RESPONDENT: United States
LOCATION: Circuit Court of Jefferson County
DOCKET NO.: 85-558
DECIDED BY: Rehnquist Court (1986-1987)
LOWER COURT: United States Court of Appeals for the Federal Circuit
CITATION: 479 US 27 (1986)
ARGUED: Oct 14, 1986
DECIDED: Nov 04, 1986
Carter G. Phillips - on behalf of Petitioners
Jerrold J. Ganzfried - on behalf of Respondent
Facts of the case
Media for O'Connor v. United States
Audio Transcription for Oral Argument - October 14, 1986 in O'Connor v. United States
William H. Rehnquist:
We'll hear argument first today in: No. 85-558, Robert E. O'Connor versus the United States; No. 85-559, Paul H. Coplin versus the United States; No. 85-560, Jack Maddox versus the United States.
Mr. Phillips, you may proceed when you're ready.
Carter G. Phillips:
Thank you, Mr. Chief Justice, and may it please the Court:
The issue in this case is whether Article 15 of the agreement in implementation of Article 3 of the Panama Canal Treaty exempts from United States taxation income received by U.S. citizens for work performed for the Panama Canal Commission.
Petitioners are United States employees of the Commission who seek refunds of income taxes paid for various years since 1979.
The Claims Court, in a thorough and thoughtful opinion by Chief Judge Koninski, held the Petitioners are entitled to a tax exemption.
The Federal Circuit, relying in some measure upon a diplomatic note from Panama, then recently supplied by the Government at the Circuit Court level, reversed.
Petitioners submit that the Claims Court correctly interpreted the implementing agreement on the basis of its plain language, its structure, and the negotiating history, and therefore we seek reversal of the judgment below.
Analysis of the implementing agreement obviously must begin with the plain language used by the signatories, as that language is understood in context.
The language, we submit, is strikingly favorable to Petitioners, and provides in relevant part:
"United States employees shall be exempt from any taxes, fees, or other charges on income received as a result of their work for the Commission. "
No reference appears in that language to Panamanian taxes, and it stands is stark contrast to the other two paragraphs of Article 15.
This language also differs significantly from parallel language in Article 16 of the agreement in implementation of Article 4 of the Panama Canal Treaty, which concerns members of the military.
That provision, which the Government has acknowledged was the model for this one, contains a specific reference to Panamanian law.
That reference was deleted, for reasons that are not altogether clear.
But the inference to be drawn from that has been made clear by this Court's decisions both in Air France and in Santo Vicenzo that the deletion of language, of parallel language, has meaning.
And the meaning in this instance we submit was to exempt United States citizens from taxation.
Based on that plain meaning argument, the natural question that will necessarily arise is, why would United States negotiators agree to exempt United States employees from the taxes.
I think in order to understand that you have to go back to the political climate in 1977 and the circumstances surrounding these negotiations.
The Carter Administration was deeply committed to an agreement.
The question of giving up the canal was no longer a matter of internal debate.
The only thing left were the circumstances under which that canal would be transferred back to Panama.
The basic question was under what circumstances Panama would receive back the Panama, and Panama would not receive back that canal, which is made clear through the negotiating history, except on terms that demonstrated clearly Panamanian sovereignty over the Canal Zone.
Unfortunately, we do not have the exact exchanges that led up to the final agreement of Article 15, paragraph 2.
Nevertheless, it is quite clear from the exchanges among the various ministers with the United States negotiators that Panama would not lightly recede from its position that it should be allowed to tax United States citizens who were working for the Commission.
The reason it sought to tax United States citizens who were working for the Commission... excuse me, in the Commission... was that that was a reflection of its sovereignty.
The United States, on the other hand, never viewed the issue as a matter of tax policy, but merely as a political problem to be solved.
The United States could not allow Panama to tax United States citizen employees of the United States.
It would create an untoward precedent, which would in turn adversely affect the negotiating posture of the United States in the future.
In addition, the internal memoranda of the Government make it abundantly clear that there was fear by the negotiators that if they acceded to the Panamanian request to tax these corrects, that the consequences in Congress would be rather significant.