Rowan Companies, Inc v. United States

• Decision Date: 08 June 1981
• Docket Number: No. 80-780,80-780
• Citation: 101 S.Ct. 2288,452 U.S. 247,68 L.Ed.2d 814
• Parties: ROWAN COMPANIES, INC., Petitioner, v. UNITED STATES
• Court: U.S. Supreme Court

452 U.S. 247

101 S.Ct. 2288

68 L.Ed.2d 814

ROWAN COMPANIES, INC., Petitioner,

v UNITED STATES.

No. 80-780.

Argued April 21, 1981.

Decided June 8, 1981.

Syllabus

Petitioner, for its own convenience, provided meals and lodging to its employees working on offshore oil rigs. Petitioner did not include the value of the meals and lodging in computing the employees' "wages" for the purpose of paying taxes under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA) or withholding the employees' federal income taxes. Upon audit, the Internal Revenue Service included the value of the meals and lodging in the employees' "wages" for FICA and FUTA but not for income-tax withholding. In doing so, the IRS acted consistently with Treasury Regulations that interpret the definition of "wages" in FICA and FUTA to include the value of such meals and lodging, whereas the substantially identical definition of "wages" in the income-tax withholding provisions is interpreted by Treasury Regulations to exclude this value. Petitioner paid the additional assessment for FICA and FUTA taxes and brought suit in Federal District Court for a refund. The District Court granted summary judgment for the Government, and the Court of Appeals affirmed, holding that the different interpretations of the definition of "wages" was justified by the different purposes of FICA and FUTA, on the one hand, and income-tax withholding, on the other.

Held: The Treasury Regulations interpreting the definition of "wages" in FICA and FUTA to include the value of the meals and lodging are invalid, for they fail to implement the statutory definition in a consistent or reasonable manner. The plain language and legislative histories of the relevant statutes indicate that Congress intended its definition of "wages" to be interpreted in the same manner for FICA and FUTA as for income-tax withholding. Pp. 250-263.

624 F.2d 701, reversed.

K. Martin Worthy, Washington, D. C., for petitioner.

Stuart A. Smith, Washington, D. C., for respondent.

Justice POWELL delivered the opinion of the Court.

This case concerns the federal taxes imposed upon employers by the Federal Insurance Contributions Act (FICA), 26 U.S.C. § 3101 et seq., and the Federal Unemployment Tax Act (FUTA), 26 U.S.C. § 3301 et seq. The question is whether petitioner should have included in the computation of "wages," which is the base for taxation under FICA and FUTA, the value of meals and lodging provided for its own convenience to employees working on offshore oil rigs.

I

During the tax years in question, 1967-1969, petitioner Rowan Companies, Inc., owned and operated rigs for drilling oil and gas wells, both on land and offshore. Some of petitioner's offshore rigs were located as many as 60 miles from land. It cost petitioner less and was more convenient to provide meals and lodging to employees at these rigs than to transport the employees to and from the rigs for each work shift.¹ Employees worked at these rigs for 10-day tours of duty, and petitioner then transported them back to land for 5-day periods of leave. All employees at a rig received the same meals and lodging facilities, regardless of employment status or pay. Employees did not receive any cash allowance if they chose not to eat a meal. Petitioner did not provide meals or lodging to employees during their leave; nor did it provide meals or lodging to employees working on landbased rigs.

Petitioner did not include the value of the meals and lodging in computing its employees' "wages" for the purpose of paying taxes under FICA or FUTA.² Nor did petitioner include this value in computing "wages" for the purpose of withholding its employees' federal income tax under 26 U.S.C. § 3402(a).³ Its uniform practice appeared to be consistent with the statutory language, as Congress defined "wages" in substantially identical language for each of these three obligations upon employers.⁴ Upon audit, however, the Internal Revenue Service included the fair value of the meals and lodging in the employees' "wages" for the purpose of FICA and FUTA, but not for the purpose of income-tax withholding under § 3402(a). The Service acted consistently with the present Treasury Regulations that interpret the definition of "wages" in FICA and FUTA to include the value of these meals and lodging,⁵ whereas the substantially identical definition of "wages" in § 3401(a) is interpreted by Treasury Regulations to exclude this value. Compare Treas.Reg. §§ 31.3121(a)-1(e), (f) (FICA), 26 CFR §§ 31.3121(a)-1(e), (f) (1980); Treas.Reg. §§ 31.3306(b)-1(e), (f) (FUTA), 26 CFR §§ 31.3306(b)-1(e), (f) (1980); with Treas.Reg. §§ 31.3401(a)-1(b)(9), (10) (income-tax withholding), 26 CFR §§ 31.3401(a)-1(b)(9), (10) (1980). Petitioner paid the additional assessment and brought this suit for a refund under 28 U.S.C. § 1346(a)(1).⁶

The District Court for the Southern District of Texas granted the Government's motion for summary judgment. The Court of Appeals for the Fifth Circuit affirmed, expressing the view that the different interpretations of the definition of "wages" are justified by the different purposes of FICA and FUTA, on the one hand, and income-tax withholding, on the other. 624 F.2d 701, 707 (1980). We granted a writ of certiorari, 449 U.S. 1109, 101 S.Ct. 917, 66 L.Ed.2d 838 (1981), because the Court of Appeals' decision conflicts with the decisions of other Courts of Appeals.⁷ We now reverse.

