Bromley v. McCaughn

Mr: Justice Stone

delivered the opinion of the Court.

In this case, pending in the Court of Appeals for the Third Circuit, that court has certified to this questions of law concerning which it asks instructions for the proper disposition of the cause. Judicial Code, § 239, as amended by Act of February 13, 1925.

Bromley, a resident of the United States, brought the present suit in the District Court for Eastern Pennsylvania, to recover a tax alleged to have been illegally exacted, upon gifts made by him after the effective date of § 319 of the Revenue Act of 1924 (43 Stat. 253, 313, as amended by § 324 (a) of the Revenue Act of 1926, 44 Stat. 9, 86). This section-imposes a graduated tax “ upon the transfer by a resident by gift ” during the calendar year “ of any property wherever situated . . In computing the amount of the gift subject to the tax, § 321, in the case of a resident, exempts gifts aggregating $50,000, gifts to any one person which do not exceed $500, and certain gifts for religious, charitable, educational, scientific and like purposes. The questions certified are:

1. Are the provisions of Sections 319-324 of the Revenue Act of 1924, as amended by Section 324 of the Revenue Act of 1926, when applied to transfers of property by gift inter vivos, made after the effective dates of the cited Revenue Acts and not made in contemplation of death,- invalid, because they violate (a) the third clause of Section 2 and (b) the fourth clause of Section 9 of Article 1 of the Constitution in that the tax they impose is a direct tax and has not been apportioned?

2. Are the cited provisions, when applied to transfer's of property made in like circumstances, invalid because they violate (a) the Fifth Amendment to the Constitution and (b) the first clause of Section 8 of Article 1. of the Constitution in that they impose a tax which is graduated and subject to exemptions and therefore lacks uniformity, and also deprive a person of his property without due process of law?

1. The first question was mooted by counsel, but not decided, in Blodgett v. Holden, 275 U. S. 142, and Untermyer v. Anderson, 276 U. S. 440. The general power to “lay and collect taxes, duties, imposts and excises’’'conferred by Article I, § 8 of the Constitution, and required by that section to be uniform throughout the United States, is limited by § 2 of the same article, which requires “ direct ” taxes to be apportioned, and § 9, which provides that “ no capitation or other direct tax shall be laid unless in proportion to the census ” directed by the Constitution to be taken. As the present tax is not apportioned, it is forbidden if direct.

The meaning of the phrase “ direct taxes ” and the historical background of the constitutional requirement for their apportionment have been so often and exhaustively considered by this Court, Hylton v. United States, 3 Dall. 171; Pollock v. Farmers Loan & Trust Company, 157 U. S. 429, 158 U. S. 601; Knowlton v. Moore, 178 U. S. 41; Nicol v. Ames, 173 U. S. 509, 515, that no useful purpose would be served by renewing the discussion here. Whatever may be .the precise line which sets off direct taxes, from others, we need not now determine. While taxes levied upon or collected from persons because of their general ownership of property may be taken-to be direct, Pollock v. Farmers Loan & Trust Company, 157 U. S. 429, 158 U. S. 601, this Court has consistently held, almost from the foundation of the government, that a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned, and it is enough for present purposes that this tax is of the latter class. Hylton v; United States, supra, cf. Veazie Bank v. Fenno, 8 Wall. 533; Thomas v. United States, 192 U. S. 363, 370; Billings v. United States, 232 U. S. 261; Nicol v. Ames, supra; Patton v. Brady, 184 U. S. 608; McCray v. United States, 195 U. S. 27; Scholey v. Rew, 23 Wall. 331; Knowlton v. Moore, supra; see also Flint v. Stone Tracy Co., 220 U. S. 107; Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397; Stratton’s Independence v. Howbert, 231 U. S. 399; Doyle v. Mitchell Brothers Co., 247 U. S. 179, 183; Stanton v. Baltic Mining Co., 240 U. S. 103, 114.

