United States Court of Appeals
for the Federal Circuit
__________________________
XIANLI ZHANG, GUIMIN LU, BAO HUA HE,
BAOWEI DING, AND JILIN HU,
Plaintiffs-Appellants,
and
HYUNJIN (SAIPAN) CORPORATION
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
__________________________
2010-5026, -5027
__________________________
Appeal from the United States Court of Federal
Claims in consolidated Case Nos. 08-CV-269 and 08-CV-
270, Judge Christine O.C. Miller.
__________________________
Decided: April 6, 2011
__________________________
DAVID W. AXELROD, Schwabe, Williamson & Wyatt, of
Portland, Oregon, argued for plaintiffs-appellants. With
him on the brief was ALEXIS A. FALLON, Fallon Law
Offices, Southborough, Massachusetts.
ZHANG v. US 2
DAMON W. TAAFFE, Attorney, Appellate Section, Tax
Division, United States Department of Justice, of Wash-
ington, DC, argued for defendant-appellee. With him on
the brief were JOHN A. DICICCO, Acting Assistant Attor-
ney General, and JONATHAN S. COHEN, Attorney.
__________________________
Before LOURIE, BRYSON, and PROST, Circuit Judges.
LOURIE, Circuit Judge.
Plaintiffs-Appellants Xianli Zhang, Guimin Lu, Bao
Hua He, Baowei Ding, Jilin Hu (collectively, “the Zhang
plaintiffs”) and Hyunjin (Saipan) Corporation (“Hyunjin”)
appeal from a decision of the United States Court of
Federal Claims, which granted Defendant-Appellee’s
motion for judgment on the pleadings. Because the Court
of Federal Claims correctly granted the government’s
motion, we affirm.
BACKGROUND
The dispute in this case centers on whether the Zhang
plaintiffs and Hyunjin are entitled to a refund of taxes
paid under the Federal Insurance Contribution Act
(“FICA”), 26 U.S.C. (I.R.C.) §§ 3101, 3111 (2006), for
certain work performed in the Commonwealth of the
Northern Mariana Islands (“CNMI”).
A. The Parties
The Zhang plaintiffs are nonresident aliens, citizens
of the People’s Republic of China, who worked for Hyunjin
in the CNMI as nonimmigrant alien contract workers
between 2003 and 2006. Zhang v. United States, 89 Fed.
Cl. 263, 266 (2009) (“Op.”). On April 14, 2008, the Zhang
plaintiffs filed suit in the Court of Federal Claims against
the United States for reimbursement of about $9,862 in
FICA taxes, which were allegedly wrongfully assessed
3 ZHANG v. US
and erroneously paid to the United States between 2003
and 2006. 1 Id.; J.A. 56.
On July 29, 2008, Hyunjin, a CNMI corporation, filed
suit in the Court of Federal Claims against the United
States for a refund of $1,397,713 in FICA taxes paid for
hundreds of its foreign temporary contract employees
admitted to the CNMI to perform work between 2003 and
2005. Op. at 266; J.A. 62.
The court consolidated the two actions. As explained
further below, both the Zhang plaintiffs and Hyunjin
(collectively, “Plaintiffs” or “Appellants”) alleged that the
CNMI was not part of the “United States” for FICA pur-
poses, and that the laws governing the relationship be-
tween the CNMI and the United States affirmatively
excluded Plaintiffs from FICA taxation. Op. at 266; J.A.
48, 61.
B. FICA
FICA is an employment tax under the Internal Reve-
nue Code. The FICA statutory scheme generally requires
payment of taxes by employees on wages received and
payment of taxes by employers on those same wages. The
former are assessed under I.R.C. § 3101, the latter under
I.R.C. § 3111. In each instance, the taxes are assessed on
wages paid or received “with respect to employment (as
defined in section 3121(b)).” I.R.C. §§ 3101, 3111. As
used in this context, “employment” means “any service, of
whatever nature, performed . . . by an employee for the
1 The Zhang plaintiffs also filed suit on behalf of
one or more classes of similarly situated foreign tempo-
rary contract workers who, they alleged, erroneously paid
FICA taxes to the United States. J.A. 49. Because the
Court of Federal Claims ultimately granted the govern-
ment’s motion for judgment on the pleadings, the court
did not reach the class certification issue, nor do we.
ZHANG v. US 4
person employing him, irrespective of the citizenship or
residence of either, . . . within the United States.” I.R.C.
§ 3121(b) (emphasis added).
The term “United States” is defined for FICA pur-
poses as follows: “The term ‘United States’ when used in
a geographical sense includes the Commonwealth of
Puerto Rico, the Virgin Islands, Guam, and American
Samoa.” I.R.C. § 3121(e). Notably, FICA’s definition of
“United States” does not explicitly include the CNMI.
This omission formed the basis for Plaintiffs’ contention
that the CNMI is not “within the United States” for
purposes of I.R.C. § 3121(b) and thus that FICA taxes are
not owed on wages received or paid with respect to em-
ployment in the CNMI. Op. at 266.
C. The Relevant History and Laws of the CNMI
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 perma-
nent union between the United States and the NMI
5 ZHANG v. US
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 Cove-
nant 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 proclama-
tion terminating the Trusteeship Agreement. Op. at 268.
Pursuant to § 504 of the Covenant, in the interim pe-
riod between the approval of the Covenant and the termi-
nation of the Trusteeship Agreement, the Northern
Mariana Islands Commission on Federal Laws was ap-
pointed 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
ZHANG v. US 6
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, Con-
gress enacted two laws during the interim period between
the Covenant’s approval and the termination of the Trus-
teeship 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 sum-
marized in the opinion of the Court of Federal Claims.
Op. at 269-72. Of particular relevance on appeal is Arti-
cle VI of the Covenant, which governs “Revenue and
Taxation.” 2 Op. at 270. Section 601 establishes an in-
come 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.
2 The parties also dispute the relevance of Covenant
Article V, § 502(a), to Appellants’ duty to pay FICA taxes.
Op. at 279. As we note infra, in view of our holding we
need not address the parties’ arguments regarding
§ 502(a).
7 ZHANG v. US
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 So-
cial 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 North-
ern 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.
ZHANG v. US 8
D. The Court of Federal Claims
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 gov-
ernment 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 in-
tended § 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 employ-
ees earning wages in the CNMI, but would not impose the
3 RCFC 12(c) is identical to Fed. R. Civ. P. 12(c).
Op. at 267.
