Source: https://www.law.cornell.edu/supremecourt/text/12-1408
Timestamp: 2015-08-29 10:03:52
Document Index: 661188440

Matched Legal Cases: ['§3101', '§3121', '§3402', '§3402', '§3402', '§3402', '§3402', '§3402', '§3402', '§3402', '§3402', '§3121', '§3121', '§811', '§811', '§606', '§1426', '§203', '§3402', '§3402', '§3402', '§3402']

UNITED STATES v. QUALITY STORES, INC. | US Law | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews UNITED STATES v. QUALITY STORES, INC.
26 U. S. C. §3101
et seq. Later believing that the payments should not have been taxed as wages under FICA, Quality Stores sought a refund on behalf of itself and about 1,850 former employees. When the Internal Revenue Service (IRS) did not allow or deny the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The District Court and Sixth Circuit affirmed, concluding that severance payments are not wages under FICA.
327 U. S. 358–366. This broad definition is reinforced by the specificity of FICA’s lengthy list of exemptions. The exemption for severance payments made “because of . . . retirement for disability,” §3121(a)(13)(A), would be unnecessary were severance payments generally not considered wages. FICA’s statutory history sheds further light on the definition. FICA originally contained definitions of “wages” and “employment” identical in substance to the current ones, but in 1939, Congress excepted from “wages” “[d]ismissal payments” not legally required by the employer,
359 U. S. 385–389, §3402(o)’s heading falls short of declaring that all the payments listed in §3402(o) are “other than wages.” Instead, §3402(o) must be understood in terms of the regulatory background against which it was enacted. In the 1950’s and 1960’s, because some States provided unemployment benefits only to terminated employees not earning wages, IRS Rulings took the position that severance payments tied to the receipt of state benefits were not wages. To address the problem that severance payments were still considered taxable income, which could lead to large year-end tax liability for terminated workers, Congress enacted §3402(o), which treats both SUBs and severance payments the IRS considered wages “as if” they were wages subject to withholding. By extending this treatment to all SUBs, Congress avoided the practical problems that might arise if the IRS later determined that SUBs besides severance payments linked to state benefits should be exempt from withholding. Considering this regulatory background, the assumption that Congress meant to exclude all SUBs from the definition of “wages” is unsustainable. That §3402(o) does not narrow FICA’s “wages” definition is also consistent with the major principle of Rowan Cos. v. United States,
452 U. S. 247: that simplicity of administration and consistency of statutory interpretation instruct that the meaning of “wages” should be in general the same for income-tax withholding and for FICA calculations. Pp. 7–14.
This case presents the question whether severance pay-ments made to employees terminated against their will are taxable wages under the Federal Insurance Contri-butions Act (FICA),
FICA’s broad definition of wages includes the severance payments made here. And §3402(o) does not alter that definition. Section 3402(o) instructs that any severance payment “shall be treated as if it were a payment of wages.” According to the Court of Appeals, §3402(o) suggeststhat the definition of wages for income-tax withholding does not extend to severance payments; and so, the argument continues, severance payments also must be beyond the terms of FICA’s similar definition. But §3402(o) is entirely compatible with the proposition that some or all payments do fall within the broad definition of the term wages. Section 3402(o) was enacted in response to a narrow, specific problem regarding income-tax withholding. In addition, were the Court to rule that the severance payments made here are exempt from FICA taxation but not from withholding under §3402 for income-tax pur-poses, it would contravene the holding in Rowan Cos. v. United States,
452 U. S. 247 (1981)
, which held there should be congruence in the rules for FICA and income-tax withholding.
Quality Stores initiated a proceeding in the Bankruptcy Court seeking a refund of the disputed amount. The Bankruptcy Court granted summary judgment in its favor. The District Court and Court of Appeals for the Sixth Circuit affirmed, concluding that severance payments are not “wages” under FICA. See In re Quality Stores, Inc., 693 F. 3d 605 (2012). Other Courts of Appeals, however, have concluded that at least some severance payments do constitute wages subject to FICA tax. See, e.g.,
CSX Corp. v. United States, 518 F. 3d 1328 (CA Fed. 2008); University of Pittsburgh v. United States, 507 F. 3d 165 (CA3 2007); North Dakota State Univ. v. United States, 255 F. 3d 599 (CA8 2001). The United States, claiming that the FICA taxes must be withheld, sought review here; and certiorari was granted, 570 U. S. ___ (2013).
