The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.
The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.
No Bill of Attainder or ex post facto Law shall be passed.
No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.
No Tax or Duty shall be laid on Articles exported from any State.
No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.
No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.
No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.
David W. Ichel Professor of Law and Professor of Political Science at Duke Law School; Director of Duke's D.C. Summer Institute on Law and Policy
Professor of Law at the University of Florida Levin College of Law
Despite this essay’s title, the Constitution permits three classes of taxation:
1. Direct taxes, which must be apportioned among the states in proportion to their populations;
2. “Indirect taxes,” specifically duties, imposts, and excises, which must be uniform throughout the country; and
3. Income taxes on humans (as opposed to businesses or other entities), which may apply to income derived from a source.
A Brief History of U.S. Tax Law
Much discussion preceding the Constitution, divided taxes into the direct and indirect categories; however, the Constitution never adopted that precise distinction. See, e.g., The Federalist No. 36 (Alexander Hamilton). Nevertheless, Supreme Court decisions such as the License Tax Cases (1867) have routinely used the direct/indirect dichotomy. As early as 1796, in Hylton v. United States, the Supreme Court wrestled with the direct/indirect dichotomy. As the Court explained in that case, direct taxes must be apportioned while indirect taxes—duties, imposts, and excises—must be uniform; and any other tax (if possible) must be uniform. The Court held a tax on “carriages” to be indirect because it applied to the use of the carriage rather than to the property itself, an arguably nuanced distinction.
In 1895, the Supreme Court held a general income tax unconstitutional as an unapportioned direct tax, distinguishing it from a tax on business or employment income, which the Court described as a permissible excise (an indirect tax). Pollock v. Farmers’ Loan & Trust Co. (1895). In contrast, the Court held, in 1911, that a tax on corporate income was constitutional as a uniform excise—a type of indirect tax. Flint v. Stone Tracy Co. (1911). The Court reasoned that the original income tax applied directly to humans, while the corporate income tax applied through the corporate entity: humans might suffer the tax through higher prices or lower profits, but they would do so indirectly. In 1913, the Sixteenth Amendment authorized an unapportioned tax on income “derived from a source.” The country adopted the Amendment to reverse the 1895 Pollock decision. Many later decisions have wrestled with the “derived” requirement. The best description requires income to constitute “an accession to wealth, clearly realized, over which the taxpayer has complete dominion.” Commissioner v. Glenshaw Glass (1955).
Although some writers describe the direct/indirect and apportionment/uniformity requirements as antiquated, the dichotomies have at least some modern significance. To grasp that significance, one needs to understand the underlying terms.
A direct tax applies to land or directly to humans “without regard to property, profession, or any other circumstance.” Hylton v. United States (1796); see also NFIB v. Sebelius (2012). Such a tax must be apportioned. At the time of the Constitutional Convention, states with large amounts of land, as well as those with large populations, feared heavier taxes on their land and populations, including slaves, as compared to smaller and less populous states. The apportionment requirement, which also governs representation in the House of Representatives, became the compromise. See Article I, Section 2.
To be apportioned, a tax must be the same amount per person in every state, a very difficult burden to satisfy. For example, a dollar-per-acre tax would fail unless every state had the same acreage per capita. As a result, federal land taxes do not exist. States, unhampered by apportionment, routinely impose real property taxes. In contrast, a dollar-per-human tax (also known as a capitation) would be constitutional, as it would be the same amount per capita in every state. The United States, however, has never imposed such a tax, arguably the only form that a direct tax could constitutionally take. In 2012, the Supreme Court considered whether the “shared responsibility payment” for lacking health insurance in the Affordable Care Act was a direct tax, and held that it was not: while applying directly to humans, it varies depending on whether they have health insurance, an “other circumstance.” NFIB v. Sebelius. Quoting Hylton, the Court held the required payment to be non-direct, and citing Pollock, concluded that the payment is not an income tax.
Duties, imposts, and excises must be uniform. See Article I, Section 8, Clause 1. As “indirect” taxes, they do not apply directly to humans. For example, a duty applies to the act of importing property. Although the ultimate purchaser suffers the tax, the incidence (or burden of the tax) is thought to fall primarily on the importer, and therefore it is considered to be indirect. Excises commonly apply to tires, telephone charges, gambling, employment, and corporate income. In each case, humans may ultimately suffer the tax through higher prices or lower wages, but the incidence is viewed as indirect through the seller, employer, or entity.
