Wisconsin Central Ltd. v. United States

(Slip Opinion) OCTOBER TERM, 2017 1 Syllabus NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337. SUPREME COURT OF THE UNITED STATES Syllabus WISCONSIN CENTRAL LTD. ET AL. v. UNITED STATES CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT No. 17–530. Argued April 16, 2018—Decided June 21, 2018 As the Great Depression took its toll, struggling railroad pension funds reached the brink of insolvency. During that time before the rise of the modern interstate highway system, privately owned railroads employed large numbers of Americans and provided services vital to the nation’s commerce. To address the emergency, Congress adopted the Railroad Retirement Tax Act of 1937. That legislation federal- ized private railroad pension plans and it remains in force even to- day. Under the law’s terms, private railroads and their employees pay a tax based on employees’ incomes. In return, the federal gov- ernment provides employees a pension often more generous than the social security system supplies employees in other industries. This case arises from a peculiar feature of the statute and its histo- ry. At the time of the Act’s adoption, railroads compensated employ- ees not just with money but also with food, lodging, railroad tickets, and the like. Because railroads typically didn’t count these in-kind benefits when calculating an employee’s pension on retirement, nei- ther did Congress in its new statutory pension scheme. Nor did Con- gress seek to tax these in-kind benefits. Instead, it limited its levies to employee “compensation,” and defined that term to capture only “any form of money remuneration.” It’s this limitation that poses today’s question. To encourage em- ployee performance and to align employee and corporate goals, some railroads have (like employers in many fields) adopted employee stock option plans. The government argues that these stock options qualify as a form of “compensation” subject to taxation under the Act. In its view, stock options can easily be converted into money and so qualify as “money remuneration.” The railroads and their employees reply that stock options aren’t “money remuneration” and remind the 2 WISCONSIN CENTRAL LTD. v. UNITED STATES Syllabus Court that when Congress passed the Act it sought to mimic existing industry pension practices that generally took no notice of in-kind benefits. Who has the better of it? Held: Employee stock options are not taxable “compensation” under the Railroad Retirement Tax Act because they are not “money remunera- tion.” When Congress adopted the Act in 1937, “money” was understood as currency “issued by [a] recognized authority as a medium of ex- change.” Pretty obviously, stock options do not fall within that defi- nition. While stock can be bought or sold for money, it isn’t usually considered a medium of exchange. Few people value goods and ser- vices in terms of stock, or buy groceries and pay rent with stock. Adding the word “remuneration” also does not alter the meaning of the phrase. When the statute speaks of taxing “any form of money remuneration,” it indicates Congress wanted to tax monetary com- pensation in any of the many forms an employer might choose. It does not prove that Congress wanted to tax things, like stock, that are not money at all. The broader statutory context points to this conclusion. For exam- ple, the 1939 Internal Revenue Code, adopted just two years later, also treated “money” and “stock” as different things. See, e.g., §27(d). And a companion statute enacted by the same Congress, the Federal Insurance Contributions Act, taxes “all remuneration,” including benefits “paid in any medium other than cash.” §3121(a). The Con- gress that enacted both of these pension schemes knew well the dif- ference between “money” and “all” forms of remuneration and its choice to use the narrower term in the context of railroad pensions alone requires respect, not disregard. Even the IRS (then the Bureau of Internal Revenue) seems to have understood all this back in 1938. Shortly after the Railroad Retire- ment Tax Act’s enactment, the IRS issued a regulation explaining that the Act taxes “all remuneration in money, or in something which may be used in lieu of money (scrip and merchandise orders, for ex- ample).” The regulation said the Act covered things like “[s]alaries, wages, commissions, fees, [and] bonuses.” But the regulation no- where suggested that stock was taxable. In light of these textual and structural clues and others, the Court thinks it’s clear enough that the term “money” unambiguously ex- cludes “stock.” Pp. 2–8. 856 F. 3d 490, reversed and remanded. GORSUCH, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, and ALITO, JJ., joined. BREYER, J., filed a dissenting opinion, in which GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined. Cite as: 585 U. S. ____ (2018) 1 Opinion of the Court NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash- ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press. SUPREME COURT OF THE UNITED STATES _________________ No. 17–530 _________________ WISCONSIN CENTRAL LTD., ET AL., PETITIONERS v. UNITED STATES ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT [June 21, 2018] JUSTICE GORSUCH delivered the opinion of the Court. As the Great Depression took its toll, struggling rail- road pension funds reached the brink of insolvency. Dur- ing that time before the modern interstate highway sys- tem, privately owned railroads employed large numbers of Americans and provided services vital to the nation’s commerce. To address the emergency, Congress adopted the Railroad Retirement Tax Act of 1937. That legislation federalized private railroad pension plans and it remains in force today. Under the law’s terms, private railroads and their employees pay a tax based on employees’ in- comes. 26 U. S. C. §§3201(a)–(b), 3221(a)–(b). In return, the federal government provides employees a pension often more generous than the social security system sup- plies employees in other industries. See Hisquierdo v. Hisquierdo, 439 U. S. 572, 573–575 (1979). Our case arises from a peculiar feature of the statute and its history. At the time of the Act’s adoption, railroads compensated employees not just with money but also with food, lodging, railroad tickets, and the like. Because rail- roads typically didn’t count these in-kind benefits when 2 WISCONSIN CENTRAL LTD. v. UNITED STATES Opinion of the Court calculating an employee’s pension on retirement, neither did Congress in its new statutory pension scheme. Nor did Congress seek to tax these in-kind benefits. Instead, it limited itself to taxing employee “compensation,” and defined that term to capture only “any form of money remuneration.” §3231(e)(1). It’s this limitation that poses today’s question. To en- courage employee performance and align employee and corporate goals, some railroads (like employers in many fields) have adopted employee stock option plans. Typical of many, the plan before us permits an employee to exer- cise stock options in various ways—purchasing stock with her own money and holding it as an investment; purchas- ing stock but immediately selling a portion to finance the purchase; or purchasing stock at the option price, selling it all immediately at the market price, and taking the prof- its. App. 41–42. The government argues