Pollock v. Farmers' Loan and Trust Company

(1895) U.S. Supreme Court ruling that declared the federal income tax unconstitutional, thus voiding portions of an 1894 act that imposed a direct tax on the incomes of U.S. citizens and corporations.

The decision was mooted in 1913 when ratification of the 16th Amendment to the U.S. Constitution gave Congress the power "to lay and collect taxes on incomes."

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▪ law case

      (1895), U.S. Supreme Court case in which the court voided portions of the Wilson-Gorman Tariff Act of 1894 that imposed a direct tax on the incomes of American citizens and corporations, thus declaring the federal income tax unconstitutional. The decision was mooted (unsettled) in 1913 by ratification of the Sixteenth Amendment to the federal Constitution, giving Congress the power “to lay and collect taxes on incomes.”

      The 1894 act had provided (for a five-year term) that “gains, profits and incomes” in excess of $4,000 would be taxed at 2 percent. In compliance with the Tariff Act, the Farmers' Loan and Trust Company, a New York financial institution with vast holdings, announced to its shareholders that it intended to pay the tax and also to provide the U.S. collector of internal revenue a list of all persons for whom the company was acting in a fiduciary capacity who were liable for tax under the act.

      Charles Pollock, a citizen of Massachusetts who owned 10 shares of the company's stock, filed a lawsuit seeking to enjoin the company from carrying out its stated intention to comply with the act. He lost in the lower courts, but the Supreme Court ruled in his favour. It declared that a direct income tax was a breach of the constitutional provision requiring that direct taxes be apportioned among the states according to population.

      A highly unpopular decision, Pollock v. Farmers' Loan and Trust Company spurred the Democratic Party to include an income tax plank in its 1896 platform and to charge the court with “judicial usurpation.” Farmers and workers saw the decision as one designed to protect wealthy individuals and corporations from paying their fair share of the cost of government. Senator Norris Brown of Nebraska declared that the Supreme Court was wrong in its interpretation of the Constitution and proposed the explicit language permitting an income tax that was incorporated into the Sixteenth Amendment. He said it was imperative that Congress “give the court a Constitution that cannot be interpreted in two ways.” The Senate and House of Representatives approved the amendment in 1909, and it was ratified in 1913.

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