Sixteenth Amendment

Amendment Text

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.

History and Purpose of the Amendment

The ratification of this Amendment was the direct consequence of the Court's decision in 1895 in Pollock v. Farmers' Loan & Trust Co., 1 whereby the attempt of Congress the previous year to tax incomes uniformly throughout the United States 2 was held by a divided court to be unconstitutional. A tax on incomes derived from property, 3 the Court declared, was a 'direct tax' which Congress under the terms of Article I, Sec. 2, and Sec. 9, could impose only by the rule of apportionment according to population, although scarcely fifteen years prior the Justices had unanimously sustained 4 the collection of a similar tax during the Civil War, 5 the only other occasion preceding the Sixteenth Amendment in which Congress had ventured to utilize this method of raising revenue. 6  

During the interim between the Pollock decision in 1895 and the ratification of the Sixteenth Amendment in 1913, the Court gave evidence of a greater awareness of the dangerous consequences to national solvency which that holding threatened, and partially circumvented the threat, either by taking refuge in redefinitions of 'direct tax' or, and more especially, by emphasizing, virtually to the exclusion of the former, the history of excise taxation. Thus, in a series of cases, notably Nicol v. Ames, 7 Knowlton v. Moore, 8 and Patton v. Brady, 9 the Court held the following taxes to have been levied merely upon one of the 'incidents of ownership' and hence to be excises: a tax which involved affixing revenue stamps to memoranda evidencing the sale of merchandise on commodity exchanges, an inheritance tax, and a war revenue tax upon tobacco on which the hitherto imposed excise tax had already been paid and which was held by the manufacturer for resale.

Because of such endeavors the Court thus found it possible to sustain a corporate income tax as an excise 'measured by income' on the privilege of doing business in corporate form. 10 The adoption of the Sixteenth Amendment, however, put an end to speculation whether the Court, unaided by constitutional amendment, would persist along these lines of construction until it had reversed its holding in the Pollock case. Indeed, in its initial appraisal 11 of the Amendment it classified income taxes as being inherently 'indirect.' '[T]he command of the amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived, forbids the application to such taxes of the rule applied in the Pollock case by which alone such taxes were removed from the great class of excises, duties, and imports subject to the rule of uniformity and were placed under the other or direct class.' 12 '[T]he 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.' 13  

U.S. Supreme Court

POLLOCK v. FARMERS' LOAN & TRUST CO., 157 U.S. 429 (1895)

157 U.S. 429

No. 893.

April 8, 1895

[157 U.S. 429, 430]   This was a bill filed by Charles Pollock, a citizen of the state of Massachusetts, on behalf of himself and all other stockholders of the defendant company similarly situated, against the Farmesr' Loan & Trust Company, a corporation of the state of New York, and its directors, alleging that the capital stock of the corporation consisted of $1,000,000, divided into 40,000 shares of the par value of $25 each; that the company was authorized to invest its assets in public stocks and bonds of the United States, of individual states, or of any incorporated city or county, or in such real or personal securities as it might deem proper; and also to take, accept, and execute all such trusts of every description as might be committed to it by any person or persons or any corporation, by grant, assignment, devise, or bequest, or by order of any court of record of New York, and to receive and take any real estate which might be the subject of such trust; that the property and assets of the company amounted to more than $5,000,000, or which at least $1,000,000 was invested in real estate owned by the company in fee, at least $2,000,000 in bonds of the city of New York, and at least $1,000,000 in the bonds and stocks of other corporations of the United States; that the net profits or income of the defendant company during the year ending December 31, 1894, amounted to more than the sum of $3,000,000 above its actual operation and business expenses, including lossess and interest on bonded and other indebtedness; that from its real estate the company derived an income of $50,000 per annum, after deducting all county, state, and municipal taxes; and that the company derived an income or profit of about $60,000 per annum fro its investments in municipal bonds.

