[192 NJSuper Page 3] These consolidated cases require this court to construe 26 U.S.C.A. § 3305(f) of the Federal Unemployment Tax Act
(FUTA) and the effect, if any, of 46 U.S.C.A. § 601 of the Federal Shipping Commissioner's Act on the authority of the State of New Jersey to require the owners and operators of vessels to withhold a statutorily prescribed contribution to the state unemployment compensation fund from the wages of the seamen they employ. Plaintiffs do not deny the obligation of seamen to make contributions to state unemployment compensation programs. They do, however, maintain that § 601 prohibits states from collecting these contributions by imposing a withholding tax. It is claimed that by complying with the withholding provision in N.J.S.A. 43:21-7(d)(1), the employer defendants have violated the provisions of 46 U.S.C.A. § 596. Therefore, plaintiffs demand statutorily prescribed monetary damages as well as a refund of monies withheld in the past and injunctive relief.
This case was first heard and decided on motion before the United States District Court for the District of New Jersey.*fn1 That court held that § 601 prohibited defendants from withholding unemployment compensation contributions from the wages of plaintiffs and enjoined defendants from continuing to withhold contributions from the seamen. However, the court did not impose the monetary damages claimed by plaintiffs. Cross appeals were filed. The United States Court of Appeals for the Third Circuit held that the Federal courts were prohibited by the Tax Injunction Act, 28 U.S.C.A. § 1341, from exercising jurisdiction over the subject matter. Based upon that conclusion and the principle of comity, the Court of Appeals vacated the District Court's order and remanded the case with orders to dismiss the actions for lack of jurisdiction.*fn2
A detailed factual and historical analysis can be found in Judge Stern's opinion in Sipe v. Amerada Hess Corp. et al., 519 F. Supp. 781 (D.N.J.1981).
In 1946 Congress amended the Social Security Act. Under prior law maritime seamen were not covered for unemployment due to the definition of employment in 26 U.S.C.A. 1607(c) of the FUTA. The amendment extended coverage under the unemployment compensation program to seamen by changing the definition of employment as follows:
Under the amendment the term "unemployment" is defined to mean any service performed prior to July 1, 1946, which constituted employment as defined in section 1607 of the Federal Unemployment Tax Act as in force and effect at the time the service was performed; and also to mean any service performed after June 30, 1946, by an employee for the person employing him, irrespective of the citizenship or residence of either, (a) within the United States, or; (b) on or in connection with an American vessel (defined in sec. 1607(n)) under a contract of service entered into within the United States or during the performance of which the vessel touches at a port therein, if the employee is employed on and in connection with the vessel when outside the United States. No substantive change in existing law is effected by the amendment other than the extension of the definition to include service on or in connection with American vessels. This extension is designed to include, with the qualifications noted, all service which is attached to or connected with the vessel (e.g., service by officers and members of the crew and other employees such as those of concessionaires). [H.R.Rep. No. 2526, 79th Cong., reprinted in 1946 U.S.Code Cong. & Ad.News 951.]
Having changed the definition of employment, Congress further amended the FUTA by adding § 1606(f).*fn3 According to the House Report:
Subsection (f) grants permission to State legislatures to require private operators of American vessels operating on navigable waters within or within and without the United States and the officers and members of the crew of such vessels to comply with State unemployment compensation laws with respect to the service performed by such officers and members of the crew on or in connection with such vessels to the same extent and with the same effect as though such service was performed entirely within the respective State. Only the legislature of the particular State in which the operator maintains the operating office from which the operations of the vessel are ordinarily and regularly supervised, managed, directed, and controlled may require such operator and the officers and members of the crew of such vessel to comply with its unemployment compensation law with respect to the service performed by such officers and members of the crew on or in connection with such vessel. The permission granted by subsection (f) to State legislatures is subject to the
condition that such service shall be treated, for purposes of wage credits given employees, like other covered service performed for the operator in such State and is also subject to the conditions imposed by section 1606(b) of the Federal Unemployment Tax Act upon permission to State legislatures to require contributions from instrumentalities of the United States. [Ibid.]
By virtue of the condition imposed by § 1606(b):
The permission granted State legislatures by subsection (f) is not applicable with respect to service performed in the employ of the United States Government or of an instrumentality of the United States which is either wholly owned by the United States or otherwise exempt ...