THE LAW OF TAXATION
40. In our system of government [observes the Supreme Court], it is
oftentimes difficult to fix the true boundary between the two systems,
State and federal [and, adopting the words of Chief Justice Marshall,
proceeds],—endeavoring to fix this boundary upon the subject of
taxation, if we measure the power of taxation residing in a State by
the extent of sovereignty which the people of a single State possess,
and can confer on its government,—we have an intelligible standard
applicable to every case to which the power may be applied. We have
a principle which leaves the power of taxing the people and property
unimpaired; which leaves to a State the command of all its resources,
and which places beyond its reach all these powers which are conferred
by the people of the United States on the government of the Union,
and all these means which are given for the purpose of carrying these
powers into execution. We have a principle which is safe for the States
and safe for the Union.[100] We are relieved, as we ought to be, from
clashing sovereignty.
It follows that the powers and functions of the two governments can
be harmonized “only by a wise and forbearing application of this
principle.”[101]
41. A tax is a burden or charge imposed by the legislature on property
or persons to raise money for public purposes.[102] The two essentials
of a good tax are that it is to be laid for a public purpose and by
authority. The exercise of the taxing power not only distinguishes
sovereignty but also the government which sovereignty creates by
delegation of power. But the State cannot exercise taxing power beyond
its jurisdiction,[103] a limitation parallel to the limitation of the
sovereignty of the State, that is, a version (however unphilosophical)
of the idea in the phrase “residuary sovereignty.”[104] But unless
restrained by the federal Constitution the power of Congress as to
mode, form, or extent of taxation is unlimited.
The test here is jurisdiction.[105] Taxation is the correlative of
protection. As the State cannot protect so it cannot tax beyond its
jurisdiction.[106] Thus the person or the property must be within the
jurisdiction of the State to bring either within its taxing power. Tax
laws can have no extra-territorial operation,[107] but there is no
established limit of the taxing power or to the selection of objects to
which it is applicable.[108]
42. A State Legislature may abuse this power, but the Constitution of
the United States was not intended to furnish a corrective for every
abuse of power committed by the State governments. Relief lies wholly
with the electors within the State who, if the State constitution does
not afford security against unjust taxation and unwise legislation, can
both alter the State constitution and elect other legislators.
So long as the State by its laws, prescribing the mode and
subjects of taxation, does not entrench upon the legitimate
authority of the Union, or violate any right recognized, or secured
by the Constitution of the United States, the (Supreme) Court, as
between the State and its citizens, can afford no relief against
State taxation, however unjust, oppressive, or onerous.
The discretion of the State,—that is, of the State Legislature, is
beyond the power of the federal government, or any of its departments,
to supervise or control.[109]
43. The fundamental idea in America is that each government—the State,
the national—possesses powers and functions adequate to its own
ends and purposes. Thus the State has no power to lay a tax on any
constitutional means employed by the government of the Union to execute
its powers, otherwise, by taxation of such means or agencies,—say the
mail, the mint, judicial process, patent rights,—the States might
defeat all the ends of the national government,—a design not intended
by the people of the United States.[110] But this protection of
government is not limited to the United States by limiting the States;
it applies to the States as limiting the United States.
The sovereign powers vested in the State governments by their
respective constitutions, remain unaltered and unimpaired, except
so far as they were granted to the government of the United
States.[111] As the powers not delegated were reserved to the
States respectively, or to the people, the government of the
United States can claim no powers not so delegated, and the powers
actually granted must be such as are expressly given, or given by
necessary implication.
In our complex system, the existence of the States in their separate
and independent condition
is so indispensable, that without them the general government
itself would disappear from the family of nations.[112] Whence the
necessary conclusion that the means and instrumentalities employed
for carrying on the operations of their governments (the State
governments), for preserving their existence, and fulfilling the
high and responsible duties assigned to them in the Constitution,
should be left free and unimpaired, should not be liable to be
crippled, much less defeated by the taxing power of another
government, which power acknowledges no limits but the will of the
legislative body imposing the tax, and more especially, those means
and instrumentalities which are the creation of their sovereign and
reserved rights, one of which is the establishment of the judicial
department, and the appointing of officers to administer the laws.
Without this power and the exercise of it, no one of the States,
under the form of government guaranteed by the Constitution, could
long preserve its existence.[113]
44. One of the reserved powers of the States was to establish a
judicial department.
All of the thirteen States were in possession of this power, and
had exercised it at the adoption of the Constitution; and it is
not pretended that any grant of it to the general government is
found in that instrument. It is therefore one of the sovereign
powers vested in the States by their constitutions, which remained
unaltered and unimpaired, and in respect to which the State is
as independent of the general government as that government is
independent of the States. In respect to reserved powers, the State
is as sovereign and as independent as the general government.[114]
The means and instrumentalities employed by the one government to carry
its powers into operation are as necessary to its self-preservation as
the means and instrumentalities are necessary to the other. Unimpaired
existence is as essential to the one as to the other. There is no
express provision in the Constitution that prohibits the general
government from taxing the means and instrumentalities of the States,
or prohibiting such taxation.
