Citations 220 U.S. 107 (more) | End date 1911 | |
Full case name Stella P. Flint, as General Guardian of the Property of Samuel N. Stone, Junior, a Minor, Appt.
v.
Stone Tracy Company, et al. Majority Day, joined by White, McKenna, Holmes, Lurton, Hughes, Lamar. Dissent Harlan, joined by Van Devanter Ruling court Supreme Court of the United States Similar Brushaber v Union Pacific R, Pollock v Farmers' Loan & Tr, Eisner v Macomber, Hylton v United States, Cooley v Board of Wardens | ||
Flint v. Stone Tracy Co. 220 U.S. 107 (1911) was a United States Supreme Court case in which a taxpayer challenged the validity of a federal income tax on corporations. The privilege of incorporation is a state function and the challengers argued that the states should exclusively tax corporations. The court ruled that the privilege of operating in corporate form is valuable and justifies imposition of a federal income tax:
Contents
Background
President William Howard Taft proposed a constitutional amendment to allow federal income taxes on individuals and an excise tax "upon the privilege of doing business as an artificial entity and of freedom from a general partnership liability enjoyed by those who own the stock" on June 16, 1909. The Sixteenth Amendment to the United States Constitution, which permitted federal income taxation without apportionment, was enacted in 1913; and the Corporation Excise Tax Act, sometimes known as the Corporation Tax Act, was enacted on August 5, 1909 and taxed corporation income at 1%, with the first $5000 exempt.
Dictionaries often cite the case for the definition of excise tax in the United States:
Excises are 'taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.' Cooley, Const. Lim. 7th ed. 680.
The tax under consideration, as we have construed the statute, may be described as an excise upon the particular privilege of doing business in a corporate capacity, i. e., with the advantages which arise from corporate or quasi corporate organization; or, when applied to insurance companies, for doing the business of such companies. As was said in the Thomas Case, 192 U. S. supra, the requirement to pay such taxes involves the exercise of privileges, and the element of absolute and unavoidable demand is lacking. If business is not done in the manner described in the statute, no tax is payable.
Constitutionality arguments
The New International Yearbook reported:
According to the Tax History Project, "the tax was challenged on the theory that it was a direct tax that had not been apportioned among the states by population." The U.S. Constitution provides (in part):
The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises...but all Duties, Imposts and Excises shall be uniform throughout the United States.... Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers.... No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken.The power to impose taxes, whether direct or indirect, is granted by Article I, section 8, clause 1. Indirect taxes (or "duties, imposts and excises," sometimes called simply "excises") are required to be geographically uniform, according to Article I, section 8, clause 1.
Another issue raised in the case was whether section 38 of the tax Act in question was unconstitutional because it originated in the Senate in violation of the Origination Clause, section 7 of article 1 of the Constitution, providing that "all bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with the amendments, as on other bills."
The Court rejected that argument, upholding the statute and ruling that the bill had indeed originated in the House of Representatives:
Criticism of the decision
Henry Campbell Black stated:
Similar controversies in the Supreme Court
In Quaker City Cab. v. Pennsylvania, the U.S. Supreme Court held that the state of Pennsylvania could not discriminate between corporations and individuals and partnerships in imposing taxes on gross receipts of operators of taxicabs:
The vote was 6-3, and the dissent by Louis Brandeis cited the Flint v. Stone Tracy Co. corporation tax case:
The court 45 years later explicitly reversed the Quaker City Cab decision in upholding an Illinois property tax higher on corporations than individuals, and quoted the dissenting opinion of Holmes in the taxicab case and the Flint v. Stone Tracy Co. case.