THE TAX PROTESTER FAQ

Created by Daniel B. Evans

Copyright © 1998-2010. All rights reserved. Not legal advice.

First published: 11/28/1998; Last updated: 2/27/2011

Like most things on the Internet, this is a work in progress. Not all citations and quotations have been confirmed, and there are additional cases and arguments that may be added in the future.

Table of Contents

The Tax Protester FAQ

Introduction

What is the purpose of this FAQ?

The purpose of this FAQ is to provide concise, authoritative rebuttals to nonsense about the U.S. tax system that is frequently posted on web sites scattered throughout the Internet, by a variety of fanatics, idiots, charlatans, and dupes, frequently referred to by the courts as “tax protesters”.

This “FAQ” is therefore not a collection of frequently asked questions, but a collection of frequently made assertions, together with an explanation of why each assertion is false.

And the assertions addressed in this FAQ are not merely false, but completely ridiculous, requiring not just ignorance of law and history, but a suspension of logic and reason.

In this FAQ, you will read many decisions of judges who refer to the views of tax protesters as “frivolous,” “ridiculous,” “absurd,” “preposterous,” or “gibberish.” If you don’t read a lot of judicial opinions, you may not understand the full weight of what it means when a judge calls an argument “frivolous” or “ridiculous.” Perhaps an analogy will help explain the attitude of judges.

Imagine a group of professional scientists who have met to discuss important issues of physics and chemistry, and then someone comes into their meeting and challenges them to prove that the earth revolves around the sun. At first, they might be unable to believe that the challenger is serious. Eventually, they might be polite enough to explain the observations and calculations which lead inevitably to the conclusion that the earth does indeed revolve around the sun. Suppose the challenger is not convinced, but insists that there is actually no evidence that the earth revolves around the sun, and that all of the calculations of the scientists are deliberately misleading. At that point, they will be jaw-droppingly astounded, and will no longer be polite, but will evict the challenger/lunatic from their meeting because he is wasting their time.

That is the way judges view tax protesters. At first, they try to be civil and treat the claims as seriously as they can. However, after dismissing case after case with the same insane claims, sometimes by the same litigant, judges start pulling out the dictionary to see how many synonyms they can find for “absurd.”

The frustration of judges is well described in the following opinion of the Fifth Circuit Court of Appeals, responding to an appeal raising some of the ridiculous constitutional claims described in this FAQ:

“We are sensitive to the need for the courts to remain open to all who seek in good faith to invoke the protection of law. An appeal that lacks merit is not always--or often--frivolous. However we are not obliged to suffer in silence the filing of baseless, insupportable appeals presenting no colorable claims of error and designed only to delay, obstruct, or incapacitate the operations of the courts or any other governmental authority. Crain’s present appeal is of this sort. It is a hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish. The government should not have been put to the trouble of responding to such spurious arguments, nor this court to the trouble of ’adjudicating’ this meritless appeal.”

Crain v. Commissioner, 737 F.2d 1417, 1418 (5th Cir. 1984).

The court not only ruled against Crain, but imposed a damage award against him (essentially a fine) of $2,000 for bringing a frivolous appeal. Id at 1418.

So, when a judge calls an argument “ridiculous” or “frivolous,” it is absolutely the worst thing the judge could say. It means that the person arguing the case has absolutely no idea of what he is doing, and has completely wasted everyone’s time. It doesn’t mean that the case wasn’t well argued, or that judge simply decided for the other side, it means that there was no other side.. The argument was absolutely, positively, incompetent. The judge is not telling you that you that you were “wrong.” The judge is telling you that you are out of your mind.

This FAQ addresses only assertions that are frivolous, and only questions of law, not politics or economics. It is not the purpose of this FAQ to criticize any opinion, or stifle any debate, about the proper scope or operation of the federal tax system. For example, claims that the federal income tax is unfair, morally equivalent to theft, or bad economic policy are all matters of opinion, not law, and are outside the scope of this FAQ. However, a claim that the federal income tax is unconstitutional, unenforceable, or inapplicable is an assertion of law and is within the scope of this FAQ.

Finally, it should be noted that this FAQ does not include all of the decisions of all the federal courts that have been forced to deal with tax protesters and tax protester arguments, but includes mainly published decisions of the United States Supreme Court and Circuit Courts of Appeal that have most clearly refuted these tax protester claims. District Court and Tax Court decisions have been included to fill some gaps, as well as a few unpublished Circuit Court of Appeals decisions, but hundreds of published decisions of the Tax Court and District Courts have not been included, as well as many published and unpublished decisions of the Courts of Appeals.

Related topics:

What is a “tax protester”?

The phrase “tax protester” is commonly applied to two different types of people:

People who refuse to pay taxes in order to protest policies of the federal government that are supported by those taxes, or who refuse to support those policies, such as people who refused to pay taxes that pay for wars (see, for example, United States v. Malinowski , 347 F. Supp. 347, 73-1 U.S. Tax Cas. (CCH) ¶ 9355 (E.D. Pa. 1972), aff’d, 472 F.2d 850, 73-1 U.S. Tax Cas. (CCH) ¶ 9199 (3d Cir. 1973), cert. denied, 411 U.S. 970 (1973)); and

People who refuse to pay taxes or file tax returns out of a mistaken belief that the federal income tax is unconstitutional, invalid, voluntary, or otherwise does not apply to them under one of a number of bizarre arguments, most of which are described in this FAQ.

This FAQ uses the phrase “tax protester” in the second sense, referring to people who refuse to file returns or pay taxes because of ridiculous and far-fetched arguments against the validity or application of the tax laws. (See the above explanation of the purpose of this FAQ.)

However, many tax protesters have objected to the label of “tax protester.” First, they claim that the IRS has improperly applied the label “illegal tax protester” to them and other citizens who have simply expressed a disagreement with the tax laws. Secondly, they claim that they are not “protesting” the tax laws, but only arguing that the tax laws do not apply to them or their income.

In 2008, the Department of Justice began using the phrase “tax denier” and announced a national “initiative” to address the problems associated with tax protester-like arguments, beliefs, and practices. See “Nathan J. Hochman, Tax Division’s Assistant Attorney General, Announces Creation of the National Tax Defier Initiative,” Rel. 08-275 (4/8/2008). However, the label “tax defier” suffers from the same semantic problem as the label “tax protester,” which is that those persons normally labeled “tax protesters” or “tax defiers” are not protesting the tax laws or defying the tax laws but claiming (in most cases) that the tax laws do not validly apply to them.

For these and other reasons, a better term might be “tax denier” (a phrase that was coined by the author of this FAQ and first suggested in misc.taxes newsgroup posting on 4/23/2001). Just like “Holocaust deniers” attempt to rationalize and justify their refusal to accept an indisputable historical fact (that Nazi Germany deliberately exterminated millions of Jews), “tax deniers” attempt to rationalize and justify their refusal to accept indisputable historical facts (that the Constitution allows Congress to impose a tax on the incomes of citizens and residents of the United States and that Congress has exercised that power). Many (if not most) tax protesters do not “protest” the federal income tax; they simply refuse to believe that it applies to them or that it is constitutional.

Although the phrase “tax denier” may be more accurate, this FAQ will (for the time being) continue to use the more traditional description of “tax protester” to describe tax deniers and the arguments they raise.

Related topics:

Constitutional Fallacies

The federal income tax is unconstitutional because it is a “direct tax” that must be apportioned among the states in accordance with the census.

False. It is true that there is an apportionment requirement in the Constitution for “direct taxes,” but the 16th Amendment clearly eliminates the apportionment requirement for all taxes on incomes.

Before the adoption of the 16th Amendment, the constitutionality of an income tax was determined under Article I, Section 9, Clause 4 of the Constitution, which states that:

“No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”

The reference to the “Census or Enumeration” was a reference to Article I, Section 2, of the Constitution, which directs that:

“Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.”

(“All other Persons” meant slaves.)

Whether or not an income tax should have been considered to be a “direct tax” that must be apportioned will be discussed below, but the 16th Amendment to the Constitution, ratified in 1913, removed all doubt about apportionment because it clearly states that:

“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.”

And so, following the ratification of the 16th Amendment, Congress enacted an unapportioned income tax, and the constitutionality of that tax was challenged, but the Supreme Court held unanimously that the income tax was constitutional because “in express terms the Amendment provides that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment.” Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

The arguments that tax protesters make about the validity and meaning of the 16th Amendment will be dealt with in other sections of this FAQ. (See “Related Topics,” below.)

But because tax protesters continue to insist that a tax on incomes was a “direct tax” both before the ratification of the 16th Amendment and even afterwards, a brief history of the Supreme Court’s interpretation of “direct tax” is appropriate.

Meaning of “Direct Tax” Before the 16th Amendment

Exactly what the framers of the Constitution meant by “direct Taxes” has been subject of much debate.

The phrase “direct taxation” appears many times in James Madison’s Notes of Debates in the Federal Convention of 1787, because the convention had agreed that representation in Congress and “direct taxes” should both be apportioned among the states in the same way, according to population, but with slaves being counted as three-fifths of a person. (By contrast, the power of Congress to impose duties, imposts, and excises received very little discussion, except to agree that those kinds of taxes should be “uniform throughout the United States.”) And yet, on August 20, 1787, on the same day that the convention approved the final version of the Constitution, Madison reports that “Mr King asked what was the precise meaning of direct taxation. No one answerd.”

To understand the context of the debates about “direct taxes” in the constitutional convention, it is important to note that, under Article VII of the Articles of Confederation that were in force before the Constitution was ratified, the states were required to supply the funds that Congress required “in proportion to the value of all land within each State,” and yet each state had only one vote, so the larger states were required to contribute more to the defense of the United States and yet could be outvoted by smaller states on how the contributions would be spent.

