Xianli Zhang v. United States
640 F.3d 1358
Fed. Cir.2011Background
- CNMI workers Hyunjin and Zhang plaintiffs paid FICA taxes; CNMI's status under Covenant to the United States governs tax applicability after trusteeship ends.
- CNMI Covenant § 606(b) states US laws imposing taxes to support or provide benefits to the Social Security System become applicable to CNMI as they apply to Guam.
- Court of Federal Claims held FICA (employee and employer) taxes apply to CNMI via § 606(b) and that 1981 § 1301 and 1983 Act do not modify that scope.
- Zhang plaintiffs are nonresident alien contract workers who paid FICA taxes post‑606(b)’s effective date; Hyunjin is an CNMI employer.
- Whether CNMI is within the United States for FICA purposes is a threshold issue; court concluded CNMI is within the US for FICA purposes via Guam.
- Court affirmed judgment denying refunds to Zhang plaintiffs and Hyunjin, upholding government’s position on FICA applicability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CNMI falls within the United States for FICA purposes | Zhang argues CNMI excluded from US for FICA | US contends CNMI included as Guam-based under Covenant | CNMI falls within United States for FICA via Guam |
| Whether Covenant §606(b) imposes FICA employee tax as well as employer tax | 606(b) covers only employer tax; employee tax not included | 606(b) broadly includes excise taxes, inherently covering both employee and employer FICA taxes | §606(b) applies to both employee and employer FICA taxes |
| Whether post‑Covenant legislation (42 U.S.C. §1301 and 1983 Act) alters FICA scope in CNMI | Amendments narrow CNMI FICA scope | Amendments do not alter Covenant substitution; they do not apply to FICA here | Amendments do not alter general FICA application to CNMI |
| Whether Zhang plaintiffs owe FICA taxes and Hyunjin owes FICA taxes under Covenant §606(b) | Zhang and Hyunjin not liable for FICA under CNMI provisions | CNMI employers and nonimmigrant employees owe FICA taxes under Covenant | Zhang plaintiffs owe FICA taxes post‑606(b); Hyunjin owes FICA taxes as employer |
| Whether the result would be an absurd outcome and whether those considerations affect the construction of §606(b) | Absurd result if benefits exist without tax | Absurdity not controlling; statutory construction favors broad reading | Court adopted broad reading of “excise taxes” to include both FICA components |
Key Cases Cited
- United States v. Cleveland Indians Baseball Co., 532 U.S. 200 (2001) (FICA is an excise tax to support Social Security)
- United States v. Fior D'Italia, Inc., 536 U.S. 238 (2002) (FICA taxes on employees and employers described as excise taxes)
- Kirkconnell v. United States, 347 F.2d 260 (Ct.Cl. 1965) (employee FICA tax described as excise tax in context)
- United States v. Turketee, 452 U.S. 576 (1981) (statutory interpretation; absurd results avoided)
- N. Mariana Is. Comm’n v. United States, 399 F.3d 1057 (9th Cir. 2005) (covenant interpretation by Ninth Circuit using Section-by-Section Analysis)