For more information on Pollock v. Farmers' Loan and Trust Company, visit Britannica.com.
Pollock v. Farmers' Loan & Trust Co.
| Britannica Concise Encyclopedia: Pollock v. Farmers' Loan and Trust Company |
| 5min Related Video: Pollock v. Farmers' Loan & Trust Co. |
| US Supreme Court: Pollock v. Farmers' Loan & Trust Co |
(1) 157 U.S. 429 (1895), argued 7–13 Mar. 1895, decided in three parts on 8 Apr. 1895 by votes of 8 to 0, 6 to 2, and 4 to 4; Fuller for the Court, Field concurring, White, Harlan, Brown, and Shiras in dissent, Jackson not participating. (2) 158 U.S. 601 (1895), rehearing argued 6–8 May 1895, decided 20 May 1895 by vote of 5 to 4; Fuller for the Court, Harlan, Brown, Jackson, and White in dissent. Pollock is not important as a precedent, since it was negated by the Sixteenth Amendment and was probably on the way to reversal by the Supreme Court even before that amendment's adoption. Nevertheless, the decision stands as one of the most notorious examples—according to progressive historians—of judicial adherence to laissez‐faire constitutionalism (see Progressivism).
At issue was the income tax law of 1894, the nation's first peacetime attempt to tax incomes, including those from securities and corporate profits. The tax was itself miniscule—a flat 2 percent on all incomes above four thousand dollars—but the principle was of great significance. On one side, the national government needed additional revenue to support its burgeoning activities. Social reformers also argued that some action was needed to reduce the great disparities of wealth resulting from the rapidly industrializing American economy. On the other side, private individuals and businesses claimed constitutional protection against such measures to redistribute wealth.
Pollock was a contrived case in which a stock‐holder sued to enjoin his bank from paying a tax that the bank did not wish to pay anyway. The Court agreed to expedite hearings for the case, reflecting the need to have the question settled rapidly.
Lawyers opposing the tax, headed by Joseph H. Choate of New York, argued that the income tax violated the principle of uniformity and that it was a “direct” tax that could be constitutional only if apportioned according to the populations of the several states. Neither argument had any support in precedent; the meaning of direct tax had long been given a narrow interpretation. Moreover, the Supreme Court, in Springer v. United States (1881), had sustained the temporary Civil War income tax, holding that an income tax was not a direct tax. Partly for this reason the lawyers freely resorted to hortatory claims that such taxation was an attack on private property rights and the first step on the road to communism.
In the initial decision, the Supreme Court separated the law into three parts, deciding each by a different vote. First, the Court held unanimously that a tax on income from state and municipal bonds was essentially a tax on the state itself, violating the principle of state sovereignty. Next, the Court, in an opinion by Chief Justice Melville Fuller, ruled that a tax on income from real property was a direct tax. The Court split 6 to 2, with Justices Edward D. White and John Marshall Harlan dissenting. Third, the Court divided equally, with Justice Howell Jackson being absent, on the question of whether the general tax on private and corporate incomes was also a direct tax. Evidence suggests that Justices Henry B. Brown and George Shiras joined White and Harlan in believing the tax constitutional. Thus, a major part of the tax law was left standing.
This situation pleased no one, and the Court immediately agreed to a rehearing on the issue of taxing general income. The terminally ill Jackson struggled to Washington, undoubtedly hoping that his vote would settle the question in favor of the tax's validity. But though Jackson voted to support the tax, another justice (probably Shiras) changed his position, producing a 5‐to‐4 vote invalidating the entire tax law because it was a direct tax that had to be apportioned among the states according to their populations.
This barebones description of Pollock gives no adequate impression of its emotion‐laden context. Both lawyers and judges departed far from constitutional argument; newspapers reported it fully and editorialized acidly. Harlan wrote privately that Justice Stephen J. Field acted like a “madman” throughout the case, but the dissenters' own opinions were similarly emotional. It was doubtless the most controversial case of its era.
Only one part of the decision stood after the adoption of the Sixteenth Amendment in 1913: the ban on the taxation of income from state and municipal bonds. Although Congress has never enacted such a tax, the Court reversed its 1895 objection to such action in South Carolina v. Baker (1988).
