Opinion ID: 214076
Heading Depth: 2
Heading Rank: 4

Heading: The Court of Federal Claims

Text: On November 7, 2008, the government filed a motion for judgment on the pleadings. Def.'s Mot. J. Pld'gs, Nos. 08-269 T & 08-270 T (Fed.Cl. Nov. 7, 2008). First, the government argued that the Plaintiffs owed FICA taxes because the CNMI is within the United States under the Internal Revenue Code, by its relationship with Guam under the terms of the Covenant. Id. at 8-9. The government then turned to the specific types of FICA taxes applied by the Covenant. The government conceded that on its face Covenant § 606(b) explicitly applies only the employer's FICA excise tax and the SECA tax on the CNMI. Id. at 13. Nevertheless, the government asserted that several provisions of the Covenant demonstrate that the FICA employee tax applies to the Zhang plaintiffs, and that legislative history shows that the drafters intended § 606(b) to apply all of the Social Security taxes to the CNMI. In a careful and detailed opinion, the Court of Federal Claims granted the government's motion for judgment on the pleadings pursuant to Rule of the Court of Federal Claims 12(c). [3] Op. at 287. First, the court determined that FICA applies to the CNMI through its relationship with Guam by virtue of § 601(a). Id. at 277. Next, with regard to the specific FICA provisions mandated by the Covenant, the court held that Covenant § 606(b) applies the FICA employee tax and the matching FICA employer tax to all the wages of all employees and employers in CNMI. The court concluded that interpreting § 606(b) to omit the FICA employee tax produced an absurd result, in that it would grant Social Security benefits to employees earning wages in the CNMI, but would not impose the corresponding requirement that such workers pay their share of the FICA tax burden. Id. at 279. Drawing on the Covenant's legislative history, which we discuss further below, the court determined that [t]he only rational conclusion that can be drawn from the legislative history is that the drafters of the Covenant, the Commission, and Congress all intended that section 606(b)'s reference to `excise taxes . . . to support' referred to FICA, including the employer and employee wage tax provisions in I.R.C. §§ 3101 and 3111. Id. at 281. Based on its analysis, the court concluded that the FICA tax on employee wages applies to employees working in the CNMI by operation of § 606(b) of the Covenant. [4] Id. The Court of Federal Claims then considered Plaintiffs' arguments that, prior to the effective date of Covenant § 606(b), Congress enacted legislation that curtailed the application of FICA to the CNMI. Id. at 281. The court rejected Plaintiffs' argument that amendments to 42 U.S.C. § 1301 in 1981 evinced Congress's desire to specify the provisions of the Social Security Act for which the CNMI will be considered part of the United States. Id. at 282. The court also rejected Plaintiffs' argument that, by enacting the 1983 Act, Congress effectively amended Covenant § 606(b) and limited the applicability of FICA taxes to the CNMI. Id. at 286. The court entered final judgment on September 30, 2009. Plaintiffs appealed. Pursuant to 28 U.S.C. § 1295(a)(3), we have jurisdiction over appeals from final decisions of the United States Court of Federal Claims.