Unlike apportionment, uniformity does not require each person to pay the same amount; instead, it requires the same rate structure to exist nationally. For example, Congress may tax truck tires differently than bicycle tires; but however it taxes truck tires, the specific truck tire rates must be the same in every state. As such, it is a geographic requirement. Steward Machine Co. v. Davis (1937); Flint v. Stone Tracy Co. (1911); Knowlton v. Moore (1900). The Supreme Court has never struck down an indirect tax as failing uniformity, although it has considered the issue several times. Uniformity analysis is not easily reducible to black-letter rules; nevertheless, some such rules emerge:
1. Taxes may vary by an object’s value or the taxpayer’s income so long as the rates are uniform. They may even apply to objects or transactions found only in some states, such as snow tires in the north or beach umbrellas in coastal states. Edye v. Robertson (Head Money Cases) (1884).
2. Tax rates may vary if based on physical, such as coastlines and frigid conditions; however, such variations necessitate a particularly close examination. For instance, in United States v. Ptasynski(1983), the Court distinguished arctic oil from oil produced elsewhere. It upheld a tax on income derived from oil pumped above the Arctic Circle. Rates may also vary because of isolated problems or “diverse conditions.” Florida v. Mellon (1927). How isolated or diverse the problem or condition must be is unclear.
Income taxes may be imposed only on “derived” income. This “realization event” requirement generally refers to a transaction other than the mere passage of time. Thus the Sixteenth Amendment permits taxation of gains from sales or exchanges of property, but not those resulting merely from increased values. It also permits taxes on rents and interest. Although direct, such taxes need not be apportioned because the Amendment eliminated the apportionment requirement for income taxes.
David W. Ichel Professor of Law and Professor of Political Science at Duke Law School; Director of Duke's D.C. Summer Institute on Law and Policy
The fourth clause of Article I, Section 9, is known as the “Direct Tax Clause.” It provides that “[n]o Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” This Clause requires that the financial burden of any “direct” tax imposed by Congress fall equally on each state in the Union in terms of its population. For example, if two states have the same population, then the citizens of each state collectively must pay the same amount of direct tax to the U.S. Treasury.
While it is clear how apportionment works, it was less clear at the time of the Founding which kinds of taxes qualified as “direct,” and so were subject to apportionment. According to Madison’s notes of the proceedings of the Constitutional Convention in 1787, Massachusetts delegate Rufus King at one point “asked what was the precise meaning of direct taxation? No one answd.” The text of Section 9 contemplates that “capitation” taxes, otherwise known as “head” or “poll” taxes, qualify as direct taxes. Capitations are taxes on people in simple virtue of the fact that they exist. The constitutional text also seems to imply that at least one other kind of tax qualifies as direct.
The original purpose of requiring apportionment for direct federal taxes appears to have been to benefit Southern states. Specifically, the apportionment requirement was primarily designed to render impracticable federal head taxes on slaves and federal taxes on land, both major sources of wealth in eighteenth century America. Without the requirement of apportionment by state population, the burden of both kinds of federal taxes would have fallen most heavily on the South, because it possessed disproportionately more wealth in land and slaves than did the North. By contrast, apportioning any such tax by state population would have fallen most heavily on the North, because it was home to the most populous states.
This original purpose explains why the third clause of Article I, Section 2, provides that both “Representatives and direct Taxes shall be apportioned among the several States.” The more people who live in a state, the more representation in Congress that state receives, and the more its citizens collectively pay in direct taxes. The practical consequence of requiring apportionment for head taxes on slaves and taxes on land was that the federal government did not tax slaves or land. The Thirteenth Amendment ended the possibility of head taxes on slaves, and to this day Americans do not pay property tax to the federal government.
From the beginning, the Supreme Court has understood only very few taxes to be subject to the apportionment requirement. In its first case considering the issue, Hylton v. United States (1796), the justices who wrote opinions included only capitation and land taxes within the category of direct taxes. Throughout the nineteenth and twentieth centuries, the Court upheld federal taxes that had not been apportioned on insurance premiums, state bank notes, inheritances, trades, personal income, and corporate income. The Court reasoned that all of those taxes were excise taxes, not direct taxes. See, e.g., Bruce Ackerman, Taxation and the Constitution, 99 Columbia Law Review 1 (1999).