An early draft of the new Constitution, proposed to the convention by William Paterson of New Jersey, provided for the apportionment of “requisitions” among the states using the same language eventually adopted for the apportionment of “direct Taxes.” This suggests that “direct Taxes” were considered to be substitutes for, or perhaps equivalent to, the requisitions previously exacted by Congress from the states.

Taking the debates reported in Madison’s Notes as a whole, it appears that the required apportionment of “direct Taxes” was intended to address the concerns of the relatively wealthy southern states of the new United States, with large plantations owned by relatively few people and larger number of slaves than the northern states, that taxes imposed by a certain amount per person (i.e., capitations and poll taxes) should be adjusted for slaves, and that taxes on land should be allocated among the states in proportionate to their populations, not their values.

There are several statements in the Federalist Papers in which “direct taxes” are equated with taxes on wealth.

For example, in Federalist #12, Alexander Hamilton (who had been a delegate to the constitutional convention) wrote:

“In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable, and, from the vigor of the government, much more practicable, than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind, from imposts, and from excises. Duties on imported articles form a large branch of this latter description.”

(Emphasis added.)

And, in Federalist #21, Alexander Hamiton wrote:

“Impositions of this kind [taxes on articles of consumption] usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment.”

(Emphasis added.)

And, in Federalist #54, Hamilton or Madison wrote that the apportionment of taxes “has reference to the proportion of wealth,” and is applied “to the relative wealth and contributions of the States.”

Each of these statements is consistent in their understanding that a “direct taxes” were (a) capitations and poll taxes, and (b) taxes on wealth (primarily the value of land).

Only nine years after the constitutional convention, the Supreme Court affirmed this understanding in Hylton v. United States, 3 U.S. 171 (1796). Three of the four justices who decided the case wrote opinions (separate opinions was the usual practice of that day), and all four justices agreed that “direct tax” did not apply to an annual tax on the private ownership of carriages.

Justice Chase wrote that:

“I am inclined to think, but of this I do not give a judicial opinion, that the direct taxes contemplated by the Constitution, are only two, to wit, a capitation, or poll tax, simply, without regard to property, profession, or any other circumstance; and a tax on LAND. I doubt whether a tax, by a general assessment of personal property, within the United States, is included within the term direct tax.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Chase; emphasis in original).

Justice Paterson (who was a delegate to the constitutional convention and, as discussed above, presented one of the first drafts of the constitution, including a provision for the apportionment of “requisitions”), expressed a similar opinion:

“Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and tax on land, is a questionable point. ... I never entertained a doubt, that the principal, I will not say, the only, objects, that the framers of the Constitution contemplated as falling within the rule of apportionment, were a capitation tax and a tax on land.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson).

Finally, Justice Iredell (who was not a delegate to the constitutional convention, but was a delegate to the North Carolina convention that debated ratification of the Constitution) expressed his opinion that:

“Perhaps a direct tax in the sense of the Constitution, can mean nothing but a tax on something inseparably annexed to the soil: Something capable of apportionment under all such circumstances.



A land or a poll tax may be considered of this description.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Iredell).

Justice Wilson, who was also a member of the constitutional convention, wrote a brief opinion joining in the decision, but did not explain his decision beyond saying that he “had before expressed a judicial opinion on the subject, in the Circuit Court of Virginia” in which he upheld the constitutionality of the tax. (No copy of his opinion in the Circuit Court of Virginia survives.)

The question of whether a tax on income was a “direct tax” within the meaning of the Constitution, or a “duty,” “impost,” or “excise,” did not arise until the Civil War began, when the Union enacted additional taxes, some on incomes, in order to pay for the war.

The first of these new taxes to reach the Supreme Court was a tax on the gross amounts of premiums received by insurance companies. Writing for a unanimous court, Justice Swayne quoted from the opinions of Chase and Paterson in Hylton case, as well as other authorities on the meaning of “duties,” “imposts,” and “excises,” and concluded that:

“If a tax upon carriages, kept for his own use by the owner, is not a direct tax, we can see no ground upon which a tax upon the business of an insurance company can be held to belong to that class of revenue charges.”

Pacific Ins. Co. v. Soule, 74 U.S. 433 (1868) (holding that a tax on insurance company income was a “duty or excise”).

In 1869, reviewing the acts of Congress that had imposed “direct taxes” since the Hylton decision, as well as the opinions in the Hylton case itself, the Supreme Court confirmed that:

“This review [of the history of Congressional impositions of “direct taxes”] shows that personal property, contracts, occupations, and the like, have never been regarded by Congress as proper subjects of direct tax.”

Veazie Bank v. Fenno, 75 U.S. 533, 543 (1869).

And:

“[I]t may further it may further be taken as established upon the testimony of Paterson, that the words direct taxes, as used in the Constitution, comprehended only capitation taxes, and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed with the several States.”

Veazie Bank v. Fenno, 75 U.S. 533, 546 (1869).

Finally, in a challenge to a general income tax imposed on individuals, the Supreme Court followed the opinions from the Hylton decision and ruled unanimously that an income tax was an “excise or duty,” and not a “direct tax,” and did not need to be apportioned among the states. Springer v. United States, 102 U.S. 586 (1880).

That would seem to have settled the issue, except that the Supreme Court decided to re-examine the question of whether an income tax was a “direct tax” just 14 years later, and decided to limit (or “distinguish” ) the Hylton and Springer decisions.

In the first Pollock decision, a majority of the court (7 of the 9 justices) began with the premise that a tax on the income from property is the same as a tax on the value of the property itself, a premise completely inconsistent with every other Supreme Court decision before or since (and repudiated by the Supreme Court in New York v. Graves, 300 U.S. 308 (1937)). The Court then concluded that a tax on rents received from real property was a “direct tax” and unconstitutional unless apportioned. Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429 (1894). On rehearing, a narrower majority (5 of the 9 justices) decided that a tax on dividends, interest, and other income from personal property (i.e., property other than land) was also a “direct tax” and so unconstitutional unless apportioned. Pollock v. Farmers Bank and Trust Co., 158 U.S. 601 (1895).

As will be discussed in more detail below, the Pollock court was very clear that it was only a tax on the incomes from property that was a “direct tax,” and other forms of income could be taxed without apportionment. This was confirmed in Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916). Nevertheless, the Pollock decisions limited the ability of Congress to impose a taxes on incomes, because it was necessary to determine the source of the income. Wages, salaries, and other earned incomes could be taxed, and income from manufacturing and other business activities could be taxed, but rents, interest, dividends, and other incomes from property could not be taxed without apportionment (a very awkward process). The 16th Amendment was therefore proposed by Congress, and ratified by the states, so that Congress could tax incomes “from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Tax Protester “Evidence”

Most tax protester arguments that a tax on incomes is a “direct tax” rely in one way or another on the decisions of the U.S. Supreme Court in Pollock v. Farmers’ Loan and Trust Co., 157 U.S. 429 (1894), on reh’ng 158 U.S. 601 (1895), discussed above.

However, the Pollock decisions were rendered in 1894 and 1895 and there is no question but that the 16th Amendment, which was proposed in 1909 and ratified by the required three-fourths of the states in 1913, slightly less than four years later, was intended to over-rule the Pollock decisions.

“[T]there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided....”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

Any argument that relies upon the Pollock decisions is therefore almost certainly wrong.

Related topics:

The income tax cannot apply to individual citizens, because that would be a “direct tax” prohibited by the Constitution.

False.

Although the meaning of “direct tax” has sometimes been questioned, it was always understood that taxes imposed by Congress could apply to, and be collected from, individual citizens, and that not every tax collected directly from the population was a “direct tax” within the meaning of the Constitution.

One common mistake made by tax protesters is in assuming that the phrase “Capitation, or other direct, Tax” in the Constitution is a reference to any tax that is collected “directly” from the person on whom it is imposed, while “indirect” taxes such as “Duties, Imposts and Excises” are collected on goods during manufacture, or in transit, and the ultimate burden is passed along to someone else (usually the consumer). That is a definition of “direct” and “indirect” that is frequently used by economists, but it is not the meaning of “direct” and “indirect” that has been applied by the U.S. Supreme Court.

In Hylton v. United States, 3 U.S. 171 (1796), the Supreme Court was unanimous in its opinion that Congress could impose a tax on a citizen of Virginia for carriages held for personal use and that the tax was an excise or duty and not “direct.” Of the four justices who heard the case, two (William Paterson and James Wilson) were members of the Constitutional Convention that drafted the Constitution, and presumably knew what it meant.

In Springer v. United States, 102 U.S. 586 (1880), the Supreme Court upheld the constitutionality of an income tax against an individual, William H. Springer, finding that the income tax was a constitutional “duty or excise” and not a “direct tax.”

In Tyee Realty Co. v. Anderson, 240 U.S. 115, 117 (1916), one of the appellants was an individual named Edwin Thorne, and he complained about the constitutionality of “a progressive tax on the income of individuals.” The Supreme Court denied the appeal saying that “we need not now enter into an original consideration of the merits of these contentions because each and all of them were considered and adversely disposed of in Brushaber v. Union P. R. Co., 240 U.S. 1, 60 L.Ed. __, 36 Sup. Ct. Rep. 236.” (And the Brushaber decision upheld the constitutionality of an income tax under the 16th Amendment.)

