Sixteenth Amendment to the United States Constitution

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Amendment XVI in the National Archives

Amendment XVI (the Sixteenth Amendment) of the United States Constitution, authorizing income taxes in their present form, was ratified on February 3, 1913.

1 Text
2 Background
3 Treatment of income taxes prior to the Pollock case
4 The Pollock case
5 Ratification process
6 Interpretation
7 Tax protester arguments regarding ratification
8 Notes
9 External links

[edit] Text

“

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

”

[edit] Background

The U.S. Constitution provides (in part):

The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises [ . . . ] but all Duties, Imposts and Excises shall be uniform throughout the United States [ . . . ]^[1]

The Constitution also provides (in part):

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers [ . . . . ]^[2]

The Constitution further provides:

No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.^[3]

The power to impose taxes (whether deemed direct or indirect taxes) is granted by Article I, section 8, clause 1. Indirect taxes (or "excises," in the parlance of the text of the Constitution) are required to be geographically uniform, according to Article I, section 8, clause 1 and the court decisions interpreting that provision (see Knowlton v. Moore^[4] and Flint v. Stone Tracy Co.^[5]).

Article I, section 2, clause 3 and Article I, section 9, clause 4 of the Constitution states that all direct taxes are required to be apportioned among the state's population. This essentially means that the dollar amount of direct taxes imposed on the taxpayers in any given state is required to bear a relationship to the total dollar amount of direct taxes imposed in the entire nation that is equal to the ratio of that state's population to the total population of the nation.

[edit] Treatment of income taxes prior to the Pollock case

Prior to the 1895 U.S. Supreme Court decision in the case of Pollock v. Farmers' Loan & Trust Co.,^[6] all income taxes had been considered to be excises (indirect taxes) required to be imposed with geographical uniformity.

The Wilson-Gorman Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes over $3,000. Derided by its opponents as "communistic," it was challenged in federal court. Until that time, direct taxes had been deemed to include only capitations, or poll taxes (taxes directly on persons) and taxes imposed on property by reason of its ownership (generally, ordinary ad valorem property taxes). Until 1895, all income taxes -- regardless of the sources of the incomes -- had been considered indirect taxes ("excises").^[7]

[edit] The Pollock case

In the case of Pollock v. Farmers' Loan & Trust Co. the Supreme Court declared that certain income taxes -- taxes on income from property under the 1894 Act -- to be unconstitutional unapportioned direct taxes. The Court reasoned that a tax on income from property should be treated as a tax on "property by reason of its ownership," and should therefore be required to be apportioned. The reasoning was that taxes on the rents from land, the dividends from stocks and so on burdened the property generating the income in the same way that a tax on "property by reason of its ownership" burdened that property.

This meant that, after Pollock, while income taxes on income from labor (as indirect taxes) were still not required to be apportioned by population, taxes on interest, dividends and rent income were required to be apportioned by population. The Pollock ruling made the source of the income (e.g., property versus labor, etc.) relevant in determining whether the tax imposed on that income was deemed to be "direct" (and thus required to be apportioned among the states according to population) or, alternatively, "indirect" (and thus required only to be imposed with geographical uniformity).

During this period from 1895 to 1913 when the Sixteenth Amendment was ratified, while Congress could have re-imposed taxes on income from labor and other non-property sources without apportionment by population, imposing taxes on interest, dividends and rent income would not have been practical (as the income from property in each state would virtually never correspond to the population of that state in relation to the population of the entire nation). The Congress was unwilling to impose an income tax on labor and other non-property sources without also imposing a tax on income from property -- and taxes on income from property were no longer realistic. The Pollock ruling made imposition of an income tax politically unfeasible from 1895 until the ratification of the Sixteenth Amendment. At the same time, Congress was reflecting the growing concern among many elements of society that the wealthiest Americans had consolidated too much economic power.

[edit] Ratification process

In response to these developments, the Sixteenth Amendment was passed by the Sixty-first Congress and submitted to legislatures of the several states on July 12, 1909. The amendment was the crowning feature of a larger trend of legislative action meant to curb the power of the wealthy. The famous Pujo Committee Hearings, which aired the incestuous relationship between banks and corporate interests, were held during ratification, and the Clayton Antitrust Act was enacted shortly thereafter.

On February 25, 1913, the Republican Secretary of State Philander Knox proclaimed that the amendment had been ratified by the necessary three-quarters of the states ensuring the constitutionality of unapportioned federal income taxes.

