can never be aided under the pretense of the taxes and should have been apportioned among the states. II. The law is unconstitutional also because it III. The whole law should be declared un- IV. If considered as indirect taxes, namely, Early Laws of the Colonies and States Show- Citizens' Sav. & L. Asso. of Clereland v. To- NEW HAMPSHIRE.-The assessors were The Massachusetts Bay Company, by its or- It is peculiarly the province of the court to Chicago, M. & St. P. R. Co. v. Minnesota, men, as butchers, bakers, brewers, victuallers, The law thus remained and was gradually amended by adding the words "business or All estates, real and personal, were to be Classification to be lawful must distinguish San Bernardino County v. Southern Pac. R. The provisions as to income tax embodied in I. The taxes thereby imposed are direct orchards, pastures, meadows and lands, mills- RHODE ISLAND.-In 1774, the statute direc- and discretion." Colonial Records of R. I. | plan for laying and collecting direct taxes by III. 300. CONNECTICUT.-A faculty tax was placed on all manual persons and artists, following the Massachusetts law of 1646, and these provis ions were frequently repeated in the laws of the seventeenth century. I Colonial Records, 548; see, too, Laws of Connecticut, published in 1769. apportionment among the several states agreeable to the rule prescribed by the Constitution; adapting the same as nearly as may be to such objects of direct taxation and such modes of collection, as may appear by the laws and practice of the states respectively to be most eligible in each," recommends a direct tax of $1,484,000 and states the apportionment thereof among NEW YORK.-In 1743, the assessors took an the states. The report states among the artioath to estimate the property by the product-cles taxed in states in addition to land as fol. a shilling for every pound. Oath of Asses-lows: sors, Laws of 1743, § 13, Van Schaack's Laws, VERMONT.-Cattle and horses, money on band or due, and obligations to pay money. NEW JERSEY.-Not only property owners, Assessments proportioned to the profits of all but also all other persons within this prov-lawyers, traders and owners of mills, accordince who are freemen and are artificers or ing to the judgment or discretion of the listers follow any trade or merchandizing, and also or assessors, p. 418. all inn keepers, ordinary keepers, and other persons in places of profit within this province, shall be liable to be assessed for the same according to the discretion of the assessors. Laws of New Jersey, 1664-1701, Jenning & Spicer, pp. 494, 1684. 1691-1773. PENNSYLVANIA. -The statute of March 27, 1782, provided among other things that all offices and posts of profit, trades, occupations and professions (excepting ministers and schoolmasters) shall be rated at the discretion of the township, ward or district assessor, and two assistant freeholders of the proper township, ward or district having due regard to the profits arising from them. 2 Dallas Digest, 8. DELAWARE.-Even after 1796, real estate was still valued according to the rents arising therefrom. State Papers, 1 Finance, 439. MARYLAND. In 1777, a law was passed which imposed an assessment of one quarter of one per cent on the amount received yearly by every person for any public office or profit of an annuity or stipend, and on the clear yearly profit of every person practicing law or physic, every hired clerk acting without commission, every factor, agent or manager trading or using commerce in this state. Md. Laws of 1777, chap. 22, 5, 6. VIRGINIA. In 1786, a tax was imposed upon attorneys, merchants, physicians, surgeons and apothecaries. Henuing's Stat. XII. 283, XIII. 114. In 1793, the tax on city property was "five sixths of one per cent of the ascertained or es timated yearly rent or income." Act of 1793 Shepherd's Stat. at L. Va. 1792, 1806, 1, 224; American State Papers, 1 Finance, 481. SOUTH CAROLINA.-In 1801, a law was enacted which imposed a tax on the citizens according to their estates, stocks and liabilities or the profits that any of them do make off or from any public office or employment. Two years later this tax was extended so as to assess individuals on their estates, merchan dise, stocks, abilities, offices and places of profit of whatever kind or nature soever. Cooper, Stat. at L. SS 11, 36, 183. Report of Oliver Wolcott, Jr, Secretary of the Treasury, to the House of Representatives on Direct Taxes, December 14, 1796. This report (7 American State Papers, 1 Finance, 414-431) was made in obedience to a resolution of the House of Representatives passed on the 4th day of April, 1796. The report says: "The duty enjoined is to report a NEW HAMPSHIRE.