Pollock v. Farmers’ Loan & Trust Company, 158 U.S. 601 (1895)

Pollock v. Farmers’ Loan & Trust Company (Rehearing)

No. 898, 894

Argued May 6, 7, 8, 1895
Decided May 20, 1895
158 U.S. 601

APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

Hylton v. United States, 3 Dall. 171, further considered, and, in view of the historical evidence cited, shown to have only decided that the tax on carriages involved was an excise, and was therefore an indirect tax.

In distributing the power of taxation, the Constitution retained to the State the absolute power of direct taxation, but granted to the Federal government the power of the same taxation upon condition that, in its exercise, such taxes should be apportioned among the several State according to number, and this was done in order to protect to the States, who were surrendering to the Federal government so many sources of income, the power of direct taxation, which was their principal remaining resource.

It is the duty of the court in this case simply to determine whether the income tax now before it does or does not belong to the class of direct taxes, and if it does, to decide the constitutional question which follow accordingly, unaffected by considerations not pertaining to the case in hand.

Taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.

Taxes on personal property, or on the income of personal property, are likewise direct taxes.

The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and of personal property, being a direct tax within the meaning of the Constitution, and therefore unconstitutional and void became not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.

These cases were decided on the 8th of April, 1895, 157 U.S. 429. Thereupon the appellants filed a petition for a rehearing as follows, entitled in the two cases:

To the Honorable the Justices of the Supreme Court of the United States:

Charles Pollock and Lewis E. Hyde, the appellants in these causes, respectfully present their petition for rehearing, and submit the following reasons why their prayer should be granted:

I. The question involved in these cases was as to the constitutionality of the provisions of the tariff act of August 15, 1894 (sections 27 to 37), purporting to impose a tax upon incomes. The court has held that the same are unconstitutional so far as they purport to impose a tax upon the rent or income of real estate and income derived from municipal bonds. It has, however, announced that it was equally divided in opinion as to the following questions, and has expressed no opinion in regard to them:

(1) Whether the void provisions invalidate the whole act.

(2) Whether, as to the income from personal property as such, the act is unconstitutional as laying direct taxes.

(3) Whether any part of the tax, if not considered as a direct tax, is invalid for want of uniformity.

The court has reversed the decree of the Circuit Court and remanded the case with directions to enter a decree in favor of complainant in respect only of the voluntary payment of the tax on the rents and income of defendant’s real estate and that which it holds in trust, and on the income from the municipal bonds owned or so held by it.

While, therefore, the two points above stated have been decided, there has been no decision of the remaining questions regarding the constitutionality of the act, and no judgment has been announced authoritatively establishing any principle for interpretation of the statute in those respects. Etting v. Bank of the United States, 11 Wheat. 59, 78; Durant v. Essex Co., 7 Wall. 107, 113.

This court, having been established by the Constitution, and its judicial power extending to all cases in law and equity arising under the Constitution and laws of the United States, must necessarily be the ultimate tribunal for the determination of these questions. In all cases in which such questions may arise, there can, therefore, be no authoritative decision in reference to the same except by this court.

II. The court early in its history adopted the practice of requiring, if practicable, constitutional questions to be heard by a full court in order that the judgment in such case might, if possible, be the decision of the majority of the whole court.

In Briscoe v. Commonwealth Bank, 8 Pet. 118, and City of New York v. Miln, 8 Pet. 120, 122, this rule was announced by Chief Justice Marshall in the following language:

The practice of this court is not (except in cases of absolute necessity) to deliver any judgment in cases where constitutional questions are involved unless four judges concur in opinion, thus making the decision that of a majority of the whole court. In the present cases, four judges do not concur in opinion as to the constitutional questions which have been argued. The court therefore directs these cases to be reargued at the next term, under the expectation that a larger number of the judges may then be present.

The same cases were again called at the next term of the court, and the Chief Justice said the court could not know whether there would be a full court during the term, but, as the court was then composed, the constitutional cases would not be taken up (9 Pet. 8). In a note to the cases upon that page, it is stated that, during that term, the court was composed of six judges, the full court at the time being seven; there was then a vacancy, occasioned by the resignation of Mr. Justice Duval, which had not yet been filled.

The rule laid down by Chief Justice Marshall has been frequently followed. Reference may be made to the case of Home Insurance Company v. New York, 119 U.S. 129, 148. Mr. Chief Justice Waite there announced that the judgment of the Supreme Court of the State of New York was affirmed by a divided court. At the time, Mr. Justice Woods was ill, and absent during the whole of the term, and took no part in any of the cases argued at that term. There were, therefore, only eight members of the court present. A petition for reargument was presented upon the ground that the principle announced by Mr. Chief Justice Marshall should be followed, and that the constitutional question involved was sufficiently important to demand a decision concurred in by a majority of the whole court. The petition was granted, 122 U.S. 636, and the case was not reargued until the bench was full. 134 U.S. 94, 97. This practice is recognized as established in Phillips’ Practice at page 380.

