United States v. Cleveland Indians Baseball Co. - 532 U.S. 200 (2001)
OCTOBER TERM, 2000
UNITED STATES v. CLEVELAND INDIANS BASEBALL CO.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
No. 00-203. Argued February 27, 200l-Decided April 17, 2001
Under a grievance settlement agreement, respondent Cleveland Indians Baseball Company (Company) owed 8 players backpay for wages due in 1986 and 14 players backpay for wages due in 1987. The Company paid the back wages in 1994. This case presents the question whether, under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), the back wages should be taxed by reference to the year they were actually paid (1994) or, instead, by reference to the years they should have been paid (1986 and 1987). Both tax rates and the amount of the wages subject to tax (the wage base) have risen over time. Consequently, allocating the 1994 payments back to 1986 and 1987 would generate no additional FICA or FUTA tax liability for the Company and its former employees, while treating the back wages as taxable in 1994 would subject both the Company and the employees to significant tax liability. The Company paid its share of employment taxes on the back wages according to 1994 tax rates and wage bases. Mter the Internal Revenue Service denied its claims for a refund of those payments, the Company initiated this action in District Court. The Company relied on Sixth Circuit precedent holding that a settlement for back wages should not be allocated to the period when the employer finally pays but to the periods when the wages were not paid as usual. The District Court, bound by that precedent, entered judgment for the Company and ordered the Government to refund FICA and FUTA taxes. The Sixth Circuit affirmed.
Held: Back wages are subject to FICA and FUTA taxes by reference to the year the wages are in fact paid. Pp. 208-220.
(a) The Internal Revenue Code imposes FICA and FUTA taxes "on every employer ... equal to [a percentage of] wages ... paid by him with respect to employment." 26 U. S. C. §§ 3111(a), 3111(b), 330l. The Social Security tax provision, § 3111(a), prescribes tax rates applicable to "wages paid during" each year from 1984 onward. The Medicare tax provision, § 3111(b)(6), sets the tax rate "with respect to wages paid after December 31, 1985." And the FUTA tax provision, § 3301, sets the rate as a percentage "in the case of calendar years 1988 through
2007 ... of the total wages ... paid by [the employer] during the calendar year." Section 3121(a) establishes the annual ceiling on wages subject to Social Security tax by defining "wages" to exclude any remuneration "paid to [an] individual by [an] employer during [a] calendar year" that exceeds "remuneration ... equal to the contribution and benefit base ... paid to [such] individual ... during the calendar year with respect to which such contribution and benefit base is effective." Section 3306(b)(1) similarly limits annual wages subject to FUTA tax. Pp.208-209.
(b) The Government calls attention to these provisions' constant references to wages paid during a calendar year as the touchstone for determining the applicable tax rate and wage base. The meaning of this language, the Government contends, is plain: Wages are taxed according to the calendar year they are in fact paid, regardless of when they should have been paid. The Court agrees with the Company that Social Security Bd. v. Nierotko, 327 U. S. 358, undermines the Government's plain language argument. The Nierotko Court concluded that, for purposes of determining a wrongfully discharged worker's eligibility for Social Security benefits under § 209(g), as that provision was formulated in the 1939 Amendments to the Social Security Act, a backpay award had to be allocated as wages to calendar quarters of the year "when the regular wages were not paid as usual." Id., at 370, and n. 25. The Court found no conflict between this allocation-back rule and language in § 209(g) tying benefits eligibility to the number of calendar quarters "in which" a minimum amount of "wages" "has been paid." Nierotko's allocation holding for benefits eligibility purposes, which the Government does not here urge the Court to overrule, thus turned on an implicit construction of § 209(g)'s terms-"wages" "paid" "in" "a calendar quarter"-to include "regular wages" that should have been paid but "were not paid as usual," id., at 370. Given this construction, it cannot be said that the FICA and FUTA provisions prescribing tax rates based on wages paid during a calendar year have a plain meaning that precludes allocation of backpay to the year it should have been paid. Pp.209-212.
(c) However, the Court rejects the Company's contention that, because Nierotko read the 1939 "wages paid" language for benefits eligibility purposes to accommodate an allocation-back rule for backpay, the identical 1939 "wages paid" language for tax purposes must be read the same way. Nierotko dealt specifically and only with Social Security benefits eligibility, not with taxation. The Court's allocation holding in Nierotko in all likelihood reflected concern that the benefits scheme created in 1939 would be disserved by allowing an employer's wrong-