More recent judges have rejected this argument as well:

“[Becraft’s] position can fairly be reduced to one elemental proposition: The Sixteenth Amendment does not authorize a direct non-apportioned income tax on resident United States citizens and thus such citizens are not subject to the federal income tax laws. ... We hardly need comment on the patent absurdity and frivolity of such a proposition. For over 75 years, the Supreme Court and the lower federal courts have both implicitly and explicitly recognized the Sixteenth Amendment’s authorization of a non-apportioned direct income tax on United States citizens residing in the United States and thus the validity of the federal income tax laws as applied to such citizens.”

In re Becraft, 885 F.2d 547 (9th Cir., 1989).

“[W]e have rejected, on numerous occasions, the tax-protester argument that the federal income tax is an unconstitutional direct tax that must be apportioned. See, e.g., Lively v. Commissioner, 705 F.2d 1017, 1018 (8th Cir.1983) (per curiam)”

United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993), cert. den. 510 U.S. 1193 (1994).

“As the cited cases, as well as many others, have made abundantly clear, the following arguments alluded to by the Lonsdales are completely lacking in legal merit and patently frivolous: .. .. (3) the income tax is a direct tax which is invalid absent apportionment, and Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759, modified, 158 U.S. 601, 15 S.Ct. 912, 39 L.Ed. 1108 (1895), is authority for that and other arguments against the government’s power to impose income taxes on individuals.. ..”

Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990).

“It is generally agreed that Article I of the Constitution authorizes Congress to tax the income of individuals, and that the Sixteenth Amendment eliminated the requirement that such taxes be apportioned among the states.”

In re: Michael Fleming, 86 AFTR2d ¶2000-5138; No. 97-6342-8G3 (U.S.Bank.Ct. M.D.Fl. 8/9/2000).

“Congress may impose taxes on individuals in the states without apportionment among the several States, and ‘without regard to any census or enumeration,’ and ‘on incomes, from whatever source derived.’”

Secora v. United States, 1997 WL 460162, at 6 (U.S.D.C. Neb.).

The meaning of “direct tax” urged by many tax protesters as a “tax imposed directly” would trivialize the Constitution, because it reduces the constitutional definition of “direct tax” to a mere question of how the tax is collected. So, if the U.S. were to impose a tax on employees for the wages they receive, that would be a “direct tax” according to the tax protester definition, but if the U.S. were to impose a tax on employers for wages paid (or a tax on banks for the payment of interest, or on corporations for the payment of dividends), that would be an “indirect tax” and constitutional, even though the net effect would be exactly the same (i.e., the employees or depositors or shareholders would bear the burden of the tax through reduced wages and salaries, interest, or dividends). The meaning of “direct tax” that has been consistently applied by the Supreme Court is much more sensible (as well as consistent with the known intent of the framers of the Constitution), because it focuses on what is being taxed (the value of property, but not transfers of property) rather than on how the tax is collected.

A final note:

Some courts have referred to the income tax as a “non-apportioned direct tax,” which is unfortunate because it suggests that the income tax is a “Capitation, or other direct, Tax” that does not need to be apportioned, a suggestion that was explicitly rejected by the U.S. Supreme Court in Brushaber. Under the Constitution, a “direct tax” must be apportioned, while an “indirect tax” must be uniform throughout the United States. One of the questions raised in Brushaber was whether the 16th Amendment created a type of tax that need be neither apportioned nor uniform, and the court rejected that possibility, stating (in a rather convoluted sentence):

“[T]hat the contention that the Amendment treats a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the rule of uniformity as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is also wholly without foundation since the command of the Amendment that all income taxes shall not be subject to apportionment by a consideration of the sources 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.”

Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).

The court then went on to hold that the income tax satisfied the requirement of geographical uniformity imposed by the Constitution, even though the rate of tax was not uniform on all incomes.

Did the court in Becraft, quoted above, mean to say that the income tax is a “non-apportioned direct tax” that need not be uniform? No, because the question of uniformity was not raised with the court. This is merely confusion in terminology, the court using the word “direct” to describe a tax that is imposed and collected by the government directly from citizens or residents of the United States, not that the income tax is a “direct tax” within the meaning of the Constitution.

Related topics:

The income tax is a “direct tax” because it is collected from individuals who cannot shift the burden to others.

As noted above, not all taxes that are collected directly are “direct taxes” within the meaning of the Constitution. One similar, but slightly more subtle argument, is that a “direct tax” is one that imposes a burden that cannot be shifted to someone else. Unfortunately, there is some support for this argument in the Pollock decision.

The majority opinion in one of the Pollock decisions introduced some confusion about the meaning of “direct tax” and “indirect tax” through the following statement:

“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.”

Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 558 (1895).

There are several problems with the meaning of “indirect taxes” as “all taxes paid primarily by persons who can shift the burden upon some one else” and “direct taxes” as taxes “the payment of which cannot be avoided”:

First (and most importantly), there is no support for those meanings in the words of the Constitution, the Federalist Papers, or any writings of the authors of the Constitution. As noted above, both the Federalist Papers and the opinions of the justices in the Hylton decision (some of whom were members of the Constitutional Convention) support the conclusion that a “direct tax” means a tax on the value of property.

There is no support for those definitions in any previous (or later) decision of the Supreme Court.

In the Pollock case itself, the Supreme Court admitted in the very next sentence that “the constitution may bear a different meaning.” As explained previously, the Supreme Court has consistently held that a tax on incomes is not a “direct tax” within the meaning of the Constitution. The Pollock court itself held that a tax on incomes from “professions, trades, employments, or vocations,” is not a “direct tax” without ever discussing whether the tax was one “the payment of which cannot be avoided.” (158 U.S. at 637.) The above definition of “direct tax” is therefore inconsistent with the decision of the Pollock court itself.

The last consideration seems to have been recognized by the Supreme Court itself, because in a later opinion it explicitly rejected the principle that an inability to shift the burden of a tax should be the test of whether a tax is “direct.” In Knowlton v. Moore , 178 U.S. 41, 81-82 (1900), the Supreme Court upheld the constitutionality of a federal inheritance tax), and referring to the assertion that it was decided in the Pollock case that “in order to determine whether a tax be direct within the meaning of the Constitution, it must be ascertained whether the one upon whom by law the burden of paying it is first cast can thereafter shift it to another person,” the court found that “this disputable theory was not the basis of the conclusion of the court” in Pollock .

The same (or similar) arguments were also rejected in Nicol v. Ames, 172 U.S. 509, 515 (1899) (“[I]t it is no part of the duty of this court to lessen, impede, or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to the particular nature of a specified tax, where such distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself.”)

This argument was most recently rejected by a Circuit Court in Murphy v. I.R.S. , 493 F.3d 170, No. 05-5139 (D.C. Cir. 7/3/2007). vacating 460 F.3d 79 (8/22/2006).

In any event, the argument is completely academic with respect to incomes, because the 16th Amendment plainly states that Congress can impose taxes on incomes without apportionment, so it is constitutional to require individuals to pay a tax directly on their incomes, regardless of what the Constitution might have previously meant.

Related topics:

The income tax cannot apply to wages, because that would be a “direct tax” that must be apportioned in accordance with the Constitution.

False. There is nothing in the Constitution that says that wages or income from labor cannot be taxed, or that a tax on wages or income from labor is a “direct” tax. And it has been the consistent opinion of the Supreme Court beginning with Hylton v. United States, 3 U.S. 171 (1796), and continuing with Springer v. United States, 102 U.S. 586 (1880), Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895), and Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), that the phrase “direct tax” only applies to a tax on the value of property.

“This review [of the history of Congressional impositions of “direct taxes”] shows that personal property, contracts, occupations, and the like, have never been regarded by Congress as proper subjects of direct tax.”

Veazie Bank v. Fenno, 75 U.S. 533, 543 (1869).

The income tax that was contested in the Springer decision in 1880 was a tax on “the annual gains, profits, or income of every person residing in the United States, or any citizen of the United States residing abroad, whether derived from any kind of property, rents, interests, dividends, salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever....” Act of June 30, 1864, ch. 173, Sec. 116, 18 Stat. 223, 281. The statute therefore taxed all forms of earned income, specifically including references to both “salaries” and incomes from “employment.” The constitutionality of the statute was challenged by a lawyer with income from his legal practice (i.e., his labor), and the Supreme Court unanimously upheld the constitutionality of the tax, holding that it was a “duty or excise” that did not need to be apportioned. Springer v. United States, 102 U.S. 586 (1880).

The income tax that was challenged in the Pollock decision was similar, and the majority opinion first struck down the tax on incomes from property (i.e., rents, interests, and dividends), but then went on to state that, if only the tax on interest, rents, dividends, and other income from property were ruled unconstitutional, “this would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way a tax on capital would remain in substance a tax on occupations and labor.” Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895). The majority opinion therefore held that the entire tax act was unconstitutional, believing that Congress would invalidate the entire tax act rather than tax only “occupations and labor.” (The minority opinion in Pollock believed that the entire tax was constitutional, and so did not need to distinguish between income from property and income from employment.)

That a tax on wages and other compensation for labor would have been constitutional even before the adoption of the 16th Amendment was confirmed by the unanimous decision of the Supreme Court in Brushaber, in which the court stated:

“Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from ‘professions, trades, employments, or vocations,’ (158 U.S. 637), its validity was recognized; indeed it was expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past. Id. p. 635.”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

See also, Charczuk v. Commissioner, 771 F.2d 471, 473, 56 A.F.T.R.2d 85-5740, 85-2 USTC P 9656 (10th Cir. 1985) (“While ruling that a tax upon income from real and personal property is invalid in the absence of apportionment, the Supreme Court [in Pollock] explicitly stated that taxes on income from one’s employment are not direct taxes and are not subject to the necessity of apportionment.”)

That Congress has the power to tax wages and salaries is also confirmed by the Supreme Court decisions dealing with the taxation of wages and salaries paid by state governments.

