Opinion ID: 214076
Heading Depth: 2
Heading Rank: 3

Heading: The Relevant History and Laws of the CNMI

Text: The parties do not materially dispute the following facts as found by the Court of Federal Claims. The Northern Mariana Islands (NMI) comprise the northern islands of the Mariana archipelago. Op. at 267. Guam, the southernmost island in the archipelago, is a separate political entity under the sovereignty of the United States. Id. The United States military occupied the NMI at the close of World War II, and in 1947 the United Nations designated portions of Micronesia, including the NMI, as the United Nations Trust Territory of the Pacific Islands (Trust Territory). Id. The United States was appointed as trustee of the Trust Territory. Id. Under the agreement governing the trusteeship (Trusteeship Agreement), the United States did not have sovereignty over the NMI, but was empowered to apply federal laws to the NMI; in addition, NMI citizens were not citizens or nationals of the United States. Id. Negotiations in the early 1970s to establish a permanent union between the United States and the NMI resulted in the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America, Act of March 24, 1976, Pub.L. No. 94-241, 90 Stat. 263 ( codified as amended at 48 U.S.C. § 1801 note (2006)) (Covenant). Op. at 267. The Covenant was drafted to govern the relations between the NMI and the United States. Id. It was approved by NMI voters in a plebiscite and by a resolution of the United States Congress, and was thereafter signed into law by President Gerald Ford on March 24, 1976. Id. Most of the Covenant's provisions became effective either in 1976 upon the Covenant's approval or in 1978 on the effective date of the NMI Constitution. Id.; Covenant Art. X. The Covenant contemplated that the CNMI would come into existence and supersede the NMI upon termination of the Trusteeship Agreement. Op. at 268; Covenant § 1003. On January 1, 1987, the entire Covenant became effective and the CNMI entered into full union with the United States after President Ronald Reagan issued a proclamation terminating the Trusteeship Agreement. Op. at 268. Pursuant to § 504 of the Covenant, in the interim period between the approval of the Covenant and the termination of the Trusteeship Agreement, the Northern Mariana Islands Commission on Federal Laws was appointed to recommend to Congress which, and to what extent, federal laws would be applicable to the NMI. Id. Two reports issued by the Commission to Congress during this interim period form the subject of certain arguments on appeal. The Commission issued its first report in January 1982. See N. Mariana Islands Comm'n on Fed. Laws, An Interim Report of the N. Mariana Islands Comm'n on Fed. Laws to the Congress of the United States (1982) (hereinafter, First Interim Report). The Commission issued its second report in August 1985. See N. Mariana Islands Comm'n on Fed. Laws, Welcoming America's Newest Commonwealth, The Second Interim Report of the N. Mariana Islands Comm'n on Fed. Laws to the Congress of the United States (1985) (hereinafter, Second Interim Report). Of additional relevance to the present appeal, Congress enacted two laws during the interim period between the Covenant's approval and the termination of the Trusteeship Agreement. In 1981, Congress amended the definition of State in 42 U.S.C. § 1301 to specify certain Social Security benefit laws in which the NMI would be included. In 1983, Congress passed Pub.L. No. 98-213, § 19, 97 Stat. 1459, 1464 (the 1983 Act), which provided that NMI citizens would be treated as United States citizens for certain purposes. (As explained further below, Appellants contend that those two laws effectively exclude Appellants from the FICA taxation scheme.) The overall structure of the Covenant was ably summarized in the opinion of the Court of Federal Claims. Op. at 269-72. Of particular relevance on appeal is Article VI of the Covenant, which governs Revenue and Taxation. [2] Op. at 270. Section 601 establishes an income tax system for the NMI. Section 601(c) states: References in the Internal Revenue Code to Guam will be deemed also to refer to the Northern Mariana Islands, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof or of this Covenant. Covenant § 601(c). Section 606 deals generally with the application of the United States Social Security System to the CNMI. Op. at 271. Section 606(a) provides for the creation, not later than the date of the Covenant's approval, of a new Northern Mariana Islands Social Security Retirement Fund from that portion of the Trust Territory Social Retirement Fund attributable to the Northern Mariana Islands. Covenant § 606(a). Section 606(c) provides that, upon termination of the Trusteeship Agreement, the Northern Mariana Islands Social Security Retirement Fund would be transferred into the appropriate Federal Social Security Trust Funds, and that NMI domiciliaries entitled to social security benefits under the laws of the Trust Territory or the NMI will be entitled to United States Social Security benefits. Central to the dispute on appeal, Covenant § 606(b) applies FICA taxes to the NMI as they apply to Guam: Those 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 on January 1 of the first calendar year following the termination of the Trusteeship Agreement or upon such earlier date as may be agreed to by the Government of the Northern Mariana Islands and the Government of the United States become applicable to the Northern Mariana Islands as they apply to Guam. Covenant § 606(b) (emphases added). The parties do not dispute that the self-employment taxes portion of § 606(b) refers to the self-employment tax enacted by the Self-Employment Contributions Act of 1954, ch. 736, 68A Stat. 415 (codified as amended at I.R.C. §§ 1401-1403 (2006)) (SECA). In contrast, the parties vigorously dispute the extent to which § 606(b) applies the FICA tax on wages for employees and employers to the CNMI and, ultimately, to Plaintiffs.