Examples of early applications
The income tax under the Sixteenth Amendment is an indirect excise tax upon PROFIT, and not PROPERTY ownership itself. In that sense, “gross income” under I.R.C. Section 61 is NOT equal to GROSS RECEIPTS because the tax is not upon property, which his what GROSS RECEIPTS are in relation to the taxpayer.
“We must reject in this case, as we have rejected in cases arising under the Corporation Excise Tax Act of 1909 (Doyle, Collector, v. Mitchell Brothers Co., 247 U.S. 179, 38 Sup. Ct. 467, 62 L. Ed.–), the broad contention submitted on behalf of the government that all receipts—everything that comes in-are income within the proper definition of the term ‘gross income,’ and that the entire proceeds of a conversion of capital assets, in whatever form and under whatever circumstances accomplished, should be treated as gross income. Certainly the term “income’ has no broader meaning in the 1913 act than in that of 1909 (see Stratton’s Independence v. Howbert, 231 U.S. 399, 416, 417 S., 34 Sup. Ct. 136), and for the present purpose we assume there is not difference in its meaning as used in the two acts.”
[Southern Pacific Co., v. Lowe, 247 U.S. 330, 335, 38 S.Ct. 540 (1918);
SOURCE: https://scholar.google.com/scholar_case?case=9702563774965412467]
The following chronology lists various indirect excise taxes levied under the authority of Article 1, Section 8, Clause 3 of the original Constitution and later the Sixteenth Amendment that really didn’t change the constitution other than to add personal property to things that cannot be the subject of direct taxes.
1791: First Tax Following Constitutional Ratification: Distilled Spirits
The first tax imposed after the Constitution was ratified was federal excise tax on distilled spirits. The Whiskey Rebellion was a significant uprising that took place between 1791 and 1794 in the United States. It was sparked by a federal excise tax on distilled spirits, commonly known as the “whiskey tax,” which was part of Treasury Secretary Alexander Hamilton’s plan to centralize and pay off the national debt.
Farmers in western Pennsylvania, who often distilled their surplus grain into whiskey, strongly opposed the tax. They viewed it as unfair and reminiscent of the British taxes they had fought against during the American Revolution. The rebellion escalated to the point where protesters used violence and intimidation to prevent tax collection.
In response, President George Washington led a militia force of about 13,000 troops to suppress the rebellion, marking the first time under the new Constitution that the federal government used military force to exert authority over the states. The rebellion ultimately ended without significant bloodshed, but it demonstrated the federal government’s willingness and ability to enforce its laws.
More at:
- Whiskey Rebellion, Wikipedia
https://en.wikipedia.org/wiki/Whiskey_Rebellion - Whiskey Rebellion, History Channel
https://www.history.com/topics/early-us/whiskey-rebellion
1796: Carriage Tax
The Hylton v. United States, 3 U.S. 171 (1796) case, decided in 1796, was an early and significant U.S. Supreme Court case. The main issue was whether a federal tax on carriages was a “direct tax” that needed to be apportioned among the states according to the Constitution.
The Court ruled that the carriage tax was not a direct tax, and therefore did not need to be apportioned. This decision was important because it was one of the first instances where the Supreme Court exercised judicial review to determine the constitutionality of a federal statute.
On the carriage tax, the U.S. Supreme Court held:
In Hylton v. United States, 3 Dall. 171, decided in March, 1796, this court held the act to be constitutional, because not laying a direct tax. Chief Justice Ellsworth and Mr. Justice Cushing took no part in the decision, and Mr. Justice Wilson gave no reasons.
Mr. Justice Chase said that he was inclined to think, but of this he did not “give a judicial opinion,” that “the direct taxes contemplated by the Constitution, are only two, to wit, a capitation, or poll tax, simply, without regard to property, profession, or any other circumstance; and a tax on land;” and that he doubted “whether a tax, by a general assessment of personal property, within the United States, is included within the term direct tax.” But he thought that “an annual tax on carriages for the conveyance of persons, may be considered as within the power granted to Congress to lay duties. The term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.,) embraces taxes on stamps, tolls for passage, etc., and is not confined to taxes on importation only. It seems to me, that a tax on expense is an indirect 571*571 tax; and I think, an annual tax on a carriage for the conveyance of persons, is of that kind; because a carriage is a consumable commodity; and such annual tax on it, is on the expense of the owner.”
Mr. Justice Paterson said that “the Constitution declares, that a capitation tax is a direct tax; and, both in theory and practice, a tax on land is deemed to be a direct tax… . It is not necessary to determine, whether a tax on the product of land be a direct or indirect tax. Perhaps, the immediate product of land, in its original and crude state, ought to be considered as the land itself; it makes part of it; or else the provision made against taxing exports would be easily eluded. Land, independently of its produce, is of no value… . Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and taxes on land, is a questionable point… . But as it is not before the court, it would be improper to give any decisive opinion upon it.” And he concluded: “All taxes on expenses or consumption are indirect taxes. A tax on carriages is of this kind, and of course is not a direct tax.” This conclusion he fortified by reading extracts from Adam Smith on the taxation of consumable commodities.
Mr. Justice Iredell said: “There is no necessity, or propriety, in determining what is or is not, a direct, or indirect, tax in all cases. Some difficulties may occur which we do not at present foresee. Perhaps a direct tax, in the sense of the Constitution, can mean nothing but a tax on something inseparably annexed to the soil; something capable of apportionment under all such circumstances. A land or a poll tax may be considered of this description… . In regard to other articles, there may possibly be considerable doubt. It is sufficient, on the present occasion, for the court to be satisfied, that this is not a direct tax contemplated by the Constitution, in order to affirm the present judgment.”
