SIXTEENTH AMENDMENT TO THE UNITED STATES CONSTITUTION

'Amendment XVI' (the 'Sixteenth Amendment') of the United States Constitution was ratified on February 3, 1913.

Contents

Text

Background

Treatment of income taxes prior to the ''Pollock'' case

The ''Pollock'' case

Ratification process

Interpretation

The Brushaber case

Bowers v. Kerbaugh-Empire Co.

Glenshaw Glass case and "income"

Income taxation of wages, etc.

The Penn Mutual case

The Murphy case

Other

Tax protester arguments regarding ratification

Notes

External links

Text

Background

The U.S. Constitution provides (in part):
:The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises [ . . . ] but all Duties, Imposts and Excises shall be uniform throughout the United States [ . . . ]^[1]
The Constitution also provides (in part):
:Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers [ . . . . ]^[2]
The Constitution further provides:
:No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.^[3]
The power to impose taxes (whether deemed direct or indirect taxes) is granted by Article I, section 8, clause 1. Indirect taxes (or "excises," in the parlance of the text of the Constitution) are required to be geographically uniform, according to Article I, section 8, clause 1 and the court decisions interpreting that provision (see ''Knowlton v. Moore''^[4] and ''Flint v. Stone Tracy Co.''^[5]).
Article I, section 2, clause 3 and Article I, section 9, clause 4 of the Constitution state that all direct taxes are required to be apportioned among the states according to population. This essentially means that the dollar amount of direct taxes imposed on the taxpayers in any given state is required to bear a relationship to the total dollar amount of direct taxes imposed in the entire nation that is equal to the ratio of that state's population to the total population of the nation.
A workable personal income tax requires the retraction of these proportionality stipulations which is what the amendment does.

Treatment of income taxes prior to the ''Pollock'' case

Prior to the 1895 U.S. Supreme Court decision in the case of ''Pollock v. Farmers' Loan & Trust Co.'',^[6] all income taxes had been considered to be excises (indirect taxes) required to be imposed with geographical uniformity.
The Wilson-Gorman Tariff Act of 1894 attempted to impose a federal tax of 2% on incomes over $4,000. Derided by its opponents as "communistic," it was challenged in federal court. Until that time, direct taxes had been deemed to include only capitations, or poll taxes (taxes directly on persons) and taxes imposed on property ''by reason of its ownership'' (generally, ordinary ''ad valorem'' property taxes). Until 1895, all income taxes -- regardless of the 'sources' of the incomes -- had been considered indirect taxes ("excises").^[7]

The ''Pollock'' case

In the case of ''Pollock v. Farmers' Loan & Trust Co.'' the Supreme Court declared that certain income taxes -- taxes on income from property under the 1894 Act -- to be unconstitutional unapportioned direct taxes. The Court reasoned that a tax on ''income from property'' should be treated as a tax on "property by reason of its ownership," and should therefore be required to be apportioned. The reasoning was that taxes on the rents from land, the dividends from stocks and so on burdened the property generating the income in the same way that a tax on "property by reason of its ownership" burdened that property.
This meant that, after ''Pollock'', while income taxes on income from labor (as indirect taxes) were still not required to be apportioned by population, taxes on interest, dividends and rent income were required to be apportioned by population. The ''Pollock'' ruling made the 'source of the income' (e.g., property versus labor, etc.) relevant in determining whether the tax imposed on that income was deemed to be "direct" (and thus required to be apportioned among the states according to population) or, alternatively, "indirect" (and thus required only to be imposed with geographical uniformity).
During this period from 1895 to 1913 when the Sixteenth Amendment was ratified, while Congress could have re-imposed taxes on income from labor and other non-property sources without apportionment by population, imposing taxes on interest, dividends and rent income would not have been practical (as the dollar amount of income from interest, dividends and rent would virtually never be exactly the same amount for each and every taxpayer in the United States for any year). The Congress was unwilling to impose an income tax on labor and other non-property sources without also imposing a tax on income from property -- and taxes on income from property were no longer realistic. The ''Pollock'' ruling made imposition of an income tax politically unfeasible from 1895 until the ratification of the Sixteenth Amendment. At the same time, Congress was reflecting the growing concern among many elements of society that the wealthiest Americans had consolidated too much economic power.