It was further alleged that under and by virtue of the pow- [157 U.S. 429, 431]   ers conferred upon the company it had from time to time taken and executed, and was holding and executing, numerous trusts committed to the company by many persons, copartnerships, unincorporated associations, and corpoa tions, by grant, assinment, devise, and bequest, and by orders of various courts, and that the company now held as trustee for many minors, individuals, corpartnerships, associations, and corporations, resident in the United States and elsewhere, many parcels of real estate situated in the various states of the United States, and amounting in the aggregate, to a value exceeding $5,000,000, the rents and income of which real estate collected and received by said defendant in its fiduciary capacity annually exceeded the sum of *200,000.

The bill also averred that complainant was, and had been since May 20, 1892, the owner and registered holder of 10 shares of the capital stock of the company, of a value exceeding the sum of $5,000; that the capital stock was divied among a large number of different persons, who, as such stockholders, constituted a large body; that the bill was filed for an object common to them all, and that he therefore brought suit not only in his own behalf as a stockholder of the company, but also as a representative of and on behalf of such of the other stockholders similarly situated and interested as might choose to intervene and become parties.

It was then alleged that the management of the stock, property, affairs, and concerns of the company was committed, under its acts of incorporation, to its directors, and charged that the company and a majority of its directors claimed and asserted that under and by virtue of the alleged authority of the provisions of an act of congress of the United States entitled 'An act to reduce taxation, to provide revenue for the government, and for other purposes,' passed August 15, 1894, the company was liable, and that they intended to pay, to the United States, before July 1, 1895, a tax of 2 per centum on the net profits of said company for the year ending December 31, 1894, above actual operating and business expenses, including the income derived from its real estate and [157 U.S. 429, 432]   its bonds of the city of New York; and that the directors claimed and asserted that a similar tax must be paid upon the amount of the incomes, gains, and profits, in excess of $4,000, of all minors and others for whom the company was acting in a fiduciary capacity. And, further, that the company and its directors had avowed their intention to make and file with the collector of internal revenue for the Second district of the city of New York a list, return, or statement showing the amount of the net income of the company received during the year 1894, as aforesaid, and likewise to make and render a list or return to said collector of internal revenue, prior to that date, of the amount of the income, gains and profits of all minors and other persons having incomes in excess of $3,500, for whom the company was acting in a fiduciary capacity.

The bill charged that the provisions in respect of said alleged income tax incorporated in the act of congress were unconstututional, null, and void, in that the tax was a direct tax in respect of the real estate held and owned by the company in its own right and in its fiduciary capacity as aforesaid, by being imposed upon the rents, issues, and profits os said real estate, and was likewise a direct tax in respect of its personal property and the personal property held by it for others for whom it acted in its fiduciary capacity as aforesaid, which direct taxes were not, in and by said act, apportioned among the several states, as required by section 2 of article 1 of the constitution; and that, if the income tax so incorporated in the act of congress aforesaid were held not to be a direct tax, nevertheless its provisions were unconstitutional, null, and void, in that they were not uniform throughout the United States, as required in and by section 8 of article 1 of the constitution of the United States, upon many grounds and in many particulars specifically set forth.

The bill further charged that the income-tax provisions of the act were likewise unconstitutional, in that they imposed a tax on incomes not taxable ud er the constitution, and likewise income derived from the stocks and bonds of the states of the United States, and counties and municipalities therein, [157 U.S. 429, 433]   which stocks and bonds are among the means and instrumentalities employed for carrying on their repective governments, and are not proper subjects of the taxing power of congress, and which states and their counties and muncipalities are independent of the general government of the United States, and the respective stocks and bonds of which are, together with the power of the states to borrow in any form, exempt from federal taxation.

Other grounds of unconstitutionality were assigned, and the violation of articles 4 and 5 of the constitution asserted.

The bill further averred that the suit was not a collusive one, to confer on a court of the United States jurisdiction of the case, of which it would not otherwise have cognizance and that complainant had requested the company and its directors to omit and to refuse to pay said income tax, and to contest the constiutionality of said act, and to refrain from voluntarily making lists, returns, and statements on its own behalf and on behalf of the minors and other persons for whom its was acting in a fiduciary capacity, and to apply to a court of competent jurisdiction to determine its liability under said act; but that the company and a majority of its directors, after a meeting of the directors, at which the matter and the request of complainant were formally laid before them for action, had rejused, and still refuse, and intend omitting, to comply with complainant's demand, and had resolved and determined and intended to comply with all and singular the provisions of the said act of congress, and to pay the tax upon all its net profits or income as aforesaid, including its rents from real estate and its income from municipal bonds, and a copy of the refusal of the company was annexed to the complaint.

