Pollock v. Farmers' Loan & Trust Co.
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Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 / 158 U.S. 601 (rehearing) (1895) was an important United States Supreme Court case dealing with the first establishment of an income tax in the United States and the Wilson-Gorman Tariff Act of 1894.
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Background
The provisions of the 1894 Wilson-Gorman Tariff Act had stated that, for a five-year period, any "gains, profits and incomes" in excess of $4,000 would be taxed at 2 percent. So, in compliance with the Act, the New York-based Farmers' Loan & Trust Company announced to its shareholders that it would not only pay the tax, but also provide to the collector of internal revenue in the Department of the Treasury the names of all people for whom the company was acting and thus were liable for being taxed under the Act.
The Case
Charles Pollock was a Massachusetts citizen who only owned ten shares of stock in the Farmers' Loan & Trust Company, but nevertheless he sued the company to enjoin it from paying the tax. Pollock lost in the lower courts, but finally appealed to the United States Supreme Court, which agreed to hear the case.
The Decision
The Supreme Court
The Court handed down its decision on May 20 1895, with Chief Justice Melville Fuller delivering the opinion of the Court. He ruled in Pollock's favor, stating that the tax levied by the Wilson-Gorman Act was unconstitutional because it was a direct tax, irrespective of the provisions of the Constitution of the United States, which require that direct taxes be levied in proportion to states' population. As Chief Justice Fuller neatly summarized:
- 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.
- Third. The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.
- The decrees hereinbefore entered in this court will be vacated. The decrees below will be reversed, and the cases remanded, with instructions to grant the relief prayed. [158 U.S. 601, 638]
Justices John Marshall Harlan, Jackson, White and Brown, however, dissented from the majority opinion. Justice White aptly concluded,
- It is, I submit, greatly to be deplored that after more than 100 years of our national existence, after the government has withstood the strain of foreign wars and the dread ordeal of civil strife, and its people have become united and powerful, this court should consider itself compelled to go back to a long repudiated and rejected theory of the constitution, by which the government is deprived of an inherent attribute of its being--a necessary power of taxation. [158 U.S. 638]
The Aftermath
In a nation where the Federal government was beginning its battle against monopolies and trusts, where the great bulk of wealth was concentrated in the hands of a few, the decision in Pollock unpopular, much like the decision in United States v. E. C. Knight Co., 156 U.S. 1 (1895) of the same year. The following year, the Democratic Party, which had grabbed hold of the Populist movement, included an income tax plank in its election platform. The decision, in the minds of the vast majority of Americans, was viewed as a method to keep the large corporations from bearing their share of the cost of the government.
Nebraska senator Norris Brown publicly decried the Court's decision, and instead proposed specific language permitting an income tax that was later incorporated into the Sixteenth Amendment. Fourteen years would pass, however, before the Amendment was finally passed by Congress in 1909. Upon ratification in 1913, the Amendment formally made the decision in Pollock moot when it finally implemented an income tax.
See also
- United States v. E. C. Knight Co., 156 U.S. 1 (1895)
- List of United States Supreme Court Cases
External links
- Full text of the first decision courtesy of Findlaw.com (http://laws.findlaw.com/us/157/429.html)
- Full text of the rehearing decision courtesy of Findlaw.com (http://laws.findlaw.com/us/158/601.html)