Opinion ID: 214076
Heading Depth: 3
Heading Rank: 1

Heading: Whether CNMI is in the United States for FICA Purposes

Text: As to the first question, we conclude that the Court of Federal Claims did not legally err in holding that FICA generally applies to the CNMI through the terms of the Covenant. Chapter 21 of Title 26 of the United States Code sets forth the FICA statutory scheme, and § 3121 provides definitions generally applicable to this chapter. See Abrahamsen v. United States, 228 F.3d 1360, 1363-64 (Fed.Cir.2000) (applying definitions of wages and [e]mployment in I.R.C. § 3121(a)-(b) to FICA). As noted above, § 3121(e)(2) states that [t]he term `United States' when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa. Insofar as Appellants assert that the CNMI is not explicitly included in the definition of United States provided in I.R.C. § 3121(e)(2), they are correct. Our inquiry, however, does not end with the definition provided by the Internal Revenue Code. Covenant § 606(b), codified as a note to the United States Code, requires that [t]hose laws of the United States which impose excise and self-employment taxes to support or which provide benefits from the United States Social Security System will . . . become applicable to the Northern Mariana Islands as they apply to Guam.  48 U.S.C. § 1801 note (emphasis added). Leaving aside for the moment the disputed scope of the term excise and self-employment taxes, FICA is unquestionably a law that imposes excise taxes to support Social Security. See, e.g., United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 204, 121 S.Ct. 1433, 149 L.Ed.2d 401 (2001) (The Federal Insurance Contributions Act (FICA) . . . impose[s] excise taxes on employee wages to fund Social Security. . . .). We therefore must determine whether United States is used in FICA in a geographical sense if so, then, as the Court of Federal Claims concluded, FICA generally applies to the CNMI by way of I.R.C. § 3121(e), which defines United States to include Guam, and Covenant § 606(b), which applies the FICA statutes to the CNMI as they apply to Guam. Op. at 278. To be subject to FICA taxation, a nonresident alien worker must be employed within the United States. This requirement is apparent from the FICA statutory scheme. Subsections 3101(a) and (b) impose on an employee taxes equal to certain percentages of the wages (as defined in section 3121(a)) received by him with respect to employment (as defined in section 3121(b)). I.R.C. § 3101(a), (b) (emphases added). Similarly, § 3111(a) and (b) impose on an employer taxes equal to certain percentages of the wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)). Id. § 3111(a), (b) (emphases added). Section 3121(a) defines wages as all remuneration for employment. Id. § 3121(a). The term employment is defined in section 3121(b), which states that `employment' means any service, of whatever nature, performed . . . by an employee for the person employing him, irrespective of the citizenship or residence of either, . . . within the United States. Id. § 3121(b) (emphasis added). Thus, the FICA taxes under §§ 3101 and 3111 apply to employment occurring within the United States. The parties disagree whether the term United States is used in a geographical senseand thus whether United States includes Guam in § 3121(b). Op. at 277. Appellants assert that Congress. . . select[ed] citizenship, not geography, as the basis for providing federal social security benefits and imposing supporting taxes. Appellants' Opening Br. at 44-45. The government disagrees, arguing that Congress used United States geographically and therefore plainly intended to substitute the CNMI for Guam for FICA purposes. We agree with the government. It is evident from the definition of employment that citizenship is not the basis for applying FICA taxes, because the statute indicates that FICA taxes apply to employment irrespective of the citizenship of the employer or employee. I.R.C. § 3121(b). We conclude that the Court of Federal Claims did not legally err in its determination that the FICA statutory scheme uses United States in a geographical sense, and that, as a result, the FICA laws generally apply to the CNMI as they apply to Guam. Op. at 277.