1895, but before that limit was reached the act had been declared unconstitutional. (See ¶13.) 28 St. at L. 509, 3 Fed. St. Ann. 622, 28 St. at L. 971, Pollock v. Farmers Loan and Trust Co., 157 U. S. 429, 158 U. S. 601.

10. The Pollock Case. It is possible that there would have been no attack on the constitutionality of the act of 1894 except for the exemption of incomes of less than $4,000, the previous exemption having been only $600. Because of this radical change, four-fifths of the tax under the act would have been paid by the States of Pennsylvania, New York, New Jersey, and Massachusetts. The statute made it impossible for an injunction to be granted against the tax collector (Rev. St. 3224), and by any of the usual methods of bringing suit the final decision would have been delayed until many millions of dollars had been paid in tax. Hence it was that Pollock, a private citizen, as a stockholder in the Farmers Loan and Trust Company, petitioned the courts to enjoin the company from paying the tax. By mutual consent the case was hurried to the final decision. Chief Justice Fuller, for a divided court, decided that the tax on income from real estate was a direct tax, and hence the act taxing income from real estate was unconstitutional. In his opinion he recalled the careful guarding of the rights of the wealthier States by the makers of the Constitution and was plainly influenced by the consideration that the act would levy heavily on a few States and almost none at all on others. (Pollock v. Loan and Trust Co., 157 U. S. 429.) Both sides were dissatisfied with this decision and asked for a rehearing, and, in the second opinion, the Court again divided, it was held that the tax on income from personal property was also direct taxation, and hence the entire act was unconstitutional. Pollock v. Trust Co., 158 U. S. 601. See ¶13 for synopsis of the Brushaber case, and see opinion in full in Part V of this volume.

11. Corporation Excise Tax of 1909. By the Act of August 5, 1909, there was imposed a tax of 1 per centum on incomes in excess of $5,000 of all corporations other than

partnerships. This tax as enacted is "a special excise tax with respect to the carrying on or doing business by such corporation," etc. 36 St. at L., ch. 6, page 112. This act was held to be constitutional, but comes under the name of excise tax and is not an income tax, though the tax is based on the amount of income. Flint v. Stone Tracy Company, 220 U. S. 107. This Excise Tax Law was repealed by the present Income Tax Law. The normal tax on corporations of the new law (section G-a) takes the place of the old excise tax. Section S, at the end of the Statute in this book, provides for the collection of the tax to March 1, 1913, when the new tax became effective. For all purposes, the present income tax on corporations (115) is substantially the same as the excise tax of 1909, except that the excise tax exempted $5,000 and the Income Tax of 1913 does not.

12. Sixteenth Amendment. The constitutional amendment expressly authorizing a Federal Income Tax is in the following words: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportioning among the several States, and without regard to any census or enumeration."

Notwithstanding the unrestricted power the Act of 1913 does not tax the income from salaries of State officers, nor from bonds of a State or any political subdivision thereof, these exemptions being in deference to the previous opinions of the Supreme Court that such income could not be taxed.

The Sixteenth Amendment was proposed to the legislatures of the forty-eight States by the Sixty-first Congress, on the 12th day of July, 1909. The Secretary of State, in a proclamation dated February 25, 1913, declared the amendment to be a part of the Constitution, having been ratified by thirty-eight of the forty-eight States. Only three States actually rejected the amendment, these being New Hampshire, Rhode Island and Utah. It was apparent from the ratifications that the objection upon which the Act of 1894 was declared unconstitutional was more of a theory than a fact. The basis of that objection was that the States of New York, New

Jersey, Massachusetts and Pennsylvania, being the wealthiest, would be discriminated against. Of these States, all except Pennsylvania ratified the amendment, and Pennsylvania did not act on it. Illinois, which was third in the amount of tax paid in the first year of the operation of the law, was the fourth State to ratify the amendment. (See U. S. Senate Constitutional Manual, 1913.) See 13 and Brushaber case in full in Part V, construing the Sixteenth Amendment.