It was also alleged that if the company and its directors, as they propered and had declared their intention to do, should pay the tax out of its gains, income, and profits, or out of the gains, income, and profits of the property held by it in its fiduciary capacity they will diminish the assets of the company and lessen the dividends thereon and the value of the shares; that voluntary compliance with the income-tax provisions would expose the company to a multiplicity of suits, not only by and [157 U.S. 429, 434]   on behalf of its numerous shareholders, but by and on behalf of numberous minors and others for whom it acts in a fiduciary capacity, and that such numerous suits would work irreparable injury to the business of the company, and subject it to great and irreparable damage, and to liability to the beneficiaries aforesaid, to the irreparable damage of complainant and all its shareholders.

The bill further averred that this was a suit of a civil nature in equity; that the matter in dispute exceeded, exclusive of costs, the sum of $5,000, and arose under the constitution or laws of the United States; and that there was furthermore a controversy between citizens of different states.

The prayer was that it might be adjudged and decreed that the said provisions known as the income tax incorporated in said act of congress passed August 15, 1894, are unconstitutional, null, and void; that the defendants be restrained from volunarily complying with the provisions of said act, and making the list, returns, and statements above referred to, or paying the tax aforesaid; and for general relief.

The defendants demurred on the ground of want of equity, and, the cause having been brought on to be heard upon the bill and demurrer thereto, the demurrer was sustained, and the bill of complaint dismissed, with costs, whereupon the record recited that the constitutionality of a law of the United States was drawn in question, and an appeal was allowed directly to this court.

An abstract of the act in question will be found in the margin. 1   [157 U.S. 429, 435]   By the third clause of section 2 of article 1 of the constitt ion it was provided: 'Representatives and direct taxes shall [157 U.S. 429, 436]   be apportioned among the several states which may be included within this Union, according to their respective num- [157 U.S. 429, 437]   bers, which shall be determined by adding to the whole number of free persons, including those bound to service for a term of [157 U.S. 429, 438]   years, and excluding Indians not taxed, three-fifths of all other persons.' This was amended by the second section of the [157 U.S. 429, 439]   fourteenth amendment, declared ratified July 28, 1868, so that the whole number of persons in each state should be counted, [157 U.S. 429, 440]   Indians not taxed excluded, and the provision, as thus amended, remains in force. [157 U.S. 429, 441]   The acutal enumeration was prescribed to be made within three years after the first meeting of congrees, and within every subsequent term of ten years, in such manner as should be directed.

Section 7 requires 'all bills for raising revenue shall originate in the house or representatives.'

The first clause of section 8 reads thus: '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.' And the third clause thus: 'To regulate commerce with foreigh nation, and among the several states, and with the Indian tribes.'

The fourth, fifth, and sixth clauses of section 9 are as follows:

    'No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken.
    'No tax or duty shall be laid on articles exported from any state.
    'No preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another; nor shall vessels bount to, or from, one state, be obliged to enter, clear, or pay duties in another.'

It is also provided by the second clause of section 10 that 'no state shall, without consent of the congress, lay any imposts or duties on imports or exports, except what may be [157 U.S. 429, 442]   absolutely necessary for executing its inspection laws'; and, by the third clause, that 'no state shall, without the consent of congress, lay any duty of tonnage.'

The first clause of section 9 provides: 'The migration or importation of such persons as any of the states now existing shall think proper to admit, shall not be prohibited by the congress prior to the year one thousand and eight hundred and eight, but a tax or duty may be imposed on such importations, not exceeding ten dollars for each person.'