After the Brushaber decision, the Supreme Court still followed the doctrine (established by the decision in Collector v. Day, 78 U.S. 113 (1870)) that the federal government could not tax the salaries of employees of the states performing “essential governmental functions.” (Cf. Brush v. Commissioner, 300 U.S. 352.) However, in a case challenging the application of the federal income tax to the salaries of employees of the Port of New York Authority (a bi-state corporation formed by New York and New Jersey), the Supreme Court clearly stated that Congress could tax the earnings of those employees in the same manner as employees private businesses:

“The challenged taxes laid under section 22, Revenue Act of 1932, c. 209, 47 Stat. 169, 178, 26 U.S.C.A. 22, are upon the net income of respondents, derived from their employment in common occupations not shown to be different in their methods or duties from those of similar employees in private industry. The taxpayers enjoy the benefits and protection of the laws of the United States. They are under a duty to support its government and are not beyond the reach of its taxing power. A nondiscriminatory tax laid on their net income, in common with that of all other members of the community, could by no reasonable probability be considered to preclude the performance of the function which New York and New Jersey have undertaken, or to obstruct it more than like private enterprises are obstructed by our taxing system.”

Helvering v. Gerhardt, 304 U.S. 405, 420 (1938) (emphasis added).

The Supreme Court explicitly overruled Collector v. Day in Graves v. New York ex rel. O’Keefe, 306 U.S. 466, 486 (1939), stating that “we perceive no basis for a difference in result whether the taxed income be salary or some other form of compensation, or whether the taxpayer be an employee or an officer of either a state or the national government, or of its instrumentalities.”

In an earlier decision, Helvering v. Powers, 293 U.S. 214 (1934), the trustees of the Boston Elevated Railway Company claimed that their compensation by the railway was constitutionally exempt because they were officers of the commonwealth of Massachusetts. The court first observed that, although the “governmental functions” of a state were immune from federal taxation, “the state cannot withdraw sources of revenue from the federal taxing power by engaging in businesses which constitute a departure from usual governmental functions and to which, by reason of their nature, the federal taxing power would normally extend.” 293 U.S. at 225. Holding that the operation of a street railway was not a “governmental function” and could be taxed by the United States in the same way as any other business, the Supreme Court concluded that the compensation of the trustees could also be taxed:

“If the business itself, by reason of its character, is not immune, although undertaken by the state, from a federal excise tax upon its operations, upon what ground can it be said that the compensation of those who conduct the enterprise for the state is exempt from a federal income tax? Their compensation, whether paid out of the returns from the business or otherwise, can have no quality, so far as the federal taxing power is concerned, superior to that of the enterprise in which the compensated service is rendered. ... We conclude that the Congress had the constitutional authority to lay the tax.”

Helvering v. Powers, 293 U.S. 214, 227 (1934) (emphasis added).

None of these decisions would have been unnecessary if Congress did not have the power to tax wages and salaries generally. The decisions were necessary only because the Supreme Court already knew that it was constitutional to tax the compensation of a private business and so the issue was whether state employees should be treated differently. The Supreme Court initially held that state employees should be treated differently, but then eventually reversed itself and concluded that the same taxes should be paid by state employees as any other employee.

In the case of Commissioner v. Kowalski, 434 US 77 (1977), the Supreme Court held that meal allowances paid by the state of New Jersey to state troopers constituted income subject to tax. After restating the principle that Congress intended to tax “all gains except those specifically exempted,” the court stated that:

“In the absence of a specific exemption, therefore, respondent’s meal-allowance payments are income within the meaning of [I.R.C. section] 61 since, like the payments involved in Glenshaw Glass Co., the payments are ‘undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion.’”

Commissioner v. Kowalski, 434 US 77, 83 (1977).

Once again, the Supreme Court would never had reached the issue of whether “meal allowances” were income unless the justices had already concluded that wages, salaries, or other compensation paid to an employee were income subject to tax.

As recently as 1991, the Supreme Court referred to arguments that the Sixteenth Amendment did not authorize a tax on wages and salaries, and that the federal income tax was unconstitutional, as “surely frivolous.” Cheek v. United States, 498 U.S. 192 (1991).

In the history of the United States, not a single judge has ever expressed an opinion suggesting that a tax on income from employment was a “direct tax” that must be apportioned. Not one. Never.

And even if a tax on wages might have once been considered to be a “direct tax” that must be apportioned, the 16th Amendment plainly states that Congress can tax incomes, and wages are a form of income.

The lower courts have therefore had no problem in holding that an unapportioned income tax on wages is constitutional.

“In Brushaber, the Court found the 1913 income tax law to be constitutional. The Court also noted that in Pollock v. Farmers’ Loan and Trust Co., 158 U.S. 601 (1895) it had previously found the taxing of income from professions, trades, employments or vocations to be constitutional in the form of an excise tax. In light of the [S]ixteenth [A]mendment, however, all taxation of income, ’from whatever source derived,’ was found to be constitutional in Brushaber.”

Martin v. Commissioner, 756 F.2d 38, 40 (6th Cir. 1985), aff’g. T.C. Memo. 1983-473.

“Taxpayers’ argument that compensation for labor is not constitutionally subject to the federal income tax is without merit. There is no constitutional impediment to levying an income tax on compensation for a taxpayer’s labors. [Citations omitted] Furthermore, § 61(a) of the Code defines gross income as ‘all income from whatever source derived, including . . . compensation for services.’ In sum, the sixteenth amendment authorizes the imposition of a tax upon income without apportionment among the states, and under the statute, the term ‘income’ includes the compensation a taxpayer receives in return for services rendered. Taxpayers’ argument that wages received for services are not taxable as income is clearly frivolous.”

Funk v. Commissioner, 687 F.2d 264, 265 (8th Cir. 1982), affirming T.C. Memo. 1981-506.

See also, United States v. Schiff, 780 F. 2d 210 (2nd Cir. 1986); United States v. Schiff, 801 F.2d 108 (2nd Cir. 1986); United States v. Schiff, 876 F.2d 272 (2nd Cir. 1989); United States v. Schiff, 919 F.2d 830 (2nd Cir. 1990); Schiff v. Commissioner, 751 F.2d 115 (2nd Cir. 1985); Schiff v. Commissioner, 47 TCM 1706 (US Tax Court 1984); Hyslep v. United States, 765 F.2d 1083 (11th Cir. 1985); Lovell v. United States, 755 F.2d 517 (7th Cir. 1984); United States v. Aitken, 755 F.2d 188 (1st Cir. 1984); Wilcox v. Commissioner, 848 F.2d 1007 (9th Cir. 1988), aff’g. T.C. Memo. 1987-225; Carter v. Commissioner, 784 F.2d 1006, 1009 (9th Cir. 1986); Sullivan v. United States, 788 F.2d 813 (1st Cir. 1986); Casper v. Commissioner, 805 F.2d 902 (10th Cir. 1986); Connor v. Commissioner, 770 F.2d 17 (2nd Cir. 1985); United States v. Bonneau, 970 F.2d 929 (1st Cir. 1992).

Tax Protester “Evidence”

In claiming that a tax on wages or other incomes should be considered a “capitation” and so a “direct tax,” tax protesters frequently quote from economist Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations,” first published in 1776 and usually cited as “The Wealth of Nations.”

“Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labor….”

Smith, Adam, Wealth of Nations, Book V, Part II, Article IV.

As far as the author has been able to determine, the above quotation has never been cited or discussed by any federal court. And, as will be explained below, the Supreme Court has stated that the writings of Adam Smith are not reliable evidence of the meaning of “direct tax” as used in the Constitution.

In the first Supreme Court decision to address the question of what was meant by “direct tax” in the Constitution, Hylton v. United States, 3 U.S. 171 (1796), one of the four opinions (that of Paterson, J.) does quote Adam Smith in support of the conclusion that a tax on the ownership of a carriage was not a direct tax. 3 U.S. at 180-181. However, Justice Paterson’s own view of the scope of “direct tax” was somewhat limited, because he stated that “Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and tax on land, is a questionable point.” 3 U.S. 177.

The next time that Adam Smith is mentioned in a Supreme Court opinion is in a unanimous opinion written by Chief Justice Chase in 1869:

“Much diversity of opinion has always prevailed upon the question, what are direct taxes? Attempts to answer it by reference to the definitions of political economists have been frequently made, but without satisfactory results. The enumeration of the different kinds of taxes which Congress was authorized to impose was probably made with very little reference to their speculations. The great work of Adam Smith, the first comprehensive treatise on political economy in the English language, had then been recently published; but in this work, though there are passages which refer to the characteristic difference between direct and indirect taxation, there is nothing which affords any valuable light on the use of the words ‘direct taxes’ in the Constitution.”

Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533, 541-542 (1869) (emphasis added).

This sentiment was followed in the second Pollock decision, in which the majority stated:

“This court is again urged to consider this question in the light of the theories advanced by political economists. But Chief Justice Chase, delivering the judgment of this court in Bank v. Fenno, 8 Wall. 533, 541, observed that the enumeration of the different kinds of taxes that congress was authorized to impose was probably made with very little reference to the speculations of political economists, and that there was nothing in the great work of Adam Smith, published shortly before the meeting of the convention of 1787, that gave any light on the meaning of the words ‘direct taxes’ in the constitution.”

Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 641-642 (1895) (emphasis added).

Neither opinion explains exactly why Adam Smith’s “direct tax” should be different from the Constitution’s “direct tax,” but the differences can be seen by examining the point of view of Adam Smith expressed in his book. He begins his discussion “Of Taxes” (Book V, Part II), with the following statement:

“The private revenue of individuals, it has been shown in the first book of this Inquiry, arises ultimately from three different sources: Rent, Profit, and Wages. Every tax must finally be paid from some one or other of those three different sorts of revenue, or from all of them indifferently.”