According to the United States Government Printing Office, the following states ratified the amendment[1]:

Alabama (August 10, 1909)
Kentucky (February 8, 1910)
South Carolina (February 19, 1910)
Illinois (March 1, 1910)
Mississippi (March 7, 1910)
Oklahoma (March 10, 1910)
Maryland (April 8, 1910)
Georgia (August 3, 1910)
Texas (August 16, 1910)
Ohio (January 19, 1911)
Idaho (January 20, 1911)
Oregon (January 23, 1911)
Washington (January 26, 1911)
Montana (January 27, 1911)
Indiana (January 30, 1911)
California (January 31, 1911)
Nevada (January 31, 1911)
South Dakota (February 1, 1911)
Nebraska (February 9, 1911)
North Carolina (February 11, 1911)
Colorado (February 15, 1911)
North Dakota (February 17, 1911)
Michigan (February 23, 1911)
Iowa (February 24, 1911)
Kansas (March 2, 1911)
Missouri (March 16, 1911)
Maine (March 31, 1911)
Tennessee (April 7, 1911)
Arkansas (April 22, 1911, after having previously rejected the amendment)
Wisconsin (May 16, 1911)
New York (July 12, 1911)
Arizona (April 3, 1912)
Minnesota (June 11, 1912)
Louisiana (June 28, 1912)
West Virginia (January 31, 1913)
New Mexico (February 3, 1913)

Ratification (by the requisite thirty-six states) was completed on February 3, 1913 with the ratification by New Mexico (but see Delaware and Wyoming below). The amendment was subsequently ratified by the following states, bringing the total number of ratifying states to forty-two:

37. Delaware (February 3, 1913)

38. Wyoming (February 3, 1913)

39. New Jersey (February 4, 1913)

40. Vermont (February 19, 1913)

41. Massachusetts (March 4, 1913)

42. New Hampshire (March 7, 1913, after rejecting the amendment on March 2, 1911)

The following states rejected the amendment without ever subsequently ratifying it:

Connecticut
Rhode Island
Utah

[edit] Interpretation

The Amendment -- which overrules the effect of Pollock^[8] -- essentially means that when imposing an income tax, the Congress may impose the tax on income from any source without having to apportion the total dollar amount of tax collected from each state according to each state's population in relation to the total national population.

The Supreme Court's interpretation of the Sixteenth Amendment has changed considerably over time and there have been many disputes about the applicability of the amendment.

[edit] Early decisions

In Brushaber v. Union Pacific Railroad,^[9] the Supreme Court ruled that (1) the Sixteenth Amendment removes the Pollock requirement that certain income taxes be apportioned among the states according to population; ^[10] (2) the Federal income tax statute does not violate the Fifth Amendment's prohibition against the government taking property without due process of law; (3) the Federal income tax statute does not violate the uniformity clause of Article I, section 8 of the U.S. Constitution (relating to the requirement that excises, also known as indirect taxes, be imposed with geographical uniformity).

In the Supreme Court case of Bowers v. Kerbaugh-Empire Co.,^[11] Mr. Justice Butler stated:

It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be "direct taxes" within the meaning of the constitutional requirement as to apportionment. [cites omitted] The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes "from whatever source derived". [cites omitted] "Income" has been taken to mean the same thing as used in the Corporation Excise Tax of 1909 (36 Stat. 112), in the Sixteenth Amendment, and in the various revenue acts subsequently passed. [cites omitted] After full consideration, this court declared that income may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.

Although the Sixteenth Amendment is often cited as the "source" of the Congressional power to tax incomes, at least one court has reiterated the point made in Brushaber and other cases that the Sixteenth Amendment itself did not grant the U.S. Congress the power to tax incomes (a power Congress has had since the late 1700s), but only removed the requirement, if any, that any income tax be apportioned among the states according to population:

In dealing with the scope of the taxing power the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation [ . . . ] and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, Section 8, of the Constitution.^[12]

John R. Luckey, legislative attorney for the American Law Division of the Congressional Research Service writes on page four of "FAQ Concerning The Federal Income Tax" that "the Court found that the Sixteenth Amendment sought to restrain the Court from viewing an income tax, because of its close effect on the underlying property as a direct tax."

