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Taxation By Apportionment



On July 14, 1798, the Fifth Congress, Session II, Chapter 77, laid the first direct tax on the United States of America in the amount of 2 million dollars. It was to be laid upon the United States of America and apportioned to the states respectively, as per the Constitution.


What they did was to take the 2 million dollars and divide it equally among the number of people in the United States of America at that time, based on the census. They figured out how many people were in each individual state.


Then each state was assigned their portion of the tax based on the population of that state. The tax was collected, through the Secretary of the Treasury, by collectors of the internal revenues. (Note: In this case 'internal revenues' applies only to the 50 states, since this is a direct tax on the 50 states of the Union) The states collected the tax by assessing the property of the state Citizens, according to the value of the property. Much the same way that property tax is assessed and collected today. This direct tax was just a national property tax laid upon the states according to their population. The states each paid their share proportionally according to their population. This is how a direct tax is legally and Constitutionally collected. It is directly on you or something you own (inalienable property rights).


But, doesn't everyone believe that the 16th amendment changed the income tax from an indirect excise tax to a direct tax? How can all the authorities be wrong? Most people think that the income tax is on ALL income you receive from whatever source. That is not correct! The confusion arises from the wrong interpretation of the 16th Amendment (1913). Let's look at it again. It says:

"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."

A tax on the income from an inalienable right, can only be taxed with a direct tax, and therefore this income would be taxed WITH apportionment.

The 16th Amendment only applies to a tax on corporate incomes not requiring apportionment! If a tax on your income requires apportionment, then it it not subject to the 16th Amendment tax.

Again, let's rely on the Supreme Court to straighten it out for us.


In 1920, the Supreme Court said:

Eisner vs Macomber 252 U.S. 189 at 205 (1920). "The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted."


But, before this, in 1916, there were two landmark Supreme Court cases that also helped to clear up the confusion. The first was:

Brushaber vs Union Pacific R.R. Co 240 U.S. 1 at 10-11 (1916).

It states "The various propositions are so intermingled as to cause it to be difficult to classify them. We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the Sixteenth Amendment provides for a hitherto unknown power of taxation, that is, a power to levy an income tax which although direct should not be the subject of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it, ..."

Let's continue with this Brushaber case at pg 11-12:

"But it clearly results that the propositions and the contentions under it, if acceded to, would cause one provision of the Constitution to destroy another, that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned. Moreover, the tax authorized by the Amendment, being direct, would not come under the rule of uniformity applicable under the Constitution to other than direct taxes , and thus it would come to pass, that the result of the Amendment would be to authorize a particular direct tax, not subject either to apportionment or to the rule of geographic uniformity, thus giving power to impose a different tax in one State or States, than was levied in another State or States. This result, instead of simplifying the situation, and making clear the limitation on the taxing power, which obviously the Amendment must have been intended to accomplish, would create radical and destructive changes in our constitutional system and multiply confusion."
The 16th Amendment, the Supreme Court says, was suppose to clarify the limitation on the taxing power. It apparently didn't, so the Supreme Court is. Mr. Brushaber was arguing that the income tax was a 'direct' tax, and therefore unconstitutional because not apportioned. The court was correcting his erroneous contentions. We continue with the court clarification in this Brushaber case: "The contention that the Amendment treats a tax on income as a direct tax, although it is relieved from apportionment, and is necessarily therefore, not subject to the rule of uniformity, as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is wholly without foundation..." Brushaber at page 18

There it is! The 16th Amendment left the income tax as an indirect excise tax and is to be enforced as such. It is a tax on corporate incomes not requiring the tax to be apportioned! On privileges! This is not my opinion, but a Supreme Court ruling. An important point to remember, is that the Supreme Court rulings must be followed by all lesser courts in this country. That is why I rely almost exclusively on Supreme Court decisions. They cannot be overruled by lower courts!


For further confirmation, let's looks at another Supreme Court decision. Stanton vs Baltic Mining Co. 240 US 103, at 112 (1916) "By the previous ruling, it was settled that the Sixteenth Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation, possessed by Congress, from the beginning, from being taken out of the category of indirect taxation, to which it inherently belonged..."

So the 16th Amendment did not confer any new power to Congress, but simply reestablished and clarified the fact that income taxes belong in the category of indirect taxes. The income tax was not a new tax, but was a power possessed by Congress from the beginning. It just had to be levied as an indirect excise tax. It is the "without apportionment" wording of the 16th Amendment that keeps the income tax in the class of indirect taxes. It is also these words that create the confusion. The income tax is only entitled to be enforced as an excise; (a tax on privileged taxable activities.)


