CHAPTER VI TAXATION. SECTION 61. POWERS OF TAXATION GRANTED TO CONGRESS. The general power of taxation is given to Congress by the Constitution of the United States, in the following words: "The Congress shall have power to lay and collect taxes, duties, imposts and excises; to pay the debts and provide for the common defense and general welfare of the United States." The territorial extent of the power of Congress to lay and collect taxes is co-extensive with the territorial limits of the United States.1 Under this clause Congress has power to levy a direct tax in the district of Columbia.2 Duties and imposts, as used in this clause, are synonymous terms and mean a tax levied on goods imported from a foreign country. An excise is an inland tax on products and commodities, upon production or consumption. A tax upon the manufacture of distilled spirits is an excise and its levy is not unconstitutional.5 The power of taxation granted to the United States, is not exclusive; the power to tax still remains with the States subject to the restrictions contained in the Constitution, including the implied restriction ' Lougborough vs. Blake, 5 Whea • Id. ton, 317. Hylton vs. United States, 3 Dallas, 171; United States vs. Tappan, 11 Wheaton, 419. License Cases, 5 Wallace, 562. United States vs. Singer, 15 Wheaton, 111. not to lay any tax which will in any way interfere with the operation of the Federal Government." SECTION 62. RESTRICTIONS ON THESE POWERS. The Constitution places three restrictions on the general power of taxation granted to the United States Government which are as follows: "But all duties, imposts and excises shall be uniform throughout the United States."'" "No capitation, or other direct tax shall be laid unless in proportion to the census or enumeration hereinbefore directed to be taken."'8 "No tax or duty shall be laid on articles exported from any State." The general division of taxes is into direct and indirect; all taxes falling under one of these two heads. The Constitution grants to Congress power to lay and collect both direct and indirect taxes. A restriction, however, is placed upon the method of levying both of these classes of taxes; all indirect taxes must be uniform; and all direct taxes must be apportioned. The prohibition against export duties was inserted into the Constitution as a part of the third great compromise in the Constitutional Convention and was a concession to the South. This prohibition of any duties on exports is absolute; but the proper fees accruing in the due administration of the laws and regulations, necessary to be observed, to protect the government from imposition and fraud, likely to be • Van Allen vs. Assessors, 3 Wal lace, 585; Bradley vs. People, 4 Wallace, 462; McCulloch vs. Maryland, 4 Wheaton, 316; Osborn vs. Bank of the United States, 9 Wheaton, 738; Weston vs. City of Charleston, 2 Peters, 449; Dobbins vs. Com missioners of Erie County, 16 Peters, 435. United States Constitution, Article I, Section 8, Clause 1. United States Constitution, Article I, Section 9, Clause 4. • United States Constitution, Article I, Section 9, Clause 5 committed under pretense of exportation, are in no sense a duty of exportation; nor is the charge for stamps required to be placed on packages of manufactured tobacco, intended for exportation, a duty of exports within the meaning of this prohibition.10 SECTION 63. DIRECT AND INDIRECT TAXES. The question as to the proper distinction to be observed in determining whether a tax is a direct or indirect one, has proved one of the most difficult questions which the Supreme Court has ever been called upon to decide. Few clauses in the United States Constitution have been the cause of so much discussion and the subject of so many decisions, by the Supreme Court, as has the fourth clause in the ninth section of the first article which reads as follows: "No capitation or other direct tax shall be laid unless in proportion to the census or enumeration hereinbefore directed to be taken." The first of the long series of important decisions on the construction of this clause, Hylton vs. The United States," was decided in 1795. The question before the Court on this occasion was whether the law of Congress of the fifth of June, 1794,12 entitled, "An Act to lay duties upon carriages for the conveyance of persons,' was unconstitutional and void. On behalf of the appellant, Hylton, it was urged that the tax on carriages was a direct tax and should therefore be apportioned among the several states according to the census taken for the apportionment of Congressmen; as the law in question was not laid in accordance with this rule of apportionment prescribed in the case of direct taxes, 10 Pace vs. Burgess, 92 U. S., 372; Turbin vs. Burgess, 117 U. S.. Vol. II-8 11 3 Dallas, 171. 12 U. S. Stat. at Large, §373. but in accordance with the rule of uniformity laid down by the Constitution for duties, imposts and excises it was contended that it was thus rendered void and unconstitutional. Alexander Hamilton appeared among the lawyers for the government. The Supreme Court upheld the Constitutionality of the law; their decision, rendered by Judge Chase, being in part as follows: "The Constitution evidently contemplated no taxes as direct taxes, but only such as Congress could lay in proportion to the census. The rule of apportionment is only to be adopted in such cases where it can reasonably apply; and the subject taxed must ever determine the application of the rule." "All taxes on expense or consumption are indirect taxes. A tax on carriages is of this kind, and of course is not a direct tax. Indirect taxes are circuitous modes of reaching the revenues of direct individuals who generally live according to their income. In many cases of this nature the individual may be said to tax himself. I shall close this discourse with reading a passage or two from Smith's Wealth of Nations. "The impossibility of taxing people in proportion to their revenue by any capitation, seems to have given occasion to the invention of taxes upon consumable commodities; the State not knowing how to tax directly and proportionably the revenue of its subjects endeavors to tax it indirectly by taxing their expense, which it is supposed in most cases will be nearly in proportion to their revenue. Their expense is taxed by taxing the consumable commodities upon which it is laid out. Vol. III, p. 331. "Consumable commodities, whether necessaries or luxuries, may be taxed in two different ways; the consumer may either pay an annual sum on account of his using or consuming goods of a certain kind, or the goods may be taxed while they remain in the hands of the dealer and before they are delivered to the consumer. The consumable goods, which last a considerable time before they are consumed altogether, are most properly taxed in the one way; those of which the consumption is immediate, or more speedy, in the other; the coach tax and plate tax are examples of the former method of imposing, the greater part of the other duties of excise and customs, of the latter.'"' Vol. III., p. 341. "I am, therefore of the opinion that the judgment rendered in the Circuit Court of Virginia ought to be affirmed." A number of cases involving this question arose out of the taxation of the Civil War period. In the first of this series of cases, Pacific Insurance Company vs. Soule,13 a tax on the income of Insurance Companies was held to be an indirect tax. 13 This same clause was one of the points in issue in the case which settled the right of the United States to tax the notes issued by States Banks, Veazie Bank vs. Fenno." The decision of the Court, as far as it was concerned with the construction of this clause was merely an affirmance of the principles laid down in Hylton vs. The United States. In Scholey vs. Rew," a succession tax was held not to be a direct tax, and to be constitutional although not apportioned among the States. The last point in relation to this clause, which has engaged the attention of our Courts has been the question as to whether an income tax was constitutional when made uniform throughout the United States. 1 7 Wallace, 433. 8 Wallace, 533. 123 Wallace, 331. |