Constitutional taxation provisions 1:8:1, 1:9:4, 1:2:3
1. Introduction
The Constitution permits three classes of taxation:
- Direct taxes, which must be apportioned among the states in proportion to their populations;
- “Indirect taxes,” specifically duties, imposts, and excises, which must be uniform throughout the country; and
- Income taxes on humans (as opposed to businesses or other entities), which may apply to income derived from a source.
Taxing jurisdiction originates in the U.S. Constitution as follows:
Section 8. Powers of Congress
Clause 1. Power to Tax and Spend [Indirect/Excise taxes]
The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.
Section 9. Powers Denied to Congress
Clause 4. Taxes [Direct Taxes]
No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.
Section 2. The House of Representatives
Clause 3. Apportionment of Seats In the House [Method of apportioning Direct Taxes]
[Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons]. 343 The actual Enumeration shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years, in such Manner as they shall by Law direct. The Number of Representatives shall not exceed one for every thirty Thousand, but each State shall have at Least one Representative; and until such enumeration shall be made, the State of New Hampshire shall be entitled to chuse three, Massachusetts eight, Rhode Island and Providence Plantations one, Connecticut, five, New York six, New Jersey four, Pennsylvania eight, Delaware one, Maryland six, Virginia ten, North Carolina five, South Carolina five, and Georgia three.
2. A Brief History of U.S. Tax Law
Much discussion preceding the Constitution, divided taxes into the direct and indirect categories; however and the Constitution adopted that precise distinction by using the word “direct” in Article 1, Section 9, Clause 4 above and the word “excise” to refer to indirect taxes in Article 1, Section 8, Clause 1 above. See, e.g., The Federalist No. 36 (Alexander Hamilton). Supreme Court decisions such as the License Tax Cases (1867) have also routinely used the direct/indirect dichotomy. As early as 1796, in Hylton v. United States, the Supreme Court wrestled with the direct/indirect dichotomy. As the Court explained in that case, direct taxes must be apportioned while indirect taxes—duties, imposts, and excises—must be uniform; and any other tax (if possible) must be uniform. The Court held a tax on “carriages” to be indirect because it applied to the use of the carriage rather than to the property itself, an arguably nuanced distinction.
In 1895, the Supreme Court held a general income tax unconstitutional as an unapportioned direct tax, distinguishing it from a tax on business or employment income, which the Court described as a permissible excise (an indirect tax). Pollock v. Farmers’ Loan & Trust Co. (1895). In contrast, the Court held, in 1911, that a tax on corporate income was constitutional as a uniform excise—a type of indirect tax. Flint v. Stone Tracy Co. (1911). The Court reasoned that the original income tax applied directly to humans, while the corporate income tax applied through the corporate entity: humans might suffer the tax through higher prices or lower profits, but they would do so indirectly. In 1913, the Sixteenth Amendment authorized an unapportioned tax on income “derived from a source.” By “derived” is meant that the profit can originate in property, but that the gain in the property is not a tax on the property itself. The country adopted the Amendment to reverse the 1895 Pollock decision. Many later decisions have wrestled with the “derived” requirement. The best description requires income to constitute “an accession to wealth, clearly realized, over which the taxpayer has complete dominion.” Commissioner v. Glenshaw Glass (1955).
Although some writers describe the direct/indirect and apportionment/uniformity requirements as antiquated, the dichotomies have at least some modern significance. To grasp that significance, one needs to understand the underlying terms.
3. What is a Direct Tax?
The term “direct tax” appears in the Constitution. Therefore, it is a constitutional term, not an economic term and this means that Congress has no power to define it. It must be defined by the Courts because the Federal Government’s taxing authority is affected by its meaning. Senator Cummins explains a similar scenario with the meaning of “commerce,” in the Constitution:
In 1789, I believe, the people of this country gave Congress the power to regulate commerce among the States. It is not within the power of Congress to say what commerce is. “Commerce” may mean a very different thing now as compared with what it meant in 1789. It has broadened with the times; the instrumentalities have changed with the course of years; but Congress cannot make a thing commerce. The court must declare whether a particular regulation is a regulation of commerce and in so declaring it defines for the time being what commerce is.