Congress agrees with this: House Congressional Record 3-27-1943 page 2580

"The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax."

Nothing changed up to 1943. Since the tax is not on income, but on a corporate activity, just the fact that you receive income, does NOT necessarily make it taxable. It must be from a taxed activity or taxed privilege. And a tax must first be 'imposed' on that 'privileged activity'. This is what makes it an indirect tax. Then the amount of the tax is determined by the amount of income received in connection with that activity.


From a report by The Congressional Research Service. Report No. 84-168A, 784 / 725 titled "Some Constitutional Questions Regarding the Federal Income Tax Laws", dated May 25, 1979 and updated Sept. 26, 1984

"The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still the subject of the rule of uniformity. Rather, the Court found that the Sixteenth Amendment sought to restrain the Court from viewing an income tax as a direct tax because of its close effect on the underlying property." (pg 5)

The IRS and the courts purposely ignore these Supreme Court decisions and collect the tax as a direct tax without apportionment, because they need the money. That makes it OK, doesn't it? Because the IRS, and you, do not know the difference between a direct tax and an indirect tax, or know the legal definition of income, there has been much confusion on this difference. Also, if the IRS admits that they have been collecting income tax directly all these years, without apportionment, if would prove their fraud and their violation of the constitution. Remember, the income tax itself is not unconstitutional. But to collect it as a direct tax, from American citizens, without apportionment, is. So, is the IRS collecting tax illegally? No. It is collecting it legally because you have been tricked into giving up your inalienable rights for a privilege.
Corporations had a tax imposed on them with the Corporation Excise Tax of 1909. Do you think the IRS really didn't know the income tax was an excise tax? Supreme Court rulings have stated that the tax is not on the corporation itself, but on the privilege of doing business in a corporate capacity. Again, the tax is not on the corporate income (property), but on the corporate activity (privilege). That is why it is called an excise tax. Now, if a corporation sells property and receives income, in connection with a business, it is exercising a privilege granted by the government, and that privilege is taxable. If an American individual sold that same property, he would be exercising an inalienable right, not a privilege. Therefore, the sale of the property would only be taxable with a direct tax to the individual, but it would be taxable with a indirect tax to the corporation as a taxable privilege. The 16th Amendment was written for those engaged in privileges.

In the Supreme Court case of McCoach v. Minehill & Schuylkill Haven R.R. Co., 228 U.S. 295 (1912), the court ruled that if a corporation is engaged in a business AND has investments or rental property on the side, then the income from these investments IS taxable as corporate income. But, if the corporation has income ONLY from its own investments and is not engaged in business of any other type, then the income from the property investments is taxable only with a direct tax, with apportionment. The difference is that the corporation in not engaged in business, but is only managing its own property. The tax is on the corporate business activity, (a privilege) not on the corporation itself! This case was decided 2 months AFTER the ratification of the 16th Amendment, and 3 years after the Corporation Tax Act of 1909.
Peck & Co. v. Lowe 247 U.S. 165, 172 (1918) "The Sixteenth Amendment . . . does not extend the taxing power to new or excepted subjects, but merely removes all occasion, which might otherwise exist, for an apportionment among the states of taxes laid on income, whether it be derived from one source or another. Brushaber v. Union Pacific R.R. Co 240 US 1."

We must reject in this case, as we have rejected in cases arising under the Corporation Excise Tax Act of 1909 (cites omitted) the broad contention submitted in behalf of the government that all receipts - everything that comes in - are income within the proper definition of the term 'gross income', and that the entire proceeds of a conversion of capital assets, in whatever form and under whatever circumstances accomplished, should be treated as gross income. Certainly the term 'income' has no broader meaning in the 1913 act than in that of 1909 (see Stratton's Independence v. Howbert 231 U.S. 399, 416) and for the present purpose we assume there is no difference in its meaning as used in the two acts.

The Supreme Court ruled above that the definition of income, for the purposes of the 16th Amendment, was no different than the definition used in the Corporation Excise Tax Act of 1909, and that the 16th amendment did not extend the taxing power to new subjects (individuals). Therefore, "income" was legally defined as a corporate profit. A corporation is not taxed on its income, it is taxed on its profits. Therefore, however "income" is defined for corporations, it means the same thing for individuals. If a corporation has no "profit", then it pays no income tax, regardless of how much income it had.
Let me ask you this. If you contract to work for a corporation, and you exchanged 40 hours of your labor (private property) for $600 (corporate property), did you have a profit? The IRS says yes. Now, if the corporation exchanges $600 (property) for 40 hours of your labor (property), did the corporation have a profit? The IRS says no. Why is it that the government claims you had a $600 profit, while the corporation had a $600 deductible expense? Didn't you both just trade one property for another in an even exchange? If I trade you a $50 phone for a $50 electric saw, how much profit did I have? $50? The IRS says yes.