II

The Government acknowledges that petitioner properly excluded the value of the meals and lodging in computing the "wages" from which it withheld employees' income tax under § 3402(a). Under the Treasury Regulation interpreting the definition of "wages" for income-tax withholding, the employer excludes the value of meals or lodging from "wages" if the employee excludes the value from his gross income. Treas.Reg. § 31.3401(a)-1(b)(9), 26 CFR § 31.3401(a)-1(b)(9) (1980). Under the convenience-of-the-employer rule, an employee may exclude from gross income the value of meals and lodging furnished to him by his employer if the employer furnished both the meals and lodging for its own convenience, furnished the meals on its business premises, and required the employee to accept the lodging on the business premises as a condition of employment. 26 U.S.C. § 119 (1976 ed., Supp.III).⁸ Petitioner's provision of meals and lodging to employees on its offshore rigs satisfied each of these § 119 requirements. The value of the meals and lodging therefore was excludable by the employer from "wages" under Treas.Reg. § 31.3401(a)-1(b)(9), 26 CFR § 31.3401(a)-1(b)(9) (1980). See generally Commissioner v. Kowalski, 434 U.S. 77, 98 S.Ct. 315, 54 L.Ed.2d 252 (1977).

Notwithstanding this acknowledgment, the Government contends that petitioner should have included the value of the meals and lodging in "wages" for purposes of FICA and FUTA. It relies on Treas.Reg. §§ 31.3121(a)-1(f) (FICA) and 31.3306(b)-1(f) (FUTA), 26 CFR §§ 31.3121(a)-1(f) and 31.3306(b)-1(f) (1980), that provide:

"Ordinarily, facilities or privileges (such as entertainment, medical services, or so-called 'courtesy' discounts on purchases), furnished or offered by an employer to his employees generally, are not considered as remuneration for employment if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, good will, contentment, or efficiency of his employees. The term 'facilities or privileges,' however, does not ordinarily include the value of meals or lodging furnished, for example, to restaurant or hotel employees, or to seamen or other employees aboard vessels, since generally these items constitute an appreciable part of the total remuneration of such employees."

If valid, these regulations dictate that the value of the meals and lodging provided by petitioner to its employees on offshore rigs was includable in "wages" as defined in FICA and FUTA, even though excludable from "wages" under the substantially identical definition in § 3401(a) for income-tax withholding.⁹

We consider Treasury Regulations valid if they "implement the congressional mandate in some reasonable manner." United States v. Correll, 389 U.S. 299, 307, 88 S.Ct. 445, 449, 18 L.Ed.2d 1346 (1967); accord, Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156 169, 101 S.Ct. 1037, 1045, 67 L.Ed.2d 140 (1981). In National Muffler Dealers Assn. v. United States, 440 U.S. 472, 477, 99 S.Ct. 1304, 1307, 59 L.Ed.2d 519 (1979), we stated: "In determining whether a particular regulation carries out the congressional mandate in a proper manner, we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose." Harmony between statutory language and regulation is particularly significant in this case. Congress itself defined the word at issue—"wages"—and the Commissioner interpreted Congress' definition only under his general authority to "prescribe all needful rules." 26 U.S.C. § 7805(a). Because we therefore can measure the Commissioner's interpretation against a specific provision in the Code, we owe the interpretation less deference than a regulation issued under a specific grant of authority to define a statutory term or prescribe a method of executing a statutory provision. Compare Commissioner v. Portland Cement Co. of Utah, supra, at 165, 101 S.Ct., at 1043; Fulman v. United States, 434 U.S. 528, 533, 98 S.Ct. 841, 845, 55 L.Ed.2d 1 (1978); Batterton v. Francis, 432 U.S. 416, 424-425, 97 S.Ct. 2399, 2404-05, 53 L.Ed.2d 448, and nn. 8-9 (1977). Where the Commissioner acts under specific authority, our primary inquiry is whether the interpretation or method is within the delegation of authority.

Among other considerations relevant to the validity of Treasury Regulations, we inquire whether the regulation "is a substantially contemporaneous construction of the...