[1913 Congressional Record, Vol L, Part 4, pg. 3844]
“Commerce” appears in the Constitution and so Congress cannot define it. “Direct tax” appears in the Constitution and so Congress cannot define it. Additionally, after the Sixteenth Amendment, “income” also appears in the Constitution and so Congress cannot define that either. Congress cannot make a thing commerce. Congress cannot make a thing a direct tax and Congress cannot make a thing income.
David A. Wells, who helped President Lincoln establish a system of internal revenue during the Civil War, wrote an extensive multi-part treatise on taxation in which he describes the Supreme Court’s need to define “direct tax” legally. He said that the Court:
has felt compelled by the language of the Federal Constitution to assign to the term “direct,” as applicable to taxation, a “legal” rather than economic definition
[Principles of Taxation, Popular Science Monthly. June 1897]
Here again we are reminded that when discussing constitutional taxation, we are dealing with terms like direct tax, income and principal that have “legal” meanings rather economic meanings. In 1880, the Supreme Court provided its legal definition:
Our conclusions are, that direct taxes, within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate
[Springer v. United States, 102 U.S. 586, 602 (1880);
SOURCE: https://scholar.google.com/scholar_case?case=3081110958181951212]
In 1880, the constitutional meaning of “direct tax” was limited to capitations and taxes on real estate and the tax structure looked like this:
4. What is an Excise Tax?
A direct tax is a tax on property, but an excise is a tax on an activity, an event or a privilege. The Supreme Court describes as excise as a tax:
Excises are “taxes laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.” Cooley, Const. Lim., 7th ed., 680.
[Flint v. Stone Tracey Co., 220 US 107, 151 (1911);
SOURCE: https://scholar.google.com/scholar_case?case=17853944152368373401]
Additionally, the Court describes an excise as:
A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax which Congress, in respect of some events not necessary now to be described more definitely, undoubtedly may impose.
[Tyler v. United States, 281 U.S. 497 (1930);
SOURCE: https://scholar.google.com/scholar_case?case=5652898273033007430]
If the income tax is an excise, then the subject of the tax must be an event, not wages, salaries, tips or commissions, not income, and not gross income, which are tangible fruits in the form of money. The subject of the tax must be an event and not money, which is property.
Because of the Sixteenth Amendment, Congress may, once again, tax income with uniformity (i.e. without apportionment), but the tax must obey the rules for uniformity and be in the form of an indirect tax. The Courts can no longer place a tax on income in the category of direct taxation by considering the source (of capital). The Court provided a complete review and analysis of what is and is not a direct tax in the 2012 Obamacare decision when the Petitioners argued that the penalty was a direct tax that must be apportioned:
That narrow view of what a direct tax might be persisted for a century. In 1880, for example, we explained that “direct taxes,” within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate.” Springer, supra, at 602. In 1895, we expanded our interpretation to include taxes on personal property and income from personal property, in the course of striking down aspects of the federal income tax. Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 618 (1895). That result was overturned by the Sixteenth Amendment, although we continued to consider taxes on personal property to be direct taxes. See Eisner v. Macomber, 252 U.S. 189–219 (1920).
[National Federation of Independent Businesses v. Sebelius, 567 U.S. 519, 598 (2012);
SOURCE: https://scholar.google.com/scholar_case?case=12815172896965834886]
The Chief Justice is explaining how the Constitution’s definition of “direct tax” changed over the years. The 16th Amendment merely modifies the Constitution’s definition of “direct tax,” it does not alter the Constitution’s rules for taxation. When analyzing the Obamacare penalty to determine if it qualified as a “direct tax,” the Chief Justice reasoned:
A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, “without regard to property, profession, or any other circumstance.” … The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.
