Merriam Webster's Dictionary
of Law, (c ) 1996
“direct tax. a tax imposed on a taxpayer himself or herself or
on his or her property (compare excise)”
Globe, 41st Congress, Second Session, pp. 446-447
Reeves of the House or Representatives very succinctly and clearly
explains the meaning of "direct taxes" in the context of the Constitution.
See the document also at:
First Apportioned Direct Tax,
12 Stat. 292-313, 37th Congress, Session 1, pp. 292-313
Flint v. Stone Tracy Co., 220 U.S. 107, 119 (1911):
tax when placed on the right of the man or of the corporation to live
is a capitation tax and as direct as any tax can be."
v. Stone Tracy Co., 220 U.S. 107, 119 (1911)]
Pacific Ins. Co. v. Soule, 74 U.S. 433
ordinary test of the difference between direct and indirect taxes, is
whether the tax falls ultimately on the tax-payer, or whether, through
the tax-payer, it falls ultimately on the consumer. If it falls ultimately
on the tax-payer, then it is direct in its nature, as in the case of
poll taxes and land taxes. If, on the contrary, it falls ultimately
on the consumer, then it is an indirect tax.
is the test, as laid down by all writers on the subject. Adam Smith,
who was the great and universally received authority on political economy,
in the day when the Federal Constitution was framed, sets forth a tax
on a person's revenue to be a direct tax. 5 Mill,6 Say,7 J. R. McCulloch,8
Lieber,9 among political economists, do the same in specific
[74 U.S. 433, 438] language. Mr.
Justice Bouvier, in his learned Law Dictionary, defines a capitation
tax, 'A poll tax; an imposition which is yearly laid on each person
according to his estate and ability.'
it is obvious that an income tax, levied on the profits of any business,
does not fall ultimately on the consumer or patron of that business,
in any other sense than that in which a poll tax or land tax may be
said ultimately to fall, or be charged over by the payer of those taxes
upon the persons with whom and for whom they do business, or to whom
they rent their lands. The refinement which would argue otherwise, abolishes
the whole distinction, and under it all taxes may be regarded as direct
or indirect, at pleasure.
But, if the distinction is
recognized (and it must be, for the Constitution makes it), then it
follows, that an income tax is, and always heretofore has been, regarded
as being a direct tax, as much so as a poll tax or as a land tax. If
it be a direct tax, then the Constitution is imperative that it shall
be argued that an income tax cannot be apportioned, then, it cannot
be levied; for only such direct taxes can be levied as can be apportioned.
But an income tax can be apportioned
as easily as any other direct tax; first, by determining
the amount to be raised from incomes throughout the United States, and
then by ascertaining the proportion to be paid by the people of each
State. An income tax, in the matter of its apportionment, is not embarrassed
by any other difficulties than those which grow out of apportionment,
in the admitted cases of poll taxes and land taxes.”
Ins. Co. v. Soule, 74 U.S. 433
Veazie Bank v. Fenno, 75 U.S. 533
review shows that personal property, contracts, occupations, and the
like, have never been regarded by Congress as proper subjects of direct
be rightly affirmed, therefore, that in the practical construction of
the Constitution by Congress, direct taxes have been limited to taxes
on land and appurtenances, and taxes on polls, or capitation taxes.”
Bank v. Fenno, 75 U.S. 533
Pollock v. Farmer’s Loan & Trust Co.,
157 U.S. 429 (1894), 557, Thomas v. United States (1903) 192 u.s. 363,
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
v. Farmer’s Loan & Trust Co., 157 U.S. 429 (1894), 557, Thomas v. United
States (1903) 192 u.s. 363, 370: ]
Knowlton v. Moore,
178 U.S. 41 (1900):
taxes bear immediately upon persons, upon the possession and enjoyment
of rights; indirect taxes are levied upon the happening of an event
as an exchange.”
v. Moore, 178 U.S. 41 (1900):]
The Constitutional Requirements
of Uniformity in Duties, Imposts, and Excises, 9 Yale Law Journal
164, 169 (1900):
conceded by the court that Congress may lawfully impose direct taxes
in the District for District purposes, without regard to the rule of
apportionment, and that Congress is under no constitutional necessity
to impose direct taxes by the rule of apportionment upon the District
of Columbia, or upon the territories, even though such a direct tax
is laid upon the States.” [William Bradford Bosley,
The Constitutional Requirements
of Uniformity in Duties, Imposts and Excises, 9 Yale Law
Journal 164, 169 (1900)]
Do You Have Any?; Phil Hart, pp. 168-171:
“Summarizing what we have learned from this chapter, we can establish the following
test: When any tax includes all the following elements, it is
a direct tax:
it places a tax on the whole of something because of ownership and
falls on the owner of the thing taxed, or it is a tax on a species
of property or on a natural person, a tax on the existence of the
The thing or the person taxed is diminished by the tax.