Every tax is “direct” with respect to the thing (or transaction) actually taxed, and every “direct tax” might be considered to be “indirect” with respect to something other than the thing actually taxed. So, for example, a sales tax is a “direct tax” on purchases, and could be considered to be an “indirect tax” on the income used to make the purchase. In an economic sense, questions about the differences between “direct” and “indirect” taxes cannot be answered without knowing the frame of reference.

From the quotation above (and Wealth of Nations as a whole), it is clear that Adam Smith believed that all taxes must be paid from income. (Inheritance and estate taxes were addressed in an appendix.) From that point of view, a tax on income would be “direct” and any other kind of tax would be either “indirect” or “indifferent” in how the tax applied to income. But the authors of the Constitution had a very different idea of what they referred to as “direct.” For example, they considered a capitation to be “direct” in all cases, while Smith considered a capitation to be “direct” only in the case of laborers who had no other source of income with which to pay the tax. It is also well established that the authors of the Constitution considered a tax on the value of land to be a “direct tax” even though a tax on the value of land might have little or nothing to do with the income produced by the land. (There is a fuller discussion above of what the authors of the Constitution considered a “direct tax.”)

So the Supreme Court was correct to disregard the opinions of Adam Smith and other “political economists” in determining what is a “direct tax” within the meaning of the Constitution.

In any event, and as noted elsewhere in this FAQ, the question of whether a tax on wages or other incomes is a “direct tax” became irrelevant following the ratification of the 16th Amendment, which declares that Congress has the power to tax incomes without apportionment.

Related topics:

Wages cannot be taxed because our labor is our property, and so a tax on labor would be a tax on property and a “direct tax” within the meaning of the Constitution.

It is difficult to understand how you can claim a property right in something you haven’t done yet. If your labor were “property” like other property, you could sell it and then sit back and do nothing. However, if you “sell” your labor and are paid for it, you still have to work to earn it.

Even if the major premise is correct, and labor is a form of property, the conclusion is still wrong because the Internal Revenue Code does not tax labor itself, but the compensation received for labor (i.e., the income from labor).

If you go into your back yard and work for a week taking clay and making pots, there is no income and no tax. However, if you sell your pots, you have income because you have taken in money, and have more money than you had before. Similarly, if you “sell your labor” by agreeing to work in someone else’s factory (or farm) for a week, you have sold your labor and the compensation you receive is taxable.

As a general proposition, it is correct that Congress cannot tax the value of property directly (or at least not without apportionment), but can only tax exchanges or transfers of property. For example, the federal estate tax is clearly a tax on the value of property, and yet it has been held to be constitutional as an excise tax on the transfer of the property at death. Knowlton v. Moore, 178 U. S. 41 (1900). Similarly, Congress cannot tax the value of real property, but can tax sales or transfers of real property. So the income tax is a tax on the receipt of income, and the sale of labor is a transaction that allows the constitutional imposition of a tax.

Of course, every court that has been forced to rule on this issue has ruled against the tax protester raising it.

“Finally, the taxpayer argues that because wages are property, a tax on them is a property tax, and because the tax the Commissioner is attempting to collect is not apportioned, it is unconstitutional. However, as we and innumerable other courts have repeatedly explained, wages are income, and income taxes do not need to be apportioned.”

Connor v. Commissioner, 770 F.2d 17, 20 (2nd Cir. 1985), (the court not only ruled against the taxpayer, but also imposed sanctions of $2,000 against the taxpayer).

“It is clear beyond peradventure that the income tax on wages is constitutional.”

Stelly v. Commissioner, 761 F.2d 1113, 1115 (5th Cir. 1985), cert. den. 106 S.Ct. 149 (1985).

Related topics:

Income taxes are not “Duties, Imposts, or Excises” and so must be “direct taxes” that must be apportioned.

This argument is one of two slightly different ways of claiming that the 16th Amendment does not mean what it says. (The other is the argument that income cannot be taxed by an “excise” is unless the income is from a “privilege” or “revenue taxable activity.”)

From the very first court decisions on the Congressional power to tax, is has been recognized that there are two different kinds of taxes under the Constitution:

“In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.”

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), quoting from Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 557 (1895).

Relying on this division of taxes, the argument that an income tax is a direct tax then becomes one of exclusion. Having failed to show that a tax on incomes in general (or wages in particular) is a “direct tax,” the tax protester attempts to argue that it is not a duty, impost, or excise, and must therefore be a “direct tax.” The circularity of these arguments were recognized by Justice Paterson in 1796:

“ In behalf of the plaintiff in error, it has been urged, that a tax on carriages does not come within the description of a duty, impost, or excise, and therefore is a direct tax. It has, on the other hand, been contended, that as a tax on carriages is not a direct tax; it must fall within one of the classifications just enumerated, and particularly must be a duty or excise. The argument on both sides turns in a circle; it is not a duty, impost, or excise, and therefore must be a direct tax; it is not tax, and therefore must be a duty or excise.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson).

Justice Paterson went on to express some uncertainty about the meanings of “duty” and “excise”:

“ What is the natural and common, or technical and appropriate, meaning of the words, duty and excise, it is not easy to ascertain. They present no clear and precise idea to the mind. Different persons will annex different significations to the terms.”

Justice Paterson then suggested that there might be “indirect taxes” subject to the rule of uniformity that were not “duties, imposts, and excises”:

“There may, perhaps, be an indirect tax on a particular article, that cannot be comprehended within the description of duties, or imposts, or excises; in such case it will be comprised under the general denomination of taxes. For the term tax is the genus, and includes,

“1. Direct taxes.

“2. Duties, imposts, and excises.

“3. All other classes of an indirect kind, and not within any of the classifications enumerated under the preceding heads.

“The question occurs, how is such tax to be laid, uniformly or apportionately? The rule of uniformity will apply, because it is an indirect tax, and direct taxes only are to be apportioned.”

Justice Chase took a different view, believing that a tax that was not “direct,” and not a duty, impost, or excise, was within the power of Congress and would not need to be apportioned nor uniform:

“If there are any other species of taxes that are not direct, and not included within the words duties, imposts, or excises, they may be laid by the rule of uniformity, or not; as Congress shall think proper and reasonable. If the framers of the Constitution did not contemplate other taxes than direct taxes, and duties, imposts, and excises, there is great inaccuracy in their language. If these four species of taxes were all that were meditated, the general power to lay taxes was unnecessary.”

Justice Chase also considered the word “duty” to be extremely broad in scope, being almost synonymous with the word “tax”:

“The term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.) embraces taxes on stamps, tolls for passage, etc. etc. and is not confined to taxes on importation only.”

Hylton v. United States , 3 U.S. 171 (1796), (opinion of Justice Chase).

It is therefore clear that the justices who decided the Hylton case did not think that the words “duties, imposts, or excises” had meanings that were sufficiently clear or definite to restrict the power of Congress to tax. And this has been the consistent position of the Supreme Court ever since.

Rejecting a claim that Congress could not impose a tax on bank notes, the Supreme Court stated:

“[T]he words direct taxes, as used in the Constitution, comprehended only capitation taxes, and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed with the several States. It follows necessarily that the power to tax without apportionment extends to all other objects. Taxes on other objects are included under the heads of taxes not direct, duties, imposts, and excises, and must be laid and collected by the rule of uniformity.”

Veazie Bank v. Fenno, 75 U.S. 533, 546 (1869)

Responding to a claim that Congress could not impose a stamp tax upon a document for the sale of corporate stock, the Supreme Court stated:

“There is no occasion to attempt to confine the words duties, imposts, and excises to the limits of precise definition. We think that they were used comprehensively to cover customs and excise duties imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, particular business transactions, vocations, occupations, and the like.”

Thomas v. United States, 192 U.S. 363, 371 (1904).

The Supreme Court has therefore rejected the argument that Congress is limited to those articles or activities that were taxed as “excises” at the time of the adoption of the Constitution:

“Doubtless there were many excises in colonial days and later that were associated, more or less intimately, with the enjoyment or use of property. This would not prove, even if no others were then known, that the forms then accepted were not subject to enlargement.”

Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 580 (1937).

In deciding whether Congress had the power to impose Social Security taxes as an “excise,” the Supreme Court then rejected the idea that the label “excise” had any real significance:

“Whether the tax is to be classified as an ‘excise’ is in truth not of critical importance. If not that, it is an ’impost’ [citations omitted] or a ‘duty’ [citations omitted].”

Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 581-582 (1937) (upholding the Social Security tax paid by employers as “a duty, an impost, or an excise upon the relation of employment”).

The lower courts have likewise rejected the idea that the word “excise” limits the power of Congress to tax. For example:

“Turning first to their basic contention, indeed the one on which all the others rest, that the relation of domestic employment does not come within Art. 1, Section 8, and is therefore immune from the imposition of federal taxes and burdens, we find ourselves in no doubt that appellants are neither historically nor etymologically correct in their claim in substance that excises are limited to taxes laid on the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupation and upon corporate privileges only. It is true that taxes of the kind referred to are excise taxes but it is also true, as was held in Steward Machine Co. v. Davis, that the excises which Congress has power to impose are not limited to vocations or activities which may be prohibited altogether or to those which are the outcome of a franchise, but extend to vocations or activities pursued as of common right. The term ‘excise’ is and was before and at the time of the adoption of the Constitution a term of very wide meaning.”

Abney v. Campbell, 206 F.2d 836, 841 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954).