[National Federation of Independent Businesses v. Sebelius, 567 U.S. 519, 574 (2012);
SOURCE: https://scholar.google.com/scholar_case?case=12815172896965834886]
Did the reader notice that a tax on “income” is not a recognized category of “direct tax”? After the Sixteenth Amendment, taxes on personal property are still considered “direct taxes,” but taxes on income are not “direct taxes.” As of 2012, the three recognized categories of “direct tax are:” A capitation, a tax on real estate and a tax on personal property (including money). The DC Circuit said much the same thing in Murphy v. IRS:
Only three taxes are definitely known to be direct: (1) a capitation, U.S. Const. art. I, § 9, (2) a tax upon real property, and (3) a tax upon personal property.
[Murphy v. IRS 493 F.3d. 170,179 (2007);
SOURCE: https://scholar.google.com/scholar_case?case=606795644459520694]
The Sixteenth Amendment modified the constitutional definition of “direct tax,” it did not amend the Constitution’s rules for taxation. After the amendment, all direct taxes still require apportionment and all indirect taxes require uniformity. The question has always been, is a tax on income included within the constitutional definition of a “direct tax” or not? In Springer v. United States the Supreme Court said the tax on income is not a “direct tax,” but an excise. In Pollock the Supreme Court reversed itself and concluded that the tax on income is a “direct tax.” The Sixteenth Amendment overruled the Supreme Court and says that the tax on income is not a “direct tax.”
5. The Subject of the Tax
A tax must have a subject meaning the thing being taxed. A tax imposed on a car means that the car is the subject of the tax. A tax imposed on money means that money is the subject of the tax. The subject of a tax may also be an activity a privilege or an event. One must identify the subject of the tax before it is possible to identify the tax as a “direct tax” or a duty, impost or excise. In our system, the subject of a tax is limited to the items shown below:
The subject of a tax may be a person, property or some kind of event or privilege. Money is property. Money is property and must be taxed as property. A tax on property is a recognized category of direct tax that must be apportioned. This is where the analysis should stop.
However, the analysis does not stop there because Congress wants to tax money, but the apportionment requirement prevents the Federal Government from directly meddling with the property of American citizens. Apportionment is hard and so Congress would rather tax money by the rule of uniformity because it is easy. To tax money by uniformity, Congress must devise a way to tax money without taxing the money, which is to say indirectly. To achieve this objective, Congress applies the four ways to tax money described in Doyle:
Whatever difficulty there may be about a precise and scientific definition of “income,” it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax.
[Doyle v. Mitchell Bros., 247 U.S. 179, 185 (1918);
SOURCE: https://scholar.google.com/scholar_case?case=1447070231071484109]
Income and principal are the two categories of money and each category can be taxed in two different ways: As the subject of the tax or as the measure of the tax. Thus, the four ways to tax money are:
- Income as the subject of the tax: A direct tax on money that requires apportionment.
- Income as the measure of the tax: An indirect tax on money that requires uniformity.
- Principal as the subject of the tax: A direct tax on money that requires apportionment.
- Principal as the measure of the tax: An indirect tax on money that requires uniformity.
Introducing “the measure of the tax.” The measure of the tax is a legal invention to evade the apportionment requirement for taxing money. The Supreme Court has recognized the distinction when money is used as the subject of the tax (direct tax) and when money is used as the measure of the tax (indirect tax). If money is the subject of the tax, the tax falls on property and is a direct tax that requires apportionment. If money is the measure of the tax, then something else is used as the subject of the tax and the tax is an indirect tax that requires uniformity.
In order to get around the apportionment requirement for taxing money, Congress has invented the idea of taxing privilege as the subject of the tax and using money as the measure of the tax in order to determine how much privilege one must pay for. Congress must target the money by taxing something else, which is what indirect means. Taxing privilege is the mechanism by which an indirect tax on money is constitutional.
