Brushaber v. Union Pacific Railroad Co.
| Brushaber v. Union Pacific Railroad | |
|---|---|
 | |
| Argued October 14–15, 1915 Decided January 24, 1916 | |
| Full case name | Frank R. Brushaber v. Union Pacific Railroad Company |
| Citations | 240 U.S. 1 (more) 36 S. Ct. 236; 60 L. Ed. 493; 1916 U.S. LEXIS 1418; 1 U.S. Tax Cas. (CCH) P4;3 A.F.T.R. (P-H) 2926 |
| Case history | |
| Prior | Dismissed by the District Court for the Southern District of New York |
| Subsequent | None |
| Holding | |
| (1) The Sixteenth Amendment removes the requirement that income taxes (whether considered to be direct taxes or indirect taxes) be apportioned among the states according to population; (2) the Federal income tax statute does not violate the Fifth Amendment's prohibition against the government taking property without due process of law; (3) the Federal income tax statute does not violate the uniformity clause of Article I, section 8 of the U.S. Constitution. | |
| Court membership | |
| |
| Case opinion | |
| Majority | White, joined by unanimous |
| Laws applied | |
| U.S. Const. amend. XVI | |
Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), was a landmark United States Supreme Court case in which the Court upheld the validity of a tax statute called the Revenue Act of 1913, also known as the Tariff Act, Ch. 16, 38 Stat. 166 (Oct. 3, 1913), enacted pursuant to Article I, section 8, clause 1 of, and the Sixteenth Amendment to, the United States Constitution, imposing a federal income tax. The Sixteenth Amendment had been ratified earlier in 1913. The Revenue Act of 1913 imposed income taxes that were not apportioned among the states according to each state's population.
Prior to 1895, all income taxes had been considered indirect taxes (not required to be apportioned among the states according to the population of each state). In the controversial 1895 case of Pollock v. Farmers' Loan & Trust Co., however, the Court had overturned longstanding precedent and ruled that while a tax on income from labor was an excise, or indirect tax (a tax not required to be apportioned), a tax on income derived from property such as interest, dividends, or rents was -- or should be treated as -- a direct tax. In Brushaber the Court noted that even before the Sixteenth Amendment was passed, the Congress had authority to tax income. If the income tax was a direct tax in the constitutional sense, it could be imposed (after Pollock, but before the passage of the Amendment) only by apportionment among the states according to their census populations. In Brushaber, the Court held that the Sixteenth Amendment eliminated the requirement of apportionment as it relates to "taxes on incomes, from whatever source derived."
Background
The U.S. Constitution provides (in part):
- The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises [ . . . ] but all Duties, Imposts and Excises shall be uniform throughout the United States [ . . . ]
U.S. Const., art. I, § 8, cl. 1.
The Constitution also provides (in part):
- Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers [ . . . . ]
U.S. Const., art. I, § 2, cl. 3.
The Constitution further provides:
- No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.
U.S. Const., art. I, § 9, cl. 4.
The power to impose taxes (whether deemed direct or indirect taxes) is granted by Article I, section 8, clause 1. Indirect taxes ("excises," in the parlance of the text of the Constitution) are required to be geographically uniform, according to Article I, section 8, clause 1 and the court decisions interpreting that provision. Until the ratification of the Sixteenth Amendment, all direct taxes were required to be apportioned among the states according to each state's population, per Article I, section 2, clause 3 and Article I, section 9, clause 4. This essentially meant that the dollar amount of direct taxes imposed on the taxpayers in any given state was required to bear a relationship to the total dollar amount of direct taxes imposed in the entire nation that was equal to the ratio of that state's population to the total population of the nation.
Until 1895, direct taxes were generally deemed to include only capitations, or poll taxes (taxes directly on persons) and property taxes imposed on property by reason of its ownership (generally, ordinary ad valorem property taxes). Until 1895, all income taxes -- regardless of the sources of the incomes -- were deemed to be indirect taxes ("excises"). Indirect taxes are not required to be apportioned among the states according to the population, but are required to be imposed in all states (that is, are required to be geographically uniform).