III. It is respectfully submitted that no case could arise more imperatively requiring the application of the rule than the present. The precise question involved is the constitutionality of an act of Congress affecting the citizens of the country generally. That act has been held unconstitutional in important respects; its constitutionality has not been authoritatively decided as to the remaining portions. These complainants and appellants may well urge that these serious constitutional questions should be finally decided before their trustee expends their funds in voluntary payment of the tax. In addition, it is manifest that, until some decision is reached, the courts will be overwhelmed with litigation upon these questions, and the payment and collection of the tax will be most seriously embarrassed.

Every taxpayer to any considerable extent will pay the tax under protest and sue to recover the same back, and if necessary sue out his writ of error to this court. The court will of necessity be burdened with rearguments of these questions without number until they are finally settled. Still further, as the matter now stands, it has been decided that a tax upon the income of land is unconstitutional, while the court has made no decision as to the validity of the tax upon income of personal property. Serious questions have therefore already arisen as to what is, in fact, to be deemed the income of real estate, and what is the income of real and what of personal property, in cases where both are employed in the production of the same income.

Your petitioners therefore respectfully pray that these cases be restored to the docket and a reargument be ordered as to the questions upon which the court was evenly divided in opinion. In case, however, this motion should be denied, your petitioners pray that the mandate be amended by ordering a new trial in the court below, so that the court below may now determine the questions (1) whether or not the invalidity of the statute in the respects already specified renders the same altogether invalid, and (2) whether or not the act is constitutional in the respects not decided by this court.

The undersigned, members of the bar of this honorable court, humbly conceive that it is proper that the appeals herein should be reheard by this court, if this court shall see fit so to order, and they therefore respectfully certify accordingly.

Washington, April 15, 1895.

JOSEPH H. CHOATE WILLIAM D. GUTHRIE

CLARENCE A. SEWARD DAVID WILLCOX

BENJAMIN H. BRISTOW CHARLES STEELE

Of counsel for appellants

To this petition, Mr. Attorney General made the following suggestion on the part of the United States:

The United States respectfully represents that, if a rehearing is granted in the above-entitled cases, the rehearing should cover all the legal and constitutional questions involved, and not merely those as to which the court are equally divided.

I. Whether a tax on incomes generally, inclusive of rents and interest or dividends from investments of all kinds, is or is not a direct tax within the meaning of the Federal Constitution is a matter upon which, as an original question, the government has really never been heard.

Its position at the argument was that the question had been settled -- by an exposition of the Constitution practically contemporaneous with its adoption -- by a subsequent unbroken line of judicial precedents -- by the concurring and repeated action of all the departments of the government -- and by the consensus of all text writers and authorities by whom the subject has heretofore been considered.

II. The importance to the government of the new views of its taxing power, announced in the opinion of the Chief Justice, can hardly be exaggerated.

First. Pushed to their logical conclusion, they practically exclude from the direct operation of the power all the real estate of the country and all its invested personal property. They exclude it because, if realty and personalty are taxable only by the rule of apportionment, the inevitable inequalities resulting from such a plan of taxation are so gross and flagrant as to absolutely debar any resort to it.

That such inequalities must result is practically admitted, the only suggestion in reply being that the power to directly tax realty and personalty was not meant for use as an ordinary, everyday power; that the United States was expected to rely for its customary revenues upon duties, imposts, and excises, and that it was meant it should impose direct taxes only in extraordinary emergencies and as a sort of dernier resort.

It is submitted that a construction of the Constitution of such vital importance, in itself, and requiring in its support an imputation to its framers of a specific purpose which nothing in the text of the Constitution has any tendency to reveal, cannot be too carefully considered before being finally adopted.

Second. Though of minor consequence, it is certainly relevant to point out that, if the new exposition of the Constitution referred to is to prevail, the United States has, under previous income tax laws, collected vast sums of money which, on every principle of justice, it ought to refund, and which it must be assumed that Congress will deem itself bound to male provision for refunding by appropriate legislation.

Respectfully submitted.

RICHARD OLNEY

Attorney General

Thereupon, the following announcement was made, May 6, 1895.

THE CHIEF JUSTICE. In these cases, appellants made application for a rehearing as to those propositions upon which the court was equally divided, whereupon the Attorney General presented a suggestion that, if any rehearing were granted, it should embrace the whole case. Treating this suggestion as amounting, in itself, to an application for a rehearing, and not desiring to restrict the scope of the argument, we set down both applications to be heard today before a full bench, which the anticipated presence of our brother Jackson, happily realized, enabled us to do. No further argument will be desired. We were obliged, however, to limit the number of counsel to two on each side; but as to the time, we await the suggestions of counsel.

Five hours were then granted to each side in the argument of these cases, on motion of Mr. Joseph H. Choate for the appellants.