[G. L. c. 62 of that was assessed in the towns whose tax rates were lowest. On the other hand it was contended, not without justice, by men whose savings were invested in bonds and notes or in the stocks of foreign corporations, that the state had no moral right to tax such property at its full capital value; that a bond is a debt, and, when a sum of money is borrowed, to tax the borrower for the money and the lender for the debt is to assume that the aggregate wealth of the world is increased by every loan that is made, which is a palpable absurdity; and that a share of stock in a corporation is merely a convenient means of representing a fractional interest in the property of the corporation, and as the property of a corporation is taxed as such where it is located and enjoys the protection of the government, to tax the property of the corporation as a whole and the fractional interests of its different owners as well is the most flagrant kind of double taxation. The justice of such contentions was recognized by our laws in the case of the stock of domestic corporations and in the case of domestic mortgages and mortgage bonds, but not the slightest mitigation was offered in the case of other classes of bonds or notes or of stock of foreign corporations. Furthermore the tax on such property, being based on the value of the principal and not on the income, might well amount to half the annual return from the property, a burden too severe to be borne, and finally as almost everyone avoided payment of the tax on such property, a man who disclosed his ownership to the assessors had to bear a disproportionate burden of taxation. As a result of these considerations, persons of the most scrupulous honesty in regard to private transactions did not hesitate to avoid taxation on this class of personal property in every possible manner, and it was rarely subjected to assessment except at the very time when the tax bore most heavily; namely when it was exposed to the view of the assessors by the death of the owner and the necessary publicity of the probate court; and then, when as by the establishment of a trust it was likely to be so exposed for more than a year, no time was lost in converting it into non-taxable securities.

The difficulties attending the taxation of this class of property first began to be seriously felt in the middle of the last century, and more and more drastic statutes were enacted to compel each taxable inhabitant to disclose his holdings to the

G. L. c. 62]

assessors but without avail. In more recent years the vigorous and well directed efforts of the tax commissioner and his assistants to uncover and expose this class of property and to subject it to taxation did in many instances oblige the holders of the property of deceased persons, some of whom had left estates of great value, to submit for a year or two to the burden which the letter of the law imposed, but, as far as any general improvement in the taxation of intangible property was concerned, their efforts did not have the success hoped for, and chiefly resulted in greater and greater concentration of wealth in towns in which the tax rate was low, often by virtue of purely colorable claims of domicile, and finally began to drive capital out of the commonwealth to states where milder systems of taxation prevailed.

The experience of Massachusetts was the experience of every other state which had attempted to enforce a general uniform property tax so as to include intangible personal property; and by the beginning of this century it was coming to be generally understood that such attempts were futile and defeated their own ends. Many states had adopted systems for the taxation of intangible property by which all such property was taxed at a fixed uniform rate, the rate being much less than the local rate for the taxation of real estate and tangible personal property. Such a system was suggested for Massachusetts in 1908, but was held unconstitutional as a violation of the requirement of proportionality in taxation.3 Other states had a registration tax, by which intangible securities were exempted from direct taxation upon payment of a registration fee, but this also was held a violation of the state constitution.* It was sought to sustain a tax on the income of intangible property as an excise, but this failed to win the approval of the court; and an attempt to justify on historical grounds a tax on the capital value of intangibles measured by the multiplication of its annual return by an arbitrary figure met with equally ill success. Finally, in 1915, after years of effort, a remedy was made available by the adoption of the Fortyfourth Amendment to the state constitution, authorizing the

5

* Opinion of the Justices, 195 Mass. 607 (1908).

4 Opinion of the Justices, 220 Mass. 613, 625 (1915); Perkins v. Westwood, 226 Mass. 268 (1917).

Opinion of the Justices, 220 Mass. 613, 623 (1915).

Opinion of the Justices, 220 Mass. 613, 619 (1915).

[G. L. c. 62 levy of a tax on incomes, and in the following year the income tax law was enacted; but, in view of the foregoing statement of the struggle which led to its enactment, it will be readily understood that it was not, like the federal income tax which was first enacted in 1913, a means for providing additional revenue and aimed primarily at the wealthier classes, but was intended to enable the state to impose a tax on intangible securities which was capable of enforcement with some degree of equality and without driving capital out of the state. So far as it applied to income from property it affected only the classes of intangible property which were previously taxable on their capital value at the local rate, and as to such property it reduced the tax from a variable local rate, which amounted frequently to from 30 to 50 per cent of the income, to a fixed rate of 6 per cent, but provided means for the strict and impartial enforcement of the tax. To other classes of intangible property, whether reached for taxation by a franchise tax, such as stocks in Massachusetts corporations or deposits in savings banks, or wholly exempted, such as mortgages and mortgage bonds and state and municipal bonds, the income tax had no application; and similarly with the income from real estate and from intangible personal property it had no concern.

