Pollock v. Farmers' Loan & Trust Co.
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Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 / 158 U.S. 601 (rehearing) (1895)[1], was an important United States Supreme Court case in which the court ruled that a particular type of income tax—specifically, a tax on income derived from property—was a direct tax under the United States Constitution, and consequently had to be levied in proportion to each state's population. The effect of the Pollock decision was later overturned by the ratification, in 1913, of the Sixteenth Amendment to the United States Constitution, which removed the requirement that taxes on incomes be apportioned by population.
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[edit] Background
The provisions of the Wilson-Gorman Tariff Act of 1894 had stated that, for a five-year period, any "gains, profits and incomes" in excess of $4,000 would be taxed at 2 %. So, in compliance with the Act, the New York-based Farmers' Loan & Trust Company announced to its shareholders that it would not only pay the tax, but also provide to the collector of internal revenue in the Department of the Treasury the names of all people for whom the company was acting and thus were liable for being taxed under the Act.
[edit] Case
Charles Pollock was a Massachusetts citizen who owned only ten shares of stock in the Farmers' Loan & Trust Company. He sued the company to enjoin it from paying the tax. Pollock lost in the lower courts, but finally appealed to the United States Supreme Court, which agreed to hear the case.
[edit] Decision
[edit] Supreme Court
The Court handed down its decision on May 20, 1895, with Chief Justice Melville Fuller delivering the opinion of the Court. He ruled in Pollock's favor, stating that the tax levied by the Wilson-Gorman Act, to the extent that it was imposed on income from property, was unconstitutional. The Court treated the tax on income from property as a direct tax and, under the provisions of the Constitution of the United States at that time, such direct taxes were required to be imposed in proportion to states' population. The tax in question had not been so imposed and, therefore, was invalid. As Chief Justice Fuller neatly summarized:
- First. We adhere to the opinion already announced—that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.
- Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.
- Third. The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.
- The decrees hereinbefore entered in this court will be vacated. The decrees below will be reversed, and the cases remanded, with instructions to grant the relief prayed. [158 U.S. 601, 638]
Justices John Marshall Harlan, Jackson, White and Brown, however, dissented from the majority opinion. Justice White aptly concluded,
- It is, I submit, greatly to be deplored that after more than 100 years of our national existence, after the government has withstood the strain of foreign wars and the dread ordeal of civil strife, and its people have become united and powerful, this court should consider itself compelled to go back to a long repudiated and rejected theory of the constitution, by which the government is deprived of an inherent attribute of its being—a necessary power of taxation. [158 U.S. 638]
[edit] Aftermath
In a nation where the Federal government was beginning its battle against monopolies and trusts, where the great bulk of wealth was concentrated in the hands of a few, the decision in Pollock was unpopular, much like the decision in United States v. E. C. Knight Co., 156 U.S. 1 (1895) of the same year. The following year, the Democratic Party, which had grabbed hold of the Populist movement, included an income tax plank in its election platform. The decision, in the minds of the vast majority of Americans, was viewed as a method to keep the large corporations from bearing their share of the cost of the government.
Nebraska senator Norris Brown publicly decried the Court's decision, and instead proposed specific language permitting an income tax that was later incorporated into the Sixteenth Amendment. Fourteen years would pass, however, before the Amendment was finally passed by Congress in 1909. Upon ratification in 1913, the Amendment effectively made the Pollock decision moot.
[edit] Review
Three years after ratification of the Sixteenth Amendment, the United States Supreme Court rendered its decision in the case of Brushaber v. Union Pacific Railroad. In Brushaber the Court reviewed the history of the dichotomy between excises (indirect taxes) and direct taxes. The Court summarized what it had decided in Pollock. The Court then went on to state the effect of the Sixteenth Amendment with respect to income taxes: the Sixteenth Amendment removed the requirement that those income taxes deemed to be direct taxes (e.g., taxes on income from property) be apportioned among the states according to population. Thus, the effect of the Pollock decision had indeed been overturned by the Sixteenth Amendment. The Court in Brushaber also noted that both before and after Pollock, taxes on income from employment, vocations, etc., were excises (indirect taxes) and had never been required to be apportioned. The effect of the Sixteenth Amendment was re-confirmed in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926), in which the United States Supreme Court reviewed Pollock, the Corporation Excise Tax Act of 1909 and the Sixteenth Amendment and concluded that "[i]t was not the purpose or effect of that amendment to bring any new subject within the taxing power. Congress already had power to tax all incomes."
[edit] References
[edit] See also
- United States v. E. C. Knight Co., 156 U.S. 1 (1895)
- List of United States Supreme Court Cases