-Stock in trade, money on hand or at interest more than the owners pay interest for, and all property in public funds, estimated at its real value; mills, wharves and ferries and one twelfth part of their yearly net income, after deducting repairs. MASSACHUSETTS.-Vessels, stock in trade, securities, all moneys on hand or placed out at interest exceeding the sum due on interest by the individual creditor; silver plate, stock owned by stockholders in any bank, horses, cattle, and swine, p. 420. RHODE ISLAND.-Polls and collective mass property, both real and personal, p. 422. CONNECTICUT. Stock, carriages, plate, clocks and watches, credits on interest exceeding the debts due on interest by the individual creditors; and assessments apportioned to the estimated gains or profits arising from any and all lucrative professions, trades and occupations, p. 423. NEW JERSEY.-Ferries, fisheries, vessels. carriages, personal taxes on shopkeepers, single men and slaves, p. 426. NEW YORK.-Assessments in the towns determined by a discretionary estimate of the collective and individual wealth of individuals and corporations, p. 425. PENNSYLVANIA.-Prior to 1789, the time of servitude of bound servants, slaves, horses and cattle, plate, carriages, ferries, and all offices and posts of profit, trades, occupations and professions, with reference to their respective profits. Subsequently ground rents, slaves, horses, cattle, provisions, trades and callings, pp. 427, 423. DELAWARE.--Taxes have been hitherto collected of the estimated annual income of the inhabitants of the state, with reference to specific objects. A statute has been passed during the past year declaring that all real and personal property shall be taxed; provision is made for ascertaining the stock of merchants, traders, mechanics and manufacturers for the purpose of regulating assessments upon such persons, proportioned to their gains and profits; ground rents are estimated at one hundred pounds for every eight pounds of rent. Rents of houses and lots in cities, towns and villages at one hundred pounds for every twelve pounds of rent reserved, p. 429. MARYLAND.--Taxes are imposed on the mass of property in general, there are licenses for attorneys at law for admission to the bar £3, and the like sum annually during his continuance to practice; licenses to retail spirituous liquors; to keep taverns; for marriage, p. 480. VIRGINIA. A tax on lots and houses in towns, nd the tenant or proprietor was required to disclose on oath or affirmation the amount of rent paid or received by them respec tively; ordinary licenses, slaves, stud horses and jackasses, ordinary licenses, billiard tables, legal proceedings, pp. 431, 432. NORTH CAROLINA.-Slaves, stud horses, licensed ordinaries and houses for retailing spirituous liquors in small quantities, legal proceedings, billard tables, pp. 433, 434. SOUTH CAROLINA.-On every 100 lbs. of stock in trade, factorage, employment, faculties and professions, slaves, auction sales, p. 425. GEORGIA.-Stock in trade, funded debt of the United States, slaves, all professors of law or physic and all factors and brokers, billard tables, p. 436. The report continues: "Lands in Massachusetts and New Hampshire are taxed according to their produce or supposed annual rent or profit." Stock employed in trade or manufactures and money's loaned on interstate are taxed on different principles in different states. Assessments at discretion on the supposed property or income of individuals are permit ted in various degrees and under different modifications in some states. In other states all taxes attached to certain defined objects at prescribed rates. It is assumed as a principle that all objects of income, whether consisting of skilled labor or capital, bear certain relations to each other. which may be defined to be their natural value. | tary discusses in much detail the advantages and disadvantages of levying a direct tax upon the various kinds of personal properties, there is not a suggestion of doubt that they could constitutionally be taxed directly. Messrs. Richard Olney, Atty. Gen., and Edward B. Whitney, Assistant Atty. Gen., for the United States, on reargument: The Historical Evidence affecting the construction of the Constitution is to the following effect: 1. The word "duty" had a legal definition. The phrase "direct tax" had none, but was borrowed from political economy. 2. A specific personal property tax, a specific real property tax, and a specific income tax were each a duty within the meaning of the Constitution. A general tax on all personal property at a valuation was not a duty, impost, or excise at all, nor was it a direct tax in political economy. 3. A specific real property tax, would probably have been considered to be an indirect tax. 4. A general income tax, properly so called, was unknown at the time of the Constitution, but was a duty within its meaning. 