9 ZHANG v. US
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 Plain-
tiffs’ arguments that, prior to the effective date of Cove-
nant § 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.
4 The court also held that Covenant §§ 502(a)(2)
and 601(c) did not apply the FICA employee tax to the
CNMI. Op. at 279.
ZHANG v. US 10
DISCUSSION
When reviewing a decision of the Court of Federal
Claims to grant judgment on the pleadings under RCFC
12(c), “we apply the same standard of review as a case
dismissed pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure, and review the judgment de novo.”
Cary v. United States, 552 F.3d 1373, 1376 (Fed. Cir.
2009). We presume that the facts alleged by the plaintiffs
are true, and we draw all reasonable inferences in the
plaintiffs’ favor. Id. An underlying issue of statutory
interpretation is a question of law, which we review de
novo. Norfolk Dredging Co. v. United States, 375 F.3d
1106, 1108 (Fed. Cir. 2004).
The canons of statutory construction guide our inter-
pretation of the Covenant, which has been codified as a
federal statute. See N. Mar. I. v. United States, 279 F.3d
1070, 1074 (9th Cir. 2002). When interpreting a statute,
we start with the language of the statute itself. Williams
v. Taylor, 529 U.S. 420, 431 (2000). We search for Con-
gress’s intent using both the text and structure of the
statute. Alexander v. Sandoval, 532 U.S. 275, 288 (2001).
In reviewing the statute’s text, we give the words “their
‘ordinary, contemporary, common meaning,’ absent an
indication Congress intended them to bear some different
import.” Williams, 529 U.S. at 431 (quoting Walters v.
Metro. Educ. Enters., Inc., 519 U.S. 202, 207 (1997)); see
also Moskal v. United States, 498 U.S. 103, 108 (1990) (“In
determining the scope of a statute, we look first to its
language, giving the words used their ordinary meaning.”
(citations and internal quotation marks omitted)). Dic-
tionary definitions can elucidate the ordinary meaning of
statutory terms. See, e.g., CSX Transp., Inc. v. Ala. Dep’t
of Revenue, 131 S. Ct. 1101, 1108 (2011); Carcieri v.
Salazar, 129 S. Ct. 1058, 1064 (2009); Williams, 529 U.S.
11 ZHANG v. US
at 431-32; Walters, 519 U.S. at 207-08; Pioneer Inv. Servs.
Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 388 (1993).
If the statute is clear and unambiguous, then the
plain meaning of the statute is conclusive, and we give
effect to the unambiguously expressed intent of Congress.
Sullivan v. Stroop, 496 U.S. 478, 482 (1990). There is “no
errorless test” for identifying unambiguous statutory
language, although “absurd results are to be avoided and
internal inconsistencies in the statute must be dealt
with.” United States v. Turkette, 452 U.S. 576, 580 (1981).
When the statutory language is ambiguous, legislative
history can illuminate Congress’s intent. See In re Swan-
son, 540 F.3d 1368, 1376 (Fed. Cir. 2008).
Appellants advance two main arguments as to why
they are entitled to a refund of FICA taxes. First, Appel-
lants argue that the FICA taxation scheme does not
generally apply to the CNMI. 5 Appellants allege that the
Court of Federal Claims erred by mechanically applying
the “as they apply to Guam” clause in Covenant § 606(b)
without first determining Congress’s intent or considering
the unique provisions of the Covenant that distinguish
the CNMI from Guam. Appellants argue that their
construction of § 606(b), which excludes nonimmigrant
alien contract workers such as the Zhang plaintiffs, is
supported by the subsection’s language and its legislative
5 Appellants’ arguments on this point are somewhat
inconsistent. As discussed further below, Appellants at
times argue that Congress never included the CNMI in
the definition of the “United States” for FICA purposes.
Appellants’ Opening Br. at 43-44. Elsewhere, Appellants
concede that Congress intended that FICA apply to citi-
zens and domiciliaries of the CNMI. Appellants’ Reply
Br. at 1. Despite these inconsistencies, FICA’s application
to the CNMI is a threshold issue in this case, so we ad-
dress it infra.
ZHANG v. US 12
history. Appellants contend that §§ 606(a) and (c) limit
the scope of § 606(b), such that § 606 as a whole applies
only to CNMI citizens or domiciliaries who would qualify
for United States citizenship under the Covenant. Appel-
lants further contend that the term “those laws” in
§ 606(b) must be considered as of the effective date of that
subsection, i.e., January 1, 1987, and thus must take into
account laws—including 42 U.S.C. § 1301 and the 1983
Act—that were enacted after the Covenant’s approval but
before § 606(b)’s effective date, and that serve to limit the
application of FICA taxes through the Covenant.
Second, Appellants assert that the Zhang plaintiffs do
not owe FICA taxes because, contrary to the decision of
the Court of Federal Claims, Covenant § 606(b) does not
impose the employee FICA tax on them. Appellants take
issue with the court’s rationale in construing § 606(b).
Specifically, the court noted that it would produce an
“absurd result” if § 606(b) were construed to “apply Social
Security benefits to [nonresident alien] employees earning
wages in the CNMI, but . . . not impose the corresponding
requirement that they pay their share of the FICA tax
burden.” Op. at 279. According to Appellants, the court’s
rationale does not apply to the Zhang plaintiffs, who, as
nonresident alien contract workers, are ineligible for
Social Security benefits. Finally, Appellants contend that,
because the Zhang plaintiffs do not owe FICA taxes on
their wages, neither does Hyunjin as their employer.
The government argues in response that Congress in-
tended the Covenant to impose FICA taxes on all employ-
ees and employers in the CNMI, as demonstrated by the
language and structure of the Covenant. The government
asserts that, notwithstanding the inadvertent failure of
the Covenant drafters to mention the employee FICA tax,
§ 606(b) confirms that FICA applies to the CNMI as it
applies to Guam (where both the employee and employer
13 ZHANG v. US
FICA taxes apply). 6 The government alleges that the
absence of the employee FICA tax from the text of
§ 606(b) “is simply a drafting error.” Appellee Br. at 37.
