The US Supreme Court [judicial website] ruled [opinion, PDF] 5-4 on Thursday that employee stock options given to railroad workers were not taxable under the Railroad Retirement Tax Act of 1937 [text] because employee stock options are not money.

Under the act, only “compensation” was taxed, in order to exclude the food and lodging that railroads typically provided employees in the 1930s. “Compensation” was defined as “any form of money renumeration.”

For the majority, Justice Neil Gorsuch wrote, “As usual, our job is to interpret the words consistent
with their ‘ordinary meaning … at the time Congress enacted the statute.'” The majority defines “money” as “currency ‘issued by [a] recognized authority as a medium of exchange.'” Stock options do not fit this definition because they are not considered a medium of exchange in many contexts. Stock options have also been differentiated from money by federal agencies.

Justice Stephen Breyer, in his dissent, wrote that the definition of “money” is ambiguous, so the court should turn to alternative methods of analysis. Breyer wrote, “Excluding stock options from taxation under the statute would not further this basic purpose and would be inconsistent with this aspect of the statute’s history, for stock options are financial instruments,” unlike food or lodging.