5. A specific personal property or specific income tax was a duty and not a direct tax. Each decision of this court upon the distribution of the Congressional power of taxation should be regarded as authority:-on the precise point decided; on every necessary implica tion from the decision; on every definition deliberately framed and concurred in by the whole court. Great weight should be given to every principle clearly and deliberately laid down by the curt, although not necessarily involved in the decision. The Hylton case, decided expressly that a specific personal property tax was a duty and came under the rule of uniformity. The value, therefore, is determined by the degree of labor, skill and expense necessary to be bestowed on the subject, p. 437. It thus overrulled nearly all of those arguTaxes on stock employed in trade and man-ments put forth immediately after the Constiufactures and on money's loaned at interest. tutional Convention, upon which the appellants It is believed that direct taxes on these sub- have mainly relied. jects, except in extraordinary and temporary emergencies, are impolitic, unequal and delusive, p. 439. Taxes on lands. Taxes proportioned to the value of improved lands, and taxes proportioned to their produce or actual income or rent are nearly, if not entirely, alike in principle, p. 439. As the Constitution has established a rule of apportionment, there appears to be no necessity that the principles of valuation should be uniform in all the states, p. 441. In the schedule annexed to the report, under the head of "The objects of taxation," are the following, among others: Chief Justice Ellsworth had been a member of the Continental Congress and of the Philadelphia convention, and a leader in the Connecticut state ratifying convention, paying special attention to taxation. While not tak ing part in the judgment, he was on the bench when it was delivered, and the other justices doubtless had the benefit of all his knowledge and experience. Mr. Justice Wilson had been a member of the Continental Congress at the times of all the various debates relating to the apportionment of taxation. He had been a member of the Constitutional Convention and had there paid special attention to this subject. He had been a leading member of the Pennsylvania state ratifying convention. NEW HAMPSHIRE.-Money on hand or at interest; three quarters per cent, p. 442. MASSACHUSETTS. Funded securities. Se- Mr. Justice Paterson had been a prominent curties of the state or United States; money at member of the convention, and had drawn one interest; money on band, p. 437. of two original drafts of the Constitution which CONNECTICUT.-Amount of money at inter-were the subject of the original debates. est; assessments on lawyers, shopkeepers, surgeons, physicians, merchants, etc., p. 455. VIRGINIA.-Ordinary licenses, p. 459. SOUTH CAROLINA.-On faculties, etc., p. 464. It should be observed that while the Secre Mr. Justice Chase had been a member of the Continental Congress during the early days when the question of apportionment of taxes among the states was first discussed, and had taken part in the discussion. He was one of the leading members of the Maryland ratify- | count of the property owes aut Mr. Justice Iredell was a leading member of the North Carolina ratifying convention. When four men like the four justices last named, sitting on the bench with a man like the Chief Justice of that day, concurred in a decision which overthrew the definitions of Madison and Jay, it was clear and almost conclusive proof that these definitions did not represent the general consensus of opinion at that time. In Pacific Ins. Co. v. Soule, 74 U. S. 7 Wall. 433 (19: 95) (which we regard as a decis ive authority upon the present question) and in the subsequent cases, we lose the advantage of contemporary testimony, but gain in the closer applicability of the decisions to the point now at issue. The court in this case decided directly and squarely that a tax on gross receipts of an insurance company and a tax on net income of an insurance company are each a duty or excise within the meaning of the Constitution. Veazie Bank v. Fenno, 75 U. S. 8 Wall. 533 (19: 482), brought before the court a very clearly direct tax. Incidentally, Chief Justice Chase, in his opinion, went over all the history of the direct tax controversy, and ended by deciding that the tax was not a direct tax. Scholey v. Kew, 90 U. S. 23 Wall. 331 (23: 99) raised the question of the validity of the succession tax laid by the Act of June 30, 1864. No tax is more direct than the tax on the succession to real estate. The succession tax was clearly a direct tax in political economy. It was, on the other hand, like an income tax, as clearly a duty, within the meaning of the law. The decision of this court in the Scholey case therefore aflirmed the