In support, the government points to the text and legisla-
tive history of § 606(b). The government contends that
§§ 606(a) and (c) do not limit the scope of § 606(b) to
CNMI citizens and domiciliaries. Regarding Appellants’
assertion that the “absurd result” envisioned by the Court
of Federal Claims does not apply to the Zhang plaintiffs,
the government responds that, even if the Zhang plain-
tiffs are not entitled to Social Security benefits, Congress
is entitled to impose FICA taxes while limiting or denying
benefits. 7 The government further contends that, con-
trary to Appellants’ arguments, no law enacted after the
Covenant’s approval alters Congress’s intent that all
employees and employers in the CNMI must pay FICA
taxes on wages.
In addition to the arguments in its brief, the govern-
ment at oral argument advanced an alternative basis for
affirming the holding of the Court of Federal Claims. The
6 In the alternative, the government argues that
the FICA tax on employee wages applies to the CNMI via
Covenant §§ 502(a)(2) or 601(c). As noted infra, because
we hold that the FICA employee tax applies via Covenant
§ 606(b), we need not reach these alternative arguments.
7 At oral argument, the government clarified its po-
sition on this point. The government essentially conceded
that the Zhang plaintiffs are subject to FICA taxation
without receiving any benefit from the Social Security
System, yet argued that the United States routinely
enters into “totalization agreements” with foreign nations
to rectify such matters. Oral Arg. at 23:59-26:08, avail-
able at http://www.cafc.uscourts.gov/oral-argument-
recordings/all/zhang.html. According to the government,
any totalization agreement applicable to the Zhang plain-
tiffs would be a matter of foreign policy distinct from the
terms of the Covenant. Id.
ZHANG v. US 14
government urged that the term “excise” in § 606(b)
should not be read so narrowly as to exclude the FICA
employee tax. Oral Arg. at 18:10-21:21, 27:23-28:55,
available at http://www.cafc.uscourts.gov/oral-argument-
recordings/all/zhang.html. The government suggested
that § 606(b) “may have been drafted in an inartful man-
ner,” id. at 28:50, and argued that § 606(b) used the term
“excise” loosely to refer to FICA employment taxes gener-
ally—i.e., both the employee and employer FICA taxes on
wages.
In its rebuttal argument, Appellants disputed the
government’s broad reading of the term “excise” in
§ 606(b) and argued that only the employer FICA tax is
routinely referred to as the excise tax. Oral Arg. at 29:04-
30:20. Moreover, Appellants argued, “there is nothing to
suggest that Congress was rephrasing customary tax
language” by using the term “excise” to refer to both the
employee and the employer FICA taxes. Id. Appellants
disputed the notion that, even though the statute provid-
ing for the employer tax, I.R.C. § 3111, uses the term
“excise,” whereas the statute providing for the employee
FICA tax, I.R.C. § 3101, does not, the employee FICA tax
may nevertheless be considered an excise tax.
This appeal presents us with two broad questions.
First, we must determine whether FICA, as part of the
Internal Revenue Code, generally applies in the CNMI.
Second, if FICA applies in the CNMI, then we must
decide whether it applies specifically to the Zhang plain-
tiffs and to Hyunjin.
A. The Application of FICA to the CNMI
1. Whether CNMI is in the “United States” for FICA
Purposes
15 ZHANG v. US
As to the first question, we conclude that the Court of
Federal Claims did not legally err in holding that FICA
generally applies to the CNMI through the terms of the
Covenant. Chapter 21 of Title 26 of the United States
Code sets forth the FICA statutory scheme, and § 3121
provides definitions generally applicable to this chapter.
See Abrahamsen v. United States, 228 F.3d 1360, 1363-64
(Fed. Cir. 2000) (applying definitions of “wages” and
“[e]mployment” in I.R.C. § 3121(a)-(b) to FICA). As noted
above, § 3121(e)(2) states that “[t]he term ‘United States’
when used in a geographical sense includes the Common-
wealth of Puerto Rico, the Virgin Islands, Guam, and
American Samoa.”
Insofar as Appellants assert that the CNMI is not ex-
plicitly included in the definition of “United States”
provided in I.R.C. § 3121(e)(2), they are correct. Our
inquiry, however, does not end with the definition pro-
vided by the Internal Revenue Code. Covenant § 606(b),
codified as a note to the United States Code, requires that
“[t]hose 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 . . . become applicable to the Northern Mariana Is-
lands as they apply to Guam.” 48 U.S.C. § 1801 note
(emphasis added). Leaving aside for the moment the
disputed scope of the term “excise and self-employment
taxes,” FICA is unquestionably a law that imposes excise
taxes to support Social Security. See, e.g., United States
v. Cleveland Indians Baseball Co., 532 U.S. 200, 204
(2001) (“The Federal Insurance Contributions Act (FICA)
. . . impose[s] excise taxes on employee wages to fund
Social Security . . . .”). We therefore must determine
whether “United States” is used in FICA in a geographical
sense—if so, then, as the Court of Federal Claims con-
cluded, FICA generally applies to the CNMI by way of
ZHANG v. US 16
I.R.C. § 3121(e), which defines “United States” to include
Guam, and Covenant § 606(b), which applies the FICA
statutes to the CNMI as they apply to Guam. Op. at 278.
To be subject to FICA taxation, a nonresident alien
worker must be employed “within the United States.”
This requirement is apparent from the FICA statutory
scheme. Subsections 3101(a) and (b) impose on an em-
ployee taxes equal to certain “percentages of the wages (as
defined in section 3121(a)) received by him with respect to
employment (as defined in section 3121(b)).” I.R.C.
§§ 3101(a), (b) (emphases added). Similarly, §§ 3111(a)
and (b) impose on an employer taxes equal to certain
“percentages of the wages (as defined in section 3121(a))
paid by him with respect to employment (as defined in
section 3121(b)).” Id. §§ 3111(a), (b) (emphases added).
Section 3121(a) defines “wages” as “all remuneration for
employment.” Id. § 3121(a). The term “employment” is
defined in section 3121(b), which states that “‘employ-
ment’ means any service, of whatever nature, performed
. . . by an employee for the person employing him, irre-
spective of the citizenship or residence of either, . . .
within the United States.” Id. § 3121(b) (emphasis added).
Thus, the FICA taxes under §§ 3101 and 3111 apply to
“employment” occurring “within the United States.”