The tax cannot be shifted.
It is not a tax on consumption, nor a tax on an identified activity,
nor a tax on a privilege, nor a tax on the happening of an event.
tax that does not satisfy these elements is not a direct tax and is
therefore an indirect tax. Consequently, the Supreme Court went
too far in the Pollock Decision as a tax on the net income of real estate
is not a tax on the ownership of the real estate. Income from
real estate is the fruit of the invested capital; it is the net.
It may be severed from the capital leaving the underlying investment
whole. When only income is taxed, the underlying investment is
not diminished. The tax on the income from real estate may be
shifted to those who pay the rents. The tax on the income from
real estate may not even be payable by the owner of the real estate
if there were some kind of management arrangement in place where the
owner does not receive the income stream. Nor is it a tax on the
existence of the real estate, as the amount of the tax is measured by
the degree to which the property is successfully managed. It does
not fall on the ownership of the real estate. A successfully managed
building may pay a lot of tax while an identical building next door,
that is poorly managed, might not pay any tax at all. Clearly
the Pollock tax was not levied on the ownership nor the value
of the building. Tax in the Pollock Case was an indirect
tax and the Supreme Court went too far in linking an inherently indirect
income tax with the source of the income. The boundary line between
the two being that point where the underlying asset is diminished by
the tax. The purpose of the 16th Amendment was to overturn
knowledge, the question of whether or not a tax on a man's wage
or salary is an indirect tax or a direct tax has never been before the
Supreme Court, except in the case of Evans v. Gore.
Evans v. Gore was a 1920 case about a federal judge who was having
his salary diminished by an income tax and the Supreme Court ruled the
tax was unconstitutional. But the question in this case related
to a constitutional provision affecting only federal judges. Since
most of us reading this book are not federal judges, Evans v. Gore
does not affect us. But the Court has discussed the issue
three times in its dicta.
first time was in the Hylton Case, 1796, where they quoted with
approval Adam Smith in stating that a tax on a man's revenue is
a direct tax. The second time was in the Springer v. United
States, 1880, where Springer failed to put this question directly
in front of the court. It is unfortunate that Springer made numerous
strategic errors in prosecuting his case. The third time was in
Pollock, 1895, where the court said, quoting with approval
this language is broad enough to cover interest as well as the professional
earnings, the case would have been more significant as a precedent if
the distinction had been brought out in the report and commented on
in arriving at judgment, for a tax on professional receipts might be
treated as an excise or duty, and therefore indirect, when a tax on
the income of personalty might be held to be direct." [Pollock
v. Farmers' Loan & Trust, 157 U.S. 529, 579 (1895)]
reality of a tax on a man's labor was very well described by Senator
Bailey of Texas as he debated the income tax amendment [16th Amendment].
Senator Bailey had one of the more vocal voices in this debate.
As a Democrat he was an avid supporter of the 16th Amendment.
Here is his statement:
believe in earning an income by personal service every man consumes
a part of his principal, and that fact ought always to be taken into
consideration. The man who has his fortune invested in securities
may find in a hundred years, if he spent his income, that the fortune
still intact, but the lawyer or the physician or the man engaged in
other personal employment is spending his principal in earning his income.
That fact ought under every just system of income taxation to be recognized
and provided against." [44 Cong.Rec. 4007 (1909)]
on the labor of a man, whether or not he is a construction worker or
a rocket scientist, is a tax on the man. It is a species of a
capitiation tax. Adam Smith described it as a capitiation tax
and a direct tax. It diminishes the man as the man consumes part
of his capital in earning his wage or salary. It is a direct tax.
Such a tax in the post 16th Amendment era must be apportioned among
the 50 states before it can be colleted from those who, absent a privilege,
work and live within the several States of the Union.
on a privilege, although measured by income, is not an income tax either.
It is an excise tax. The tax of the Spreckels Sugar Case
from the Spanish-American War and the Corporate Excise Tax of 1909 are
such taxes. The 16th Amendment provides no authority for such
a tax. These taxes are levied under the authority of the original
Constitution, not the 16th Amendment.
tax within the meaning of the 16th Amendment is a tax on net income.
It is not a tax on a privilege nor is it a tax on a source.
are many species of income taxes. As Professor Seligman said,
"An income tax can be direct or it can be indirect." It would
be a whole lot less confusing if we would stop calling a gross receipts
tax an income tax. It is not, as the tax does not fall on income,
but instead falls on the source of the income."