If a person has $100,000 in income and Congress imposes a tax on the $100,000, meaning on the money itself, then it is a tax on property and must be apportioned.
However, if Congress says the $100,000 was acquired by a privilege and taxes the privilege and uses the money as the measure of the tax to determine how much the privilege will cost, it is an indirect tax that can be collected by uniformity. How can a privilege be taxed? What does that even mean? The only way to tax a privilege, activity or an event is to assign it a dollar value. And this is why the “measure of the tax” was invented by American lawyers:
The money is the real target of the tax, but the money is being targeted indirectly in stead of directly. Congress targets the money by taxing something else, which is what indirect means. The amount of tax that a person pays is exactly the same. This is just legal mumbo-jumbo to get around the apportionment requirement for taxing money. However, now it is necessary to split hairs to determine which money can be taxed as a privilege and which money cannot.
Without privilege, money can only be taxed as property, by the rule of apportionment. Not all money can be taxed as a privilege (all income can, but all capital cannot). The Courts have accepted this innovation as illustrated by these examples:
Congress in exercising the right to tax a legitimate subject of taxation as a franchise or privilege, was not debarred by the Constitution from measuring the taxation by the total income, although derived in part from property which, considered by itself, was not taxable.
[Stratton’s Independence v. Howbert, 231 U.S. 399, 416-417(1913);
SOURCE: https://scholar.google.com/scholar_case?case=11971357151204259952]
They are based on two principles: 1. An inheritance tax is not one on property, but one on the succession. 2. The right to take property by devise or descent is the creature of the law, and not a natural right – a privilege, and therefore the authority which confers it may impose conditions upon it.
[Knowlton v. Moore, 178 U.S. 41, 55 (1900);
SOURCE: https://scholar.google.com/scholar_case?case=16237964956954109764]
It is this distinctive privilege which is the subject of taxation, not the mere buying or selling or handling of goods.
While a direct tax may be void if it reaches nontaxable property, the measure of an excise tax on privilege may be the income from all property, although part of it may be from that which is nontaxable.
But this argument confuses the measure of the tax upon the privilege with direct taxation of the state or thing taxed.
[Flint v. Stone Tracy Co., 220 U.S. 107, 162 (1911);
SOURCE: https://scholar.google.com/scholar_case?case=17853944152368373401]
These authorities establish that Congress taxes privileges and that the mumbo-jumbo has become venerated legal precedent. This fact may be a surprise to some. The tax on income uses privilege as the subject of the tax and income as the measure of the tax and this is how a tax on income is imposed indirectly using the rule of uniformity.
After the Sixteenth Amendment, a tax on income is collected “without apportionment,” which means it must be collected with uniformity. Therefore, a tax on income must conform to the Constitution’s rule for uniformity and must be a duty, an impost or an excise or, in other words, an indirect tax. Knowlton v. Moore (178 US 41, 1900) confirms that uniformity is imposed “only on duties, imposts and excises” – not direct taxes:
Thus, the qualification of uniformity is imposed not upon all taxes which the Constitution authorizes, but only on duties, imposts and excises.
In order for the tax on income to conform to the Constitution’s rule for uniformity, it must be enacted as an indirect tax and thus, money cannot be the subject of the tax. A privilege, an activity or an event must be the subject of the tax because it provides the indirection that is needed for the tax to qualify for the rule of uniformity. Congress targets the money by taxing privilege. This explains why income must be the measure of the tax, and not the subject of the tax. This concept further explained by former legislative draftsman for Treasury Department, F. Morse Hubbard in the 1943 Congressional Record:
So the amendment made it possible to bring investment income within the scope of a general income-tax law, but did not change the character of the tax. It is still fundamentally an excise or duty with respect to the privilege of carrying on any activity or owning any property which produces income.
The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax.
