158 U.S. 601 (1895)
Congress enacted the Wilson Tariff Act on August 28, 1894.1 Sections 27 through 37 of that statute levied an annual tax of two percent on the gains, profits, and income received in the preceding calendar year by every citizen of the United States and every person residing therein when such income exceeded four thousand dollars and was derived from any kind of property, rents, interest, dividends, salaries, professions, trades, employments, vocations, or any other source whatever.2
The tax was to be assessed, levied, collected, and paid beginning January 1, 1895, and to continue until January 1, 1900.3 The cases before the Court were styled Pollock v. Farmers' Loan and Trust Company and Hyde v. Continental Trust Company.4
The cases reached the Supreme Court after adverse rulings in the lower courts.5 They were first argued in March 1895 and reargued on May 6, 7, and 8, 1895, after the Court had issued an earlier decision addressing only the tax on income from real estate and municipal bonds.6
On rehearing the Court considered the validity of the tax as applied to a person's entire income from all sources.7 The 1890 census reported the true valuation of real and personal property in the United States at $65,037,091,197, of which real estate with improvements accounted for $39,544,544,333.8 The act exempted the income of mutual insurance companies, building associations, mutual savings banks, and ecclesiastical organizations.9
The Supreme Court vacated its earlier decrees and, on May 20, 1895, reversed the judgments below with instructions to grant the relief prayed for by the stockholders.10
Whether the tax imposed by sections 27 to 37 of the Act of August 28, 1894, on income derived from real estate constitutes a direct tax that must be apportioned among the States according to population?11
The Constitution divides federal taxation into two classes.12 Direct taxes must be apportioned among the States according to their respective numbers as determined by the census.13 Duties, imposts, and excises must be uniform throughout the United States.14 A tax on the income or rents from real estate is a direct tax because it is equivalent in substance to a tax on the real estate itself.15
Yes. The Wilson Tariff Act of August 28, 1894, levied a two percent tax on all gains, profits, and income exceeding four thousand dollars derived from any source, including rents from real estate.16 The cases before the Court were styled Pollock v. Farmers' Loan and Trust Company and Hyde v. Continental Trust Company. The 1890 census established the true valuation of real estate with improvements at $39,544,544,333 out of total real and personal property valued at $65,037,091,197.17
Because the tax reaches the income from real estate without apportionment among the States according to population, it violates the constitutional requirement that direct taxes be apportioned.18 The Court therefore holds the tax on real estate income invalid.19
The tax on income derived from real estate is a direct tax not apportioned according to population and is therefore unconstitutional and void.20
Related opinions on this issue
Justice Harlan dissented, arguing that the majority's holding that a tax on rents is a direct tax on land overthrows a century of practice and unanimous decisions from Hylton v. United States through Springer v. United States.21
He maintained that the Constitution permits Congress to tax incomes from rents under the rule of uniformity without apportionment.22
The carriage tax act and subsequent income tax statutes demonstrated the accepted meaning of direct taxes as limited to capitation and land taxes.23
The decision would cripple the government's ability to raise revenue in times of emergency by forcing an impracticable apportionment rule on income from real estate.24
Whether the tax on income derived from personal property, bonds, stocks, and other investments is likewise a direct tax requiring apportionment?25
Taxes on personal property or on the income from personal property, including bonds, stocks, and other investments, are direct taxes within the meaning of the Constitution.26 Such taxes must be apportioned among the States according to population.27 The constitutional prohibition on unapportioned direct taxes applies equally to income from such property as to the property itself.28
Yes. The act taxes income from invested personal property, bonds, stocks, and other forms of personalty without any apportionment.29 The Court reasoned that a tax on the annual yield of personal property is not sufficiently distinct from a tax on the property itself to escape classification as direct. The census figures showed vast amounts of personal property subject to the tax, yet the statute imposed the levy uniformly across the nation rather than by state quotas based on population.30
Because the tax on income from personal property is direct and unapportioned, it is unconstitutional.31
The tax on income derived from personal property, bonds, stocks, and other investments is a direct tax not apportioned according to population and is therefore unconstitutional and void.32
Related opinions on this issue
Justice Brown dissented, contending that the constitutional requirement of apportionment for direct taxes was adopted to protect Southern slave property and should be narrowly construed.33
He argued that a tax on income from personal property is an indirect tax or excise that need not be apportioned.34
The Hylton decision and subsequent cases uniformly treated only capitation and land taxes as direct.35
Extending the apportionment rule to income from personalty would produce gross inequalities and effectively exempt vast wealth from national taxation.36
Justice Jackson dissented, asserting that the long line of decisions from Hylton through Springer conclusively established that direct taxes are limited to capitation and taxes on land.37
He maintained that income from personal property is not a direct tax on the property itself.38
The rule of apportionment cannot be applied to such income without manifest injustice.39
The majority's holding deprives Congress of an essential power of taxation at the very moment the government most needs revenue flexibility.40
Whether the provisions taxing income from real estate and personal property are so connected with the remainder of the income tax sections that the invalidity of those provisions renders the entire scheme inoperative?41
When invalid portions of a statute are so mutually connected with and dependent upon the valid portions that the legislature would not have enacted the residue independently, the entire statute must fall.42 The income tax sections of the Wilson Tariff Act constitute a single scheme in which the tax on property income formed a vital part.43
Yes. The Court examined the structure of sections 27 through 37 and found that the tax on income from real and personal property constituted the largest anticipated source of revenue under the act.44 The census data demonstrated that real estate alone accounted for more than sixty percent of total property valuation. Striking only the property-income provisions would leave a tax primarily on professions, trades, and employments, converting what Congress intended as a tax on capital into a tax on labor.45
Because the invalid provisions are inseparably connected with the remainder of the income tax scheme, the entire set of sections 27 to 37 is inoperative and void.46
The invalidity of the provisions taxing income from real estate and personal property renders the entire income tax scheme of the Wilson Tariff Act inoperative and void.47
Related opinions on this issue
Justice White dissented, arguing that the majority's extension of the direct-tax holding to personal property income contradicted the economic and constitutional meaning of direct taxation accepted for a century.48
He contended that the decision not only nullifies the tax on rents and invested wealth but also effectively prevents Congress from reaching such property at all under any rule of apportionment.49
The government would be left without adequate revenue sources in times of crisis and the ruling would discriminate against the great body of citizens whose incomes derive from labor rather than capital.50
Whether the tax on income from municipal bonds can be sustained independently of the tax on other sources?51
No. The Court unanimously held that the tax on income from municipal bonds cannot be sustained.54 The act reaches interest received from state and municipal obligations, thereby taxing the power of the States to borrow money.55 Because the source itself is beyond the reach of federal taxation, the income derived from that source is likewise exempt.56 The Attorney General conceded that if the source cannot be taxed, the income cannot be taxed, confirming that this portion of the statute is independently invalid.57
The tax on income from municipal bonds is unconstitutional and cannot be sustained.58