decision of Mr. Justice Paterson that, if a tax were construable either as a direct tax or as a duty, the latter construction should be given. Springer v. United States, 102 U. S. 586 (26: 253), directly decided that a general income tax is a duty or excise and not a direct tax. Philadelphia & R. R. Co. v. Pennsylvania ("State Tax on Railicay Gross Receipts") 82 U. S. 15 Wall. 284, 293 (21: 164), involved incidentally the classification of a state tax upon the gross receipts of a railway company. Michigan Cent. R. Co. v. Slack, 100 U. S. 595 (25: 647), related to a tax on the dividends paid by a railroad company to its stockholders and the interest paid to its bondholders, and held the tax to be essentially an excise on the business of the class of corporations mentioned in the statute. Its reaffirmance, in a case involving nearly $100,000, shows that the principle was one fi nally adopted after an unusual amount of careful consideration. Memphis & C. R. Co. v. United States, 108 U. S. 228 (27: 711). Western U. Teleg. Co. v. Atty Gen. of MasBachusetts, 125 U. S. 530 (31: 790) was a tax laid by the state of Massachusetts upon the Western Union Telegraph Company on ac This case, of course. Gone w Maine v. Grand Trunk RC 14 (35: 991), 3 Inters. Com. Rep. & on the gross transportation reddit. road company within a state, and comparative mileage basis, Mr. Justice Field, in delivering ion of the court, said, p. 227: "The tax for the collection of which shax tion is brought is an excise tax spot de fendant corporation for the privilege of wee cising its franchises within the state of Au Ficklen v. Shelby County Tazing Dut. 145 U. S. 1 (36: 601), 4 Inters. Com. Rep. ted to a license tax upon individual broom, Even if this court had never made a dea ion on the constitutionality of uniform income taxes the practical construction of the Cons tion during the ten years and more of the o5. eration of such taxes would be of very gre.t weight. On account of the great weight to be at tached to the opinions of Hamilton and Madi son on most matters, it has also been customary to examine their controversial production, "The Federalist." The rest of the controversial literature and debates of 1787 and 1788 should be regarded as entirely incompetent. It is the well settled principle of statutory construction that the views of individual members in debate cannot be considered by the court. Aldridge v. Williams, 44 U. S. 3 How. 9, 24 (11: 469, 476); United States v. Union Pac. R. Co. 91 U. S. 72, 79 (23: 224, 228); Taylor v. Taylor, 10 Minn. 107. This tax on actual rentals collected (less necessary expenses, etc.) is not the same in incidence as the land tax which the Constitution contemplated. The measure of the tax has no relation to either the quantity or the valuation of the land. It is not, however, a tax on the rentals at all. It is not a tax measured by anything present. It does not fall direct upon anything but what the taxpayer has when the collector comes round, and this is not the measure of the tax. The measure of the tax is not anything corporeal, but simply his ability to pay. Neither the incidence of the tax nor its measure has any connection with any land of the taxpayer. If the rental can be regarded separately at all, it is still only a tax on moneys inextricably commingled with the other funds of the taxpayer, and not on rents as rents. The identity and all relation between rents and lands cease when the rents are collected and are transformed from a right growing out of the land into money or other property. Brown v. Houston, 114 U. S. 622 (29: 257). Income is not taxed because it came from land, but because it is income in hand. Coe v. Errol, 116 U. S. 525, 528 ((29: 718, 719); Robbins v. Shelby County Taxing Dist. 120 U. S. 489, 497 (30: 694, 697), 1 Inters. Com. Rep. 45. Property not taxable may in a moment become taxable, and that moment is the one when its condition is actually changed. The Act in question recognizes this distinction, for it operates only on collected rents; that is, money or property derived as rents. In this last case the court said, "It was a tax on rents issuing out of the granted premises, but in no sense, I think, a tax on the granted premises." The economic distinction is very nearly the same as the legal distinction, if we are correct in our view of the latter. A tax on land actually rented is not direct in the sense that it cannot be shifted. Adam Smith, Ricardo, and John Stuart Mill considered that “a tax imposed on the building owner will, therefore, generally be shifted to the occupier." The source of the income has no significance in this Act, except as a means for verification of returns. It has no more signifiance than words of description and identification. It does not relate forward and affect the presentation, pp. 1, 7. nature of the objects of taxation. Dobbins v. Erie County Comrs. 