Related topics:

Wages cannot be taxed because the exercise of a fundamental right cannot be taxed and the right to work is a fundamental right reserved to the citizens of the United States by the 10th Amendment to the Constitution.

This is absolutely wrong in every way.

The idea that there may be rights or privileges that are exempt from taxation has been rejected from the very beginnings of the United States. In rejecting such a claim in 1830, Chief Justice Marshall wrote:

“The power of legislation, and consequently of taxation, operates on all the persons and property belonging to the body politic. This is an original principle, which has its foundation in society itself. It is granted by all, for the benefit of all. It resides in government as a part of itself, and need not be reserved when property of any description, or the right to use it in any manner, is granted to individuals or corporate bodies. However absolute the right of an individual may be, it is still in the nature of that right, that it must bear a portion of the public burthens; and that portion must be determined by the legislature.”

Providence Bank v. Billings, 29 U.S. 514, 563 (1830), (emphasis added).

In upholding the power of New York to tax a bequest to the United States, the Supreme Court observed in 1896 that:

“[T]he laws of all civilized states recognize in every citizen the absolute right to his own earnings, and to the enjoyment of his own property, and the increase thereof, during his life, except so far as the state may require him to contribute his share for public expenses....”

United States v. Perkins, 163 U.S. 625, 627 (1896).

So even rights that the Supreme Court refers to as “absolute“ may be subject to tax.

The idea that the “right to work” is somehow exempt from tax was expressly refuted by the Supreme Court in 1937, upholding the constitutionality of the Social Security tax paid by employers on wages:

“But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right.”

Charles C. Steward Machine Co. v. Davis, 301 U.S. 548 (1937).

On the same day that the Steward Machine case was decided, the same justices confirmed the same principle in upholding the constitutionality of an Alabama unemployment tax:

“Taxes, which are but the means of distributing the burden of the cost of government, are commonly levied on property or its use, but they may likewise be laid on the exercise of personal rights and privileges. As has been pointed out by the opinion in the Chas. C. Steward Machine Co. Case, such levies, including taxes on the exercise of the right to employ or to be employed, were known in England and the Colonies before the adoption of the Constitution, and must be taken to be embraced within the wide range of choice of subjects of taxation....”

Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 508 (1937).

The idea that Congress is limited by “natural law” was more recently rejected in Koar v. United States, 98-2 U.S. Tax Cas. P50,748, 82 A.F.T.R.2d 6329 (S.D.N.Y. 1999). In dismissing a suit for the refund of all federal income tax, social security, and Medicare contributions withheld from the plaintiff’s wages between 1993 and 1994, Judge Kimba Wood wrote:

“Plaintiff thus appears to argue that this Court should look to principles of natural law, or more accurately, his preferred principles of natural law, as opposed to the positive law by which it is bound. That, however, is not this province of this Court.”

Judge Wood then quoted from the opinion of Justice Iredell in Calder v. Bull, 3 U.S. 386, 398-99 (1798) (opinion dissenting in part):

“If, on the other hand, the Legislature of the Union, or the Legislature of any member of the Union, shall pass a law, within the general scope of their constitutional power, the Court cannot pronounce it to be void, merely because it is, in their judgment, contrary to the principles of natural justice. The ideas of natural justice are regulated by no fixed standard: the ablest and the purest men have differed upon the subject; and all that the Court could properly say, in such an event, would be, that the Legislature (possessed of an equal right of opinion) had passed an act which, in the opinion of the judges, was inconsistent with the abstract principles of natural justice.”

Under this principle of constitutional law, the courts cannot refuse to enforce the federal income tax merely because one or more judges believe that the tax is contrary to their concepts of “natural law” or “natural rights.”

Tax Protester “Evidence”

The belief that “natural rights” cannot be taxed is purely wishful thinking, but tax protesters sometimes cite some misleading quotations from irrelevant cases that they think support their position, such as:

“The right to live and own property are natural rights for the enjoyment of which an excise can not be imposed.”

Redfield v. Fisher, 135 Or. 180, 292 P. 813 (1930), reh’g den., 135 Or. 205, 295 P. 461 (1931).

But that is a decision of the Oregon Supreme Court, not a federal court, and the tax in question was not even an income tax. Oregon has an income tax, and the Oregon courts enforce it. For example:

“Taxpayer cites Redfield v. Fisher, 135 Or 180, 292 P 813 (1930) reh’g den, 135 Or 205, 295 P 461 (1931) for the proposition that an individual, unlike a corporation, may not be taxed for the mere privilege of existing. He then extends that statement to encompass the act of earning a living. That extension is erroneous. The court in Redfield knew of, and in no way questioned, the then existing Oregon tax on the income of individuals.”

Clark v. Dept. of Revenue, TC 4604, note 3 (Or. Tax Court 10/6/2003) (sanctions of $5,000 imposed against the taxpayer for bringing a frivolous appeal, arguing “that a citizen of Oregon is not liable for Oregon personal income tax on wages”).

Another case often cited by tax protesters is from Arkansas:

“An income tax is neither a property tax nor a tax on occupations of common right, but is an excise tax...The legislature may declare as ‘privileged’ and tax as such for state revenue, those pursuits not matters of common right, but it has no power to declare as a ‘privilege’ and tax for revenue purposes, occupations that are of common right.”

Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925).

That decision is from the Arkansas Supreme Court, and not the United States Supreme Court, and is about the Arkansas Constitution, and not the United States Constitution. Even worse, the quotation is from what turned out to be the minority opinion, so it’s not even a correct statement of the law in Arkansas. The majority opinion was as follows:

“My conclusion of the whole matter is that there are two, and only two, limitations in our [state] Constitution upon the power of the state to raise revenue for state purposes, namely (1) that taxes on property must be ad valorem, equal and uniform; and (2) that the Legislature cannot lay a tax for state revenue on occupations that are of common right. A tax on incomes is neither a property tax nor an occupation tax, and is not prohibited or excluded by our Constitution.“

Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925) (emphasis added).

Attempting to establish that “rights” cannot be taxed, tax protesters will also cite:

“A state may not impose a charge for the enjoyment of a right granted by the federal constitution.”

Murdock v Pennsylvania, 319 US 105, 113 (1943).

But the court in the very next sentence declared that “Thus, it [the state] may not exact a license tax for the privilege of carrying on interstate commerce (citation omitted), although it may tax the property used in, or the income derived from, that commerce, so long as those taxes are not discriminatory.” Which means that, regardless of whether a state can tax the “right to work,” the state can still tax the income from the exercise of that right. Accord, Allison McCoy v. United States, 88 AFTR2d ¶ 2001-5607, 2001 TNT 236-16, No. 3:00-CV-2786-M (U.S.D.C. N.D.Tex. 11/16/2001).

And the Supreme Court has repeatedly stated that nondiscriminatory taxes can apply to newspapers and other publications protected by the First Amendment. (“It is beyond dispute that the States and the Federal Government can subject newspapers to generally applicable economic regulations [including taxes] without creating constitutional problems.” Minneapolis Star & Tribune v. Minnesota Commissioner of Revenue, 460 U.S. 575, 581 (1983). See also, Arkansas Writers’ Project v. Ragland, 481 U.S. 221, 228 (1987) (“a genuinely nondiscriminatory tax on the receipts of newspapers would be constitutionally permissible”); Grosjean v. American Press, 297 U.S. 233, 250 (1936) (“It is not intended by anything we have said to suggest that the owners of newspapers are immune from any of the ordinary forms of taxation for support of the government.”). Similarly, the Supreme Court has upheld an obligation to withhold Social Security taxes from the wages of employees even when the withholding violates the religious beliefs of the employer. United States v. Lee, 455 U.S. 252 (1982).

So the Supreme Court has consistently upheld the imposition of taxes on incomes even when the incomes are derived from the exercise of constitutional rights.

Related topics:

The authors of the Constitution (aka, the “Founding Fathers”) never intended to give Congress the power to tax wages or other incomes from labor.

Another example of the triumph of hope over reason, because there is absolutely no historical evidence for such a belief.

Article I, Section 8, of the Constitution says that “The Congress shall have Power to lay and collect Taxes, Duties, Imposts, and Excises...” The only specific exemption is in Section 9, which prohibits taxes on exports.

In Hylton v. United States, the three justices who wrote opinions were unanimous in their view that the Congressional power to tax was a general (or “plenary”) power, the only exception being exports. Justice Chase stated that:

“The power, in the eighth section of the first article, to lay and collect taxes, included a power to lay direct taxes, (whether capitation, or any other) and also duties, imposes, and excises; and every other species or kind of tax whatsoever, and called by any other name. ... I consider the Constitution to stand in this manner. A general power is given to Congress, to lay and collect taxes, of every kind or nature, without any restraint , except only on exports... ”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Chase; emphasis added).

In the same case, Justice Paterson (who was a member of the Constitutional Convention) stated:

“ It was, however, obviously the intention of the framers of the Constitution, that Congress should possess full power over every species of taxable property, except exports. The term taxes, is generical, and was made use of to vest in Congress plenary authority in all cases of taxation.”

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Paterson; emphasis added).

And, finally, Justice Iredell stated:

“The Congress possess the power of taxing all taxable objects, without limitation, with the particular exception of a duty on exports.

Hylton v. United States, 3 U.S. 171 (1796), (opinion of Justice Iredell; emphasis added).

In a later decision, the Supreme Court confirmed these conclusions, stating that:

“It is true that the power of Congress to tax is a very extensive power. It is given in the Constitution with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment and indirect taxes by the rule of uniformity. Thus, limited, and thus only, it reaches every subject, and may be exercised at discretion.”