In Social Security Bd. v. Nierotko,
327 U. S. 358 (1946)
, the Court interpreted the term “wages” in the Social Security statutory context to have substantial breadth. In that case a worker, who had been wrongfully terminated, sought to have his backpay counted as taxable wages for the purpose of obtaining credits under the Social Security system. The Court stated that the term “service,” used with respect to Social Security, “means not only work actually done but the entire employer-employee relationship for which compensation is paid to the employee by the employer.” Id., at 365–366.
A specific exemption under FICA for certain termination-related payments reinforces the conclusion that the payments in question are well within the definition of wages. Section 3121(a)(13)(A) exempts from taxablewages any severance payments made “because of . . . retire-ment for disability.” That exemption would be unnecessary were severance payments in general not within FICA’s definition of “wages.” Cf. American Bank & Trust Co. v. Dallas County,
463 U. S. 855,
864 (1983)
(declining to read a statute in a manner that would cause “spe-cific exemptions” to be “superfluous”). FICA’s definitional section, moreover, provides a lengthy list of specific exemptions from the definition of wages. For example, FICA exempts from wages payments on account of disability caused by sickness or accident, cash payments made for domestic service in a private home under a certain amount, and cash tips less than a certain amount. See §§3121(a)(2)(A), (7)(B), (12)(B). The specificity of these exemptions reinforces the broad nature of FICA’s definition of wages.
FICA’s statutory history sheds further light on the text of §3121, which defines the term “wages.” FICA was originally enacted in Title VIII of the Social Security Act,
636. (In 1939, Title VIII was transferred to the Internal Revenue Code and became FICA.
1387.) Title VIII contained, in substance, definitions of “wages” and “employment” identical to those FICA now provides. See §811(a),
639; §811(b), ibid. With respect to the Social Security Act, in 1936 the Treasury Department promulgated a regulation stating that the statutory definition of “wages” included “dismissal pay.” Bureau of Internal Revenue, Employees’ Tax and the Employers’ Tax Under Title VIII of the Social Security Act, 1 Fed. Reg. 1764, 1769 (1936). Congress responded a few years later, in 1939, by creating an exception from “wages” for “[d]ismissal payments which the employer is not legally required to make.” Social Security Act Amendments of 1939, §606,
1384 (codified at
26 U. S. C. §1426(a)(4) (1940 ed.)).
In 1950, however, Congress repealed that exception. Social Security Act Amendments, §203(a),
525–527. “When Congress acts to amend a statute, we presume it intends its amendment to have real and sub-stantial effect.” Stone v. INS,
514 U. S. 386,
397 (1995)
. Congress has not revisited its 1950 amendment; and since that time, FICA has contained no exception for severance payments.
In the last of its textual arguments, Quality Stores draws attention to the boldface heading of §3402(o), which states, “Extension of withholding to certain payments other than wages.” It contends the heading declares that the payments enumerated within §3402(o) are “other than wages.” Captions, of course, can be “a useful aid in resolving” a statutory text’s “ambiguity.” FTC v. Mandel Brothers, Inc.,
359 U. S. 385–389 (1959). But Quality Stores cannot rely on the statutory heading to support its argument that §3402(o), without ambiguity, excludes all severance payments from the definition of wages. The heading states that withholding is extended to “certain payments.” This falls short of a declaration that all the payments listed in §3402(o) are not wages.
The concept of SUBs originated in labor demands for a guaranteed annual wage. When it became clear this was “impractical in their industries, unions such as the Steelworkers and the United Auto Workers transformed their guaranteed annual wage demands into proposals to supplement existing unemployment compensation programs.” Coffy v. Republic Steel Corp.,
447 U. S. 191,
200 (1980)
. A SUB plan, as originally conceived, offered “second-level protection against layoff” by supplementing unemployment benefits offered by the States. Ibid.