In 1895, the U.S. Supreme Court ruled in Pollock (see above) that taxes on income from property (such as interest income, dividend income, and rent income) should be treated as direct taxes. Although a tax on income from property is not technically a tax on property by reason of its ownership, the Court ruled that because the tax on income from property burdened the property in the same way that a tax on the property by reason of ownership would have burdened the property, the income tax on the property should also be treated as a direct tax -- and was therefore required to be apportioned. This meant that while income taxes on income from labor (as indirect taxes) were not required to be apportioned by population, income taxes on interest, dividends and rent income were required to be apportioned by population. The Pollock ruling made the source of the income (e.g., property, labor, etc.) relevant in determining whether the income tax imposed on that income was deemed to be "direct" (and thus required to be apportioned among the states according to population) or, alternatively, "indirect" (and thus required only to be imposed with geographical uniformity).
The Pollock ruling made imposition of an income tax politically unfeasible from 1895 until early in 1913. During this period, while Congress could have re-imposed taxes on income from labor and other non-property sources without apportionment by population, imposing taxes on interest, dividends and rent income would not have been practical (as the income from property in each state would virtually never correspond to the population of that state in relation to the population of the entire nation). The Congress was unwilling to impose an income tax on labor and other non-property sources without also imposing a tax on income from property -- and taxes on income from property were no longer realistic.
In February of 1913, the Sixteenth Amendment was ratified. The text of the Amendment is as follows:
- The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
The Amendment -- which overrules the effect of Pollock -- essentially means that when imposing an income tax, the Congress may impose the tax on income from any source without having to apportion the total dollar amount of tax collected from each state according to each state's population in relation to the total national population.
Facts
The plaintiff in this case, Frank R. Brushaber, was a stockholder in the defendant Union Pacific Railroad company. The Sixteenth Amendment had recently been passed, and the U.S. Congress had enacted legislation pursuant to the amendment assessing taxes to the wealthiest of income earners, including the railroad company in this case. Brushaber brought a lawsuit against the railroad company to enjoin it from paying the tax, on the contention that statute enacting the tax violated the Fifth Amendment's prohibition against the government taking property without due process of law, and further contending that the statute further violated due process by exempting certain kinds of income. The U.S. government filed a brief supporting the validity the tax.
Holdings
FUCK YOU WIKIPEDIA AND YOUR FUCKING LIES
Later misunderstanding
Although the case is clear in its ruling that income taxes need not be apportioned after the Sixteenth Amendment, Brushaber is sometimes misunderstood by persons who argue that the case stands for the opposite meaning. Since 1913, however, no court has ever ruled that any Federal income tax is required to be apportioned. All income taxes enacted by the U.S. Congress (both before and after the Sixteenth Amendment) have been unapportioned.
Geographical uniformity
The Court in Brushaber noted that income taxes inherently belonged in the "category" of indirect tax (or excise). Indeed, that had been the understanding with respect to all income taxes until the Pollock decision. The Sixteenth Amendment removed the need -- that had been imposed by the Pollock decision -- to determine whether an income tax in any particular case was required to be apportioned, as the Congress could again (after 1913) tax income from any source without having to apportion the tax according to population. Nothing, however, in the Sixteenth Amendment or in the Brushaber decision relieves excises (indirect taxes) from the constitutional rule of geographical uniformity. Thus, for example, an income tax on wages, as an indirect tax, is still required to be imposed with geographical uniformity. No court has ever ruled any Federal income tax to be in violation of the uniformity rule.
Property taxes and capitations
Nothing in the Sixteenth Amendment or in Brushaber (and the other cases interpreting the tax provisions of the U.S. Constitution) changes the rule that some kinds of direct taxes are still required to be apportioned among the states by population. For example, if the U.S. Congress were to enact a national property tax (i.e., a tax on property by reason of its ownership) or a national capitation (i.e., a poll tax or head tax), such taxes apparently would be required to be apportioned.