License Tax Cases, 72 U.S. 462, 471 (1866) (emphasis added).

In the Federalist Papers, Hamilton had stated that the Congressional power to tax would be “concurrent and coequal” with the power of the states to tax (Federalist #32) and the Supreme Court has agreed that “The subject-matter of taxation open to the power of the Congress is as comprehensive as that open to the power of the states....” Chas. C. Steward Machine Co. v. Davis, 301 U.S. 548, 581 (1937). See also, Flint v. Stone Tracy Co., 220 U.S. 107, 154 (1911). And, before and after the adoption of the Constitution, several states imposed taxes on professions, vocations, or employments. As explained by the Supreme Court:

“Taxes, which are but the means of distributing the burden of the cost of government, are commonly levied on property or its use, but they may likewise be laid on the exercise of personal rights and privileges. As has been pointed out by the opinion in the Chas. C. Steward Machine Co. Case [301 U.S. 548 (1937)], such levies, including taxes on the exercise of the right to employ or to be employed, were known in England and the Colonies before the adoption of the Constitution, and must be taken to be embraced within the wide range of choice of subjects of taxation, which was an attribute of the sovereign power of the states at the time of the adoption of the Constitution, and which was reserved to them by that instrument. As the present levy [imposed by Alabama on wages paid] has all the indicia of a tax, and is of a type traditional in the history of Anglo-American legislation, it is within state taxing power, and it is immaterial whether it is called an excise or by another name.”

Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 508-509 (1937).

If the states had the power to tax wages, salaries, and other incomes from employment, then the Congress of the United States had the same power. (For other examples, see the cases cited in the discussion of whether a tax on wages is a “direct tax.”)

There have been a few Supreme Court decisions that have found incomes that Congress did not have the power to tax. However, all of those decisions arose out of considerations of federalism (i.e., the relationship between the federal and state governments) or the separation of powers within the federal government, and all of those decisions were over-ruled by later decisions and are no longer good law. For example:

In Collector v. Day , 78 U.S. 113 (1870), it was held that Congress could not tax the salary of a state employee. That holding was explicitly overruled by Graves v. New York ex rel. O’Keefe , 306 U.S. 466, 486-487 (1939).

Evans v. Gore , 253 U.S. 245 (1920), held that the compensation received by federal judges could not be subject to income tax because Article III of the Constitution states that the compensation of judges ‘shall not be diminished during their Continuance in Office.’ Evans v. Gore was over-ruled by O’Malley v. Woodrough , 307 U.S. 277 (1939).

In Pollock v. Farmers’ Loan & Trust Co. , 157 U.S. 429, (1895), the Supreme Court held that interest on the debts of state and local governments could not be taxed. That holding was reversed in South Carolina v. Baker , 485 U.S. 505 (1988).

In Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932), it was held that the income from land owned by a state and leased to a private corporation could not be taxed if the lease was part of a “governmental function.” That holding was reversed by Helvering v. Mountain Producers Corp., 303 U.S. 376 (1938).

So, over the years, the Supreme Court has considered the possibility that certain types of income from government-related activities might be constitutionally exempt from income tax, but eventually decided that no such exemptions existed. Tax protesters sometimes find and quote those decisions, not realizing (or not caring) that the decisions represent relatively short-lived experiments in inter-governmental immunities and are simply not relevant to federal taxes on incomes unrelated to any governmental activity.

There is not a single decision in the history of the United States in which any judge has ever even suggested that Congress cannot tax wages and salaries generally.

And, if the salaries of state employees can be taxed by Congress, it is ludicrous to suggest that ordinary salaries paid by private employers might have some kind of immunity from tax.

Related topics:

Congress can only tax income from the exercise of “privileges” or the income from “revenue taxable activities” or “taxable excise activities.”

This argument is usually based on quotations taken out of context from unrelated court decisions. The tax protester first quotes from a court decision that refers to the income tax as an “excise” (usually a decision declaring that the income tax is constitutional because it is not a “direct tax” that must be apportioned), then quotes from a very different court decision that refers to an “excise” as a tax on the exercise of a “privilige” (usually an old, pre-16th Amendment decision upholding a tax on incomes from certain activities), then quotes from a third very different court decision that states that the freedom to contract for employment is a right and not a “privilege” (usually a labor law case) and then mashes (or “chains”) the three unrelated decisions together to form the conclusion that an income tax can only be imposed on income from the exercise of a “privilege” that can be granted or denied by the government, but that an income tax cannot be imposed on income earned through the exercise of a fundamental right, such as through a contract for employment.

This argument was squarely rejected by the Supreme Court in Charles C. Steward Machine Co. v. Davis, 301 U.S. 548 (1937):

“But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right.” 301 U.S. at 580-1 (footnote omitted).

The argument that Congress can only tax “privileges” is also contradicted by the Supreme Court decisions that have held that the income tax applies to income from embezzlement and other illegal activities. See, for example, James v. United States, 366 U.S. 213 (1961). An activity is certainly not “privileged” if it is illegal.

And the courts have uniformly rejected the argument that the income tax must be based on a “privilege” or a “revenue taxable activity”:

“Turning first to their basic contention, indeed the one on which all the others rest, that the relation of domestic employment does not come within Art. 1, Section 8, and is therefore immune from the imposition of federal taxes and burdens, we find ourselves in no doubt that appellants are neither historically nor etymologically correct in their claim in substance that excises are limited to taxes laid on the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupation and upon corporate privileges only. It is true that taxes of the kind referred to are excise taxes but it is also true, as was held in Steward Machine Co. v. Davis, that the excises which Congress has power to impose are not limited to vocations or activities which may be prohibited altogether or to those which are the outcome of a franchise, but extend to vocations or activities pursued as of common right. The term ‘excise’ is and was before and at the time of the adoption of the Constitution a term of very wide meaning.”

Abney v. Campbell, 206 F.2d 836, 841 (5th Cir. 1953), cert. den. 346 U.S. 924 (1954).

“[Hamzik] contends only that he does not have a tax liability and subsequent deficiency because all federal income taxes are ‘indirect taxes’ and the Commissioner has not produced the statutes defining the ‘revenue taxable activity’ that would make Hamzik subject to or liable for any tax under Title 26. The tax court properly rejected Hamzik’s arguments as frivolous.”

Hamzik v. Commissioner, 25 Fed. Appx. 911, KTC 2001-589 (9th Cir. 2001), (affirming the decision of the Tax Court and imposing sanctions of $250 for bringing a frivolous appeal).

“Furthermore, Olson’s attempt to escape tax by deducting his wages as ‘cost of labor’ and by claiming that he had obtained no privilege from a governmental agency illustrate the frivolous nature of his position. This court has repeatedly rejected the argument that wages are not income as frivolous, [citations omitted] and has also rejected the idea that a person is liable for tax only if he benefits from a governmental privilege.”

Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985).

“All individuals, freeborn and nonfreeborn, natural and unnatural alike, must pay federal income tax on their wages, regardless of whether they have requested, obtained or exercised any privilege from the federal government.

United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992).

“Plaintiff appears to argue that according to the Sixteenth Amendment, federal income tax is not a direct tax on wages or salaries of individuals, but that it is an excise tax on the privilege of engaging in some privileged or regulated activity. Therefore, according to plaintiff, this ‘indirect excise tax’ can only be imposed on the income of corporations and the dividend income of stockholders. Despite plaintiff’s many case citations allegedly supporting his argument, the Sixteenth Amendment, valid as described above, clearly authorizes Congress to levy a direct income tax upon individuals who are United States citizens. In addition, as described above, plaintiff’s wages and gambling earnings are clearly within the I.R.C.’s definition of ‘income,’ and are properly subject to taxation.”

Betz v. United States, 40 Fed.Cl. 286, 294-296 (1998)

“The IRS is not required to show that the Debtor’s income is derived from a ‘revenue taxable activity.’”

In re: Michael Fleming, 86 AFTR2d ¶2000-5138; No. 97-6342-8G3 (U.S.Bank.Ct. M.D.Fl. 8/9/2000).

“[Peth] argues that he is not a “person liable” to pay taxes under 26 U.S.C. § 6001. The argument is this: the tax imposed by Title 26, according to plaintiff, is “not unapportioned direct tax,” because any such tax ‘would be in conflict with the apportionment restriction of direct taxes contained in [Article I of the Constitution].’ Moreover, he finds that there are no apportioned taxes imposed by Title 26. Thus, any tax under Title 26 must be an indirect tax, that is, a tax upon some right, privilege, or corporate franchise. Plaintiff says he is not a privileged person, nor has he taken any corporate franchise. Therefore, so the argument goes, Title 26 has no application to him. The argument has no merit.”

Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D.Wis. 1985), 1985 U.S. Dist. LEXIS 21509, 85-1 U.S.T.C. ¶9321, 55 AFTR2d 1280 (complaints dismissed and sanctions imposed for filing frivolous actions “brought in bad faith”).

“[P]etitioner argues that the income tax is an excise tax and that petitioner did not engage in any taxable excise activities during 1996, 1997, and 1998. The contentions made by petitioner in his petition and on brief are appropriately termed ‘tax protester rhetoric and legalistic gibberish’, and we shall not dignify such arguments with any further discussion.”

Heisey v. Commissioner, T.C. Memo. 2001-41 (tax deficiencies affirmed, along with penalties for failure to file and failure to pay estimated taxes, and an additional penalty of $2,000 was imposed for filing a frivolous petition), aff’d 2003 TNT 66-47, No. 02-72675 (9th Cir. 3/20/2003), ($1,500 penalty imposed for filing a frivolous appeal).