[1943 Congressional Record Vol 89, Part 2 pg. 2580]
The admission that “The income tax is, therefore, not a tax on income as such,” is evidence that a word game is being played. Mr. Hubbard means that the income tax does not tax money. If the income tax doesn’t tax income, then what does it tax? It taxes “privilege” and uses income as the measure of the tax and this is being done specifically to evade the apportionment requirement for taxing money.
Congress may tax incomes either with apportionment of without apportionment at its own discretion, it simply must follow the rules for each tax. An income tax collected with apportionment is a direct tax; an income tax collected without apportionment is an indirect tax. The Sixteenth Amendment did not strip from Congress the power to tax income by apportionment if it chooses. The Amendment says, “Congress shall have power to lay and collect taxes on incomes…without apportionment” and like any power granted to Congress, it may choose to exercise that power or choose not to exercise it. Congress is not required to tax income without apportionment.
To exercise the Authority of the Sixteenth Amendment and tax income “without apportionment,” Congress must tax the privileges and activities that produce income and not the money. From its inception in 1861, the Income Tax has never been conceived as a tax on the money itself. The tax is on the privileges or activities that produce income, which allows it to be taxed by uniformity and not apportionment. The activities that produce income are investment activities. The activities that produce capital are employment activities. United States is the only country in the world where this legal legerdemain is required to tax property because the apportionment requirement is designed to protect a citizen’s property from direct federal taxation.
6. The First Income Tax
Congress passed its first income tax in 1861 because of the extra revenue needed for the Civil War. In 1880, the decision in Springer cited above decided that the tax on income was an indirect tax: “The duty which the internal revenue acts provided should be assessed, collected and paid upon gains, profits, and income was an excise or duty and not a direct tax, within the meaning of the Constitution.” The tax was allowed to lapse soon after the war ended but was revived in 1894.
It wasn’t long after the new tax was enacted that it was challenged. But this time the Supreme Court, in Pollock v. Farmer’s Loan and Trust (1895), decided that the income tax was a direct tax and must be collected by the rule of apportionment.
The Court said that if the source from which the income is derived must be taxed by apportionment, then the income derived from the source also must be taxed by the rule of apportionment. This was the origin of the “source” argument that was abolished by the Sixteenth Amendment. The Court’s two primary holdings are:
Our conclusions may, therefore, be summed up as follows:
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.
[Pollock v. Farmer’s Loan and Trust, 158 U.S. 601, 637 (1895);
SOURCE: https://scholar.google.com/scholar_case?case=14112562519763534846]
Income is derived from capital. Real estate and personal property are the two generic sources of capital from which income is derived. Income is either derived from rents and gains from real estate or it is derived from investing personal property (money) into any type of investment. While capital may take many forms, in the context of income tax, capital in the form of money (personal property) is the focus here. Real estate and money are both forms of property. During the congressional debates on the income tax, Senator Williams noted:
Money is as much property as is anything else, and when a man earns $20,000 in money during a year he has got that much in property
[Congressional Record, Vol L, Part 4 pg. 3838]
When people get paid for labor, they receive property in the form of money as also noted by Senator Williams:
[S]o that the man whose property consists in dollars which he earns in a year is the least taxed of all men.