41 U. S. 16 Pet. 435 (10: 1022); Almy v. California, 65 U. S. 24 How. 169 (16: 644); Northern Cent. R. Co. v. Jackson 74 U. S. 7 Wall 262 (19: 88); United States v. Erie R. Co. 106 U. S. 327 (27: 156); Cook v. Pennsylvania, 97 U. S 566 (24: 1015); Philadelphia & S. M. SS. Co. v. Pennsyl tania, 122 U. S. 326 (30: 1200), 1 Inters. Com. Rep. 308; Leloup v. Mobile, 127 U. S. 640 (32: 311), 2 Inters. Com. Rep. 134. The court says in Philadelphia & S. M. SS. Co. v. Pennsylvania, 122 U. S. 344 (30: 1204), 1 Inters. Com. Rep. 308, "Can the tax in this case be regarded as an income tax; and, if it can, does that make any difference as to its constitutionality?" Rents collected, have nothing in common with land. Taking wrongful possession of land is a trespass, and of rents is stealing. One goes to the heir, the other to the personal representative. One has a fixed situs. That of the other may be determined by law, but generally is that of the owner. One must be taxed by the sovereignty within which it lies. The other may be taxed by the sovereignty under whose dominion the owner is. A tax on land is generally a lien on land That on personalty, almost universally, is not. An assessment on land, to be valid, must identify the particular land with reasonable certainty, while that of personalty need not. Land is capable of identification by easy proof not susceptible of fraud, while money paid as rent is not. There is in their nature and use not a single attribute in common. It is not a tax imposed upon the land nor upon the rents because they are derived from land, but upon property of all kinds accrued to the owner within the year. Brown v. Houston, 114 U. S. 622 (29: 257). From ancient times a distinction has been observed between taxes on the person and taxes on the land; and this has been familiarly ap plied in cases arising under covenants in leases. Platt, Covenants, pp. 22, 23. Seligman, Shifting and Incidence of Tax 2 Mill's Principles of Political Economy (ed. 1864) pp. 429-431. It is true that Mill regards such a tax on rentals as the nearest approach to a fair income tax, but as an income tax on the tenant, not on the landlord. p. 432. This was perfectly well understood by the financiers of the last century, and is clearly set forth by Oliver Wolcott in his report as Secretary of the Treasury on direct taxes in 1796. Annals of Congress 1795-1797, p. 2749. Even in the case of agricultural land the incidence of a tax on rentals is not entirely direct. Whether or not it can be shifted depends upon circumstances. 2 Mill, 419. It differs in this way from a general tax on all land by quantity or valuation; and hence being partly indirect, it is an indirect tax within Mr. Justice Chase's ruling in Hylton v. United States, 3 U. S. 3 Dall. 171 (1:556). It was never supposed that the ruling in Buffington v. Day, 78 U. S. 11 Wall. 113 (20: 122) involved invalidating the entire income tax system. It is on the other hand presumed that nontaxable property is excepted in all tax laws. Cooley, Taxn. (2d ed.) 172. Nor does the exemption of the rentals invalidate the whole tax. Field v. Clark, 143 U. S. 696, 697 (36: 311). The power to lay such an income tax is most essential_to_the Union, as argued by Hon. George S. Boutwell in the North American Review for May, 1895. Historical Argument Upon Meaning of Words "Direct Tax" and "Duty" in Constitution. The formerly prevailing definitions and usages of economic writers are inapplicable. It was conceded on all sides at the former hearing that the economic test between direct and indirect taxes is at present that of shiftableness; that taxes which economists regard as not shiftable are direct; that taxes which they regard as shiftable are indirect. The present economic definition was not then recognized. It was not, indeed, the prevailing definition among the economists of the eighteenth cen In Jeffrey's Case, 5 Coke, 67, in 1590 upon a writ of probibition in which Lord Coke ap-tury. peared as counsel, the court took the following distinction concerning a poor rate under the statute of Elizabeth. Political economy itself has abandoned this former test of shiftableness as not scientific or certain enough to be valuable even for its own purposes. The distinction between direct and indirect is now purely conventional, differing in different countries. In this case the charge is on the person and not on the land, but is on the person in respect of the land for more equality and indifferency. Theed v. Starkey, 8 Mod. 314; Case v. Stephens, Fitzg. 297; Palmer v. Power, 4 I. RL' Impot, 1889, p. 147. C. L. 191; Van Rensselaer v. Dennison, 8 Barb. 23. Cohn's Science of Finance, 1891, 531; Denis, The income tax in France is rated as an in direct tax. In England it is rated as direct. |