It will be perceived that each of the justices, while suggesting doubt whether anything but a capitation or a land tax was a direct tax within the meaning of the Constitution, distinctly avoided expressing an opinion upon that question or 572*572 laying down a comprehensive definition, but confined his opinion to the case before the court.
The general line of observation was obviously influenced by Mr. Hamilton’s brief for the government, in which he said: “The following are presumed to be the only direct taxes: Capitation or poll taxes, taxes on lands and buildings, general assessments, whether on the whole property of individuals, or on their whole real or personal estate. All else must of necessity be considered as indirect taxes.” 7 Hamilton’s Works, (Lodge’s ed.) 332.
Mr. Hamilton also argued: “If the meaning of the word `excise’ is to be sought in a British statute, it will be found to include the duty on carriages, which is there considered as an `excise.’… An argument results from this, though not perhaps a conclusive one, yet, where so important a distinction in the Constitution is to be realized, it is fair to seek the meaning of terms in the statutory language of that country from which our jurisprudence is derived.” Id. 333.
If the question had related to an income tax, the reference would have been fatal, as such taxes have been always classed by the law of Great Britain as direct taxes.
[Pollock v. Farmers’ Loan & Trust Cot, 157 U.S. 429, 571-572 (1894);
SOURCE: https://scholar.google.com/scholar_case?case=7292056596996651119]
1866: License Tax Cases
During the civil war from 1862-1865, Congress instituted an income tax to pay for the war. This was the Act of June 30, 1864. When the war ended, the tax was challenged in the U.S. Supreme Court, resulting in the License Tax Cases, 72 U.S. 462 (1866). The tax that was challenged was a tax on unlicensed dealing in lottery tickets and liquors. The U.S. Supreme Court held that taxation within the constitutional states of licensed activities was lawful, but that the licensed activities could not interfere with state regulation of the same subject. Here is what they held:
Thus, Congress having power to regulate commerce with foreign nations, and among the several States, and with the Indian tribes, may, without doubt, provide for granting coasting licenses, licenses to pilots, licenses to trade with the Indians, and any other licenses necessary or proper for the exercise of that great and extensive power; and the same observation is applicable to every other power of Congress, to the exercise of which the granting of licenses may be incident. All such licenses confer authority, and give rights to the licensee.
But very different considerations apply to the internal commerce or domestic trade of the States. Over this commerce and trade Congress has no power of regulation nor 471*471 any direct control. This power belongs exclusively to the States. No interference by Congress with the business of citizens transacted within a State is warranted by the Constitution, except such as is strictly incidental to the exercise of powers clearly granted to the legislature. The power to authorize a business within a State is plainly repugnant to the exclusive power of the State over the same subject. It is true that the power of Congress to tax is a very extensive power. It is given in the Constitution, with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity. Thus limited, and thus only, it reaches every subject, and may be exercised at discretion. But it reaches only existing subjects. Congress cannot authorize a trade or business within a State in order to tax it.
If, therefore, the licenses under consideration must be regarded as giving authority to carry on the branches of business which they license, it might be difficult, if not impossible, to reconcile the granting of them with the Constitution.
But it is not necessary to regard these laws as giving such authority. So far as they relate to trade within State limits, they give none, and can give none. They simply express the purpose of the government not to interfere by penal proceedings with the trade nominally licensed, if the required taxes are paid. The power to tax is not questioned, nor the power to impose penalties for non-payment of taxes. The granting of a license, therefore, must be regarded as nothing more than a mere form of imposing a tax, and of implying nothing except that the licensee shall be subject to no penalties under national law, if he pays it.
This construction is warranted by the practice of the government from its organization. As early as 1794 retail dealers in wines or in foreign distilled liquors were required to obtain and pay for licenses, and renew them annually, and penalties were imposed for carrying on the business without compliance with the law.[*] In 1802 these license-taxes and 472*472 the other excise or internal taxes, which had been imposed under the exigencies of the time, being no longer needed, were abolished.[*] In 1813 revenue from excise was again required, and laws were enacted for the licensing of retail dealers in foreign merchandise, as well as to retail dealers in wines and various descriptions of liquors.[†] These taxes also were abolished after the necessity for them had passed away, in 1817.[‡] No claim was ever made that the licenses thus required gave authority to exercise trade or carry on business within a State. They were regarded merely as a convenient mode of imposing taxes on several descriptions of business, and of ascertaining the parties from whom such taxes were to be collected.
[License Tax Cases, 72 U.S. 462, 470-472 (1866); SOURCE: https://scholar.google.com/scholar_case?case=2852002685220457827]
The fact that licensed activities were the subject of this tax is exactly how things work today. The Social Security Number (SSN) or Taxpayer Identification Number (TIN) are the License number that facilitates the collection of the income tax. Social Security was identified by the U.S. Supreme Court as an “excise tax” and therefore an indirect tax in Steward Machine Co. v. Davis, 301 U.S. 548 (1937). The income tax piggybacks on top of Social Security excise/indirect taxes. This is explained in:
- SSA Franchise is the License Number, FTSIG. On the History->SSA Franchise is the license Number menu.
https://ftsig.org/history/ssa-franchise-is-the-license-number/ - About SSNs and TINs on Government Forms and Correspondence, Form #05.012
https://sedm.org/Forms/05-MemLaw/AboutSSNsAndTINs.pdf