Article 5 prescribes the mode for the amendment of the constitution, and concludes with this proviso: 'Provided, that no amendment which may be made prior to the year one thousand eight hundred and eight shall in any manner affect the first and fourth clauses in the ninth section of the first article.'

B. H. Bristow, Wm. D. Gurtrie, David Willcox, Charles Steele, and

[157 U.S. 429, 469]   Assistant Attorney General Whitney, for the United States.

[157 U.S. 429, 513]   Herbert B. Turner, for appellee Farmers' Loan & Trust Company.

James C. Carter, Wm. C. Gulliver, and F. B. Candler, for appellee Continental Trust Company.

Attorney General Olney and

[157 U.S. 429, 532]   Jos. H. Choate, Charles F. Southmayd, for appellants Pollock and Hyde.

[157 U.S. 429, 553]  

Mr. Chief Justice FULLER, after stating the facts in the foregoing language, delivered the opinion of the court.

The jurisdiction of a court of equity to prevent any threatened breach of trust in the misapplication or diversion of the funds of a corporation by illegal payments out of its capital or profits has been frequently sustained. Dodge v. Woolsey, 18 How. 331; Hawes v. Oakland, 104 U.S. 450 . [157 U.S. 429, 554]   As in Dodge v. Woolsey, this bill proceeds on the ground that the defendants would be guilty of such breach of trust or duty in voluntarily making return for the imposition of, and paying, an unconstitutional tax; and also on allegations of threatened multiplicity of suits and irreparable injury.

The objection of adequate remedy at law was not raised below, nor is it now raised by appellees, if it could be entertained at all at this stage of the proceedings; and, so far as it was within the power of the government to do so, the question of jurisdiction, for the purposes of the case, was explicitly waived on the argument. The relief sought was in respect of voluntary action by the defendant company, and not in respect of the assessment and collection themselves. Under these circumstances, we should not be justified in declining to proceed to judgment upon the merits. Pelton v. Bank, 101 U.S. 143 , 148; Cummings v. Bank, Id. 153, 157; Reynes v. Dumont, 130 U.S. 354 , 9 Sup. Ct. 486.

Since the opinion in Marbury v. Madison, 1 Cranch, 137, 177, was delivered, it has not been doubted that it is within judicial competency, by express provisions of the constitution or by necessary inference and implication, to determine whether a given law of the United States is or is not made in pursuance of the constitution, and to hold it valid or void accordingly. 'If,' said Chief Justice Marshall, 'both the law and the constitution apply to a particular case, so that the court must either decide that case conformably to the law, disregarding the constitution, or conformably to the constitution, disregarding the law, the court must determine which of these conflicting rules governs the case. This is of the very essence of judicial duty.' And the chief justice added that the doctrine 'that courts must close their eyes on the constitution, and see only the law,' 'would subvert the very foundation of all written constitutions.' Necessarily the power to declare a law unconstitutional is always exercised with reluctance; but the duty to do so, in a proper case, cannot be declined, and must be discharged in accordance with the deliberate judgment of the tribunal in which the validity of the enactment is directly drawn in question. [157 U.S. 429, 555]   The contention of the complainant is:

First. That the law in question, in imposing a tax on the income or rents of real estate, imposes a tax upon the real estate itself; and in imposing a tax on the interest or other income of bonds or other personal property, held for the purposes of income or ordinarily yielding income, imposes a tax upon the personal estate itself; that such tax is a direct tax, and void because imposed without regard to the rule of apportionment; and that by reason thereof the whole law is invalidated.

Second. That the law is invalid, because imposing indirect taxes in violation of the constitutional requirement of uniformity, and therein also in violation of the implied limitation upon taxation that all tax laws must apply equally, impartially, and unformly to all similarly situated. Under the second head, it is contended that the rule of uniformity is violated, in that the law taxes the income of certain corporations, companies, and associations, no matter how created or organized, at a higher rate than the incomes of individuals or partnerships derived from precisely similar property or business; in that it exempts from the operation of the act and from the burden of taxation numerous corporations, companies, and associations having similar property and carrying on similar business to those expressly taxed; in that it denies to individuals deriving their income from shares in certain corporations, companies, and associations the benefit of the exemption of $ 4,000 granted to other persons interested in similar property and business; in the exemption of $4,000; in the exemption of building and loan associations, savings banks, mutual life, fire, marine, and accident insurance companies, existing solely for the pecuniary profit of their members,-these and other exemptions being alleged to be purely arbitrary and capricious, justified by no public purpose, and of such magnitude as to ina lidate the entire enactment; and in other particulars.

