Pollock v. Farmers' Loan & Trust Co
Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895), was a Landmark decision by the Supreme Court of the United States. In a 5–4 decision the Court ruled that the federal Income Tax Act of 1894 was unconstitutional. The Pollock decision was overturned by the passing of the Sixteenth Amendment to the United States Constitution.
|Pollock v. Farmers' Loan & Trust Co.|
|Argued March 7–8, 11–13, 1895|
Decided April 8, 1895
|Full case name||Charles Pollock v. Farmers' Loan and Trust Company|
|Citations||157 U.S. 429 (more)|
15 S. Ct. 673; 39 L. Ed. 759; 1895 U.S. LEXIS 2215; 3 A.F.T.R. (P-H) 2557
|Prior history||Appeal from the Circuit Court of the United States for the Southern District of New York|
|The unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and were unconstitutional because they violated the rule that direct taxes be apportioned.|
|Majority||Fuller, joined by Field, Gray, Brewer, Shiras|
|Dissent||White, joined by Harlan, Jackson, Brown|
|U.S. Const. amend. XVI|
|South Carolina v. Baker, 485 U.S. 505 (1988)|
Article I, Section 2 of the United States Constitution required that direct taxes be apportioned among the states by population. Apportionment by population proved to be a nearly impossible, uneven and unfair requirement for collecting taxes since the states had different populations. An income tax is a direct tax. So the federal government relied on tariffs and other sources of revenue.
During the Civil War, in order to fund the war, the federal government passed an income tax law. In 1862, Abraham Lincoln signed a bill that called for a 3% tax on incomes between $600 and $5,000, 7.5% on incomes between $5,000 and $10,000 and 10% on incomes over $10,000. The bill was declared unconstitutional in 1872 when it was repealed.
In 1894 Congress created a personal income tax as a part of theWilson–Gorman Tariff Act. President Grover Cleveland was unhappy with the bill but let it pass without his signature. All income over $4,000[a] was subject to a 2% tax. It was the first peacetime federal income tax in the United States.[b] It was challenged right away on the grounds that the Constitution required direct taxes to be levied in proportion to each state's population (called apportionment). The US government has levied taxes before but these were indirect taxes (such as on whiskey, carriages and other goods).
The Gorman Tariff Act of 1894 called for a 2% tax on any "gains, profits and incomes" over $4,000 for a period of five years. Shareholders of the Farmers' Loan & Trust Co., based out of New York, would pay the required tax. In addition they would provide a list of the names of shareholders to the Bureau of Internal Revenue.
A Shareholder, Charles Pollock, who lived in Massachusetts and owned ten shares of stock, sued the company. He did not want them to pay the tax. He lost his case in the lower courts and appealed to the Supreme Court, which agreed to hear the case. The high court ruled in Pollick's favor declaring the tariff act (sections 27 to 37) unconstitutional.
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- Calvin H. Johnson. "Apportionment of Direct Taxes: The Foul-Up In The Core of The Constitution" (PDF). Texas Law, The University of Texas at Austin. Retrieved 18 May 2016.
- "The First Income Tax". Civil War Trust. Retrieved 19 May 2016.
- Joseph Henchman (8 April 2013). "Today in History: Income Tax Ruled Unconstitutional in Pollock v. Farmers Loan Trust Co". Tax Foundation. Retrieved 19 May 2016.
- "Inflation Calculator". in2013dollars.com. Retrieved 19 May 2016.
- Norman Stein (2004). "1894 Income Tax and the Wilson-Gorman Tariff Act". Encyclopedia.com. The Gale Group Inc. Retrieved 19 May 2016.
- Ellen Terrell (February 2004). "History of the US Income Tax". The Library of Congress. Retrieved 19 May 2016.
- "Pollock v. Farmers' Loan & Trust Co". Digital Scholarship Lab, The University of Richmond. Retrieved 19 May 2016.