It is a tax laid only upon the exercise of a single one of those powers incident to ownership, the power to give the property owned to another. Under this statute all the other rights and powers which collectively constitute property or ownership may be fully enjoyed free of the tax. So far as the constitutional power to tax is concerned, it would be difficult to state any intelligible distinction, founded either in reason or upon practical considerations of weight, between a tax upon the exercise of the power to give property inter vivos and the disposition .of it by legacy, upheld in Knowlton v. Moore, supra, the succession,tax in Scholey v. Rew, supra, the tax upon the manufacture and sale of colored oleomargarine in McCray v. United States, supra, the tax upon sales of grain upon an exchange in Nicol v. Ames, supra, the tax upon sales of shares of stock in Thomas v. United States, supra, the tax upon the use of foreign built yachts in Billings v. United States, supra, the tax upon the use of carriages in Hylton v. United States, supra; compare Veazie Bank v. Fenno, supra, 545, Thomas v. United States, supra, 370.

It is true that in each of these cases the tax was imposed upon the exercise of one of the numerous rights of property, but each is clearly distinguishable from a tax which falls upon the owner merely because he is owner, regardless of the use or disposition made of his property. See Billings v. United States, supra; cf. Pierce v. United States, 232 U. S. 290. The persistence of this distinction and the justification for it rest upon the historic fact that taxes of this type were not understood to be direct taxes when the Constitution was adopted and, as well, upon the reluctance of this Court to enlarge by construction, limitations upon the sovereign power of '.taxation by Article I, § 8, so vital to the maintenance of the National Government. Nicol v. Ames, supra, 514, 515.

It is said that since property is the sum of all the rights and powers incident to ownership, if an unapportioned tax on the exercise of any of them is upheld, the distinction between direct and other classes of taxes may be wiped out, since the property itself may likewise be taxed by -resort to the expedient of levying numerous taxes upon its uses; that one of the uses of property is to keep it, and that a tax upon the possession or keeping of property is no different from a tax on the property itself. Even if we assume that a tax levied upon all the uses to which property may be put, or upon the exercise of a single power indispensable to the enjoyment of all others over it, would be in effect a tax upon property, see Dawson v. Kentucky Distilleries & Warehouse Co., 255 U. S. 288, and hence a direct tax requiring apportionment, that is not the case before us.

The power to give cannot be said to be a more important incident of property than the power to use, the exercise of which was taxed in Billings v. United States, and even though differences in degree may be carried to a point where they produce distinctions in kind, the present levy falls so far short of taxing generally the uses of property that it cannot be likened to the taxes on property itself which have been recognized as direct. It falls, rather, into that category of imposts or excises which, since they apply only to a limited exercise of property rights, have been deemed to be indirect and so valid although not apportioned.

2. The uniformity of taxation throughout the United States enjoined by Article I, § 8, is geographic, not intrinsic. A graduated tax, on legacies, granting exemptions, Knowlton v. Moore, supra, or on incomes, Brushaber v. Union Pacific R. Co., 240 U. S. 1, does not violate this clause of the Constitution, nor are such taxes infringements on the Fifth Amendment. Knowlton v. Moore, supra, p. 109; Brushaber v. Union Pacific R. Co., supra, pp. 24, 25. Graduated taxes on inheritances or successions, with provisions for exemptions, have so often been upheld as not violating either the due process or the equal protection clauses of the Fourteenth Amendment, Stebbins v. Riley, 268 U. S. 137, as to leave little ground for supposing that taxation by Congress embracing these features, and otherwise valid, could be deemed a denial of the due process clause of the Fifth. See Van Oster v. Kansas, 272 U. S. 465, 468.

It is suggested that the schemes of graduation and exemption in the present, statute, by which the tax levied upon donors of the same total amounts may be affected by the size of the gifts to individual donees, are so arbitrary and unreasonable as to deprive the taxpayer of property without due process. But similar features of state death taxes have been held not to infringe the Fourteenth Amendment since they bear such a relation to the subject of the tax as not “to preclude the assumption- that the legislature, in enacting the statute, did not act arbitrarily or without the exercise of judgment and discretion which rightfully belong to it.” Stebbins v. Riley, supra, p. 145. No more ean they be a basis for holding that the graduation and exemption features of the present statute violate the Fifth Amendment.

The answer to both questions is, No.

Opinion of