U.S. District Court for the NMI Chief Judge Ramona V. Manglona has ruled that Social Security and Medicare taxes-collectively known as Federal Insurance Contributions Act or FICA taxes-are payable on services of foreign workers employed in the CNMI from 2004 to 2008.
Manglona said the CNMI is part of the United States for FICA purposes and that the employee-FICA is an excise tax within the meaning of Section 606(b) of the Covenant.
The ruling grants the U.S. government's motion for judgment in two lawsuits filed by a company and former garment manufacturers on their own behalf and on behalf of some of their former foreign employees.
Manglona dismissed the two lawsuits.
Hong Kong Entertainment (Overseas) Investment Ltd. and defunct garment manufacturer Rifu Apparel Corp. sued the U.S. government to recover allegedly wrongfully paid FICA taxes.
Twelve other defunct garment factories and several Chinese nationals employed by the factories and their affiliates also filed separate but similar lawsuit against the U.S. government.
The plaintiffs alleged that they erroneously withheld taxes from the wages of their then employees and paid them to the U.S. government.
Under FICA, employers and employees pay taxes to fund Social Security and Medicare. Employees pay a 6.2 percent tax on wages received. Employers pay an equal amount as an excise tax on wages paid.
In her order Tuesday, Manglona said the applicability of excise taxes that support Social Security is addressed in Covenant Section 606(b): “Those 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 Islands as they apply to Guam.”
The issue in the two lawsuits has already been litigated by a group of CNMI foreign workers and one CNMI employer, Hyunjin (Saipan) Corp., in the U.S. Court of Federal Claims, said Manglona, citing Zhang v. United States.
In Zhang's case, Manglona said, the court rejected the same arguments raised by the plaintiffs.
“The instant litigation is, practically speaking, a second bite at the apple,” Manglona noted.
Manglona said the analysis of the Marianas Political Status Commission states that all taxes supporting the Social Security System, excise or not, apply to the CNMI.