Ratification process

In response to these developments, the Sixteenth Amendment was passed by the Sixty-first Congress and submitted to legislatures of the several states on July 12, 1909. The amendment was the crowning feature of a larger trend of legislative action meant to curb the power of the wealthy. The famous Pujo Committee Hearings, which aired the incestuous relationship between banks and corporate interests, were held during ratification, and the Clayton Antitrust Act was enacted shortly thereafter.
On February 25, 1913, the Republican Secretary of State Philander Knox proclaimed that the amendment had been ratified by the necessary three-quarters of the states ensuring the constitutionality of unapportioned federal income taxes.
According to the United States Government Printing Office, the following states ratified the amendment:^[8]
# Alabama (August 10, 1909)
# Kentucky (February 8, 1910)
# South Carolina (February 19, 1910)
# Illinois (March 1, 1910)
# Mississippi (March 7, 1910)
# Oklahoma (March 10, 1910)
# Maryland (April 8, 1910)
# Georgia (August 3, 1910)
# Texas (August 16, 1910)
# Ohio (January 19, 1911)
# Idaho (January 20, 1911)
# Oregon (January 23, 1911)
# Washington (January 26, 1911)
# Montana (January 27, 1911)
# Indiana (January 30, 1911)
# California (January 31, 1911)
# Nevada (January 31, 1911)
# South Dakota (February 1, 1911)
# Nebraska (February 9, 1911)
# North Carolina (February 11, 1911)
# Colorado (February 15, 1911)
# North Dakota (February 17, 1911)
# Michigan (February 23, 1911)
# Iowa (February 24, 1911)
# Kansas (March 2, 1911)
# Missouri (March 16, 1911)
# Maine (March 31, 1911)
# Tennessee (April 7, 1911)
# Arkansas (April 22, 1911, after having previously rejected the amendment)
# Wisconsin (May 16, 1911)
# New York (July 12, 1911)
# Arizona (April 3, 1912)
# Minnesota (June 11, 1912)
# Louisiana (June 28, 1912)
# West Virginia (January 31, 1913)
# New Mexico (February 3, 1913)
Ratification (by the requisite thirty-six states) was completed on February 3, 1913 with the ratification by New Mexico (but see Delaware and Wyoming below). The amendment was subsequently ratified by the following states, bringing the total number of ratifying states to forty-two:
:37. Delaware (February 3, 1913)
:38. Wyoming (February 3, 1913)
:39. New Jersey (February 4, 1913)
:40. Vermont (February 19, 1913)
:41. Massachusetts (March 4, 1913)
:42. New Hampshire (March 7, 1913, after rejecting the amendment on March 2, 1911)
The following states rejected the amendment without ever subsequently ratifying it:
# Connecticut
# Florida, which rejected the amendment after it had already been ratified by three-fourths of the states
# Rhode Island
# Utah
The following states never took up the proposed amendment:
# Pennsylvania
# Virginia

Interpretation

The Amendment—which overrules the effect of ''Pollock''^[9] -- essentially means that when imposing an income tax, the Congress may impose the tax on income from any source without having to apportion the total dollar amount of tax collected from each state according to each state's population in relation to the total national population.
The Supreme Court's interpretation of the Sixteenth Amendment has changed considerably over time and there have been many disputes about the applicability of the amendment.

The Brushaber case

In ''Brushaber v. Union Pacific Railroad'',^[10] the Supreme Court ruled that (1) the Sixteenth Amendment removes the ''Pollock'' requirement that certain income taxes be apportioned among the states according to population; ^[11] (2) the Federal income tax statute does not violate the Fifth Amendment's prohibition against the government taking property without due process of law; (3) the Federal income tax statute does not violate the uniformity clause of Article I, section 8 of the U.S. Constitution (relating to the requirement that excises, also known as indirect taxes, be imposed with geographical uniformity).

Bowers v. Kerbaugh-Empire Co.

In the Supreme Court case of ''Bowers v. Kerbaugh-Empire Co.'',^[10] Mr. Justice Butler stated:

It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be "direct taxes" within the meaning of the constitutional requirement as to apportionment. [cites omitted] The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes "from whatever source derived". [cites omitted] "Income" has been taken to mean the same thing as used in the Corporation Excise Tax of 1909 (36 Stat. 112), in the Sixteenth Amendment, and in the various revenue acts subsequently passed. [cites omitted] After full consideration, this court declared that income may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.