In the few years that have elapsed since the income tax law was enacted, the conditions which previously prevailed have been largely forgotten, and the income tax is looked upon by many merely as one of the numerous pests with which those who live in the present times are afflicted; but if the taxpayers would but consider the evils which the enactment of the income tax law remedied, the income tax would be held in higher esteem, and would, it is believed, be better understood."

Limitations upon the Taxation of Incomes

The Forty-fourth Amendment to the constitution of this Those who have forgotten conditions as they existed in Massachusetts prior to the enactment of the income tax act should study the present situation in Maine, New Hampshire and Vermont, and in many of the states of the middle west, in which the constitution requires uniformity in taxation. In most of these states, after various futile attempts to assess intangible property at the same rate as real estate, this class of property is allowed to escape taxation altogether except when in the hands of those who are too honest to conceal it or too unsophisticated to know how to do so, or when it is exposed to the assessors through its appearance in the probate courts.

G. L. c. 62]

commonwealth, approved and ratified by the people in November, 1915, is phrased in the following language:

"Full power and authority are hereby given and granted to the General Court to impose and levy a tax on income in the manner hereinafter provided. Such tax may be at different rates upon income derived from different classes of property, but shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property. The general court may tax income not derived from property at a lower rate than income derived from property, and may grant reasonable exemptions and abatements. Any class of property the income from which is taxed under the provisions of this article may be exempted from the imposition and levying of proportional and reasonable assessments, rates and taxes as at present authorized by the constitution. This article shall not be construed to limit the power of the general court to impose and levy reasonable duties and excises."

Although the income tax law now in force is limited in its application to certain classes of income only, and the real purpose of the Forty-fourth Amendment was to authorize the taxation of the classes of income which are taxed by the present law, the amendment itself is not so limited, but authorizes the taxa- . tion of income of every class and description which the legislature may at any time see fit to tax.

There are, however, certain limitations upon the taxation of incomes under the amendment. In the first place, there is the limitation imposed by the amendment itself, that the tax shall be levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property, which prohibits a graded income tax such as is imposed by the federal law, and also prohibits income taxes in force in certain cities and towns only, or imposed at different rates in different cities and towns. Then again, the adoption of the amendment did not in any way affect the limitations of the federal constitution, or give the state any greater powers with respect to income taxes than it already had with respect to property taxes; and the state cannot tax the income of federal office holders, or interest on United States

'Biscoe v. Tax Commissioner, 236 Mass. 201 (1920) and see also supra, Part I, §28.

[G. L. c. 62 bonds," or discriminate in its income taxes against non-residents3

4

or against interstate commerce, or impose income taxes in such an arbitrary and unreasonable manner as to deprive persons of their property without due process of law.5

Clearly the legislature cannot tax that as income which is not income. The requirement of proportionality in taxation has not been repealed except so far as to allow the taxation of income, and a direct tax which is not proportional to the tax on property generally cannot be sustained as an income tax unless it is in truth a tax on income. But the word "income" in the Fortyfourth Amendment was employed to express a comprehensive idea, and must be interpreted as including any item which by any reasonable understanding can fairly be regarded as income. Income may be derived from capital invested or in use, from labor, from the exercise of skill, ingenuity or sound judgment, or from a combination of any or all of these factors. It includes gain, profit or revenue of every description."

The distinction drawn between capital and income for the purposes of administering trust estates is not necessarily to be followed in determining what is income for purposes of taxation. "Income," like most other words, has different meanings dependent upon the connection in which it is used and the result intended to be accomplished.' But the construction put upon the Sixteenth Amendment to the federal constitution by Congress and the federal taxing authorities prior to the adoption of the Forty-fourth Amendment in this commonwealth is important as bearing upon what was understood by the word "income" in the latter amendment, for the federal income tax law of 1913 may be presumed to have been more or less familiar to the members of the general court and to the people during the discussion

2Supra, Part I, §27.

3 Travis v. Yale & Towne Mfg. Co., 252 U. S. 60 (1920) and see also supra, Part I, §17.

Supra, Part I, §§ 20-25 inc. A state may, however, tax income derived from interstate commerce at the same rate as other income. United States Glue Co. v. Oak Creek, 247 U. S. 321 (1918); Shaffer v. Carter, 252 U. S. 37, 57 (1920); Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113 (1920); H. P. Hood & Sons v. Commonwealth, 235 Mass. 572 (1920).

Supra, Part I, §32. Income received from property which was not within the jurisdiction of the commonwealth when it produced the income cannot be taxed. Hart v. Tax Commissioner, Mass. (1921).

Tax Commissioner v. Putnam, 227 Mass. 522 (1917).

Tax Commissioner v. Putnam, 227 Mass. 522, 533 (1917).