Court Opinion

ID: 8976475
Source: CourtListenerOpinion
Date Created: 2022-11-27 10:58:23.717755+00
Date Added: 2024-06-11T17:10:33.794794
License: Public Domain

GIBBONS, Chief Judge,
dissenting.
The Court’s depiction of the evolution of Virgin Islands tax law and of the problem which faces us here is accurate enough, but the solution it adopts is highly technical and flies in the face of common sense.
The problem is indeed one of statutory interpretation. As a general matter the Court is correct and in accord with hoary precedent when it writes, “We are not at liberty to ignore the plain language of a congressional enactment.” At 1167. However, the actual English words of the statute we are to interpret are:
(D) Exception. — In the case of any pre-1987 open year, the amendment made by section 1275(b) shall not apply to any domestic corporation if—
(i) during the fiscal year which ended May 31, 1986, such corporation was actively engaged directly or through a subsidiary in the conduct of a trade or business in the Virgin Islands and such trade or business consists of business related to marine activities, and
(ii) such corporation was incorporated on March 31, 1983, in Delaware.
Tax Reform Act of 1986, Pub.L. No. 99-514, § 1277(c)(2)(D), 100 Stat. 2085, 2601, (reprinted as note after 26 U.S.C.A. § 931 (West Supp.1989)). Surely, this language is “plain” in some ways and not in others. It is plain that this enactment functions to exempt Bizcap, the corporation described here, from the effects of section 1275(b) for the period specified — whatever those ef*1169fects may have been. The effects of section 1275(b), however, are not “plain” from these words; they can be discerned only in the section’s own words:
(b) Clarification of Treatment of Virgin Islands Inhabitants. — Subparagraph (B) of section 7651(5) (relating to the Virgin Islands) is amended to read as follows:
“(B) For purposes of this title [ie., U.S.C. tit. 26, the Internal Revenue Code], section 28(a) of the Revised Organic Act of the Virgin Islands shall be effective as if such section 28(a) had been enacted before the enactment of this title and such section 28(a) shall have no effect on the amount of income tax liability required to be paid by any person to the United States.”
Tax Reform Act of 1986, Pub.L. No. 99-514, § 1275(b), 100 Stat. 2085, 2598 (amending Internal Revenue Code of 1954, § 7651(5)(B), 26 U.S.C. § 7651(5)(B) (1976)). When this Court interpreted section 1275(b) in Danbury, Inc. v. Olive, 820 F.2d 618 (3d Cir.1987), we treated the language as “plain” in the sense that we did not reach beyond the statutory text itself in order to construe it. We found that the statute “repeals the ‘inhabitant rule’ ... the rule that inhabitants of the Virgin Islands satisfy tax obligations to the United States by paying those taxes to the Virgin Islands rather than to the Internal Revenue Service.” Id. at 625. But the precise effects of the inhabitant rule, in turn, are not themselves “plain” from the language of this statute.
The inhabitant rule stems from yet another statute, section 28(a) of the Revised Organic Act of 1954, ch. 558, 68 Stat. 497, 508 (codified as amended at 48 U.S.C. § 1642 (1982)). In Danbury we did find that section 28(a) was itself “unambiguous,” Danbury at 622, but nonetheless the rule which stemmed from it had had several effects in the real world. One effect was that all taxes paid by residents of the Virgin Islands went into the Virgin Islands treasury, even if the taxpayer was a foreign corporation. Another effect, which obtained until our decision, was that the taxes some foreign corporations paid included no taxes at all on non-Virgin Islands income. This second effect was a mistaken application of section 28(a), as we held in Danbury, but the mistake is plain only upon examination of section 28(a) itself.
There are thus three statutes to interpret in this case, and the language of each is plain in a different way. The clear purpose of Congress in enacting section 1275(b)— and this is what is “plain” in its language— was to erase all the effects of the inhabitant rule. One perceived effect was exemption from all non-Virgin Islands taxation. In the majority’s own words, “Congress believed the interplay between 26 U.S.C. § 882 and § 28(a) resulted in a tax loophole.” At 1168. Congress therefore designed to collect taxes on U.S.-source income from all Virgin Islands inhabitants and to deposit the proceeds in the federal treasury. It seems plain to me, therefore, that the purpose of section 1277(c)(2)(D) was both to direct to the BIR whatever taxes Bizcap was liable for, and also to exempt it from taxes on its non-Virgin Islands income. The majority’s approach seems rigid and technical, and the artificial consistency it imposes on the interpretation of the three statutes distorts the plain language of section 1277(c)(2)(D).
Technically, I suppose, the purpose of Congress evident on the face of section 1277(c)(2)(D) could have been either to grant Bizcap a complete exemption from taxation for a few pre-1987 years, or to give the Virgin Islands a few more years of tax revenue from Bizcap. But it is hard to imagine that when Congress identified Bizcap as a targeted exception to the retroactive application of the repeal of the inhabitant rule, it intended to benefit the Virgin Islands. The point of singling out Bizcap was to benefit Bizcap. And of course the extrinsic evidence of congressional intent, as the district court pointed out, is unequivocal: the legislative history of section 1275(b) shows clearly that Congress thought it was closing a loophole allowing exemption from all taxation on non-Virgin Islands income; Bizcap lobbied hard for its exception in section *11701277(c)(2)(D); and the BIR lobbied hard against it.
The logic of the majority opinion is to impute yet another intent to Congress in enacting section 1277(c)(2)(D), one I find more unlikely still. The majority implies that Congress intended to make the effect of the statute depend on our subsequent determination in Danbury of the scope of section 1275(b) and the inhabitant rule. That analysis suggests that, since the lobbyists knew the appeal was pending and the legislature rejected alternative language for the targeted exception, the statute’s purpose was merely to make Bizcap’s fortunes depend on Danbury’s success in the Court of Appeals, as we later construed another statute, in litigation in which Bizcap was unrepresented. That is, the majority would now have us believe that the purpose of Congress evident on the face of section 1277(d)(2)(D) was not to hand Bizcap a victory, nor even to hand the BIR a victory, but to give Bizcap a sporting chance of victory in the Danbury court. This logically awkward conclusion strains credulity. I would affirm.