Prohibition on Direct Taxation: Pollock and its Effect
Article I, Section 9, Clause 4:
No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.
The Pollock decision encouraged taxpayers to challenge the right of Congress to levy by the rule of uniformity numerous taxes that had always been reckoned to be excises. But the Court evinced a strong reluctance to extend the doctrine to such exactions. Purporting to distinguish taxes levied “because of ownership” or “upon property as such” from those laid upon “privileges,” 1 it sustained as “excises” a tax on sales on business exchanges,2 a succession tax which was construed to fall on the recipients of the property transmitted rather than on the estate of the decedent,3 and a tax on manufactured tobacco in the hands of a dealer, after an excise tax had been paid by the manufacturer.4 Again, in Thomas v. United States,5 the validity of a stamp tax on sales of stock certificates was sustained on the basis of a definition of “duties, imposts and excises.” These terms, according to the Chief Justice, “were used comprehensively to cover customs and excise duties imposed on importation, consumption, manufacture and sale of certain commodities, privileges, particular business transactions, vocations, occupations and the like.” 6 On the same day, in Spreckels Sugar Refining Co. v. McClain,7 it ruled that an exaction, denominated a special excise tax, that was imposed on the business of refining sugar and measured by the gross receipts thereof, was in truth an excise and hence properly levied by the rule of uniformity. The lesson of Flint v. Stone Tracy Co.8 was the same. In Flint, what was in form an income tax was sustained as a tax on the privilege of doing business as a corporation, the value of the privilege being measured by the income, including income from investments. Similarly, in Stanton v. Baltic Mining Co.,9 a tax on the annual production of mines was held to be “independently of the effect of the operation of the Sixteenth Amendment . . . not a tax upon property as such because of its ownership, but a true excise levied on the results of the business of carrying on mining operations.” 10
A convincing demonstration of the extent to which the Pollock decision had been whittled down by the time the Sixteenth Amendment was adopted is found in Billings v. United States.11 In challenging an annual tax assessed for the year 1909 on the use of foreign built yachts—a levy not distinguishable in substance from the carriage tax involved in the Hylton case as construed by the Supreme Court—counsel did not even suggest that the tax should be classed as a direct tax. Instead, he based his argument that the exaction constituted a taking of property without due process of law upon the premise that it was an excise, and the Supreme Court disposed of the case upon the same assumption.
In 1921, the Court cast aside the distinction drawn in Knowlton v. Moore between the right to transmit property on the one hand and the privilege of receiving it on the other, and sustained an estate tax as an excise. “Upon this point,” wrote Justice Holmes for a unanimous Court, “a page of history is worth a volume of logic.” 12 Having established this proposition, the Court had no difficulty in deciding that the inclusion in the computation of the estate tax of property held as joint tenants,13 or as tenants by the entirety,14 or the entire value of community property owned by husband and wife,15 or the proceeds of insurance upon the life of the decedent,16 did not amount to direct taxation of such property. Similarly, it upheld a graduated tax on gifts as an excise, saying that it was “a tax laid only upon the exercise of a single one of those powers incident to ownership, the power to give the property owned to another.” 17 Justice Sutherland, speaking for himself and two associates, urged that “the right to give away one's property is as fundamental as the right to sell it or, indeed, to possess it.” 18
- Stanton v. Baltic Mining Co., 240 U.S. 103 (1916); Knowlton v. Moore, 178 U.S. 41, 80 (1900).
- Nicol v. Ames, 173 U.S. 509 (1899).
- Knowlton v. Moore, 178 U.S. 41 (1900).
- Patton v. Brady, 184 U.S. 608 (1902).
- 192 U.S. 363 (1904).
- 192 U.S. at 370.
- 192 U.S. 397 (1904).
- 220 U.S. 107 (1911).
- 240 U.S. 103 (1916).
- 240 U.S. at 114.
- 232 U.S. 261 (1914).
- New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921).
- Phillips v. Dime Trust & S.D. Co., 284 U.S. 160 (1931).
- Tyler v. United States, 281 U.S. 497 (1930).
- Fernandez v. Wiener, 326 U.S. 340 (1945).
- Chase Nat'l Bank v. United States, 278 U.S. 327 (1929); United States v. Manufacturers Nat'l Bank, 363 U.S. 194, 198–201 (1960).
- Bromley v. McCaughn, 280 U.S. 124, 136 (1929). See also Helvering v. Bullard, 303 U.S. 297 (1938).
- Bromley v. McCaughn, 280 U.S. 124, 140 (1929).
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