Pollock v. Farmers' Loan & Trust Co.

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Pollock v. Farmers' Loan & Trust Co.
Seal of the United States Supreme Court
Argued March 7–8, 11–13, 1895
Decided April 8, 1895
Full case nameCharles Pollock v. Farmers' Loan and Trust Company
Citations157 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 historyAppeal from the Circuit Court of the United States for the Southern District of New York
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
Chief Justice
Melville Fuller
Associate Justices
Stephen J. Field · John M. Harlan
Horace Gray · David J. Brewer
Henry B. Brown · George Shiras Jr.
Howell E. Jackson · Edward D. White
Case opinions
MajorityFuller, joined by Field, Gray, Brewer, Shiras
DissentWhite, joined by Harlan
Superseded by
U.S. Const. amend. XVI (in part)
Overruled by
South Carolina v. Baker, 485 U.S. 505 (1988) (in part)

Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895), affirmed on rehearing, 158 U.S. 601 (1895), 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 were unconstitutional because they violated the provision that direct taxes be apportioned. The decision was superseded in 1913 by the Sixteenth Amendment to the United States Constitution. A separate holding regarding the taxation of interest income on certain bonds was overruled by the Supreme Court in 1988 in the case of South Carolina v. Baker.

Before Pollock[edit]

To raise revenue to fund the American Civil War, the income tax was introduced in the United States with the Revenue Act of 1861,[1] as a flat tax of 3% on annual income above $800. The following year, it was replaced with a graduated tax of 3 to 5% on income above $600 by the Revenue Act of 1862, which specified a termination of income taxation in 1866. The Socialist Labor Party advocated a graduated income tax in 1887.[2] The Populist Party "demanded a graduated income tax" in its 1892 platform.[3] William Jennings Bryan, a Democrat who supported cooperation with the Populists, was among those Congressional Democrats who advocated the income tax law passed in 1894.[4] As a three-time Democratic candidate for president, Bryan advocated an income tax and wrote that advocacy into the Democrats' platform in 1908.[5]


The provisions of the Wilson–Gorman Tariff Act of 1894 required that for a five-year period, any "gains, profits and incomes" in excess of $4,000 would be taxed at 2%. 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 prevent the company from paying the tax. He lost in the lower courts but finally appealed to the United States Supreme Court, which agreed to hear the case.

Arguing for Pollock was Joseph Hodges Choate, one of the most eminent Wall Street lawyers of his day.[6]


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 the taxes levied by the Wilson-Gorman Act on income from property were unconstitutional. The Court treated the tax on income from property as a direct tax. The Constitution of the United States then said that such direct taxes were required to be imposed in proportion to the states' population. The tax in question had not been apportioned and so 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.[7]

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).


Justices John Marshall Harlan, Howell Edmunds Jackson, Edward Douglass White, and Henry Billings 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.[8]

In his dissent, Justice Brown wrote:

The decision involves nothing less than the surrender of the taxing power to the moneyed class. By resuscitating an argument that was exploded in the Hylton Case, and has lain practically dormant for a hundred years, it is made to do duty in nullifying, not this law alone, but every similar law that is not based upon an impossible theory of apportionment. 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.[9]

Subsequent history[edit]

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, taxes on interest, dividends and rents in 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, as they fell on the property itself, rather than as an indirect tax. Direct 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 members in the United States House of Representatives, with the quotient then multiplied by the number of representatives each state has to determine each state's share of the tax that 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 (such as wages and salaries) from the beginning of the American Government under the United States Constitution of 1787.[10] The purpose of the Sixteenth Amendment was to prevent the tax on income from property, which Pollock had ruled was direct a direct tax, from having to be apportioned. The Amendment did so by declaring that Congress could tax income from any source without apportionment.