In both cases the exemption rests upon necessary implication, and
is upheld by the great law of self-preservation; as any government
whose means employed in conducting its operations, if subject to
the control of another and distinct government, can exist only at
the mercy of that government.[115]
45. This was the constitutional law of the United States as settled in
1870,[116] the case arising in Massachusetts; the plaintiff a judicial
officer of that Commonwealth having brought suit to recover from the
United States Revenue Collector the amount of income tax exacted from
him, it being part of his salary as a judge in that Commonwealth. The
Supreme Court of the United States sustained the plaintiff for reasons
given in the opinion, part of which has been quoted. By parity of
reasoning, as followed in that decision, any act of Congress imposing
a tax on the salary of any State officer, if his office is a means
and instrumentality employed by the State to carry its powers into
operation must be declared unconstitutional. In 1913 the Constitution
was amended so that “The Congress shall have power to lay and collect
taxes on incomes from whatever source derived, without apportionment
among the several States, and without regard to any census or
enumeration.”[117]
Does this amendment increase the taxing power of Congress beyond that
power as possessed prior to 1913 and as limited by the Supreme Court
in its decision in the case of The Collector _v._ Day? If any officer
of a State, executive, legislative, judicial, or administrative,
receives a salary, large or small, (and it forms part of his income) is
it beyond the jurisdiction of the United States as a taxable estate,
despite the explicit power of Congress, in this Sixteenth Amendment “to
lay and collect taxes on incomes, from whatever source derived?” Does
the amendment overrule the decision in The Collector _v._ Day?[118]
Evidently the amendment empowers Congress to levy an income tax wholly
in disregard of the effect of the tax in impairing the “necessary
means and instrumentalities of a State.” Here too the issue is one
of jurisdiction. The person taxed being within the jurisdiction of
the United States has no redress against that jurisdiction more than
has a person, taxed and being within the jurisdiction of a State,
redress against the State. But can the Commonwealth of Massachusetts,
or any other State, imposing an income tax, lay and collect it from
whatever source derived, and that source be the treasury of the United
States,—that income be salary received by a citizen of the State who
also is a federal official, say a federal Judge, or a Collector of
the Revenue, or a United States Marshal, or a Senator of the United
States, or a Congressman, or the President of the United States?[119]
46. In the operations of government, the delegation of authority
by the executive, the legislative, or the judiciary is rare. The
constitutional test, in either case, is purpose and authority. Thus a
municipal corporation is a representative not only of the State, but
is a portion of its governmental power. It is one of its creatures,
made for a specific purpose, to exercise within a limited sphere the
powers of the State. “The action is no less a portion of the sovereign
authority when it is done through the agency of a town or city
corporation.”[120] Thus a tax authorized by the State Legislature, to
be imposed by a municipal corporation is a good tax in law, provided
it is for a public purpose. This is not a delegation of the taxing
power, but is the exercise of it by the Legislature. The municipality
itself has no power to tax, or even to be a municipality, save
by authority of the State, usually by the constitution, vested in
its Legislature. The amount of the tax, the subjects of taxation,
the method of assessment and of collection are wholly within the
discretion of the Legislature. The exemption of churches, schools,
colleges, and charitable institutions may or may not be required by
a State constitution. If this is silent on the subject, the question
is wholly one of legislative discretion. A charitable institution
has no fundamental right to exemption from taxation, as a person
has a fundamental right to “due process of law.”[121] The principle
of exemption from taxation is that taxation of the person or the
property tends to destroy the powers or to impair the efficiency of the
State.[122]
47. A tax must not only be laid by authority but it must be for a
public purpose. Thus any assessment imposed upon persons or property by
the government, State or federal, for the gain, emolument, or advantage
of a private person, or an official, is unconstitutional. The purpose
must be public, as for example, for schools, highways, canals, public
buildings, markets, asylums, jails, or to keep the same in repair and
to use them for public purposes. The Legislature cannot authorize a
town or a county, or any subdivision of the State, to raise money for
other than public purposes and uses. It cannot confer benefits on
individuals, however meritorious, by taxation.[123]
48. Taxes, imposed under the Constitution, have been classed as direct
or indirect,—the direct being apportionable among the States according
to population; the indirect being uniform throughout the United
States.[124]
The Sixteenth Amendment of 1913 abolishes the limitation of
apportionment or enumeration in the imposition and collection of an
income tax. The Income Tax law of October 3, 1913—the first of the kind
enacted by Congress under the amendment—exempted incomes of $3000, or
less, or $4000, or less, as the person taxed may be single or married.
The amount of the exemption is fixed at the discretion of Congress. So
too is the rate of taxation by duties, imposts, and excises, as well as
the inclusion or exclusion of articles subject to them, but Congress
must make such taxes uniform throughout the United States.[125]
The taxing power may be used to encourage or to discourage an
activity, or to destroy it. As thus used, the exercise of the taxing
power, whether by the State or by the United States, may characterize
the policy, or administration of its government. So too if a State
engages in manufacturing, or in any activity or occupation taxable
under federal revenue laws, it is amenable in taxes like a private
person.[126]