Pollock v. Farmers' Loan & Trust Co facts for kids

Pollock v. Farmers' Loan & Trust Co.
Supreme Court of the United States
Argued March 7–8, 11–13, 1895 Decided April 8, 1895
Full case name	Charles Pollock v. Farmers' Loan and Trust Company
Citations	157 U.S. 429 (more) 15 S. Ct. 673; 39 L. Ed. 759; 1895 U.S. LEXIS 2215; 3 A.F.T.R. (P-H) 2557
Prior history	Appeal from the Circuit Court of the United States for the Southern District of New York
Holding
The unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and were unconstitutional because they violated the rule that direct taxes be apportioned.
Court membership
Case opinions
Majority	Fuller, joined by Field, Gray, Brewer, Shiras
Dissent	White, joined by Harlan, Jackson, Brown
Dissent	Harlan
Dissent	Brown
Superseded by
U.S. Const. amend. XVI
Overruled by
South Carolina v. Baker, 485 U.S. 505 (1988)

Pollock v. Farmers' Loan & Trust Company was a very important case decided by the Supreme Court of the United States in 1895. In this case, the Court looked at whether a new federal income tax was allowed by the U.S. Constitution. With a close vote of 5 to 4, the Court decided that parts of the Income Tax Act of 1894 were against the Constitution. This decision meant the federal government could not collect income taxes in the way it had planned. Later, this ruling was changed when the Sixteenth Amendment to the United States Constitution was passed.

What Led to the Case

The U.S. Constitution has rules about how the government can collect taxes. One rule, found in Article I, Section 2, said that "direct taxes" had to be "apportioned." This meant that direct taxes needed to be collected from each state based on its population. For example, if a state had 10% of the U.S. population, it would pay 10% of the total direct tax.

The Challenge of Apportionment

Collecting taxes this way was very difficult and often unfair. Imagine if a state with many poor people had to pay the same amount of direct tax as a state with fewer people but more wealth. Because of this challenge, the federal government usually got its money from other sources, like taxes on imported goods (called tariffs). An income tax is considered a "direct tax."

Income Tax During the Civil War

During the American Civil War, the federal government needed a lot of money to pay for the war. So, in 1862, a law was passed to create an income tax. Abraham Lincoln signed this bill. It taxed incomes differently based on how much a person earned. For example, people earning between $600 and $5,000 paid a 3% tax. This tax law was later removed in 1872.

The 1894 Income Tax Law

In 1894, Congress decided to create a personal income tax again. This was part of a larger law called the Wilson–Gorman Tariff Act. President Grover Cleveland was not happy with the bill, but he allowed it to become law without his signature. This new tax said that any income over $4,000 would be taxed at 2%. (To give you an idea, $4,000 in 1894 would be like over $100,000 today!) This was the first time the U.S. had a federal income tax during a time of peace.

Right away, people challenged this new tax. They argued that it was a "direct tax" and, according to the Constitution, it needed to be "apportioned" among the states by population. The U.S. government had collected taxes before, but these were usually "indirect taxes," like taxes on whiskey or carriages.

Details of the Case

The 1894 Gorman Tariff Act said that a 2% tax would be collected for five years on "gains, profits and incomes" over $4,000. The Farmers' Loan & Trust Co., a company in New York, was supposed to pay this tax. They also had to give a list of their Shareholders to the Bureau of Internal Revenue.

Charles Pollock's Lawsuit

Charles Pollock, a shareholder from Massachusetts who owned ten shares of stock in the company, did not want the company to pay the tax. He sued the company to stop them. Pollock lost his case in the lower courts. So, he decided to appeal his case to the Supreme Court, and they agreed to hear it. The Supreme Court eventually ruled in Pollock's favor. They declared that sections 27 to 37 of the tariff act, which included the income tax, were against the Constitution.