[Congressional Record, Vol L, Part 4 pg. 3839]
The reference to “personal property” in the decision means money. “Invested personal property” means money (capital) invested to produce income, which includes investments of all kinds. One does not invest a house into something so a house is not the kind of personal property to which the decision refers. In the context of income tax, personal property is the capital that is invested to produce income and together with real estate identify the two sources of capital discussed in Pollock. In Pollock, the Court reasoned:
. . .it is evident that the income from realty formed a vital part of the scheme for taxation embodied therein. If that be stricken out, and also the income from all invested personal property, bonds, stocks, investments of all kinds, it is obvious that by far the largest part of the anticipated revenue would be eliminated, and this would leave the burden of the tax to be borne by professions, trades, employments, or vocations, and in that way what was intended as a tax on capital would remain in substance a tax on occupations and labor. We cannot believe that such was the intention of Congress
[Pollock v. Farmer’s Loan and Trust, 158 U.S. 601, 636-637 (1895);
SOURCE: https://scholar.google.com/scholar_case?case=14112562519763534846]
Real estate was already recognized as a direct tax and the Court concluded that the tax on income from real estate was also a direct tax. After Pollock, the definition of “direct tax” was expanded when the Court ruled, “Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.” In 1895, personal property and income (from real estate and personal property) were all added to the legal definition of “direct tax”:
After Pollock, a tax on investment earnings became a “direct tax” and could not be taxed by Congress unless it went through the rule of apportionment. This angered many because all this idle wealth, as it was described, could not be used to support the government. In his dissent, Justice Harlan stated:
Why do I say that the decision just rendered impairs or menaces the national authority? The reason is so apparent that it need only be stated. In its practical operation, this decision withdraws from national taxation not only all incomes derived from real estate, but tangible personal property, “invested, personal property, bonds, stocks, investments of all kinds,” and the income that may be derived from such property. This results from the fact that, by the decision of the court, all such personal property and all incomes from real estate and personal property, are placed beyond national taxation otherwise than by apportionment among the States on the basis simply of population. No such apportionment can possibly be made without doing gross injustice to the many for the benefit of the favored few in particular States.
[Pollock v. Farmer’s Loan and Trust, 158 U.S. 601, 671 (1895);
SOURCE: https://scholar.google.com/scholar_case?case=14112562519763534846]
To reverse this decision, and restore investment earnings to the category of indirect taxes so they can be taxed “without apportionment,” the Sixteenth Amendment was ratified:
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
[Sixteenth Amendment, US Constitution;
SOURCE: https://law.justia.com/constitution/us/amendment-16/]
The Sixteenth Amendment applies only to the income (profit), not the capital or personal property from which the income is derived.
- The Supreme Court said, “Hey, the tax on income is a direct tax and must be taxed with apportionment.”
- The Sixteenth Amendment responded, “Oh no it’s not. The tax on income can be collected without apportionment, because it is not a direct tax.”
For those who understand logical reasoning, the Amendment is written using the contrapositive:
- Original Constitutional Proposition: If the tax is direct, the tax is apportioned.
- Contrapositive: If the tax is not apportioned, the tax is not direct
If the Income Tax is collected without apportionment, then the Income Tax is not a direct tax. The Sixteenth Amendment did not change the rules. The tax structure is a logical construct with only two choices: “P” and “not P;” so not one means the other. “Not direct” means “indirect.” “Not indirect” means “direct.” “Without apportionment” means “with uniformity.” If the income tax is collected without apportionment, then it must be collected with uniformity. If the income taxed is collected with uniformity, then the tax must conform to all the rules for uniformity. The tax must be enacted as an indirect tax, meaning a duty, an impost or an excise.
“Without apportionment” can only mean “with uniformity” and therefore, all four of these are logically equivalent statements:
The Sixteenth Amendment reversed the Pollock decision by modifying the constitutional definition of “direct tax” to exclude income. The tax on personal property is still a “direct tax.” After the Sixteenth Amendment and as of 2012, the tax structure looks like this:
In order to be collected by the constitutional rule of uniformity, the tax on income, from both real estate and personal property, must be one of the many excise taxes in the Internal Revenue Code, which is an indirect tax. The Supreme Court unequivocally confirms this analysis in the following decision:
The Sixteenth Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived.
[Stanton v. Baltic Mining Co., 240 U.S. 103, 112-113 (1916);
SOURCE: https://scholar.google.com/scholar_case?case=726253341774342162]
7. Direct Tax/Apportionment
A direct tax applies to land or directly to humans “without regard to property, profession, or any other circumstance.” Hylton v. United States (1796); see also NFIB v. Sebelius (2012). Such a tax must be apportioned. At the time of the Constitutional Convention, states with large amounts of land, as well as those with large populations, feared heavier taxes on their land and populations, including slaves, as compared to smaller and less populous states. The apportionment requirement, which also governs representation in the House of Representatives, became the compromise. See Article I, Section 2.