The parties disagree whether the term “United
States” is used “in a geographical sense”—and thus
whether “United States” includes Guam in § 3121(b). Op.
at 277. Appellants assert that “Congress . . . select[ed]
citizenship, not geography, as the basis for providing
federal social security benefits and imposing supporting
taxes.” Appellants’ Opening Br. at 44-45. The govern-
ment disagrees, arguing that Congress used “United
States” geographically and therefore plainly intended to
substitute the CNMI for Guam for FICA purposes. We
agree with the government. It is evident from the defini-
17 ZHANG v. US
tion of “employment” that citizenship is not the basis for
applying FICA taxes, because the statute indicates that
FICA taxes apply to employment “irrespective of the
citizenship” of the employer or employee. I.R.C. § 3121(b).
We conclude that the Court of Federal Claims did not
legally err in its determination that the FICA statutory
scheme uses “United States” in a geographical sense, and
that, as a result, the FICA laws generally apply to the
CNMI “as they apply to Guam.” Op. at 277.
2. Effect of Congressional Legislation on the Scope of
FICA in the CNMI
We next consider Appellants’ arguments that two
statutes, enacted after the Covenant was approved but
before Covenant § 606(b) became effective in 1987, limit
the application of FICA taxes through the Covenant. The
two statutes at issue are 42 U.S.C. § 1301 and the 1983
Act. We, like the Court of Federal Claims, Op. at 282-86,
reject Appellants’ arguments.
With regard to 42 U.S.C. § 1301, the general defini-
tions section of the Social Security Act, Appellants con-
tend that Congress’s amendments to this statute in 1981
altered Appellants’ obligation to pay FICA taxes. Specifi-
cally, Appellants point to the fact that Congress amended
the definition of “State” in § 1301(a)(1) to include the
CNMI with regard to some, but not all, Social Security
benefit laws. According to Appellants, these amendments
demonstrate that Congress intended to treat Guam and
the CNMI differently for some programs and the same for
others. Thus, Appellants contend, it is improper to me-
chanically substitute “CNMI” for “Guam” in Covenant
§ 606(b).
As drafted, the terms of the Covenant expressly pro-
vide for substitution of Guam for the CNMI for tax pur-
poses. See, e.g., Covenant §§ 601(c), 606(b). Contrary to
ZHANG v. US 18
Appellants’ arguments, Congress did not subsequently
abandon the substitution of Guam for the CNMI by
enacting 42 U.S.C. § 1301. Appellants correctly point out
that § 1301(a)(1) defines the term “State” differently for
Guam and the CNMI for certain provisions of the Social
Security Act. However, § 1301 does not refer to the Cove-
nant or to FICA taxation. Appellants’ argument is in
essence an assertion that § 1301 repealed by implication
express terms of the Covenant, including the application
of FICA to the CNMI.
Construing a statute as a repeal by implication is
generally disfavored, Riggin v. Office of Senate Fair Emp’t
Practices, 61 F.3d 1563, 1566 (Fed. Cir. 1995), and “‘where
two statutes are capable of co-existence, it is the duty of
the courts, absent a clearly expressed congressional
intention to the contrary, to regard each as effective,’”
Cathedral Candle Co. v. U.S. Int’l Trade Comm’n, 400
F.3d 1352, 1365 (Fed. Cir. 2005) (quoting Ruckelshaus v.
Monsanto Co., 467 U.S. 986, 1018 (1984)). Because Appel-
lants have not identified a “clearly expressed congres-
sional intention” to alter the substitution of the CNMI for
Guam in the Covenant, we conclude that the amendments
to 42 U.S.C. § 1301 are not pertinent to FICA tax policy in
the CNMI.
With regard to the 1983 Act, Appellants argue that
this statute limits FICA taxation in the CNMI. Specifi-
cally, Appellants assert that § 19 of the 1983 Act excludes
CNMI aliens from participating in, and paying taxes to
support, federal benefits programs conditioned upon
United States citizenship. The Court of Federal Claims
concluded that this argument lacks merit, Op. at 286, and
we agree.
Section 19 of the 1983 Act provides that:
19 ZHANG v. US
(a) The President may . . . by proclamation
provide that the requirement of United States citi-
zenship or nationality provided for in any of the
statutes listed on pages 63-74 of the [First Interim
Report] shall not be applicable to the citizens of
the Northern Mariana Islands. . . .
(b) A statute which denies a benefit or imposes
a burden or a disability on an alien, his depend-
ents, or his survivors shall, for the purposes of this
Act, be considered to impose a requirement of
United States citizenship or nationality.
1983 Act § 19, 97 Stat. at 1464 (emphases added). Accord-
ing to Appellants, § 19 confirms Congress’s intent to limit
social security benefits under Covenant § 606 to CNMI
domiciliaries and to exclude aliens not entitled to United
States citizenship. In essence, Appellants read § 19(a)
and (b) as wholly independent provisions; the former
enables CNMI citizens to enjoy federal benefits, whereas
the latter excludes all aliens, i.e., nonimmigrants, in the
CNMI from both the benefits and burdens of those social
security laws for which United States citizenship is a
condition to receipt.
Unlike Appellants, the government views § 19(a) and
(b) as bound by a common objective: to accelerate CNMI
citizens’ receipt of certain statutory benefits to which they
otherwise would not have been entitled until termination
of the Trusteeship Agreement. According to the govern-
ment, § 19(b) serves to clarify the scope of the phrase
“requirement of United States citizenship or nationality”
in § 19(a), by specifying that “[a] statute which denies a
benefit or imposes a burden . . . on an alien” shall be
considered to impose a requirement of United States
citizenship or nationality. The government therefore
understands “alien” in § 19(b) to refer back to the “citizens
ZHANG v. US 20
of the Northern Mariana Islands” specified in § 19(a). Put
differently, the government interprets “aliens” in § 19(b)
from the perspective of the United States (i.e., as includ-
ing CNMI citizens), whereas Appellants interpret the
same phrase from the perspective of the CNMI (i.e., as
referring to non-CNMI citizens, including nonimmigrant
contract workers such as the Zhang plaintiffs).
We view the government’s interpretation of § 19(b) as
more faithful to the statutory text as a whole. Sec-
tion 19(b) of the 1983 Act cannot be construed in isolation.
See Hawkins v. United States, 469 F.3d 993, 1001 (Fed.