[edit] Modern interpretation

In Commissioner v. Glenshaw Glass Co.,^[13] the Supreme Court laid out what has become the modern understanding of what constitutes 'income' to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Under this definition, any increase in wealth—whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions—are all within the definition of income, unless Congress makes a specific exemption as it has for items such as life insurance proceeds received by reason of the death of the insured party,^[14] gifts, bequests, devises and inheritances,^[15] and certain scholarships.^[16]

[edit] Recent rulings

On December 22, 2006, the United States Court of Appeals for the District of Columbia Circuit vacated its own August 2006 ruling in Murphy v. Internal Revenue Service and United States.^[17] In its original August 2006 decision, the Court had ruled that 26 U.S.C. § 104(a)(2) was unconstitutional under the Sixteenth Amendment to the extent that the statute purported to tax, as income, a recovery for a non-physical personal injury for mental distress and loss of reputation not received in lieu of taxable income such as lost wages or earnings.

The Murphy ruling had been mandatory precedent only in the District of Columbia. The December 2006 order vacating the Court's own prior judgment also included a scheduling for a rehearing for April 23, 2007.

[edit] Tax protester arguments regarding ratification

The article Tax protester constitutional arguments covers this topic in considerably more detail, including details on the specific arguments made against ratification.

Some tax protesters, conspiracy investigators, and others opposed to income taxes cite what they contend is evidence that the Sixteenth Amendment was never "properly ratified." One such argument is that because the legislatures of various states passed resolutions of ratification with different capitalization, spelling of words, or punctuation marks (e.g. semi-colons instead of commas) from the text proposed by Congress, those states' ratifications were invalid. A related argument is that various states illegally violated procedural requirements of their constitutions when passing their ratification resolutions. Another argument made by some tax protesters regards Ohio, one of the states listed as ratifying the amendment. They contend that because Congress did not pass an official proclamation recognizing Ohio's date of admission (1803) to statehood until 1953 (see Ohio Constitution), Ohio was not a state until 1953 (and, therefore, could not have ratified the Sixteenth Amendment). These and similar arguments have been universally rejected by the courts.

[edit] Notes

^ U.S. Const., art. I, § 8, cl. 1.
^ U.S. Const., art. I, § 2, cl. 3.
^ U.S. Const., art. I, § 9, cl. 4.
^ 178 U.S. 41 (1900).
^ 220 U.S. 107 (1911).
^ 157 U.S. 429 (1895), aff'd on reh'g, 158 U.S. 601 (1895).
^ Quoting the United States Supreme Court: "Again the situation is aptly illustrated by the various acts taxing incomes derived from property of every kind and nature which were enacted beginning in 1861, and lasting during what may be termed the Civil War period. It is not disputable that these latter taxing laws were classed under the head of excises, duties, and imposts because it was assumed that they were of that character inasmuch as, although putting a tax burden on income of every kind, including that derived from property real or personal, they were not taxes directly on property because of its ownership.” Brushaber v. Union Pac. Railroad, 240 U.S. 1, at 15 (1916) (italics added).
^ Boris I. Bittker, Constitutional Limits on the Taxing Power of the Federal Government, The Tax Lawyer, Fall 1987, Vol. 41, No. 1, p. 3 (American Bar Ass'n) (Pollock case "was in effect reversed by the sixteenth amendment").
^ 240 U.S. 1 (1916).
^ "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." Boris I. Bittker, Martin J. McMahon, Jr. & Lawrence A. Zelenak, Federal Income Taxation of Individuals, ch. 1, paragr. 1.01[1][a], Research Institute of America (2d ed. 2005), as retrieved from 2002 WL 1454829 (W. G. & L.).
^ 271 U.S. 170 (1926).
^ Penn Mutual Indemnity Co. v. Commissioner, 32 T.C. 653 at 659 (1959), aff'd, 277 F.2d 16, 60-1 U.S. Tax Cas. (CCH) paragr. 9389 (3d Cir. 1960).
^ 348 U.S. 426 (1955).
^ 26 U.S.C. § 101.
^ 26 U.S.C. § 102.
^ 26 U.S.C. § 117.
^ 460 F.3d 79, 2006-2 U.S. Tax Cas. (CCH) paragr. 50,476, 2006 WL 2411372 (D.C. Cir. Aug. 22, 2006). In an unrelated matter, the Court had also granted the government's motion to dismiss Murphy's suit against the defendant "Internal Revenue Service." Under the doctrine of Sovereign immunity the rule is that a taxpayer may sue The United States of America itself, not a government agency, officer, or employee (with few exceptions). The Court had stated: "Insofar as the Congress has waived sovereign immunity with respect to suits for tax refunds under 28 U.S.C. § 1346(a)(1), that provision specifically contemplates only actions against the 'United States.' Therefore, we hold the IRS, unlike the United States, may not be sued eo nomine in this case." One exception to this rule is found in the United States Tax Court where the taxpayer sues the Commissioner of Internal Revenue (Murphy v. United States).