Court Cases Cited Within This Web Site
Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916)
 

Foundational case allegedly explaining the nature of an income tax and of the Sixteenth Amendment.

Frank Brushaber was a stockholder of the Union Pacific Railroad Company, and had attempted to enjoin the company in the hopes of stopping the company from complying with the tax provisions of the tariff act of October 3, 1913.

Brushaber’s argument was that such a tax was a direct tax because he considered stock to be property. Thus, any tax on the stock was a tax on the property. Constitutionally, direct taxes must be collected according to the rule of apportionment.

Brushaber also believed that the Sixteenth Amendment created a new class of tax, that is, a direct tax without apportionment. He also believed that such taxation violated the Due Process clause of the Fifth Amendment.

At the lower district court, the defendant, Union Pacific, motioned to dismiss the case on grounds that the plaintiff had no cause of action. That is, Union Pacific argued that the tax was in fact a tax on the privilege of doing business as a corporation, and was not a tax on property. The lower court agreed and Brushaber’s case was dismissed.

Brushaber appealed and the Appeals Court agreed that the lower court had ruled correctly.

Brushaber then appealed to the Supreme Court, and the Court affirmed both lower court rulings.

In the written opinion, Justice White stated that in the Pollock v. Farmers’ Loan and T. Co. decision of 1895 the Court at that time “…recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such…” The Court believed in this 1916 case that taxes on incomes were excise taxes. An excise tax is an indirect tax, not a direct tax.

The Court also wrote that Brushaber’s understanding of the Sixteenth Amendment was incorrect. The Court explained that the Amendment simply removed the question that “…there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided…” In other words, the Amendment provided no new class of tax, but only prevented courts from interpreting a tax on income as a tax on property.

The Court also disagreed that the tax violated the Due Process clause.

Therefore, according to the Court opinion Brushaber’s original complaint had no foundation and the lower court dismissals were correct. Strangely, the court opinions defy the original legislative intent of the Sixteenth Amendment, that is, to allow taxing of incomes (property) without apportionment.

Note also that Brushaber did not address the issue of personal income taxes, but only the tax levied on corporate income.

Full Text: Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916)