eral Union, and amounting in aggregate value to hundreds of millions of dollars. The rents and income of this real estate, also annually amounting in the aggregate to large sums, are collected and received by the above-mentioned organizations, and held by them in their various fiduciary capacities.
The first point of importance under such a state of affairs to which attention is asked is, that taxes levied or laid by the Federal Government are recognized and admitted (in virtue of repeated decisions and assumptions of the United States Supreme Court) to be typical forms of direct taxation, and as such under a clear and carefully worded provision of the Federal Constitution must be apportioned among the several States according to their respective population.[1] On this point, therefore, there could obviously be no legal contention.
It is now well recognized that this provision of the Constitution, after full discussion and careful wording on the part of its framers, was adopted in order to protect to the States, which in entering into union were surrendering to the prospective Federal Government so many sources of income, the power of direct taxation, and so preclude a combination of States from exacting tribute from other States.[2]
The next point of contention in order of importance in the case as presented to the United States Supreme Court was; did the provisions of the income-tax act of 1894, imposing a tax of two per cent upon the gains, profits, and income derived from all kinds of property—including rent and the gains and profits accruing from the growth, profits, or sale of land—involve and create a tax which must necessarily be deemed a direct tax on real estate (land), and which not being apportioned (levied) according to the
- ↑ "Representatives and direct taxes shall be apportioned among the several States which may be included within this Union according to their respective numbers."—Constitution of the United States, Article 1, section 2.
- ↑ "The founders anticipated that the expenditures of the States, their counties, cities, and towns, would chiefly be met by direct taxation on accumulated property, while they expected that those of the Federal Government would be for the most part by indirect taxes; and in order that the power of direct taxation of the General Government should not be exercised except on necessity, and when the necessity arose should be so exercised as to leave the States at liberty to discharge their respective obligations and should not be so exercised unfairly and discriminatingly as to particular States or otherwise by a mere majority vote, possibly of those whose constituents were intentionally not subjected to any part of the burden, this qualified grant was made. Those who made it knew that the power to tax involved the power to destroy, and that the only security against the abuse of this power is found in the structure of the Government itself. In imposing a tax the Legislature acts upon its constituents. This is in general a sufficient security against erroneous and oppressive taxation, and they retained this security by providing that direct taxation and representation in the lower House of Congress should be adjusted on the same measure."—Chief-Justice Fuller.
