Brushaber v. Union Pacific Railroad
Encyclopedia
Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), was a landmark United States Supreme Court
case in which the Court upheld the validity of a tax statute called the Revenue Act of 1913
, also known as the Tariff Act, Ch. 16, 38 Stat. 166 (Oct. 3, 1913), enacted pursuant to Article I, section 8, clause 1 of, and the Sixteenth Amendment
to, the United States Constitution
, allowing a federal income tax
. The Sixteenth Amendment had been ratified earlier in 1913. The Revenue Act of 1913 imposed income taxes that were not apportioned among the states according to each state's population.
, however, the Court had overturned longstanding precedent and ruled that while a tax on income from labor was an excise, or indirect tax (a tax not required to be apportioned), a tax on income derived from property such as interest, dividends, or rents was — or should be treated as — a direct tax.
in this case, Frank R. Brushaber, was a stockholder in the defendant
Union Pacific Railroad
company. The Sixteenth Amendment had recently been passed, and the U.S. Congress had enacted legislation pursuant to the amendment assessing taxes to the wealthiest of income earners, including the railroad company in this case. Brushaber brought a lawsuit against the railroad company to enjoin
it from paying the tax, on the contention that statute enacting the tax violated the Fifth Amendment's
prohibition against the government taking property without due process of law, and further contending that the statute further violated due process by exempting certain kinds of income. The U.S. government filed a brief supporting the validity of the tax.
The Federal income tax statute does not violate the Fifth Amendment's
prohibition against the government taking property without due process of law.
The Federal income tax statute does not violate the uniformity clause of Article I, section 8 of the U.S. Constitution.
— or was treated as a direct tax — in the constitutional sense, that tax could be imposed (after Pollock, but before the passage of the Amendment) only by apportionment among the states according to their census
populations.
In Brushaber, the Court held that the Sixteenth Amendment eliminated the requirement of apportionment as it relates to "taxes on incomes, from whatever source derived."
and his co-authors have stated:
No income tax enacted by the U.S. Congress (either before or after the Sixteenth Amendment) has ever been apportioned among the states by population. All income taxes enacted after the Amendment have been treated as excises (i.e., have been imposed with geographic uniformity, but have not been required to be apportioned).
Since the income tax may be imposed on income from whatever source and without regard to any apportionment requirement (by virtue of the wording of the 16th Amendment), an income tax cannot be treated as a direct tax (as income taxes on income from property were so treated in the Pollock case). Essentially, all income taxes after the Sixteenth Amendment are again treated as indirect taxes. In subsequent cases, the courts have interpreted the Sixteenth Amendment and the Brushaber decision as standing for the rule that the Amendment allows a direct tax on "wages, salaries, commissions, etc. without apportionment."
). The court stated that incomes taxes are indirect excise taxes by reinforcing the Pollock decision:
Indeed, that had been the understanding with respect to all income taxes until the Pollock decision. The Sixteenth Amendment removed the need — that had been imposed by the Pollock decision — to determine whether an income tax in any particular case was required to be apportioned, as the Congress could again (after 1913) tax income from any source without having to apportion the tax according to population. Nothing, however, in the Sixteenth Amendment or in the Brushaber decision relieves excises (indirect taxes) from the constitutional rule of geographical uniformity. Thus, for example, an income tax on compensation for service (such as a wage, salary, or commission), as an indirect tax, is still required to be imposed with geographical uniformity. No court has ever ruled any Federal income tax to be in violation of the uniformity rule.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
case in which the Court upheld the validity of a tax statute called the Revenue Act of 1913
Revenue Act of 1913
The United States Revenue Act of 1913 also known as the Tariff Act, Underwood Tariff, Underwood Tariff Act, or Underwood-Simmons Act , re-imposed the federal income tax following the ratification of the Sixteenth Amendment and lowered basic tariff rates from 40% to 25%, well below the Payne-Aldrich...
, also known as the Tariff Act, Ch. 16, 38 Stat. 166 (Oct. 3, 1913), enacted pursuant to Article I, section 8, clause 1 of, and the Sixteenth Amendment
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
to, the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
, allowing a federal income tax
Income tax in the United States
In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
. The Sixteenth Amendment had been ratified earlier in 1913. The Revenue Act of 1913 imposed income taxes that were not apportioned among the states according to each state's population.
Background: the Pollock case
Prior to 1895, all income taxes had been considered indirect taxes (not required to be apportioned among the states according to the population of each state). In the controversial 1895 case of Pollock v. Farmers' Loan & Trust Co.Pollock v. Farmers' Loan & Trust Co.
Pollock v. Farmers' Loan & Trust Company, , aff'd on reh'g, , with a ruling of 5–4, was a landmark case in which the Supreme Court of the United States ruled that the unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and...
