exhaustive and embraces every conceivable power of taxation, limited only by the constitutional provisions that "all duties, imposts and excises shall be uniform, throughout the United States," that "direct taxes shall be apportioned among the several states" and that "no capitation or other direct tax, shall be laid, unless in proportion to the census." The Sixteenth Amendment removed the limitation but did not enlarge the power of Congress.

6

7a

Taxing Gains and Profits from Sale of Property. The decision in Gray v. Darlington has sometimes been mentioned as placing a limitation on the power of Congress to tax profits arising from the sale of capital assets, on the ground that the word "income" as used in the Sixteenth Amendment was used in the sense in which it had theretofore been defined in this case," but the case hinged on a consideration of the language of a particular act, and did not define the term in any general sense. The only question before the court was to what extent had Congress intended by that act to tax gains and profits. The court said in part: "The statute looks, with some exceptions, for subjects of taxation only to annual gains, profits, and income. Its general language, is 'that there be levied, collected, and paid annually upon the gains, profits and income of every person,' derived from certain specified sources, a tax of five per cent., and that this tax shall be 'assessed,

4 Id. Art. 1, § 8, CI. 1. 5 Id. Art. 1, § 2, Cl. 3. 6 Id. Art. 1, § 9, Cl. 4.

7 Gray v. Darlington, 15 Wall. 63.

7a The word must be presumed to have been used in the sense in which the Supreme Court had theretofore defined it if a judicial definition had been clearly given. Towne v. Eisner, 242 Fed. 702. 8 Act of March 2, 1867.

collected, and paid upon the gains, profits, and income for the year ending the 31st of December next preceding the time for levying, collecting, and paying said tax.'9 This language has only one meaning, and that is that the assessment, collection, and payment prescribed are to be made upon the annual products or income of one's property or labor, or such gains or profits as may be realized from a business transaction begun and completed during the preceding year. There are exceptions, as already intimated, to the general rule of assessment thus prescribed. One of these exceptions is expressed in the statute, and relates to profits upon sales of real property, requiring, in the estimation of gains, the profits of such sales to be included where the property has been purchased, not only within the preceding year, but within the two previous years. Another exception is implied from the provision of the statute which requires all gains, profits, and income derived from any source whatever, in addition to the sources enumerated, to be included in the estimation of the assessor. The estimation must, therefore, necessarily embrace gains and profits from trade and commerce, and these, for their successful prosecution, often require property to be held over a year. In the estimation of gains of any one year the trader and merchant will, in consequence, often be compelled to include the amount received upon goods sold over their cost which were purchased in a previous year. Indeed, in the estimation of the gains and profits of a trading or commercial business for any one year, the result of many transactions have generally to be taken into account which originated previously. Except, however, in these and similar cases, and in the cases of sales of real property, the statute only applies to such gains, profits, and 914 Stat. at Large, 477-8, § 13.

income as are strictly acquisitions made during the year preceding that in which the assessment is levied and collected." 10

The facts in this case were that Darlington, who apparently was neither a merchant nor a trader, exchanged in 1865 certain U. S. Treasury notes for certain U. S. bonds. Two years later the law was enacted, and two years after the incidence of the tax (in 1869) he sold the bonds at a profit. The profit was held by the Treasury Department to be income for the year 1869. The court held: “We are satisfied that no such result was intended by the statute." Since this decision hinged upon the language of the statute its application to the present law necessitates a comparison of the language of the Act of 1867 and the 1916 Law. The Act of 1867 provided for a tax upon the annual gains, profits and income of every person "from any source whatever" and further provided that in estimating the gains and profits and income, profits realized within the year from sales of real estate purchased within the year or within two years previous should be included as well as "all other gains, profits and income derived from any source whatever." The language of the statutes enacted since

10 In the case of Cleveland, C., C. and St. L. Ry. Co. v. United States, 242 Fed. 18, the court said: "The precise point decided in Gray v. Darlington was that the accretion in value during the previous years were not income for the year in which the property was sold; but doubtless some of the language of the opinion would indicate that such accretions were not income even for the

year in which they happened." The language to which the court refers, however, seems to be dicta and, in the language of the opinion quoted in the text above, it was intimated that the rule as to merchants and traders would be different from the rule as to persons making isolated investments, this difference being due to the language of the act and not predicated upon any general principles.

the Sixteenth Amendment is much broader. The tax is imposed on "gains, profits and income derived from dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property" or gains or profits and income derived from any source whatever. In the 1916 Law there is a provision which expressly prescribes the method of computing the gain derived from the sale of assets acquired before March 1, 1913. There seems to be no doubt that Congress intended to tax profits from any and all sales of property, regardless of when the property was acquired, and it does not seem that there is any want of power to do so under the Sixteenth Amendment.11

Want of Due Process of Law. The due process clause of the Fifth Amendment to the Federal Constitution is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, the Constitution does not conflict with itself by conferring on the one hand a taxing power and taking the same away on the other by the limitations of the due process clause. To make a tax statute unconstitutional the seeming exercise of the taxing power of the act must be so arbitrary as to constrain to the conclusion that it was not the exertion of taxation, but a confiscation of property, that is, a taking of the same in violation of the Fifth Amendment, or, what is equivalent thereto, was so wanting in basis for classification as to produce such a gross and patent inequality as to inevitably lead to the same conclusion. In Brushaber v. Union Pacific R. R. Co., the Supreme Court, after enumerating a number of features of the 1913 Law which, it had been alleged.

11 Brushaber v. Union Pacific R. R. Co., 240 U. S. 1.

constituted a violation of the due process clause, dismissed them by stating that none in the remotest degree presented such questions. The expediency of levying a tax, or the economic mistake or wrong involved in its imposition, is beyond judicial cognizance.11a In another case the court held that the fact that the tax was levied on the income of mining companies without making adequate allowance for depletion did not amount to the taking of property without due process of law.12

Uniformity. The Constitution exacts only a geographical uniformity of taxes and a lack of-uniformity in other respects does not make the statute invalid.13

Exempting Certain Corporations from Tax. The provision of the Sixteenth Amendment authorizing a tax on incomes "from whatever source derived" does not require that the tax must be imposed upon all sources of income, nor does it exclude the power to exempt certain classes of corporations.14

Retroactive Features. The right of Congress to impose a tax by a new statute, although the measure of the tax is governed by the income of the past year cannot be doubted; much less can it be doubted that Congress may impose a tax on income of the current year, though part of that year has elapsed when the

11a Brushaber v. Union Pacific R. R. Co., 240 U. S. 1. 12 Stanton v. Baltic Mining Co., 240 U. S. 103.

13 Knowlton v. Moore, 178 U. S. 41; Patton v. Brady, 184 U. S. 608; Flint v. Stone-Tracy Co., 220 U. S. 107; Billings v. United States, 232 U. S. 261; Brushaber v. Union Pacific R. R. Co., 240 U. S. 1.

14 Brushaber v. Union Pacific R. R. Co., 240 U. S. 1.