Glenshaw Glass case and "income"

In ''Commissioner v. Glenshaw Glass Co.'',^[10] the Supreme Court laid out what has become the modern understanding of what constitutes 'income' to which the Sixteenth Amendment applies, declaring that income taxes could be levied on "accessions to wealth, clearly realized, and over which the taxpayers have complete dominion." Under this definition, ''any'' increase in wealth—whether through wages, benefits, bonuses, sale of stock or other property at a profit, bets won, lucky finds, awards of punitive damages in a lawsuit, qui tam actions—are all within the definition of income, unless Congress makes a specific exemption as it has for items such as life insurance proceeds received by reason of the death of the insured party,^[10] gifts, bequests, devises and inheritances,^[10] and certain scholarships.^[10]

Income taxation of wages, etc.

The courts have interpreted the Sixteenth Amendment as standing for the rule that the Amendment allows a direct tax on "wages, salaries, commissions, etc. without apportionment."^[17]

The Penn Mutual case

Although the Sixteenth Amendment is often cited as the "source" of the Congressional power to tax incomes, at least one court has reiterated the point made in ''Brushaber'' and other cases that the Sixteenth Amendment itself did not grant the U.S. Congress the power to tax incomes (a power Congress has had since the late 1700s), but only removed the requirement, ''if any'', that any income tax be apportioned among the states according to population. In the ''Penn Mutual Indemnity'' case, the United States Tax Court stated:

In dealing with the scope of the taxing power the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation [ . . . ] and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, Section 8, of the Constitution.^[18]

In that same ''Penn Mutual Indemnity'' case, on appeal, the United States Court of Appeals for the Third Circuit agreed, stating:

It did not take a constitutional amendment to entitle the United States to impose an income tax. Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 158 U. S. 601 (1895), only held that a tax on the income derived from real or personal property was so close to a tax on that property that it could not be imposed without apportionment. The Sixteenth Amendment removed that barrier. Indeed, the requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes.

It is not necessary to uphold the validity of the tax imposed by the United States that the tax itself bear an accurate label. Indeed, the tax upon the distillation of spirits, imposed very early by federal authority, now reads and has read in terms of a tax upon the spirits themselves, yet the validity of this imposition has been upheld for a very great many years.

It could well be argued that the tax involved here [an income tax] is an "excise tax" based upon the receipt of money by the taxpayer. It certainly is not a tax on property and it certainly is not a capitation tax; therefore, it need not be apportioned. We do not think it profitable, however, to make the label as precise as that required under the Food and Drug Act. Congress has the power to impose taxes generally, and if the particular imposition does not run afoul of any constitutional restrictions then the tax is lawful, call it what you will.^[19]

The Murphy case

On December 22, 2006, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit vacated^[20] its own unanimous August 2006 opinion in ''Murphy v. Internal Revenue Service and United States''.^[21] The original three judge panel then agreed to rehear the case itself. In its original August 2006 decision, the Court had ruled that was unconstitutional under the Sixteenth Amendment to the extent that the statute purported to tax, as income, a recovery for a non-physical personal injury for mental distress and loss of reputation not received in lieu of taxable income such as lost wages or earnings.
Because of the vacation of the August 2006 opinion, the full court did not hear the case ''en banc''.
On July 3, 2007, the Court (through the original three-judge panel) ruled (1) that the taxpayer's compensation was received on account of a non-physical injury or sickness; (2) that gross income under section 61 of the Internal Revenue Code^[22] does include compensatory damages for non-physical injuries, even if the award is not an "accession to wealth," (3) that the income tax imposed on an award for non-physical injuries is an indirect tax, regardless of whether the recovery is restoration of "human capital," and therefore the tax does not violate the constitutional requirement of Article I, section 9, that capitations or other direct taxes must be laid among the states only in proportion to the population; (4) that the income tax imposed on an award for non-physical injuries does not violate the constitutional requirement of Article I, section 8, that all duties, imposts and excises be uniform throughout the United States; (5) that under the doctrine of sovereign immunity, the Internal Revenue Service may not be sued in its own name.^[23] The Court stated: "[a]lthough the 'Congress cannot make a thing income which is not so in fact,' [ . . . ] it can ''label'' a thing income and tax it, so long as it acts within its constitutional authority, which includes not only the Sixteenth Amendment but also Article I, Sections 8 and 9." ^[24] The court ruled that Ms. Murphy was not entitled to the tax refund she claimed, and that the personal injury award she received was "within the reach of the congressional power to tax under Article I, Section 8 of the Constitution" -- even if the award was "not income within the meaning of the Sixteenth Amendment".^[25] See also the ''Penn Mutual'' case cited above.