The major exception is the Court’s decision in Pollock v. Farmers’ Loan & Trust Co. (1895), which invalidated the progressive federal income tax statute then in effect. In that case, the Court remarkably and inconsistently held that federal taxation of income that was derived from real or personal property (such as rental or dividend income) was direct and so subject to apportionment, in contrast to income taxes on wages and business profits, which were not. The Pollock Court confused matters by reasoning that certain income taxes could qualify as direct taxes on the underlying property from which the income was derived.
The Sixteenth Amendment was ratified in 1913 in order to overrule the decision. It authorizes Congress to tax “incomes, from whatever source derived, without apportionment of the several States,” thus tracking the previous, longstanding rule on direct taxes. The Sixteenth Amendment makes clear that income, not ownership, is being taxed, so there is no requirement of apportionment and thus no constitutional problem.
Today, the Direct Tax Clause operates to render impracticable only federal capitations, federal taxes on the ownership of land, and federal taxes on personal property. Murphy v. IRS (D.C. Cir. 2007). For example, the minimum coverage provision in the Patient Protection and Affordable Care Act (ACA) requires most individuals to either obtain health insurance or make a payment to the Internal Revenue Service. In NFIB v. Sebelius (2012), the Supreme Court, after upholding the required payment as a tax for purposes of the Taxing Clause in the first clause of Article I, Section 8, rejected the argument that it was a direct tax and so had to be apportioned. The Court’s holding is plainly correct. The required payment for going without health insurance in the ACA is a tax on those who choose to remain uninsured, not a head tax on those who simply exist, or a tax on land ownership, or a tax on personal property. It is therefore not a direct tax and need not be apportioned.
Excepting Pollock, the Court has been right all these years to define the category of direct taxes very narrowly. As discussed, a narrow definition is most consistent with the constitutional text, the original purpose of the Direct Tax Clause, the Court’s precedent, and the Sixteenth Amendment.
A narrow definition also makes good sense from a consequentialist perspective. The Constitution confers robust federal power to tax on the theory (grounded in experience) that taxation with representation is a necessity. Requiring apportionment, however, renders federal taxation impracticable.
Apportionment also requires the federal government to privilege regressivity over progressivity in taxation. Apportionment means that citizens of relatively wealthy states must pay at lower rates than citizens of relatively poor states in order to make the total payment for states of equal population come out the same. Such a tax regime is difficult to defend morally, particularly in an America in which the income distribution is increasingly skewed in favor of a very small number of extraordinarily wealthy Americans.
Finally, such a tax regime is difficult to defend from a structural, federalism perspective. States that impose progressive income taxes are at a competitive disadvantage in attracting wealthy residents relative to states that do not. See, e.g., Akhil Reed Amar, America’s Constitution: A Biography 408 (2005). Only progressive taxation at the federal level can overcome the collective action problem and avoid a destructive “race to the bottom.”
Professor of Law at the University of Florida Levin College of Law
The direct/indirect tax dichotomy remains important because it affects the types of tax the federal government can impose. Classification between the two categories, as well as application of the apportionment and uniformity tests can determine the validity of modern statutes.
Very difficult to satisfy, the apportionment requirement can be met only with a capitation—a direct tax on humans simply because they are humans. To satisfy apportionment, the tax would necessarily be the same per person nationwide. Congress has never enacted such a tax and arguably is unlikely to do so in the foreseeable future. That equality requirement is a powerful restriction on the taxing power: remember, the income tax is progressive and applies much more heavily on high-income persons than on others. Because the income tax is not subject to apportionment—largely because of the Sixteenth Amendment—progressivity is possible. In addition, Congress cannot impose a property tax on land. Apportioning such a tax would be impossible because the amount of land per person is not the same in every state. Land taxes—known as ad valorum and “property taxes”—however, are very important to the states, with many states raising a substantial portion of their revenue from them. Restricting such taxes to the states is another very significant restriction on the federal taxing power.