— Loren P. Beth
| US History Encyclopedia: Pollock v. Farmers' Loan and Trust Company |
Pollock v. Farmers' Loan and Trust Company, 157 U.S. 429 (1895), was a case in which the Supreme Court ruled that the income tax provision of the Gorman-Wilson tariff (1894) was unconstitutional because it was a direct tax and hence subject to the requirement of apportionment among the states according to population. In a prior hearing, only the tax on real estate income had been declared unconstitutional, and the Court was divided evenly, four to four, regarding other forms of income. On a rehearing, the Court decided five to four against the income tax on personal property because one justice, probably David J. Brewer, reversed his earlier decision and opposed the income tax, and another, Howell E. Jackson, who had not participated in the earlier hearing, voted with the minority in the rehearing. This decision inspired a popular attack on "judicial usurpation," resulting in the Democratic income tax plank of 1896 and leading ultimately to the passage of the Sixteenth Amendment (1913).
Bibliography
Paul, Randolph E. Taxation in the United States. Boston: Little, Brown, 1954.
| Law Encyclopedia: Pollock v. Farmers' Loan & Trust Co. |
This entry contains information applicable to United States law only.
A 5-4 decision of the Supreme Court, Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed 759, on rehearing, 158 U.S. 601, 15 S. Ct. 912, 39 L. Ed. 1108 (1895), declared the Income Tax Act of 1894 unconstitutional and ultimately led to the enactment of the Sixteenth Amendment, authorizing the imposition of an income tax by the federal government.
Charles Pollock — a Massachusetts stockholder employed by the New York defendant, Farmers' Loan & Trust Co. — appealed to the U.S. Supreme Court after unsuccessfully suing the defendant in federal courts to prevent it from breaching its fiduciary duty by filing returns for and paying a federal income tax. The tax was levied upon the profits that the defendant earned, including interest it received from income-producing real estate and bonds of New York City. Pollock alleged that such a tax, authorized by the Income Tax Act of 1894, was unconstitutional because it was a direct tax upon the property itself (28 Stat. 509). Article I, Section 2, of the U.S. Constitution mandated that all direct taxes be apportioned among the several states and Section 8 of the same article required that direct taxes be uniform. Pollock argued and the Supreme Court agreed that this tax did not satisfy either requirement. The tax was levied upon the rents or income of real property held by particular corporations and businesses and was, in effect, a direct tax upon the real property itself.
Pollock also raised the issue as to the validity of the tax as levied upon New York City bonds. The Court accepted the reasoning that since states were powerless to tax the operations or property of the United States, the United States had no constitutional power to tax either state instrumentalities or property.
The Supreme Court ruled that the Income Tax Act of 1894 violated the Constitution and that the taxes imposed pursuant to it were void. It reversed the decree of the federal circuit court and remanded the case.
As a result of the decision in Pollock v. Farmers' Loan & Trust Co., Congress recognized the need for a constitutional provision permitting the levy of federal income tax without apportionment among the several states. It took, however, eighteen more years before there was sufficient support for the passage of the Sixteenth Amendment.
| Wikipedia: Pollock v. Farmers' Loan & Trust Co. |
| Pollock v. Farmers' Loan & Trust Co. | ||||||
|---|---|---|---|---|---|---|
 Supreme Court of the United States |
||||||
| Argued March 7–8, 11–13, 1895 Decided April 8, 1895 |
||||||
| Full case name | Pollock v. Farmers' Loan and Trust Company | |||||
| Citations | 157 U.S. 429 (more) 15 S. Ct. 673; 39 L. Ed. 759; 1895 U.S. LEXIS 2215; 3 A.F.T.R. (P-H) 2557 |
|||||
| Prior history | Appeal from the Circuit Court of the United States for the Southern District of New York | |||||
| Holding | ||||||
| The unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and were unconstitutional because they violated the rule that direct taxes be apportioned. | ||||||
| Court membership | ||||||
|
||||||
| Case opinions | ||||||
| Majority | Fuller, joined by Field, Gray, Brewer, Shiras | |||||
| Dissent | White, joined by Harlan, Jackson, Brown | |||||
| Dissent | Harlan | |||||
| Dissent | Brown | |||||
|
Superseded by
|
||||||
| U.S. Const. amend. XVI | ||||||
Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895), aff'd on reh'g, 158 U.S. 601 (1895), was an important 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 were unconstitutional because they violated the rule that direct taxes be apportioned.