Other

John R. Luckey, legislative attorney for the American Law Division of the Congressional Research Service writes on page four of "FAQ Concerning The Federal Income Tax" that "the Court found that the Sixteenth Amendment sought to restrain the Court from viewing an income tax, because of its close effect on the underlying property as a direct tax."

Tax protester arguments regarding ratification

''The article Tax protester constitutional arguments covers this topic in considerably more detail, including details on the specific arguments made against ratification.''
Some tax protesters, conspiracy theorists, and others opposed to income taxes cite what they contend is evidence that the Sixteenth Amendment was never "properly ratified." One such argument is that because the legislatures of various states passed resolutions of ratification with different capitalization, spelling of words, or punctuation marks (e.g., semi-colons instead of commas) from the text proposed by Congress, those states' ratifications were invalid. A related argument is that various states illegally violated procedural requirements of their constitutions when passing their ratification resolutions. Another argument made by some tax protesters regards Ohio, one of the states listed as ratifying the amendment. They contend that because Congress did not pass an official proclamation recognizing Ohio's date of admission (1803) to statehood until 1953 (see Ohio Constitution), Ohio was not a state until 1953 (and, therefore, could not have ratified the Sixteenth Amendment). These and similar arguments have been universally rejected by the courts.^[26]

Notes

1. U.S. Const., art. I, § 8, cl. 1.
2. U.S. Const., art. I, § 2, cl. 3.
3. U.S. Const., art. I, § 9, cl. 4.
4. 178 U.S. 41 (1900).
5. 220 U.S. 107 (1911).
6. , ''aff'd on reh'g'', .
7. Quoting the United States Supreme Court: "Again the situation is aptly illustrated by the various ''acts taxing incomes'' derived from property of every kind and nature which were enacted beginning in 1861, and lasting during what may be termed the Civil War period. It is not disputable that ''these latter taxing laws'' were classed under the head of ''excises, duties, and imposts'' because it was assumed that they were of that character inasmuch as, ''although putting a tax burden on income of every kind'', including that derived from property real or personal, they were not taxes directly on property because of its ownership.” Brushaber v. Union Pac. Railroad, 240 U.S. 1, at 15 (1916) (italics added).
8. Amendments to the Constitution of the United States of America, United States Government Printing Office
9. Boris I. Bittker, Constitutional Limits on the Taxing Power of the Federal Government, ''The Tax Lawyer'', Fall 1987, Vol. 41, No. 1, p. 3 (American Bar Ass'n) (''Pollock'' case "was in effect reversed by the sixteenth amendment").
10. .
11. "As construed by the Supreme Court in the ''Brushaber'' case, the power of Congress to tax income derives from Article I, Section 8, Clause 1, of the original Constitution rather than from the Sixteenth Amendment; the latter simply eliminated the requirement that an income tax, to the extent that it is a direct tax, must be apportioned among the states." Boris I. Bittker, Martin J. McMahon, Jr. & Lawrence A. Zelenak, ''Federal Income Taxation of Individuals'', ch. 1, paragr. 1.01[1][a], Research Institute of America (2d ed. 2005), as retrieved from 2002 WL 1454829 (W. G. & L.).
12. .
13. .
14. .
15. .
16. .
17. ''Parker v. Commissioner'', 724 F.2d 469, 84-1 U.S. Tax Cas. (CCH) paragr. 9209 (5th Cir. 1984) (closing parenthesis in original has been omitted). For other court decisions upholding the taxability of wages, salaries, etc., on various grounds, see ''United States v. Connor'', 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990); ''Perkins v. Commissioner'', 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984); ''White v. United States'', 2005-1 U.S. Tax Cas. (CCH) paragr. 50,289 (6th Cir. 2004), ''cert. denied'', ____ U.S. ____ (2005); ''Granzow v. Commissioner'', 739 F.2d 265, 84-2 U.S. Tax Cas. (CCH) paragr. 9660 (7th Cir. 1984); ''Waters v. Commissioner'', 764 F.2d 1389, 85-2 U.S. Tax Cas. (CCH) paragr. 9512 (11th Cir. 1985); ''United States v. Buras'', 633 F.2d 1356, 81-1 U.S. Tax Cas. (CCH) paragr. 9126 (9th Cir. 1980).