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.[11]

In a nation in which the federal government was beginning its battle against monopolies and trusts, and 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 Republican Senator Norris Brown publicly decried the Court's decision, and instead proposed specific language to remove the Pollock requirement for certain income taxes to be apportioned among the states by population. 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 effectively made the Pollock decision moot.[12][13]

Subsequent court treatments of Pollock and the Sixteenth Amendment[edit]

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 and so it was not written as a direct tax and thus was not subject to the rule of apportionment. The Court summarized what it had decided in Pollock and then went on to state the effect of the Sixteenth Amendment with respect to income taxes:

[T]he command of the 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.[14]

The Sixteenth Amendment removed the requirement for those income taxes deemed to be direct in substance (such as taxes on income from property) to be apportioned among the states according to population. Thus, the effect of the Pollock decision has indeed been overturned by the Sixteenth Amendment.[12][15][16][17][18]

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 therefore had never been apportioned and so they were entitled to be so enforced afterwards.[19]

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).[20]

This effect was reaffirmed in Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926), in which the Supreme Court reviewed Pollock, the Corporation Excise Tax Act of 1909, and the Sixteenth Amendment. It concluded, "It 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[edit]


  1. ^ "On This Day: Congress Passes Act Creating First Income Tax".
  2. ^ Socialist Labor Party Platform
  3. ^ Populist Party Platform, 1892
  4. ^ [Robert Cherny, A Righteous Cause: The Life of William Jennings Bryan, pp 43-44]
  5. ^ 1908 Democratic party platform Archived 2008-01-13 at the Wayback Machine
  6. ^ Irons, Peter. A People's History of the Supreme Court. New York, Penguin, 1999, p. 244.
  7. ^ 158 U.S. 601, 638
  8. ^ 158 U.S. 638
  9. ^ Irons, p. 245.
  10. ^ See generally, e.g., Springer v. United States, 102 U.S. 586 (1881) (constitutionality of unapportioned Federal income tax on taxpayer's law practice earnings and his interest income on U.S. bonds was upheld; income tax held to be not a direct tax).
  11. ^ Harlan dissent to Pollock decision
  12. ^ a b Bittker, Boris I. (1987). "Constitutional Limits on the Taxing Power of the Federal Government". The Tax Lawyer. 41 (1): 3. ISSN 0890-4898. (Pollock case "was in effect reversed by the sixteenth amendment").
  13. ^ "The Sixteenth Amendment to the Constitution overruled Pollock [....]" Graf v. Commissioner, 44 T.C.M. (CCH) 66, TC Memo. 1982-317, CCH December 39,080(M) (1982).
  14. ^ 240 U.S. 1 18-19 (1916).
  15. ^ William D. Andrews, Basic Federal Income Taxation, p. 2, Little, Brown and Company (3d ed. 1985) ("In 1913 the Sixteenth Amendment to the Constitution was adopted, overrruling Pollock.").
  16. ^ Calvin H. Johnson, "The Constitutional Meaning of 'Apportionment of Direct Taxes'", 80 Tax Notes 591 (Aug. 3, 1998) ("Pollock should also be understood as reversed in full by the Sixteenth Amendment....")
  17. ^ Sheldon D. Pollack, "Origins of the Modern Income Tax, 1894-1913," 66 Tax Lawyer 295, 323-324, Winter 2013 (Amer. Bar Ass'n) ("...the Sixteenth Amendment to the Constitution was duly ratified as of February 3, 1913. With that, the Pollock decision was overturned, restoring the status quo ante....) (footnote omitted).
  18. ^ In 2012, the U.S. Supreme Court stated: "In 1895, we expanded our interpretation [of the term direct tax] to include taxes on personal property and income from personal property, in the course of striking down aspects of the federal income tax. Pollock v. Farmers’ Loan & Trust Co., 158 U. S. 601, 618 (1895). That result was overturned by the Sixteenth Amendment [...]". National Federation of Independent Business v. Sebelius, no. 11-393; no. 11-398; no. 11-400 (p. 41, slip opinion, U.S. Supreme Court, June 28, 2012).
  19. ^ FindLaw for Legal Professionals - Case Law, Federal and State Resources, Forms, and Code
  20. ^ 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.

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