Third. That the law is invalid so far as imposing a tax upon income received from state and municipal bonds.

The constitution provides that representatives and direct [157 U.S. 429, 556]   taxes shall be apportioned among the several states according to numbers, and that no direct tax shall be laid except according to the enumeration provided for; and also that all duties, imposts, and excises shall be uniform throughout the United States.

The men who framed and adopted that instrument had just emerged from the struggle for independence whose rallying cry had been that 'taxation and representation go together.'

The mother country had taught the colonists, in the contests waged to establish that taxes could not be imposed by the sovereign except as they were granted by the representatives of the realm, that self-taxation constituted the main security against oppression. As Burke declared, in his speech on conciliation with America, the defenders of the excellence of the English constitution 'took infinite pains to inculcate, as a fundamental principle, that, in all monarchies, the people must, in effect, themselves, mediately or immediately, possess the power of granting their own money, or no shadow of liberty could subsist.' The principle was that the consent of those who were expected to pay it was essential to the validity of any tax.

The states were about, for all national purposes embraced in the constitution, to become one, united under the same sovereign authority, and governed by the same laws. But as they still retained their jurisdiction over all persons and things within their territorial limits, except where surrendered to the general government or restrained by the constitution, they were careful to see to it that taxation and representation should go together, so that the sovereignty reserved should not be impaired, and that when congress, and especially the house of representatives, where it was specifically provided that all revenue bills must originate, voted a tax upon property, it should be with the consciousness, and under the responsibility, that in so doing the tax so voted would proportionately fall upon the immediate constituents of those who imposed it.

More than this, by the constitution the states not only gave to the nation the concurrent power to tax persons and [157 U.S. 429, 557]   property directly, but they surrendered their own power to levy taxes on imports and to regulate commerce. All the 13 were seaboard states, but they varied in maritime importance, and differences existed between them in population, in wealth, in the character of property and of business interests. Moreover, they looked forward to the coming of new states from the great West into the vast empire of their anticipations. So when the wealthier states as between themselves and their less favored associates, and all as between themselves and those who were to come, gave up for the common good the great sources of revenue derived through commerce, they did so in reliance on the protection afforded by restrictions on the grant of power.

Thus, in the matter of taxation, the constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely, the rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.

The rule of uniformity was not prescribed to the exercise of the power granted by the first paragraph of section 8 to lay and collect taxes, because the rule of apportionment as to taxes had already been laid down in the third paragraph of the second section.

And this view was expressed by Mr. Chief Justice Cause in The License Tax Cases, 5 Wall. 462, 471, when he said: '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 apportionmn t, and indirect taxes by the rule of uniformity. Thus limited, and thus only, it reaches every subject, and may be exercised at discretion.'

And although there have been, from time to time, intimations that there might be some tax which was not a direct tax, nor included under the words 'duties, imports, and excises,' such a tax, for more than 100 years of national existence, has as yet remained undiscovered, notwithstanding the stress of particular circumstances has invited thorough investigation into sources of revenue. [157 U.S. 429, 558]   The first question to be considered is whether a tax on the rents or income of real estate is a direct tax within the meaning of the constitution. Ordinarily, all taxes paid primarily by persons who can shift the burden upon some one else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes. Nevertheless, it may be admitted that, although this definition of direct taxes is prima facie correct, and to be applied in the consideration of the question before us, yet the constitution may bear a different meaning, and that such different meaning must be recognized. But in arriving at any conclusion upon this point we are at liberty to refer to the historical circumstances attending the framing and adoption of the constitution, as well as the entire frame and scheme of the instrument, and the consequences naturally attendant upon the one construction or the other.