Cir. 2006) (“[W]e must follow the cardinal rule that statu-
tory language must be read in context since a phrase
gathers meaning from the words around it.” (internal
quotation marks omitted)). In the context of the 1983 Act,
§ 19(a) refers to the “requirement of United States citi-
zenship or nationality,” and § 19(b) clarifies how this
phrase is to be understood “for the purposes of this Act.”
Section 19 as a whole is thus limited to “the statutes
listed on pages 63-74 of the Interim Report,” which do not
encompass FICA. 8 1983 Act § 19(a). In context, the term
“alien” in § 19(b) refers to CNMI citizens and residents
who were not yet United States citizens and were treated
as “aliens” under the statutes enumerated in § 19(a). 9
8 The only provision relating to Social Security
among the statutes listed in § 19(a) is 42 U.S.C. § 402(t),
which proscribes the payment of certain Social Security
benefits to aliens who are outside the United States.
Section 402(t) does not involve FICA taxation.
9 Section 20 of the 1983 Act further supports this
construction. The proclamation that the President may
issue pursuant to § 19 is “subject to the provisions of
section 20 of this Act”; thus, § 20 clarifies the scope and
purpose of § 19:
(b) When issuing such proclamation or proc-
lamations the President–, (1) shall take into
21 ZHANG v. US
To the extent that the parties’ disagreements reveal
an ambiguity as to the meaning of “alien” in § 19(b), the
purpose of § 19 of the 1983 Act makes it clear that the
government’s interpretation is the correct one. Covenant
§ 504, as noted above, created a Commission on Federal
Laws to recommend to Congress which federal laws
should be made applicable to the CNMI, and to what
extent and in what manner this should be accomplished.
The Commission published its First Interim Report in
January 1982, which recommended that Congress enact
legislation “to extend certain statutory rights and privi-
leges of U.S. citizenship to the citizens of the Northern
Mariana Islands prior to their becoming citizens of the
United States.” First Interim Report, supra, at 4. As the
First Interim Report explained:
In general. Many federal laws require United
States citizenship as a prerequisite to enjoyment
of rights and privileges conferred by those laws.
Citizens of the Northern Mariana Islands are not
now citizens of the United States.
On full implementation of the Covenant, how-
ever, they will become citizens of the United
States. At that time they will no longer be denied
these rights and privileges on citizenship grounds.
Only until implementation of the Covenant,
then, is legislation necessary for citizens of the
Northern Mariana Islands to be treated as citi-
account: (i) the hardship suffered by the citi-
zens of the Northern Mariana Islands result-
ing from the fact that, while they are subject
to most of the laws of the United States, they
are denied the benefit of those laws which
contain a requirement of United States citizen-
ship or nationality; . . . .
§ 20(b), 97 Stat. at 1464 (emphases added).
ZHANG v. US 22
zens of the United States for purposes of these
Statutes. . . .
. . . The date for termination of the trustee-
ship is not yet known. During the possibly-
lengthy period between now and the end of the
trusteeship, no sound reason for denying citizens
of the Northern Mariana Islands access to the
rights and privileges provided by these statutes is
apparent. Removal of these citizenship barriers
should ease the integration of the Northern
Mariana Islands into the American political fam-
ily.
Id. at 4-6 (emphases added; internal footnote and citation
omitted). To “ease the integration” of CNMI citizens, id.
at 6, the Report recommended that Congress enact legis-
lation that would treat CNMI citizens as United States
citizens for certain listed statutes; proposed legislative
language was provided in the Report, id. at 63-75. Con-
gress enacted such legislation, with reference to pages 63-
74 of the First Interim Report, as § 19 of the 1983 Act.
Op. at 284.
The purpose of § 19 of the 1983 Act was to remove the
citizenship barriers for CNMI citizens until the Trustee-
ship Agreement was terminated and the Covenant was
fully implemented, at which time CNMI citizens would
become United States citizens. Construing “alien” in
§ 19(b) to refer to the CNMI citizens referenced in § 19(a)
comports with this objective. Construing this term to
refer generally to nonresident aliens does not. As the
Court of Federal Claims correctly stated, “[t]he 1983 Act
has nothing do to with the applicability of Social Security
laws to non-resident aliens in general, nor can plaintiffs
extract from its legislative history the slightest evidence
23 ZHANG v. US
that Congress was concerned with the plight of foreign
temporary contract workers in the CNMI.” Op. at 285.
Accordingly, we conclude that neither 42 U.S.C.
§ 1301 nor the 1983 Act alters the general application of
FICA to the CNMI. 10
B. Whether FICA Applies to the Zhang Plaintiffs and to
Hyunjin
Having concluded that FICA applies generally to the
CNMI, we turn to the question whether FICA taxes are
owed by Appellants. Appellants here consist of a CNMI
employer (Hyunjin) and several of its nonimmigrant alien
contract employees (the Zhang plaintiffs). FICA provides
for an employer tax and an employee tax, and we must
determine whether these FICA provisions apply to Appel-
lants. As we shall explain, we conclude that the FICA
taxation scheme applies to both Hyunjin and to the Zhang
plaintiffs, and that, as a result, Appellants are not enti-
tled to a refund of their FICA taxes.
1. Application of FICA to the Zhang Plaintiffs
We first consider the employees, the Zhang plaintiffs.
Our analysis starts with Covenant § 606(b), which, ac-
cording to the decision of the Court of Federal Claims,
applies the FICA tax on employee wages to employees
working in the CNMI. Op. at 281. As noted above,
§ 606(b) applies to the CNMI “[t]hose laws of the United
States which impose excise and self-employment taxes to
10 Appellants also contend that Congress’s failure to
amend I.R.C. § 3121(e)(2)—FICA’s definition of the term
“United States”—to include the CNMI is evidence that
Guam should not be substituted for the CNMI with re-
gard to FICA taxation. We reject this argument. Any
such amendment would have been unnecessary because,
as explained supra, the terms of the Covenant apply FICA
to the CNMI via Guam.
ZHANG v. US 24
support or which provide benefits from the United States
Social Security System.” Covenant § 606(b) (emphasis
added). The term “self-employment taxes” in § 606(b)
refers to the SECA tax. Op. at 271. The dispute here
centers on the meaning of “excise . . . taxes.”