Contents |
Background information
The provisions of the Wilson-Gorman Tariff Act of 1894 had stated that, for a five-year period, any "gains, profits and incomes" in excess of $4,000 would be taxed at 2 %. 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.
Charles Pollock was a Massachusetts citizen who owned only ten shares of stock in the Farmers' Loan & Trust Company. 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.
Arguing for the plaintiff Pollock was Joseph Choate, one of the most eminent Wall Street lawyers of his day.[1]
Decision
The Court handed down its decision on April 8, 1895, with Chief Justice Melville Fuller delivering the opinion of the Court. He ruled in Pollock's favor, stating that certain taxes levied by the Wilson-Gorman Act, to the extent imposed on income from property, were unconstitutional. The Court treated the tax on income from property as a direct tax. Under the provisions of the Constitution of the United States at that time, such direct taxes were required to be imposed in proportion to states' population. The tax in question had not been apportioned and, therefore, was invalid. As Chief Justice Fuller stated:
- 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]
A separate holding by the Court in Pollock -- that federal taxation of interest earned on certain state bonds violated the doctrine of intergovernmental tax immunity -- was declared by the U.S. Supreme Court in 1988 to have been "effectively overruled by subsequent case law" (see South Carolina v. Baker).
Dissent
Justices John Marshall Harlan, Jackson, White and Brown dissented from the majority opinion. Justice White argued:
- 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]
In his dissent, Justice Brown wrote:
- The decision involves nothing less than the surrender of the taxing power to the moneyed class...Even the spectre of socialism is conjured up to frighten Congress from laying taxes upon the people in proportion to their ability to pay them.[2]
Subsequent history
The Supreme Court did not rule that all income taxes were direct taxes. Instead, the Court held that although generally income taxes are indirect taxes (excises) authorized by the United States Constitution in Article 1, Section 8, Clause 1, the taxes on interest, dividends and rents under the 1894 Act had a profound effect on the underlying assets. The Court ruled that the tax on dividends, interest and rent should be viewed as a direct tax falling on the property itself rather than as an indirect tax. As direct taxes, these taxes were required to follow the rule of apportionment found in Article 1, Section 2, Clause 3.
The rule of apportionment requires the amount of a direct tax collected to be divided by the number of Representatives in the United States House of Representatives, the quotient is then multiplied by the number of representatives each State has to determine each State's share of the tax which it then needs to lay and collect through its own taxing authority.
Congress has had the power to lay and collect an indirect tax on incomes from the beginning of the American Government under the United States Constitution in 1787. The purpose of the Sixteenth Amendment was to prevent the income tax from being taken out of the category of indirect taxation, to which it inherently belonged, and misapplied as a direct tax (as was done with Pollock). The Sixteenth Amendment made the apportionment rule inapplicable to income taxes, including taxes on income derived from property, by providing that Congress has the power to tax incomes from any source without having to apportion the tax by population.
In his dissent to the Pollock decision, Justice Harlan stated:
-
- When, therefore, this court adjudges, as it does now adjudge, that Congress cannot impose a duty or tax upon personal property, or upon income arising either from rents of real estate or from personal property, including invested personal property, bonds, stocks, and investments of all kinds, except by apportioning the sum to be so raised among the States according to population, it practically decides that, without an amendment of the Constitution—two-thirds of both Houses of Congress and three-fourths of the States concurring—such property and incomes can never be made to contribute to the support of the national government.[3]
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 was 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.