We inquire, therefore, what, at the time the constitution was framed and adopted, were recognized as direct taxes? What did those who framed and adopted it understand the terms to designate and include?

We must remember that the 55 members of the constitutional convention were men of great sagacity, fully conversant with governmental problems, deeply conscious of the nature of their task, and profoundly convinced that they were laying the foundations of a vast future empire. 'To many in the assembly the work of the great French magistrate on the 'Spirit of Laws,' of which Washington with his own hand had copied an abstract by Madison, was the favorite manual. Some of them had made an analysis of all federal governments in ancient and modern times, and a few were well versed in the best English, Swiss, and Dutch writers on government. They had immediately before them the example of Great Britain, and they had a still better school of political wisdom in the republican constitutions of their several states, which many of them had assisted to frame.' 2 Bancr. Hist. Const. 9.

The Federalist demonstrates the value attached by Hamilton, [157 U.S. 429, 559]   Madison, and Jay to historical experience, and shows that they had made a careful study of many forms of government. Many of the framers were particularly versed in the literature of the period,-Franklin, Wilson, and Hamilton for example. Turgot had published in 1764 his work on taxation, and in 1766 his essay on 'The Formation and Distribution of Wealth,' while Adam Smith's 'Wealth of Nations' was published in 1776. Franklin, in 1766, had said, upon his examination before the house of commons, that: 'An external tax is a duty laid on commodities imported; that duty is added to the first cost and other charges on the commodity, and, when it is offered to sale, makes a part of the price. If the people do not like it at that price, they refuse it. They are not obliged to pay it. But an internal tax is forced from the people without their consent, if not laid by their own representatives. The stamp act says we shall have no commerce, make no exchange of property with each other, neither purchase nor grant, nor recover debts; we shall neither marry nor make our wills,-unless we pay such and such sums; and thus it is intended to extort our money from us, or ruin us by the consequences of refusing to pay.' 16 Parl. Hist. 144.

They were, of course, familiar with the modes of taxation pursued in the several states. From the report of Oliver Wolcott, when secretary of the treasury, on direct taxes, to the house of representatives, December 14, 1796,-his most important state paper (Am. St. P. 1 Finance, 431),-and the various state laws then existing, it appears that prior to the adoption of the constitution nearly all the states imposed a poll tax, taxes on land, on cattle of all kinds, and various kinds of personal property, and that, in addition, Massachusetts, Connecticut, Pennsylvania, Delaware, New Jersey, Virginia, and South Carolina assessed their citizens upon their profits from professions, trades, and employments.

Congress, under the articles of confederation, had no actual operative power of taxation. It could call upon the states for their respective contributions or quotas as previously determined on; but, in case of the failure or omission of the states to furnish such contribution, there were no means of [157 U.S. 429, 560]   compulsion, as congress had no power whatever to lay any tax upon individuals. This imperatively demanded a remedy; but the opposition to granting the power of direct taxation in addition to the substantially exclusive power of laying imposts and duties was so strong that it required the convention, in securing effective powers of taxation to the federal government, to use the utmost care and skill to so harmonize conflicting interests that the ratification of the instrument could be obtained.