The government presents alternative arguments as to
why § 606(b) includes the employee FICA tax. Before the
Court of Federal Claims, the government argued that
even though “excise” in Covenant § 606(b) refers explicitly
only to the FICA employer tax, § 606(b) should be con-
strued to encompass, albeit implicitly, the FICA employee
tax as well. The Court of Federal Claims agreed with the
government on this point. Op. at 271 (“On its face, section
606(b) seems to apply only the FICA excise tax on em-
ployers (I.R.C. § 3111) and the [SECA tax] and omits the
FICA tax on employees (I.R.C. § 3101).”). The govern-
ment maintained this position in its appellate brief.
Appellee Br. at 37-50.
At oral argument before this court, however, the gov-
ernment asserted that the term “excise” in § 606(b) refers
broadly to both the employer and employee FICA taxes.
While we often treat untimely arguments as waived, e.g.,
United States v. Ford Motor Co., 463 F.3d 1267, 1276-77
(Fed. Cir. 2006), we retain case-by-case discretion over
whether to apply waiver, Harris Corp. v. Ericsson Inc.,
417 F.3d 1241, 1251 (Fed. Cir. 2005). 11 We exercise our
11 We have in the past considered arguments raised
for the first time during oral argument. See, e.g., Housey
Pharms., Inc. v. Astrazeneca UK Ltd., 366 F.3d 1348, 1353
(Fed. Cir. 2004) (choosing to consider dictionary defini-
tions introduced for the first time at oral argument on
appeal); James v. Santella, 328 F.3d 1374, 1383-84 (Fed.
Cir. 2003) (noting that, “[w]hile we typically do not ad-
dress issues that are raised for the first time at oral
argument, we choose to do so here”).
25 ZHANG v. US
discretion in this case to consider the government’s argu-
ment.
We find it reasonable to conclude that “excise” in
Covenant § 606(b) refers to both the employee and em-
ployer FICA taxes. Because the Internal Revenue Code
does not define the term “excise,” we assume that the
term has its ordinary meaning, for which we may consult
dictionaries. See Info. Tech. & Applications Corp. v.
United States, 316 F.3d 1312, 1320 (Fed. Cir. 2003). The
dictionary definition of “excise” supports a broad construc-
tion. The fifth edition of Black’s—the most recent edition
available when the entire Covenant, including § 606,
became effective—defines “excise” as “[a] tax imposed on
the performance of an act, the engaging in an occupation,
or the enjoyment of a privilege.” Black’s Law Dictionary
506 (5th ed. 1979) (emphasis added). This edition of
Black’s further clarified: “In current usage the term has
been extended to include various license fees and practi-
cally every internal revenue tax except the income tax.” Id.
(emphasis added). The FICA tax, a tax on employment,
fits this definition. 12,13
12 We note that Covenant § 604 refers to “excise
taxes on goods manufactured, sold or used or services
rendered,” corroborating the broad meaning and use of
the term “excise” in the Covenant.
13 Current legal dictionaries also define “excise”
broadly. The most recent edition of Black’s defines “ex-
cise” as “[a] tax imposed on the manufacture, sale, or use
of goods (such as a cigarette tax), or on an occupation or
activity (such as a license tax or an attorney occupation
fee).” Black’s Law Dictionary 646 (9th ed. 2009). The
entry for “excise taxes” in West’s Tax Law Dictionary
states: “May be applied to most taxes except income tax
or property tax. In general, the term means a tax on the
manufacture, sale, or use of goods or with respect to an
occupation or activity.” West’s Tax Law Dictionary, 375-
ZHANG v. US 26
In addition, courts have used the term “excise”
broadly to encompass both the employee and employer
FICA taxes. For example, in United States v. Fior
D’Italia, Inc., the Supreme Court explained that “[t]he tax
law imposes, not only on employees, but also ‘on every
employer,’ an ‘excise tax,’ i.e., a FICA tax.” 536 U.S. 238,
240 (2002) (quoting I.R.C. § 3111); see also Cleveland
Indians Baseball, 532 U.S. at 204 (“The Federal Insur-
ance Contributions Act (FICA) . . . impose[s] excise taxes
on employee wages . . . .”). Circuit courts, including this
court, have also characterized the FICA employee tax as
an excise tax. In Chicago Milwaukee Corp. v. United
States, a case involving the Railroad Retirement Tax Act
(“RRTA”), we stated, “RRTA tax is similar to the tax
imposed by [FICA]. RRTA tax is an employment excise
tax on the employer and the employee.” 40 F.3d 373, 374
(Fed. Cir. 1994). The Tenth Circuit summarized the FICA
tax scheme as follows:
The federal Social Security and Medicare sys-
tems are funded by excise taxes, separate and dis-
tinct from federal income taxes, imposed on
employees, employers, and self-employed indi-
viduals. See 26 U.S.C. §§ 1401, 3101, 3111. In the
case of employees and employers, FICA imposes
the excise tax on the “wages” paid by an employer
to an employee with respect to “employment.” See
26 U.S.C. § 3101(a)-(b), § 3111(a)-(b). FICA taxes
are paid in equal shares by employer and em-
ployee. See id.
Pub. Emps. Ret. Bd. v. Shalala, 153 F.3d 1160, 1161 (10th
Cir. 1998). The Second Circuit has also characterized
both the employee and employer FICA taxes as excise
76 (Robert Sellers Smith & Adele Turgeon Smith eds.,
2010).
27 ZHANG v. US
taxes: “[The plaintiff] is an employer which is obligated
under the FICA statutory scheme to pay an excise tax on
the wages it pays its employees and to withhold from
those wages and pay to the Government an excise tax
imposed on its employees.” Atl. Dept. Stores, Inc. v.
United States, 557 F.2d 957, 958 (2d Cir. 1977).
Accordingly, based on the plain meaning of the term
“excise,” as well as various judicial interpretations afford-
ing the term a broad scope vis-à-vis the FICA taxation
scheme, and in light of the absence of a specific definition
for “excise” in the Internal Revenue Code, we agree with
the government that it is reasonable to interpret the term
“excise . . . taxes,” as used in Covenant § 606(b), to include
both the employee and employer FICA taxes under 26
U.S.C. §§ 3101 and 3111.