18. ''Penn Mutual Indemnity Co. v. Commissioner'', 32 T.C. 653 at 659 (1959), ''aff'd'', 277 F.2d 16, 60-1 U.S. Tax Cas. (CCH) paragr. 9389 (3d Cir. 1960).
19. ''Penn Mutual Indemnity Co. v. Commissioner'', 277 F.2d 16, 60-1 U.S. Tax Cas. (CCH) paragr. 9389 (3d Cir. 1960) (footnotes omitted).
20. Order, Dec. 22, 2006, ''Murphy v. Internal Revenue Service and United States'', United States Court of Appeals for the District of Columbia Circuit.
21. 460 F.3d 79, 2006-2 U.S. Tax Cas. (CCH) paragr. 50,476, 2006 WL 2411372 (D.C. Cir. August 22, 2006). In an unrelated matter, the Court had also granted the government's motion to dismiss Murphy's suit against the defendant "Internal Revenue Service." Under the doctrine of sovereign immunity the rule is that a taxpayer may sue ''The United States of America'' itself, not a government agency, officer, or employee (with few exceptions). The Court had stated: "Insofar as the Congress has waived sovereign immunity with respect to suits for tax refunds under , that provision specifically contemplates only actions against the 'United States.' Therefore, we hold the IRS, unlike the United States, may not be sued ''eo nomine'' in this case." One exception to this rule is found in the United States Tax Court where the taxpayer sues the Commissioner of Internal Revenue (''Murphy v. United States'')
22. (''Murphy v United States, on rehearing'')
23. Opinion on rehearing, July 3, 2007, ''Murphy v. Internal Revenue Service and United States'', case no. 05-5139, United States Court of Appeals for the District of Columbia Circuit, 2007-2 U.S. Tax Cas. (CCH) paragr. 50,531 (D.C. Cir. 2007).
24. Opinion on rehearing, July 3, 2007, p. 16, ''Murphy v. Internal Revenue Service and United States'', case no. 05-5139, United States Court of Appeals for the District of Columbia Circuit, 2007-2 U.S. Tax Cas. (CCH) paragr. 50,531 (D.C. Cir. 2007).
25. Opinion on rehearing, July 3, 2007, p. 5-6, ''Murphy v. Internal Revenue Service and United States'', case no. 05-5139, United States Court of Appeals for the District of Columbia Circuit, 2007-2 U.S. Tax Cas. (CCH) paragr. 50,531 (D.C. Cir. 2007).
26. ''United States v. Thomas'', 788 F.2d 1250 (7th Cir. 1986), ''cert. denied'', 107 S.Ct. 187 (1986); ''Ficalora v. Commissioner'', 751 F.2d 85, 85-1 U.S. Tax Cas. (CCH) paragr. 9103 (2d Cir. 1984); ''Sisk v. Commissioner'', 791 F.2d 58, 86-1 U.S. Tax Cas. (CCH) paragr. 9433 (6th Cir. 1986); ''United States v. Sitka'', 845 F.2d 43, 88-1 U.S. Tax Cas. (CCH) paragr. 9308 (2d Cir.), ''cert. denied'', 488 U.S. 827 (1988); ''United States v. Stahl'', 792 F.2d 1438, 86-2 U.S. Tax Cas. (CCH) paragr. 9518 (9th Cir. 1986), ''cert. denied'', 107 S. Ct. 888 (1987); ''Brown v. Commissioner'', 53 T.C.M. (CCH) 94, T.C. Memo 1987-78, CCH Dec. 43,696(M) (1987); ''Lysiak v. Commissioner'', 816 F.2d 311, 87-1 U.S. Tax Cas. (CCH) paragr. 9296 (7th Cir. 1987); ''Miller v. United States'', 868 F.2d 236, 89-1 U.S. Tax Cas. (CCH) paragr. 9184 (7th Cir. 1989); ''United States v. House'', 617 F. Supp. 237, 87-2 U.S. Tax Cas. (CCH) paragr. 9562 (W.D. Mich. 1985).

External links

★ National Archives: 16th Amendment

★ 16th Amendment and 1913 tax return form Images of original documents

★ CRS Annotated Constitution: 16th Amendment

★ Emory University School of Law website lists proposal and ratification details for amendments to the United States Constitution

★ Brushaber Decision Supreme Court opinion on the apportionment clause of the Constitution.

★ Stanton Decision - no new power of taxation (affirming constitutionality of income tax after 16th Amendment)