113. Constitutionality of New Law. The present Income Tax law was declared constitutional in a comprehensive opinion by the Supreme Court of the United States, January 24, 1916, in the case of Brushaber v. Union Pacific Railroad, given in full herein as Part V. The opinion of the Court was unanimous, but Justice McReynolds took no part in it because of his activity in connection with the subject when he was Attorney-General. Chief Justice White wrote the opinion for the Court, and in every point the validity of the statute was upheld. The case was exactly similar in its inception to the Pollock case (110). A private stockholder brought an action against the railroad company to restrain it from paying the tax on the ground that it was unconstitutional. The Court sustains the ruling in the Pollock case that the income tax is a direct tax, and, therefore, previous to the Sixteenth Amendment (¶12), it could not be valid without being apportioned out among the States. The basic error of the attack on the law, according to the Court, was in assuming that the Sixteenth Amendment conferred the power to levy an income tax, whereas the power had always existed, and "the whole purpose of the amendment was to relieve all income taxes from a consideration of the source whence the income was derived." As to the "uniformity" required by section 8 of Article I of the Constitution, the Court holds that this means merely that the law must be the same in all the States, and nothing more than this. The principal detail argued to the Court was the withholding provision requiring banks, etc., at their own expense to withhold and pay tax, and

the Court upheld this as not violating the "due process of law." The Court declared valid the retroactive provision making the tax date from March 1, 1913, though the law was enacted October 3, 1913; there being nothing in the Constitution prohibiting retroactive taxation, and it not being in violation of the "due process" clause of the Fifth Amendment. Exemption of labor and agricultural organizations (115) was upheld. Limitation of the amount of interest allowed to be deducted by a corporation (22), deduction of income from dividends by individuals, but not by corporations (149), denial of a "second exemption" for additional tax (¶16), difference in specific exemption for husband and wife when not living together (152), denial of deduction for rent (48), and distinction between farmers and others with regard to personal and family expenses (¶21, 51) were the chief other points declared valid by the Court. See Constitutional Provisions (16) and Excise Law (¶11). For details in the Brushaber case, see references in the General Index of this book, preceded by "Sup. Ct."

¶14. The Act of October 3, 1913. This law, signed by the President, October 3, 1913, is the subject of this book, and the various provisions of it will be explained in subsequent paragraphs. The complete statute, which is section 2 of the Tariff act of 1913, is given elsewhere in this volume, together with the Treasury Department rulings concerning the operation of it, and the Supreme Court construction of it. (13.) The bill was passed by the House of Representatives May 8, by a vote of 281 to 139, and by the Senate, September 9, by a vote of 44 to 37. It was then sent to conference regarding minor disagreements between the two houses, and was finally adopted in the Senate October 2, and in the House October 3, and the President signed it October 3. The bill was carefully drawn to meet all constitutional objections, and is held to be entirely valid in the Brushaber case given in full in Part V of this work. (See [13.) The total receipts under the law in 1914 (for the last ten months of 1913) were $71,381,274.69. For the full year of 1914, the

taxes for which were collected in 1915, the total receipts were $79,999,834.25. See Statistics in last part of this volume.

115. Corporation Income Tax. Every corporation, joint-stock company, insurance company or association, not including partnerships, doing business for private gain in the United States, shall make a return of the income for each year, and is required to pay a tax of 1 per centum on all the net income, however small it may be. (T. R. 163.) There is no additional tax on corporations, but the 1 per centum on the entire net income, known as the normal tax, is the extent of the corporation income tax; but see Dividends, ¶49. If the corporation is a foreign one the tax is based only on the income accruing from business in the United States. The law does not apply to labor, agricultural, or horticultural organizations (T. D. 2090, page 18, and T. D. 1996) or to mutual savings banks not having capital stock represented by shares, nor to fraternal beneficiary societies operating under the lodge system, nor to domestic building and loan associations, nor to cemetery companies operated not for gain, nor to corporations or organizations operated for religious, scientific, charitable, or educational purposes, nor to business leagues, boards of trade, chambers of commerce, civic leagues, etc., which are not operated for profit or for the benefit of any private stockholders. (T. D. 1967.) In brief, the tax applies only to corporations conducted for the profit of the private stockholders and not for public good. (T. R. 87.) The tax does not apply to income from any public utility operated wholly or in part by the State or any municipality, etc., in such a way that the tax would fall as a burden on the Government. (See in full section G a of the Statute.) Corporation Bookkeeping, ¶57. Forms and Instructions in last part of this book. Corporation fiscal year, ¶37, and T. D. 2029.) Treasury Regulations, Articles 76-186, and T. D. 2152, pages 2-6. For Corporation deductions, see T. R. 113. Bonds guaranteed tax-free, T. D. 1948.

116. Rate of the Individual Tax. The rate of taxation on the income of individuals is 1 per centum (known as the