That is not to say, however, that a narrower reading
of “excise” is necessarily unreasonable. Section 3111 of
the Internal Revenue code refers to the employer FICA
tax as an “excise” tax, whereas § 3101 does not use this
descriptor in referring to the employee tax. Moreover, the
Court of Claims has referred, in passing, to the employee
FICA tax as an income tax, not an excise tax. In Kirkcon-
nell v. United States, a case in which employers, as plain-
tiffs, sued for certain tax refunds, the court stated: “Only
that portion of the FICA taxes, an excise tax paid by
plaintiffs, is sought to be refunded. No part of the [em-
ployees’] FICA taxes, an income tax, is sought to be re-
funded here.” 347 F.2d 260, 261 (Ct. Cl. 1965). As the
nature of the employee FICA tax was not at issue in that
case, its notation of that tax as an income tax, not as an
excise tax, does not bind us here. Nevertheless, Appel-
lants’ interpretation of “excise,” which limits the excise
taxes in § 606(b) to the employer FICA tax, is not unrea-
sonable.
ZHANG v. US 28
Confronted with a textual ambiguity arising from
“[l]ess-than-meticulous drafting,” Koons Buick Pontiac
GMC, Inc. v. Nigh, 543 U.S. 50, 53 (2004), we may refer to
legislative history for assistance in resolving the ambigu-
ity, id. at 62; see also Diamond v. Chakrabarty, 447 U.S.
303, 315 (1980) (“[O]ur obligation is to take statutes as we
find them, guided, if ambiguity appears, by the legislative
history and statutory purpose.”); Nutrition 21 v. United
States, 930 F.2d 862, 865 (Fed. Cir. 1991) (“Where . . . the
words of a statute are not expressly defined, and do not
fairly admit of a plain, non-ambiguous meaning, resort to
the legislative history for clarification is justified.”). Here,
with two plausible, yet conflicting, interpretations of
Covenant § 606(b), we turn to the relevant legislative
history for clarification.
Several extrinsic sources shed light on the meaning of
the Covenant. The House and Senate Reports prepared
in connection with Congress’s approval of the Covenant
both state: “Subsection (b) [of Covenant § 606] assures
that the laws of the United States which impose taxes to
support . . . the United States Social Security System will
become applicable to the Northern Marianas as they are
applicable to Guam upon termination of the Trusteeship
[Agreement] . . . .” H.R. Rep. No. 94-364, at 11 (1975); S.
Rep. No. 94-433, at 83 (1975). Also informative is the
Section by Section Analysis of the Covenant To Establish
a Commonwealth of the Northern Mariana Islands (here-
inafter, “Section-by-Section Analysis”), which was pub-
lished by the Marianas Political Status Commission, the
drafters of the Covenant. Op. at 273. The portion of the
Section-by-Section Analysis describing Covenant § 606(b)
states:
Subsection (b) [of § 606] assures that the laws
of the United States which impose taxes to sup-
port or which provide benefits from the United
29 ZHANG v. US
States Social Security System will become appli-
cable to the Northern Marianas as they are appli-
cable to Guam upon termination of the
Trusteeship Agreement . . . . At this time as well,
those laws of the United States which impose
taxes to support the United States Social Security
System will become applicable. The reason that
the Covenant is structured in a way which does
not make the United States social security laws
applicable immediately is that the taxes which are
imposed to support the social security system are
very burdensome as compared to the taxes which
are paid by the people of the Northern Marianas
today. . . . [T]hese laws will become effective in
the Northern Marianas no later than termination
of the Trusteeship, at which time the entire Cove-
nant will be effective.
Section-by-Section Analysis, supra, at 80-81.
Finally, the Second Interim Report contains the per-
spective of the Commission on Federal Laws. Op. at 280
n.12. The summary section of the Report states: “Em-
ployers and employees in the Northern Mariana Islands
are made subject to taxes imposed by the Federal Insur-
ance Contributions Act to support the federal social
security system at the time the social security systems of
the Northern Mariana Islands and the United States are
merged . . . .” Second Interim Report, supra, at 415
(emphasis added). In the section of the Report titled
“Employment Taxes,” under the heading “The Federal
Insurance Contributions Act,” the Report describes the
FICA taxation scheme as “impos[ing] wage-based taxes on
employers and employees to support . . . social security.”
Id. at 465 (emphasis added). The Report then explains
that, under FICA, “[t]he employer and employee are each
required to pay taxes.” Id. (emphasis added). The Report
ZHANG v. US 30
states that “[s]elf-employed persons are also obliged to
contribute to the social security system through a tax on
self-employment income.” Id. at 466 (emphasis added).
The FICA section of the Report concludes:
At the time these taxes become effective, the
social security system of the Northern Mariana Is-
lands is merged into the federal system, and per-
sons in the Northern Mariana Islands become
eligible for federal social security benefits based
on their contributions into either the Northern
Mariana Islands or the federal system.
Id. (emphasis added).
Appellants concede that the Senate Report “does
make clear that Congress anticipated that social security
benefits and FICA taxes would be applied in some form
and to some extent in the CNMI.” Appellants’ Opening
Br. at 33. However, Appellants contend that the manner
and extent to which FICA would apply to the CNMI was
unsettled as of the date the Covenant was approved.
Appellants also take issue with the court’s consideration
of the Section-by-Section Analysis and the Second Interim
Report, which Appellants contend are improper sources of
legislative history. 14
The government argues in response that the legisla-
tive history confirms that Congress intended for the FICA
tax provisions to apply to CNMI employees. The govern-
ment notes that the reports draw no distinction among
the types of FICA taxes. According to the government,
that indicates that “all entities with relevant roles in the
14 Appellants further contend that these documents
are not probative of Congress’s intent to apply FICA to
the CNMI via the definition of “United States” in 26
U.S.C. § 3121(e). As discussed supra, we hold that the
CNMI is within the “United States” for FICA purposes.
31 ZHANG v. US
legislative process appear to have believed that the Cove-
nant’s terms were meant to impose FICA taxes on CNMI
employees, and did so.” Appellee Br. at 47.
We conclude that the relevant legislative history dem-
onstrates that Congress intended to apply both the em-
ployee and employer FICA taxes to the CNMI through
Covenant § 606(b). The House and Senate Reports ac-
companying the Covenant state that § 606(b) applies “the
laws” that impose taxes to support the social security
system to the CNMI. H.R. Rep. No. 94-364, at 11; S. Rep.
No. 94-433, at 83. The reports do not distinguish the
employer FICA tax from the employee FICA tax, nor do
they suggest that one tax applies but the other does not.