The situation and the result are thus described by Mr. Chief Justice Chase in Lane Co. v. Oregon, 7 Wall. 71, 76: 'The people of the United States constitute one nation, under one government; and this government, within the scope of the powers with which it is invested, is supreme. On the other hand, the people of each state compose a state, having its own government, and endowed with all the functions essential to separate and independent existence. The states disunited might continue to exist. Without the states in union, there could be no such political body as the United States. Both the states and the United States existed before the constitution. The people, through that instrument, established a more perfect union by substituting a national government, acting, with ample power, directly upon the citizens, instead of the confederate government, which acted with powers, greatly restricted, only upon the states. But in many articles of the constitution the necessary existence of the states, and, within their proper spheres, the independent authority of the states, is distinctly recognized. To them nearly the whole charge of interior regulation is committed or left; to them and to the people all powers not expressly delegated to the national government are reserved. The general condition was well stated by Mr. Madison in the Federalist, thus: 'The federal and state governments are in fact but different agents and trustees of the people, constituted with different powers, and designated for different purposes.' Now, to the existence of the states, themselves necessary to the existence of the United States, the power of taxation is indispensable. It is an essantial function of [157 U.S. 429, 561]   government. It was exercised by the colonies; and when the colonies became states, both before and after the formation of the confederation, it was exercised by the new governments. Under the articles of confederation the government of the United States was limited in the exercise of this power to requisitions upon the states, while the whole power of direct and indirect taxation of persons and property, whether by taxes on polls, or duties on imports, or duties on internal production, manufacture, or use, was acknowledged to belong exclusively to the states, without any other limitation than that of noninterference with certain treaties made by congress. The constitution, it is true, greatly changed this condition of things. It gave the power to tax, both directly and indirectly, to the nationl government, and, subject to the one prohibition of any tax upon exports and to the conditions of uniformity in respect to indirect, and of proportion in respect to direct, taxes, the power was given without any express reservation. On the other hand, no power to tax exports, or imports except for a single purpose and to an insignificant extent, or to lay any duty on tonnage, was permitted to the states. In respect, however, to property, business, and persons, within their respective limits, their power of taxation remained and remains entire. It is, indeed, a concurrent power, and in the case of a tax on the same subject by both governments the claim of the United States, as the supreme authority, must be preferred; but with this qualification it is absolute. The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the mode in which it shall be exercised, are all equally within the discretion of the legislatures to which the states commit the exercise of the power. That discretion is restrained only by the will of the people expressed in the state constitutions or through elections, and by the condition that it must not be so used as to burden or embarrass the operations of the national government. There is nothing in the constitution which contemplates or authorizes any direct abridgment of this power by national legislation. To the extent just indicated it is as complete in the states as the like [157 U.S. 429, 562]   power, within the limits of the constitution, is complete in congress.'

On May 29, 1787, Charles Pinckney presented his draft of a proposed constitution, which provided that the proportion of direct taxes should be regulated by the whole number of inhabitants of every description, taken in the manner prescribed by the legislature, and that no tax should be paid on articles exported from the United States. 1 Elliot, Deb. 147, 148.

Mr. Randolph's plan declared 'that the right of suffrage, in the national legislature, ought to be proportioned to the quotas of contribution, or to the number of free inhabitants, as the one or the other may seem best, in different cases.' 1 Elliot, Deb. 143.

On June 15, Mr. Paterson submitted several resolutions, among which was one proposing that the United States in congress should be authorized to make requisitions in proportion to the whole number of white and other free citizens and inhabitants, including those bound to servitude for a term of years, and three-fifths of all other person, except Indians not taxed. 1 Elliot, Deb. 175, 176.

On the 9th of July, the proposition that the legislature be authorized to regulate the number of representatives according to wealth and inhabitants was approved, and on the 11th it was voted that, 'in order to ascertain the alterations that may happen in the population and wealth of the several states, a census shall be taken,' although the resolution of which this formed a part was defeated. 5 Elliot, Deb. 288, 295; 1 Elliot, Deb. 200.

On July 12th, Gov. Morris moved to add to the clause empowering the legislature to vary the representatiton according to the amount of wealth and number of the inhabitants a proviso that taxation should be in proportion to representation, and, admitting that some objections lay against his proposition, which would be removed by limiting it to direct taxation, since 'with regard to indirect taxes on exports and imports, and on consumption, the rule would be inapplicable,' varied his motion by inserting the word 'direct,' whereupon it passed as follows: 'Provided, always, that direct taxation [157 U.S. 429, 563]   ought to be proportioned to representation.' 5 Elliott, Deb. 302.

Amendments were proposed by Mr. Ellsworth and Mr. Wilson to the effect that the rule of contribution by direct taxation should be according to the number of white inhabitants and three-fifths of every other description, and that, in order to ascertain the alterations in the direct taxation which might be required from time to time, a census should be taken. The word 'wealth was struck out of the clause on motion of Mr. Randolph; and the whole proposition, proportionate representation to direct taxation, and both to the white and three-fifths of the colored in habitants, and requiring a census, was adopted.

