# Opinion — Bromley v. McCaughn

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0293%3A5

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opinion
- **Published:** January 1, 1929
- **Citation:** 280 U.S. 124

## Text

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_0293%3A5. Public record. Not legal advice.