To be apportioned, a tax must be the same amount per person in every state, a very difficult burden to satisfy. For example, a dollar-per-acre tax would fail unless every state had the same acreage per capita. As a result, federal land taxes do not exist. States, unhampered by apportionment, routinely impose real property taxes. In contrast, a dollar-per-human tax (also known as a capitation) would be constitutional, as it would be the same amount per capita in every state. The United States, however, has never imposed such a tax, arguably the only form that a direct tax could constitutionally take. In 2012, the Supreme Court considered whether the “shared responsibility payment” for lacking health insurance in the Affordable Care Act was a direct tax, and held that it was not: while applying directly to humans, it varies depending on whether they have health insurance, an “other circumstance.” NFIB v. Sebelius. Quoting Hylton, the Court held the required payment to be non-direct, and citing Pollock, concluded that the payment is not an income tax.
8. Indirect Tax/Uniformity
Duties, imposts, and excises must be uniform. See Article I, Section 8, Clause 1. As “indirect” taxes, they do not apply directly to humans. For example, a duty applies to the act of importing property. Although the ultimate purchaser suffers the tax, the incidence (or burden of the tax) is thought to fall primarily on the importer, and therefore it is considered to be indirect. Excises commonly apply to tires, telephone charges, gambling, employment, and corporate income. In each case, humans may ultimately suffer the tax through higher prices or lower wages, but the incidence is viewed as indirect through the seller, employer, or entity.
Unlike apportionment, uniformity does not require each person to pay the same amount; instead, it requires the same rate structure to exist nationally. For example, Congress may tax truck tires differently than bicycle tires; but however it taxes truck tires, the specific truck tire rates must be the same in every state. As such, it is a geographic requirement. Steward Machine Co. v. Davis (1937); Flint v. Stone Tracy Co. (1911); Knowlton v. Moore (1900). The Supreme Court has never struck down an indirect tax as failing uniformity, although it has considered the issue several times. Uniformity analysis is not easily reducible to black-letter rules; nevertheless, some such rules emerge:
- Taxes may vary by an object’s value or the taxpayer’s income so long as the rates are uniform. They may even apply to objects or transactions found only in some states, such as snow tires in the north or beach umbrellas in coastal states. Edye v. Robertson (Head Money Cases) (1884).
- Tax rates may vary if based on physical, such as coastlines and frigid conditions; however, such variations necessitate a particularly close examination. For instance, in United States v. Ptasynski(1983), the Court distinguished arctic oil from oil produced elsewhere. It upheld a tax on income derived from oil pumped above the Arctic Circle. Rates may also vary because of isolated problems or “diverse conditions.” Florida v. Mellon (1927). How isolated or diverse the problem or condition must be is unclear.
9. Income Tax/Derived
Income taxes may be imposed only on “derived” income. This “realization event” requirement generally refers to a transaction other than the mere passage of time. Thus the Sixteenth Amendment permits taxation of gains from sales or exchanges of property, but not those resulting merely from increased values.
10. Further Reading
If you would like to learn more about the subject of this page, see:
- Constitutional Income: Do You Have Any?, Phil Hart
http://www.constitutionalincome.com/ - Sixteenth Amendment Congressional Debates, Exhibit #02.007
https://sedm.org/Exhibits/EX02.007.pdf - Legislative Intent of the Sixteenth Amendment-very enlightening
https://famguardian.org/Subjects/Taxes/16Amend/LegIntent16thAmend.htm - Taxation Page, Family Guardian Fellowship
https://famguardian.org/Subjects/Taxes/taxes.htm - Sovereignty Forms and Instructions Online, Form #10.004, Cites by Topic: “income”
https://famguardian.org/TaxFreedom/CitesByTopic/income.htm