WISCONSIN CENTRAL LTD., ILLINOIS CENTRAL R.R. CO., аnd GRAND TRUNK WESTERN R.R. CO., Plaintiffs‐Appellants, v. UNITED STATES OF AMERICA, Defendant‐Appellee.
Nos. 16‐3300, ‐3303, ‐3304
United States Court of Appeals For the Seventh Circuit
May 8, 2017
Argued March 30, 2017
Before POSNER, MANION, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge.
Beginning in 1996, the plaintiff‐appellants, subsidiaries of the Canadian National Railway Company (to simplify we’ll refer to the subsidiaries as “the railway”), began including stock options in the compensation plans of a number of еmployees. In this suit against the government, the railway argues that income from the exercise of stock options that a railroad gives its employees is not
As explained in Standard Office Building Corp. v. United States, 819 F.2d 1371, 1373 (7th Cir. 1987), “the Railroad Retirement Tax Act, passed in 1937, is to the railroad industry what the Social Security Act is to other industries: the imposition of an employment or payroll tax on both the employer and the employee, with the proсeeds used to pay pensions and other benefits. … The Act requires the railroad to pay an excise tax equal to a specified percentage of its employees’ wages, and also to withhold a specified percentage of its employees’ wages as their share of the tax. The railroad retirement tax rates are much higher than the social security tax rates.”
The question presented by this case is whether the excise tax should be levied not only on employees’ wages but also on the value of stock options exercised by employees who, having received the options from their employer, exercise them when the market price exceeds the “strike price” (the рrice at which the employee has a right to buy the stock) and thus obtain the stock at a favorable price. The Internal Revenue Service answers yes, see
The lawyer for the IRS told us at oral argument that anything that has a market value is a “form of money remuneration.” That goes too far; it would impose a tax liability on an
By compensating an employee with stock options rather than cash the employer encourages the employee to work harder for the company, because the better the company does the more valuable its stock is. The value of a company’s stock is a function of the cоmpany’s profitability, whereas the size of a cash bonus, once it is given, is unaffected by the company’s future business successes or failures. Underscoring the point, we note that the railway’s stock‐option plans are performance‐based: they can be exercised only if the company achieves specified goals.
As the discussion in the preceding paragraphs implies, the fact that cash and stock are not the same things doesn’t make a stock‐option plan any less a “form of money remuneration” than cash. Indeed the railway offers its employees a choice to have an agent exercise an employee’s stock option, sell the shares of stock obtained by that exercise of the option, reserve part of the money received in the sale for taxes and administrative costs, and deposit the balance in the employee’s bank account. An employee who uses this method will thus experience the stock option as a cash deposit.
It’s true that the Railroad Retirement Tax Act, in which the term “money remunerаtion” appears, dates back to 1935,
The equivalence of stock to cash is actually signaled in the statutory exception for qualified stock options, explicitly divorced from “money remuneration” by
AFFIRMED.
WISCONSIN CENTRAL LTD., ILLINOIS CENTRAL R.R. CO., and GRAND TRUNK WESTERN R.R. CO., Plaintiffs‐Appellants, v. UNITED STATES OF AMERICA, Defendant‐Appellee.
Nos. 16‐3300, ‐3303, ‐3304
The railroad plaintiffs have sought a tax refund on the ground that stock options they provided to their employees aren’t taxable as “compensation” under the Railroad Retirement Tax Act. Compensation under the Act is defined as “any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.”
The court disagrees. Although it admits that “[m]aybe stock … wasn’t a form of money remuneration” when the RRTA was enacted, the court posits that “there is no reason to think that the framers and ratifiers of the Act meant money remuneration to be limited to cash” in the event of future economic changes. Maj. Op. at 4. Even if that were true, our job is to interpret the Act as it would have been understood by people at the time it was enacted, not to speculate about the intent of Depression‐era legislators. Because the plain language of the statute’s definition of “compensation” does not cover stock or stock options, I respectfully dissent.