, however, the Court had overturned longstanding precedent and ruled that while a tax on income from labor was an excise, or indirect tax (a tax not required to be apportioned), a tax on income derived from property such as interest, dividends, or rents was — or should be treated as — a direct tax.
Facts in the Brushaber case
The plaintiffPlaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
in this case, Frank R. Brushaber, was a stockholder in the defendant
Defendant
A defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute...
Union Pacific Railroad
Union Pacific Railroad
The Union Pacific Railroad , headquartered in Omaha, Nebraska, is the largest railroad network in the United States. James R. Young is president, CEO and Chairman....
company. The Sixteenth Amendment had recently been passed, and the U.S. Congress had enacted legislation pursuant to the amendment assessing taxes to the wealthiest of income earners, including the railroad company in this case. Brushaber brought a lawsuit against the railroad company to enjoin
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
it from paying the tax, on the contention that statute enacting the tax violated the Fifth Amendment's
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...
prohibition against the government taking property without due process of law, and further contending that the statute further violated due process by exempting certain kinds of income. The U.S. government filed a brief supporting the validity of the tax.
Holdings
The Sixteenth Amendment removes the requirement that income taxes be apportioned among the states according to population. The Revenue Act of 1913, imposing income taxes that are not apportioned among the states according to each state's population, is not unconstitutional.The Federal income tax statute does not violate the Fifth Amendment's
Fifth Amendment to the United States Constitution
The Fifth Amendment to the United States Constitution, which is part of the Bill of Rights, protects against abuse of government authority in a legal procedure. Its guarantees stem from English common law which traces back to the Magna Carta in 1215...
prohibition against the government taking property without due process of law.
The Federal income tax statute does not violate the uniformity clause of Article I, section 8 of the U.S. Constitution.
Discussion
In Brushaber the Court noted that even before the Sixteenth Amendment was passed, the Congress had authority to tax income. If a particular income tax was a direct taxDirect tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...
— or was treated as a direct tax — in the constitutional sense, that tax could be imposed (after Pollock, but before the passage of the Amendment) only by apportionment among the states according to their census
United States Census
The United States Census is a decennial census mandated by the United States Constitution. The population is enumerated every 10 years and the results are used to allocate Congressional seats , electoral votes, and government program funding. The United States Census Bureau The United States Census...
populations.
In Brushaber, the Court held that the Sixteenth Amendment eliminated the requirement of apportionment as it relates to "taxes on incomes, from whatever source derived."
Subsequent interpretation
Tax law professor Boris BittkerBoris Bittker
Boris I. Bittker was a prominent United States legal academician. A professor at Yale Law School, Bittker was a prolific author, writing many textbooks and over one hundred articles on tax law....
and his co-authors have stated:
- As construed by the Supreme Court in the Brushaber case, the power of Congress to tax income derives from Article I, Section 8, Clause 1, of the original Constitution rather than from the Sixteenth Amendment; the latter simply eliminated the requirement that an income tax, to the extent that it is a direct tax, must be apportioned among the states.
No income tax enacted by the U.S. Congress (either before or after the Sixteenth Amendment) has ever been apportioned among the states by population. All income taxes enacted after the Amendment have been treated as excises (i.e., have been imposed with geographic uniformity, but have not been required to be apportioned).
Since the income tax may be imposed on income from whatever source and without regard to any apportionment requirement (by virtue of the wording of the 16th Amendment), an income tax cannot be treated as a direct tax (as income taxes on income from property were so treated in the Pollock case). Essentially, all income taxes after the Sixteenth Amendment are again treated as indirect taxes. In subsequent cases, the courts have interpreted the Sixteenth Amendment and the Brushaber decision as standing for the rule that the Amendment allows a direct tax on "wages, salaries, commissions, etc. without apportionment."
Geographical uniformity
The Court in Brushaber noted that income taxes inherently belonged in the "category" of indirect tax (or exciseExcise
Excise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...
). The court stated that incomes taxes are indirect excise taxes by reinforcing the Pollock decision:
- As this conclusion but enforced a regulation as to the mode of exercising power under particular circumstances, it did not in any way dispute the all-embracing taxing authority possessed by Congress, including necessarily therein the power to impose income taxes if only they conformed to the constitutional regulations which were applicable to them. Moreover, in addition, the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise...
Indeed, that had been the understanding with respect to all income taxes until the Pollock decision. The Sixteenth Amendment removed the need — that had been imposed by the Pollock decision — to determine whether an income tax in any particular case was required to be apportioned, as the Congress could again (after 1913) tax income from any source without having to apportion the tax according to population. Nothing, however, in the Sixteenth Amendment or in the Brushaber decision relieves excises (indirect taxes) from the constitutional rule of geographical uniformity. Thus, for example, an income tax on compensation for service (such as a wage, salary, or commission), as an indirect tax, is still required to be imposed with geographical uniformity. No court has ever ruled any Federal income tax to be in violation of the uniformity rule.