In the course of the debates, and after the motion of Mr. Ellsworth that the first census be taken in three years after the meeting of congress had been adopted, Mr. Madison records: 'Mr. King asked what was the precise meaning of 'direct taxation.' No one answered.' But Mr. Gerry immediately moved to amend by the insertion of the clause that 'from the first meeting of the legislature of the United States until a census shall be taken, all moneys for supplying the public treasury by direct taxation shall be raised from the several states according to the number of their representatives respectively in the first branch.' This left for the time the matter of collection to the states. Mr. Langdon objected that this would bear unreasonably hard against New Hampshire, and Mr. Martin said that direct taxation should not be used but in cases of absolute necessity, and then the states would be the best judges of the mode. 5 Elliot, Deb. 451, 453.

Thus was accomplished one of the great compromises of the constitution, resting on the doctrine that the right of representation ought to be conceded to every community on which a tax is to be imposed, but crystallizing it in such form as to allay jealousies in respect of the future balance of power; to reconcile conflicting views in respect of the enumeration of slaves; and to remove the objection that, in adjusting a system of representation between the states, regard should be had to their relative wealth, since those who were to be most heavily [157 U.S. 429, 564]   taxed ought to have a proportionate influence in the goverment.

The compromise, in embracing the power of direct taxation, consisted not simply in including part of the slaves in the enumeration of population, but in providing that, as between state and state, such taxation should be proportioned to representation. The establishment of the same rule for the apportionment of taxes as for regulating the proportion of representatives, observed Mr. Madison in No. 54 of the Federalist, was by no means founded on the same principle, for, as to the former, it had reference to the proportion of wealth, and, although in respect of that it was in ordinary cases a very unfit measure, it 'had too recently obtained the general sanction of America not to have found a ready preference with the convention,' while the opposite interests of the states, balancing each other, would produce impartiality in enumeration. By prescribing this rule, Hamilton wrote (Federalist, No. 36) that the door was shut 'to partiality or oppression,' and 'the abuse of this power of taxation to have been provided against with guarded circumspection'; and obviously the operation of direct taxation on every state tended to prevent resort to that mode of supply except under pressure of necessity, and to promote prudence and economy in expenditure.

We repeat that the right of the federal government to directly assess and collect its own taxes, at least until after requisitions upon the states had been made and failed, was one of the chief points of conflict; and Massachusetts, in ratifying, recommended the adoption of an amendment in these words: 'That congress do not lay direct taxes but when the moneys arising from the impost and excise are insufficient for the public exigencies, nor then until congress shall have first made a requisition upon the states to assess, levy, and pay their respective proportions of such requisition, agreeably to the census fixed in the said constitution, in such way and manner as the legislatures of the states shall think best.' 1 Elliot, Deb. 322. And in this South Carolina, New Hampshire, and Rhode Island concurred. Id. 325, 326, 329, 336. [157 U.S. 429, 565]   Luther Martin, in his well known communication to the legislature of Maryland in January, 1788, ep ressed his views thus: 'By the power to lay and collect taxes they may proceed to direct taxation on every individual, either by a capitation tax on their heads, or an assessment on their property. ... Many of the members, and myself in the number, thought that states were much better judges of the circumstances of their citizens, and what sum of money could be collected from them by direct taxation, and of the manner in which it could be raised with the greatest ease and convenience to their citizens, than the general government could be; and that the general government ought not to have the power of laying direct taxes in any case but in that of the delinquency of a state.' 1 Elliot, Deb. 344, 368, 369.

Ellsworth and Sherman wrote the governor of Connecticut, September 26, 1787, that it was probable 'that the principal branch of revenue will be duties on imports. What may be necessary to be raised by direct taxation is to be apportioned on the several states, according to the number of their inhabitants; and although congress may raise the money by their own authority, if necessary, yet that authority need not be exercised if each state will furnish its quota.' 1 Elliot, Deb. 492.

And Ellsworth, in the Connecticut convention, in discussing the power of congress to lay taxes, pointed out that all sources of revenue,