Nebraska Senator Norris Brown publicly decried the Court's decision, and instead proposed specific language to remove the Pollock requirement that certain income taxes be apportioned among the states by population. The proposal 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 effectively made the Pollock decision moot, removing any requirement that taxes on incomes derived from property be apportioned by population.[4][5]
Subsequent court treatments of Pollock and the Sixteenth Amendment
Three years after ratification of the Sixteenth Amendment, the United States Supreme Court rendered its decision in the case of Brushaber v. Union Pacific Railroad. In Brushaber the Court reviewed the history of the dichotomy between excises (indirect taxes) and direct taxes. The Brushaber Court noted that the 1913 Income Tax Act was written as an indirect tax and did not violate the rule of uniformity, thus it was not written as a direct tax and was not subject to the rule of apportionment. The Court summarized what it had decided in Pollock. The Court then went on to state the effect of the Sixteenth Amendment with respect to income taxes:
| “ | [T]he command of the [16th] amendment that all income taxes shall not be subject to the rule of apportionment by a consideration of the source 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 imposts subject to the rule of uniformity and were placed under the other or direct class.[6] | ” |
The Sixteenth Amendment removed the requirement that those income taxes deemed to be direct in substance (e.g., taxes on income from property) be apportioned among the states according to population. Thus, the effect of the Pollock decision had indeed been overturned by the Sixteenth Amendment.[4]
The Court in Brushaber also noted that before Pollock, taxes on income from professions, trades, employments or vocations were excises, they were indirect in both form and substance, and thereby had never been apportioned, and thus were entitled to be so enforced afterwards.[7] By contrast, with respect to taxes on income from property, the Pollock decision had disregarded form and considered substance alone. Justice White's decision in Brushaber shows how the Sixteenth Amendment was written to prevent consideration of the direct effects of any income tax laid by Congress.
The Supreme Court in Stanton v. Baltic Mining Co. added that the "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." 240 U.S. 112 (1916).[8]
This effect was re-affirmed in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926), in which the United States Supreme Court reviewed Pollock, the Corporation Excise Tax Act of 1909 and the Sixteenth Amendment, and concluded that "[i]t was not the purpose or effect of that amendment to bring any new subject within the taxing power. Congress already had power to tax all incomes."
See also
- United States v. E. C. Knight Co., 156 U.S. 1 (1895)
References
- ^ Irons, Peter. A People's History of the Supreme Court. New York, Penguin, 1999, p. 244.
- ^ Ibid., p. 245.
- ^ Harlan dissent to Pollock decision[1]
- ^ a b Bittker, Boris I. (1987). "Constitutional Limits on the Taxing Power of the Federal Government". The Tax Lawyer 41 (1): 3. ISSN 08904898. (Pollock case "was in effect reversed by the sixteenth amendment").
- ^ "The Sixteenth Amendment to the Constitution overruled Pollock [ . . . ]" Graf v. Commissioner, 44 T.C.M. (CCH) 66, TC Memo. 1982-317, CCH Dec. 39,080(M) (1982).
- ^ 240 U.S. 1 18-19 (1916).
- ^ FindLaw for Legal Professionals - Case Law, Federal and State Resources, Forms, and Code
- ^ Howard Zaritsky, Legislative Attorney American Law Division, "Some Constitutional Questions Regarding The Federal Income Tax Laws" Report No. 79-131 A, (Congressional Research Service Report for Congress) May 25, 1979.
Further reading
- Jones, Francis R. (1895). "Pollock v. Farmers' Loan and Trust Company". Harvard Law Review 9 (3): 198–211. doi:.
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
Learn More
 | income tax |
| fiduciary |
| real estate |
Help us answer these
Post a question - any question - to the WikiAnswers community:
Copyrights:
 |
 | Britannica Concise Encyclopedia. Britannica Concise Encyclopedia. © 2006 Encyclopædia Britannica, Inc. All rights reserved. Read more |
 |
| US Supreme Court. The Oxford Companion to the Supreme Court of the United States. Copyright © 1992, 2005 by Oxford University Press. All rights reserved. Read more |
 |
| US History Encyclopedia. © 2006 through a partnership of Answers Corporation. All rights reserved. Read more |
 |
| Law Encyclopedia. West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved. Read more |
 |
| Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Pollock v. Farmers' Loan & Trust Co.". Read more |
Related answers
- If Trust is spelled with a V what is it worth?
- Can you take a loan from a trust account?
- Can you get a loan with out a co-signer if your 18?
ADVERTISEMENT
Answer these
- Pollock v. Farmers Loan and Trust?
- Can a co-owner in trust get an equity loan?
- How do you get out of a co loan?
- Who owns Fidemont Trust Co?
