessor would indemnify the lessee against losses related to employee taxes, social security, and unemployment contributions. The indemnification obligation does not apply to personal income tax liabilities the lessee incurred when he deducted as a business expense more per diem payments to the drivers than the tax laws allow.
The opinion of the court was delivered by: Gordon W. Shumaker, Judge
Appellant leased truck drivers from respondent and deducted as business expenses on his personal income tax returns 100% of the per diem payments made to the drivers. Because the Internal Revenue Code allows only a 50% deduction for per diem payments, appellant incurred additional income tax liabilities. Appellant then claimed that respondent had agreed to indemnify him against tax losses relating to respondent's employees. Ruling that the parties' unambiguous agreement provided for indemnification that did not include the tax liabilities assessed against appellant, the district court granted respondent's summary judgment motion. Appellant contends that the district court erroneously read and applied the indemnification agreement. Because a plain reading of the agreement does not require respondent to indemnify appellant against the tax losses incurred by appellant, we affirm.
Appellant Gary Knudsen, an owner of over-the-road trucks, entered into an "Exclusive Lease Agreement" with respondent Transport Leasing/Contract, Inc. (TLC) under which TLC agreed "to lease its employees to [Knudsen] for truck and semi-tractor driving servicesá.á.á.á."
TLC paid drivers' wages; collected, deposited, and reported state and federal employment taxes; provided workers' compensation and unemployment insurance; and offered various other employee-related benefits.
Drivers who traveled away from home were allowed a "per diem" for meals, lodging, and incidental expenses. Knudsen advanced per diem expenses to TLC employees and reimbursed TLC for per diem expenses it paid. TLC annually reported to Knudsen the per diem amounts TLC paid to its drivers.
Knudsen deducted as a business expense on his income tax returns 100% of the fees he paid TLC. The Internal Revenue Service audited both TLC and Knudsen for 1995 and 1996; found that Knudsen deducted 100% of the per diem payments to the drivers but was permitted under the Internal Revenue Code, Section 274, to deduct only 50% of those payments; and assessed tax deficiencies against Knudsen. As a result of the audit, Knudsen's taxable income for 1995 and 1996 increased and Knudsen incurred additional state and federal tax liabilities, as well as accountant's fees.
Relying on Section Twelve of the lease agreement, Knudsen contended that TLC was obligated to indemnify him for his additional tax obligations. That section provides for lessor indemnification of certain financial obligations:
Lessor shall indemnify Lessee against all liability and loss in connection with and shall assume full responsibility for payment of all federal, state and local employee taxes or contributions imposed or required under Lessor's employment insurance, social security and income tax laws with ...