This is wholly consistent with the view that “excise . . .
taxes” in § 606(b) is used broadly to encompass both types
of FICA taxes. These documents are also consistent with
the government’s assertion (unchallenged by Appellants)
that Congress has never selectively applied certain com-
ponents of the FICA scheme without applying others.
Appellee Br. at 24. Based on the House and Senate
Reports, we conclude that Congress did not intend for
§ 606(b) to exempt CNMI employees from FICA taxation,
and therefore intended for the term “excise . . . taxes” to
include taxation under both I.R.C. §§ 3101 and 3111.
Our conclusion is confirmed by the other documents
reviewed by the Court of Federal Claims. The Section-by-
Section Analysis of the Marianas Political Status Com-
mission similarly refers to application of “the laws” that
support the social security system, without suggesting
any intent to except the employee FICA tax. That is not
without significance. Congress considered the Section-by-
Section Analysis prior to approving the Covenant. See S.
Rep. No. 94-433, at 65-94. Moreover, the United States
Court of Appeals for the Ninth Circuit looks to the Sec-
tion-by-Section Analysis to discern the meaning of the
ZHANG v. US 32
Covenant in cases involving the CNMI (over which the
Ninth Circuit has jurisdiction). N. Mar. I. v. United
States, 399 F.3d 1057, 1065 (9th Cir. 2005) (“We have
relied in previous opinions on the Marianas Political
Status Commission’s authoritative Section-by-Section
Analysis of the Covenant to assist us in discerning the
meaning of the Covenant.” (internal quotation marks
omitted)); see also Fleming v. Dep’t of Public Safety, 837
F.2d 401, 408 (9th Cir. 1988) (referring to the Section-by-
Section analysis as “persuasive evidence” of the meaning
of a particular aspect of the Covenant), overruled on other
grounds by DeNieva v. Reyes, 966 F.2d 480, 483 (9th Cir.
1992). The Second Interim Report is equally clear regard-
ing the scope of § 606(b). As with the other extrinsic
sources, the Report does not provide any indication that
the Covenant excludes the FICA tax on employee wages.
Thus, taken together, the extrinsic evidence confirms
that the term “excise . . . taxes” in § 606(b) should be
given its broad meaning as including the FICA tax on
employee wages. 15 Because we conclude that the FICA
employee wage tax is applied to the CNMI via Covenant
§ 606(b), we need not reach the government’s alternative
arguments (which were rejected by the Court of Federal
Claims, Op. at 279), that the FICA tax on employee wages
applies to the CNMI via Covenant §§ 502(a)(2) or 601(c).
In addition, we reject Appellants’ argument that the
scope of § 606(b) is limited by §§ 606(a) and (c) such that
§ 606(b) applies only to CNMI citizens or domiciliaries.
As the government acknowledges, §§ 606(a) and (c) in-
volve management of contributions to the Trust Territory
Social Security Retirement Fund, in which only CNMI
citizens and domiciliaries participated. Yet this fact does
15 In so concluding, we do not rely on the “absurd re-
sult” rationale of the Court of Federal Claims. Op. at 279.
33 ZHANG v. US
not compel the strained interpretation of § 606(b) that
Appellants urge. Unlike §§ 606(a) and (c), § 606(b) does
not involve the Trust Territory Social Security Retirement
Fund. Nothing in the text of § 606(b) limits this subsec-
tion to CNMI citizens or domiciliaries.
The structure of § 606 is equally unsupportive of Ap-
pellants’ proposed construction. Appellants suggest that,
because § 606(b) is located between two provisions dealing
with the Trust Territory Social Security Retirement Fund,
§ 606(b) must be limited, implicitly, to those individuals
who participated in that Fund. On the contrary, the
organization of § 606 reflects the sequential timing of the
particular subsections: § 606(a) sets forth a procedure for
handling the Fund “at the time this Covenant is ap-
proved” but before § 606(b)’s effective date; § 606(b)
applies certain federal excise and self-employment taxes
to the CNMI “following the termination of the Trusteeship
Agreement”; and § 606(c) directs the transfer of the
Northern Mariana Islands Social Security Retirement
Fund “[a]t such time as the laws described in Subsection
(b) become applicable to the Northern Mariana Islands.”
Neither the text nor the structure of § 606 supports
Appellants’ argument for excluding the Zhang plaintiffs,
as nonimmigrant alien contract workers, from the scope of
Covenant § 606(b).
Accordingly, the Zhang plaintiffs are not entitled to a
refund of their FICA taxes, all of which were paid after
§ 606(b) went into effect. Op. at 287. The Court of Fed-
eral Claims correctly granted the government’s motion for
judgment on the pleadings as to the Zhang plaintiffs.
2. Application of FICA to Hyunjin
We turn finally to Hyunjin, the employer. Appellants’
brief does not explain in detail why the FICA tax on
employers’ wages under I.R.C. § 3111 does not apply to
ZHANG v. US 34
Hyunjin, other than to allege that, because Hyunjin’s
employees do not owe FICA taxes on their hourly wages,
neither does Hyunjin owe FICA taxes on wages paid to its
employees. This argument fails because, as we explained
above, the Zhang plaintiffs and similarly situated non-
immigrant alien contract workers in the CNMI owe FICA
taxes under the Covenant.
The parties do not dispute that, as drafted, § 606(b)
imposes FICA taxes on employers in the CNMI. Op. at
287. Section 606(b) of the Covenant applies to the CNMI
“[t]hose laws of the United States which impose excise . . .
taxes to support . . . the United States Social Security
System.” Covenant § 606(b). The FICA employer wage
tax unquestionably fits this definition; § 3111 explicitly
characterizes the FICA employer tax as “an excise tax”
(consistent with this term’s broad definition), and FICA
taxes are imposed to support the Social Security system.
We concluded above that the CNMI is within the “United
States” for purposes of FICA taxation, and that subse-
quent legislation by Congress did not alter the scope of
FICA taxation under the Covenant. Thus, § 606(b) of the
Covenant applies the employer FICA tax to Hyunjin, as a
CNMI employer.
Accordingly, Hyunjin is not entitled to a refund of its
FICA taxes, all of which were paid after § 606(b) came
into effect. Op. at 287. The Court of Federal Claims
correctly granted the government’s motion for judgment
on the pleadings as to Hyunjin.
CONCLUSION
For the foregoing reasons, we affirm the decision of
the United States Court of Federal Claims granting the
government’s motion for judgment on the pleadings.
AFFIRMED