“Petitioner argues that the income tax is an excise tax and that he did not engage in excise taxable activities in 1996. [Note 3: “Petitioner testified: ‘The income tax is an excise tax. Congress, who sets the laws, even says so in the Congressional Record. The income tax is therefore not a tax on income.’”] We shall not painstakingly address petitioner’s assertions ‘with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit.’ [Citation omitted.] Accordingly, we sustain respondent’s deficiency determination.”

Sawukaytis v. Commissioner, T.C. Memo. 2002-156 (sanctions of $12,500 imposed), aff’d 102 F.App’x 29, 2004-1 USTC ¶50,283, KTC 2004-186, Docket No. 02-2431 (6th Cir. 6/16/2004), (additional sanctions of $4,000 imposed for filing a frivolous appeal; the original tax in controversy was $13,976, plus a failure to file penalty of $726, so the total of the sanctions imposed by the Tax Court and Circuit Court exceeded the original amount in controversy), rehearing den. 8/6/2004, cert. den. No. 04-587 (12/6/2004).

In Pabon v. Commissioner, T.C. Memo 1994-476, the petitioner alleged, among other things, that he “is not an employee of the Federal or state governments, is not engaged in a revenue taxable activity of alcohol, tobacco or firearms and therefore not subject to any exise [sic] tax....” The court concluded that the petition “is nothing but tax protester rhetoric and legalistic gibberish....” Pabon v. Commissioner, T.C. Memo 1994-476.

See also, Parker v. Commissioner, 724 F.2d 469, 84-1 US Tax Cas ¶9209 (5th Cir.), aff’ng T.C. Memo 1983-75 (the Sixteenth Amendment empowered Congress to levy income tax against any source of income, without any need to classify it as excise tax applicable to specific categories of activities); Bell Consumers, Inc. v. Lay, 203 F. Supp. 2d 1202, 1208 (W.D. Wash. 2002) (allegation that “the sections of the Internal Revenue Code governing assessments, liens and levies apply only to excise tax upon unmanufactured cotton and distilled spirits and other special (occupational) tax” was “frivolous and without merit”).

The claim that “[o]nly certain types of income are taxable, for example, income that results from the sale of alcohol, tobacco, or firearms or from transactions or activities that take place in interstate commerce” has been identified by the IRS as a “frivolous position” that can result in a penalty of $5,000 when asserted in a tax return or included in certain collection-related submissions. Notice 2007-30, 2007-14 I.R.B. 883.

Tax Protester “Evidence”

To try to support their nonsense, tax protesters frequently try to rely on the following quotation:

“The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of the tax.”

Congressional Record of 3/27/1943, page 2580.

Although this language appears in the Congressional Record, it is not a quotation from any Senator or Representative, but from a paper written by a lawyer named F. Morse Hubbard, who was formerly an employee of the Treasury Department. It is not clear whether any Senator or Representative agreed with Hubbard, or relied on his opinion.

Hubbard’s opinion in 1943 (30 years after the ratification of the 16th Amendment and the enactment of the first income tax under that amendment) about the nature of the income tax is flatly contradicted by a statement in 1913 by one of original authors of the income tax:

“Under the proposed measure income is both the subject and the measure of the tax.”

Representative Cordell Hull, Cong. Rec. (8/5/1913) (reprinted in Foster’s Income Tax.)

Cordell Hull (1871-1955) was a recognized expert in tax, commercial, and fiscal policies, and would have known what he was talking about. He served in Congress from 1907 to 1931 and served on the House Ways and Means Committee for eighteen years, where he was one of the principal authors of the income tax provisions of the 1913 Tariff Act, along with the Revised Act of 1916, and the federal estate tax that was enacted in 1916. (He was also elected as a U.S. Senator in 1931, but resigned in 1933 when President Franklin D. Roosevelt appointed him to serve as Secretary of State, a position he held for 12 years, which is the longest term in U.S. History.)

That Hubbard was wrong in his 1943 opinion is clear from the following footnote to the paragraph quoted above:

“If the tax should be construed as a tax on income as a specific fund the disappearance of the fund before the date of assessment would prevent the collection of the tax. (See Foster and Abbott, op. cit., p. 85.)”

Memorandum, note 4.

Hubbard seems to have been laboring under the misconception that, if Congress imposed a tax “on” income, and if the taxpayer spent the income before Congress could collect the tax, then Congress would be unable to collect the tax at all. But that is nonsense. As noted elsewhere, it is perfectly clear that the taxpayer who earns the income is personally liable for the tax, and I.R.C. section 6321 even imposes a lien for the amount of any tax that is assessed and unpaid on all of the property of the taxpayer, not just the income itself. So Hubbard’s semantic hair-splitting was completely unnecessary.

Hubbard also clearly believed that a tax measured by income would be an “income tax,” stating (for example) that the Corporate Tax Act of 1909 “was really an income tax.” But the Supreme Court flatly disagreed:

“As repeatedly pointed out by this court, the corporation tax law of 1909 ... imposed an excise or privilege tax, and not in any sense a tax upon property or upon income merely as income.”

U.S. v. Whitridge, 231 U.S. 144, 147 (1913).

“As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law.”

Stratton’s Independence Ltd. v. Howbert, 231 U.S. 399, 414 (1913).

“As has been repeatedly pointed out by this court in previous cases [citations omitted] the act of 1909 was not in any proper sense an income tax law, nor intended as such, but was an excise upon the conduct of business in a corporate capacity, the tax being measured by reference to the income in a manner prescribed by the act itself.”

Anderson v. Forty-Two Broadway Co., 239 U.S. 69, (1915).

So Hubbard was wrong about the Corporate Tax Act of 1909 being an “income tax.” What about the idea that the income taxes enacted following the ratification of the 16th Amendment are not taxes “on” income but taxes on “certain activities and privileges”? The Internal Revenue Code does not identify any “activity or privilege” being taxed other than the receipt of the income itself. And the Supreme Court has confirmed that it is the realization (or receipt) of income that creates a tax liability:

“From the beginning the revenue laws have been interpreted as defining ‘realization’ of income as the taxable event rather than the acquisition of the right to receive it.”

Helvering v. Horst, 311 U.S. 112, 115 (1940).

To summarize, Hubbard’s characterization of the income tax is based on a faulty premise, is contradicted by one of the authors of the first income tax, and is inconsistent with the opinions of the Supreme Court. There is no getting around the fact that Hubbard was simply wrong.

Tax protesters also frequently rely on the following quote:

“Realizing and receiving income or earnings is not a privilege that can be taxed.”

Jack Cole Company v. MacFarla nd , 206 Tenn. 694, 3 37 S.W.2d 453 (1960).

However, that is not a federal court opinion, but a decision of the Tennessee Supreme Court interpreting the word “privileges” as used in the Tennessee Constitution. The Tennessee Constitution does not give its legislature a general power to impose taxes, but allows for taxes on the value of property (“ad valorem” taxes) and the following additional taxes:

“The Legislature shall have power to tax merchants, peddlers, and privileges, in such manner as they may from time to time direct, and the Legislature may levy a gross receipts tax on merchants and businesses in lieu of ad valorem taxes on the inventories of merchandise held by such merchants and businesses for sale or exchange. … The Legislature shall have power to levy a tax upon incomes derived from stocks and bonds that are not taxed ad valorem.”

Tennessee Constitution, Article II, Section 28.

In ruling that a general income tax was outside of the power of the legislature, the Tennessee Supreme Court applied a narrow meaning to the word “privileges” as used in its Constitution, but that opinion has nothing to do with the scope of the 16th Amendment, which refers to taxes on “incomes” without any mention of “privileges.”

Related topics:

Congress can only tax income arising out of activities that Congress can regulate, such as alcohol, tobacco, or firearms, or from interstate commerce.

Like the claim that Congress can only tax residents of the District of Columbia and other “federal areas,” this claim is based on the mistaken belief that the Congressional power of taxation is somehow limited by the other powers granted to Congress, so that Congress can only tax what it can regulate, which is nonsense.

The argument that Congress cannot tax something that it cannot regulate was expressly raised (and rejected) in 1866 in the License Tax Cases, 72 U.S. 462, 5 Wall. 462 (1866). In that case, the Supreme Court was asked to consider the validity of a “special tax” imposed by Congress in the form of a fee for a “license” to sell lottery tickets and liquor, activities that were already illegal in several states. In describing the the extensive power of taxation given to Congress by the Constitution, the Supreme Court stated:

“It is true that the power of Congress to tax is a very extensive power. It is given in the Constitution with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment and indirect taxes by the rule of uniformity. Thus, limited, and thus only, it reaches every subject, and may be exercised at discretion.”

License Tax Cases, 72 U.S. 462, 471 (1866).

The court agreed that Congress could not prohibit or regulate the activities that were being taxed, and also agreed that the “license” granted by the payment of the federal tax did not authorize anyone to do anything that was prohibited by state law, concluding that Congress could nevertheless impose a tax on activities that were regulated or prohibited by the states:

“[T]he recognition by the acts of Congress of the power and right of the States to tax, control, or regulate any business carried on within its limits, is entirely consistent with an intention on the part of Congress to tax such business for National purposes.”

License Tax Cases, 72 U.S. 462, 475 (1866).

So it is quite clear that Congress can tax activities regardless of whether it can regulate them.

As far as taxes on alcohol, tobacco, and firearms are concerned, there is nothing in the Constitution that gives Congress any power to regulate or restrict the manufacture or sale of those items. In fact, the 18th Amendment (the Prohibition amendment) was proposed and ratified because it was believed that Congress could not by statute prohibit the manufacture or sale of alcohol within the states. (Decisions expanding the scope of Congressional power under the interstate commerce clause would probably allow Congress t