“It is a ‘fundamental canon of statutory construction’ that, ‘unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning.’” Sandifer v. U.S. Steel Corp., 134 S. Ct. 870, 876 (2014) (quoting Perrin v. United States, 444 U.S. 37, 42 (1979)). “That means we look to the meaning of the word at the time the statute was enacted, often by referring to dictionaries.” Jackson v. Blitt & Gaines, P.C., 833 F.3d 860, 863 (7th Cir. 2016) (citations omitted). There are some “common law statutes” whose meaning may evolve
As the statute is written, it is clear that “money remuneration” does not include stock options. For one, as I alluded to abоve, “it is well established that RRTA and FICA are parallel statutes.” BNSF Ry. Co. v. United States, 775 F.3d 743, 754 (5th Cir. 2015). But they are not identical; they contain different definitions of what is taxable. The RRTA subjects to taxation “compensation,” defined as “any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.”
We must give effect to Congress’s distinction between “money remuneration” and “all remuneration.” “After all, it is axiomatic that such notable linguistic differences in two otherwise similar statutes are normally presumed to convey differences in meaning.” United States v. Smith, 756 F.3d 1179, 1186 (10th Cir. 2014) (Gorsuch, J.); see also N. Haven Bd. of Educ. v. Bell, 456 U.S. 512, 530 (1982) (“[A]lthough two statutеs may be similar in language and objective, we must not fail to
The difference in the statutes reveals that “money,” when contrasted with “all,” is a word of limitation. Further, its original meaning would not have encompassed company stock or stock options. The contemporary Webster’s Second Dictionary defined “money” principally as “[m]etal, as gold, silver, or copper, coined, or stamped, and issued by recognized authority as a medium of exchange.” Webster’s New International Dictionary of the English Language 1583 (2d ed. 1934). More generally, money was “[a]nything customarily used as a medium of exchange and measure of value, as sheep, wampum, copper rings, quills of salt or of gold dust, shovel blades, etc.” Id. Its synonyms were “cash,” “currency,” and “legal tender.” Id. In other words, media of exchange issued by a recognized authority. Simply put (and as the court somewhat acknowledges), money remuneration meant remuneration in cash or cash equivalents.1
Furthermore, the Internal Revenue Code of 1939, which included for the first time the definitions of “compensatiоn” and “wages” under the RRTA and FICA, consistently treated money and stocks separately. One example is Section 115, which governed distributions by corporations. It said that when a distribution is payable “either (A) in its stock or in rights to acquire its stock ... or (B) in money or any other property (including its stock or in rights to acquire its stock),” then the distribution shall be considered a taxable dividend “regardlеss of the medium in which paid.” 1939 Code, § 115(f)(2). Section 115(h)(1) said that such a distribution would not be considered a “distribution of earnings or profits of any corporation” if “no gain to such distributee from the receipt of such stock or securities, property or money, was recognized by law.” See also Helvering v. Credit Alliance Corp., 316 U.S. 107, 112 (1942) (Section 115(h) was inapplicable “because the dis‐
The court relies on later‐enacted statutory exceptions—principally a 2004 exception for qualified stock options added to both the RRTA and FICA—to draw an inference that “money remuneration” is broader than its original meaning suggests. However, “absent a clearly established congressional intention, repeals by implication are not favored.” Branch v. Smith, 538 U.S. 254, 273 (2003) (plurality opinion) (citations and internal quotation marks omitted). Implied repeal can occur only: “(1) [w]here provisions in the two acts are in irreconcilable conflict;” and “(2) if the later act covers the whole of the subject of the earlier one and is clearly intended as a substitutе.” Posadas v. National City Bank of N.Y., 296 U.S. 497, 503 (1936).
Neither exception to the presumption against implied repeal is applicable. First, there is no conflict between a general
To be sure, “the implication of a later enactment … will often сhange the meaning that would otherwise be given to an earlier provision that is ambiguous.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 330 (2012) (emphasis added). However, the definition of “compensation” in the RRTA is not ambiguous with respect to the question presented here. As I have demonstrated, the original meaning of “money remuneration” was limitеd to cash and cash equivalents and did not include stock or stock options.
In sum, Congress has long treated railroads differently than other industries. See, e.g., Federal Employers Liability Act,
I respectfully dissent.