The following Supreme Court case ruled that the income tax is imposed on the conduct of the business of corporations organized for profit.


Stratton's Independence v. Howbert 231 U.S. 399 (1913) "As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law. This court has decided in the Pollock Case that the income tax of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population, as prescribed by the Constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity. Evidently Congress adopted the income as the measure of the tax to be imposed with the respect to the doing of business in corporate form because it desired that the excise should be imposed.
The 16th amendment only clarified one issue. That issue was; is corporate income, received from property, taxable with an excise tax, or can it only be taxed with a direct tax with apportionment?

Property income, received by a corporation, before the 16th amendment, was only taxable with a direct tax with apportionment, because of the constitutional restriction of direct taxes on property. The 16th amendment clarified that, after the 16th amendment, corporate property "income" could now be taxed with an excise, because it was received in connection with corporate excise activities and was therefore received under privilege and not under the inalienable right of property. This same principle does NOT apply to individuals with property income. Individuals are not exercising any corporate privileges, but are instead exercising inalienable rights of property.

Doyle v. Mitchell Bros. Co. 247 U.S. 179 (1918) This case concerns the Corporation Excise Tax Act of August 5, 1909. The court stated: An examination of these and other provisions of the act makes it plain that the legislative purpose was not to tax property as such, or the mere conversion of property (into cash), but to tax the conduct of the business of corporations organized for profit by a measure of the gainful returns from their business operations and property from the time the act took effect. As was pointed out in Flint v. Stone Tracy the tax was imposed 'not upon the franchises of the corporation irrespective of their use in business, nor upon the property of the corporation, but upon the doing of corporate or insurance business and with respect to the carrying on thereof'; an exposition that has been consistently adhered to.


In 1909 President Taft, in the Congressional Record - SENATE JUNE 16, 1909, PAGES 3344-3345, also understood that the income tax was declared to be an excise tax. He said:


"The decision of the Supreme Court in the case of Spreckels Sugar Refining Company against McClain (192 U. S., 397), seems clearly to establish the principle that such a tax as this is an excise tax upon privilege and not a direct tax on property, and is within the federal power without apportionment according to population."

The Supreme Court and President Taft both established that the 1909 corporate income tax is a corporate excise tax on gains and profits. Therefore the 16th amendment is entirely legal and correct, when properly applied to corporate excise taxes, since the taxing powers were not expanded to new subjects (individuals) by the 16th amendment. Therefore, it is not income that is taxable, but corporate profit. This WOULD include real and personal property income, IF it was connected with a corporate activity.


Bowers v. Kerbaugh-Empire Co. 271 U.S. 170 (1926) This was a case concerning a corporation. It was not the purpose or effect of that amendment (16th) to bring any new subject within the taxing power. Congress already had power to tax all incomes. But taxes on incomes from some sources (corporate property) had been held to be 'direct taxes' within the meaning of the constitutional requirement as to apportionment. 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 income 'from whatever source derived.' 'Income' has been taken to mean the same thing as used in the Corporation Excise Tax Act of 1909, in the Sixteenth Amendment, and in the various revenue acts subsequently passed.

In determining what constitutes income, substance rather than form is to be given controlling weight.


The above Supreme Court case clearly states that the whole purpose of the 16th amendment was to make income (profit), from corporate property, taxable with the corporate income tax. Before the 16th amendment, a corporation's property income could only be taxed with a direct tax with apportionment. After the 16th amendment, a corporation's property income could now be taxed with an indirect excise tax, as long as that property income was connected to corporate activities. Simply put, when figuring corporate profit, it does not make any difference what the source of that profit was. An individual's property income (from rents or labor), when not connected to corporate activities still cannot be taxed directly without apportionment. To apply the same principle to a private individual would be to violate his inalienable right of property and to tax that right as an excise privilege. I do not believe that the purpose of the 16th Amendment was to abolish my inalienable rights of property, secured by the Colorado Constitution, Art II Sect. 3. Private property could still be taxed federally, but only through a direct tax on the states with apportionment.

Category: Articles | Added by: JennaRose (04.25.2012)
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