Although Congress cannot impose a property tax directly on personal property—such as cars, furniture, stocks or bonds—as opposed to land—, it has two fairly easy work-arounds for such taxes. NFIB v. Sebelius (2012). Since 1796, the Supreme Court has viewed a tax on the use of personal property as an indirect tax subject to uniformity rather than to apportionment. Hylton v. United States (1796) (Chase, J.). As a result, it could easily style a tax on automobiles as a tax on the use of the item and thus avoid apportionment. Indeed, because the number of cars (or any other personal item) is unlikely ever to be the same per capita in every state, without the Hylton decision, a federal personal property tax would be impossible because it could never satisfy apportionment. Although Congress does not often impose direct taxes on personal property, Congress routinely imposes similar taxes on the purchase of personal property such as tires and gasoline, styling them as excises subject merely to uniformity. Significantly, it could impose a nationwide automobile or telephone usage tax.
Until 1913, a tax on either personal or real property income was effectively forbidden because such taxes were considered direct and not easily apportioned. Pollock v. Farmers’ Loan & Trust Co. (1895). The Sixteenth Amendment resolved this by replacing the income tax apportionment requirement with a new requirement that a tax on income need not be apportioned so long as the tax is imposed on income “derived from a source”—a serious, but different restriction.
In 2012, the Supreme Court narrowly read the direct tax definition in relation to the Affordable Care Act (ACA). The Court held the ACA penalty on persons without minimum health insurance to be a tax; however, the Court also held it not to be “any kind of direct tax.” NFIB v. Sebelius (2012). In so doing, the Court made two critical points. First, by citing Pollock favorably, the Court removed any argument that the “penalty” was supportable as an income tax subject to the “derived” test. That was important because the “tax” is, in part, a function of a person’s income. Without the Sixteenth Amendment as a possible foundation, the tax/penalty must satisfy either apportionment or uniformity. Second, the Court relied on the often-quoted 1796 Hylton language: a direct tax is one imposed “without regard to property, profession, or any other circumstance.” Finding the lack of health insurance an “other circumstance,” the Court found that the mandate to purchase insurance was not a direct tax, and it rejected apportionment as applying to the ACA.
Interestingly, the Court quoted Justice Chase out of context. Chase actually said: “I am inclined to think, but of this I do not give a judicial opinion, that the direct taxes contemplated by the Constitution are only two, to wit, a capitation or poll tax simply, without regard to property, profession, or any other circumstances, and the tax on land.” Hylton v. United States (1796) (Chase, J.). The NFIB Court thus omitted Chase’s independent clause and quoted only the dependent clause, which he described as not his “judicial opinion”; however, it labeled the quotation as “opinion of Chase, J.” which is best described as misleading. Nevertheless, the NFIB decision appears settled: the ACA tax is neither a direct tax nor an income tax.
But discussion of a tax which is neither direct nor an income tax necessarily raises the issue of uniformity. Uniformity is a much easier-to-satisfy requirement than apportionment. It is all about geography: the tax must apply the same in every state.
Few Supreme Court decisions have applied uniformity and none has invalidated a tax because of it. Essentially, the geographic element of uniformity applies in a laxer manner if the natural geographic variations among states justify a lack of uniformity or if a particular state’s behavior causes it. For example, the Court upheld a charge on immigration through sea ports though it had no impact on land-locked states, finding that there was substantial uniformity. Edye v. Robertson (Head Money Cases) (1884). Similarly, in 1983 the Court upheld a difference between taxes on income from oil pumped above the arctic circle and taxes on income from oil pumped elsewhere, noting that there were important natural differences in the oil and the extraction process. United States v. Ptasynski (1983). In 1927, the Court upheld the estate tax although it ultimately applied differently to Florida. Florida v. Mellon (1927). The difference, however, resulted from a particular Florida statute which created the lack of uniformity. Thus a state cannot self-impose non-uniformity and then complain about it.
Significantly, the NFIB decision did not discuss “uniformity.” The Court likely avoided addressing this issue because it was premature: because the Act was not yet operable, no facts indicating uniformity or the lack thereof were available. Since 2014, however, the tax on persons without health insurance has applied differently in the various states. It varies as a function of the cost of health insurance in each state, as well as the federal “poverty level,” which itself varies between Alaska, Hawaii, and other states. As a result, the ACA tax can vary from one person to another even though the two persons may reside less than a mile apart. The only important distinction may be the man-made political boundary between them: the state line. Whether the Supreme Court will hear a case challenging the ACA for lack of uniformity is unclear. If it does, that may be the first instance in which the constitutional restriction has a real impact.
