Opinion — Bromley v. McCaughn

SUPREME COURT OF THE UNITED STATES.

No. 27.—Ocrtoser Term, 1929.

Joseph H. Bromley,

vs.

Blakely D. McCaughn, Collector of In-

ternal Revenue for the First Dis-

trict of Pennsylvania.

[November 25, 1929.]

Mr. Justice Stone delivered the opinion of the Court.

In this case, pending in the Court of Appeals for the Third Cir-

cuit, 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(a) of the Revenue Act of 1924 (43

Stat. 253, 313, as amended by § 324(a) of the Revenue Act of

1926, 44 Stat. 9,26). 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, ex-

empts gifts aggregating $50,000, gifts to any one person which do

not exceed $500, and certain gifts for religious, charitable, educa-

tional, 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 transfers of prop-

erty 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 with-

out due process of law?

On Certificate from the

United States Circuit

Court of Appeals for

the Third Circuit.

2 Bromley vs. McCaughn.

1. The first question was mooted by counsel, but not decided in

Blodgett v. Holden, 275 U. 8. 142, and Untermyer v. Anderson,

276 U. 8. 440. The general power to ‘‘lay and collect taxes, duties,

imposts and excises’ conferred by Article I, § 8 of the Constitu-

tion, 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 pres-

ent 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 apportion-

ment 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 pur-

pose 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 col-

lected from persons because of their general ownership of prop-

erty may be taken to be direct, Pollock v. Farmers Loan & Trust

Company, 157 U. 8. 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 pur-

poses that this tax is of the latter class. Hylton v. United States,

supra, ef. Veazie Bank v. Fenno, 8 Wall. 533; Thomas v. Untied

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. 8. 107; Spreckels Sugar Refining Co. v. McClain, 192 U. 8. 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

ee

Bromley vs. McCaughn. 3

be fully enjoyed free of the tax. So far as the constitutional

power to tax is concerned, it would be difficult to state any in-

telligible 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; ef.

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 re-

luctance 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 prop-

erty 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 Distilling & Warehouse Co.,

255 U. S. 288, and hence a direct tax requiring apportionment,

that is not the case before us.

ecg

a Bromley vs. McCaughn.

The power to give cannot be said to be a more important in-

cident of property than the power to use, the exercise of which

was taxed in Billings v. United States, and even though differ-

ences 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 ap-

portioned.

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. R., 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. R., 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 in-

dividual donees, are so arbitrary and unreasonable as to deprive

the taxpayer of property without due process. But similar fea-

tures of state death taxes have been held not to infringe the Four-

teenth 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 can 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.

_ <a

SUPREME COURT OF THE UNITED STATES.

No. 27.—Octosrr TERM, 1929.

Joseph H. Bromley,

VS.

Blakely D. McCaughn, Collector of In-

ternal Revenue for the First Dis-

trict of Pennsylvania.

On Certificate from the

United States Circuit

Court of Appeals for

the Third Circuit.

[November 25, 1929. ]

Mr. Justice SUTHERLAND, dissenting.

In the convention which framed the Constitution, Mr. King on

one occasion asked what was the precise meaning of ‘‘direct taxa-

tion,’’ and Mr. Madison informs us that no one answered. That

Mr. Madison took the pains to record the incident indicates that

it challenged attention but that no one was able to formulate a

definition. And though we understand generally what is a direct

tax and what taxes have been declared to be direct, we are still as

incapable of formulating an exact definition as were those who

wrote the taxation clauses into the Constitution. Since the Pol-

lock ease, however, we know that a tax on property, whether real or

personal, or upon the income derived therefrom, is direct; and

that to levy a tax by reason of ownership of property is to tax the

property. Dawson v. Kentucky Distilleries Co., 255 U. 8. 288, 294.

The right to give away one’s property is as fundamental as the

right to sell it or, indeed, to possess it. To give away property is

not to exercise a separate element or incident of ownership, like the

use of a carriage, but completely to sever the donor’s relation to

the property and leave in him no element or incident of owner-

ship whatsoever. Reasonably it cannot be doubted that the power

to dispose of property according to the will of the owner is a prop-

erty right. If a tax upon the sale of property, irrespective of

special circumstances, is a direct tax, it is clear that a tax upon the

gift of property, irrespective of special circumstances, is, likewise,

direct. In my opinion, both are direct because they are in sub-

2 Bromley vs. McCaughn.

stance and effect not excise taxes but taxes upon property. By

repeated decisions of this Court it has become axiomatic that it is

the substance and not the form that controls in such matters.

Brown v. Maryland, 12 Wh. 419, involved the validity of a state

statute which exacted a license fee of $50 of importers of foreign

goods and other persons selling the same by wholesale, bale or pack-

age, etc. The act was held void as imposing a duty on imports. It

was argued that the tax was not upon the article but upon the per-

son; that the state had the power to tax occupations, and this was

nothing more. To this Chief Justice Marshall replied (p. 444) in

words that have been repeatedly approved in subsequent decisions

of this Court:

‘*Tt is impossible to conceal from ourselves, that this is varying

the form, without varying the substance. It is treating a prohibi-

tion which is general, as if it were confined to a particular mode

of doing the forbidden thing. All must perceive, that a tax on

the sale of an article, imported only for sale, is a tax on the article

itself.’’

In Cook v. Pennsylvania, 97 U. S. 566, it was held that a tax on

the amount of sales made by an auctioneer was a tax upon the

goods sold, and where these goods were imported in the original

package and sold for the importer the law authorizing the tax was

void.

Nicol v. Ames. 173 U. 8. 509, is not to the contrary of these cases,

but in complete accord with them. There it was held that a tax

levied upon a sale of property effected at a board of trade or ex-

change was an excise laid upon the privilege, opportunity or fa-

cility afforded by boards of trade or exchanges for the transac-

tion of the business and not upon the property or the sale thereof,

which, it was conceded, would be a direct tax and void without

apportionment. Brief quotations from the opinion will make the

distinction clear. Referring to the cases which had been cited

against the tax, including Brown v. Maryland, supra, and the

Pollock case, it was said that all these cases involved the question

whether the taxes assailed were in effect taxes upon property and

(p. 519): ‘If this tax is not on the property or on the sale

thereof, then these cases do not apply.’’ At p. 520, answering the

contention that the tax was one on the property sold, it was said:

‘“‘Tt is not laid upon the property at all, nor upon the profits of

the sale thereof, nor upon the sale itself considered separate and

Bromley vs. McCaughn. 3

apart from the place and the circumstances of the sale.’? And

finally, at p. 521, the Court said in words that admit of no mis-

take: ‘A tax upon the privilege of selling property at the ex-

change and of thus using the facilities there offered in accom-

plishing the sale differs radically from a tax upon every sale made

in any place. The latter taz is really and practically upon prop-

erty. It takes no notice of any kind of privilege or facility, and

the fact of a sale is alone regarded.”’

To me it seems plain that a tax imposed upon an ordinary gift,

to be measured by the value of the property given and without

regard to any qualifying circumstances, is 4 tax by indirection

upon the property, as much, for example, as a tax upon the mere

possession by the owner of a farm, measured by the value of the

land possessed, would be a tax on the land. To call either of them

an excise is to sacrifice substance to a mere form of words. I

think, therefore, the first question certified, without stopping to

consider the second, should be answered in the affirmative.

Mr. Justice VAN DevanTER and Mr. Justice BuTuEr concur in

this opinion.