decided in the Pollock Case that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population as prescribed by the Constitution. The Act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, with certain qualifications prescribed by the Act itself. Flint vs. Stone-Tracy Co., 220, U. S., 107. * "For this and other obvious reasons we are little aided by a discussion of theoretical distinctions between capital and income. Such refinements can hardly be deemed to have entered into the legislative purpose. Of course if it were demonstrable that to read the Act according to its letter would render it unconstitutional, or glaringly unequal, or palpably unjust, a reasonable ground would exist for construing it according to its spirit rather than its letter. But in our opinion the Act is not fairly open to this criticism. * for 'income' may be defined as the gain derived from capital, from labor, or from both combined, and here we have combined operations of capital and labor. * * * "As to what should be deemed 'income' within the meaning of Section 38, it of course need not be such an income as would have been taxable as such, for at that time (the Sixteenth Amendment not having been as yet ratified), income was not taxable as such by Congress without apportionment according to population, and this tax was not so apportioned. And from this * * * point of view, it makes little difference that the income may arise from a business that theoretically or practi cally involves a wasting of capital. * * * We have no difficulty, therefore, in concluding that the proceeds The opinion in this case leaves no doubt but what the Court considered the proceeds of mining operations to be "income", within the meaning of the corporation tax law. Does it leave open for future consideration, the question whether the proceeds of mining operations are "income" within the meaning of the Sixteenth Amendment, which permits an income tax to be laid without apportionment among the several States? It may well be said that Congress had the power to lay a tax upon the doing of business by corporations conducting mining operations, and to prescribe, within reasonable limits, the factor which should measure that tax, that the word "income", used to indicate that factor, should be construed liberally and freely, taking into consideration the structure and purpose of the Act. The word may have one meaning as used in that Act and freely interpreted, and another meaning in the Sixteenth Amendment, when it is obviously intended to permit the laying of a tax on an incident of the ownership of property without reaching the corpus of that property itself. The late tariff law contemplates a tax upon the proceeds of mining operations as income, and provides for a deduction from the proceeds: "In the case of mines (of) a reasonable allowance for the depletion of ores and all other natural deposits, not to exceed five per centum of the gross value at the mine of the output for the year for which the computation (of) taxable income is made.” Whether this tax, as applied to mining corporations, is valid, must depend upon the meaning given to the Sixteenth Amend ment. "Things which are not in fact income can not be made such by mere legislative fiat." Income tax laws, 148 Wisconsin, 456. Prior to that amendment, the tax upon income was a direct tax, and not valid unless apportioned. Since that amendment, the tax on "income" need not be apportioned. That amendment reads as follows: "The congress shall have power to lay and collect taxes on incomes from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This amendment does not permit the laying of a tax on the property itself, or any other incident of ownership, except the income. If the proceeds of mining operations are "income", within the meaning of that Amendment, then the tax laid upon them is valid; otherwise, it is not. The decision in "Stratton's Independence vs. Howbert" must be read in the light of the question that was propounded. That question was whether the proceeds of mining operations were "income" within the meaning of the Act. It may be true that in a discussion of that question, the distinction between "capital" and "income" was merely theoretical. But the distinction between "capital" and "income" is a very practical distinction. In many "life-tenant" cases, the distinction is a vital one, and results in one man's great gain, and another man's great loss. A miner who treats the proceeds of his mining operations as "income", and measures his annual living expenses by them, will sooner or later come to grief. In Black on Income Tax, Section 32, the author says: "We conclude, therefore, that for the purpose of an income tax a proper definition of the word 'income' would be, all that a man receives in cash during the year, except such sums as are merely capital or princi pal in a changed form; that is, excluding sums which And in Section 34 he says: "Capital may be made very mobile and constantly change from one form of investment to another. Each time that it returns to the owner, it may or may not bring income with it, but it would be a misnomer to reckon the whole of such return as 'income' simply because it is so much money coming into the possession of the owner." Various definitions of income can be found in the cases. In People ex rel. Cornell University vs. Davenport, 30 Hun., 177, income is defined as: "The income, as above said, from an investment, is that which it earns, remaining itself intact." In Wilcox vs. County Commissioners of Middlesex, 103 Mass., 544, the Court defined it: "To express it in a more summary and comprehensive form, it is the creation of capital, industry and skill." In the "Howbert case" the Court adopted the following definition: "For 'income' may be defined as the gain derived from capital, from labor, or from both combined." The active idea of "earning" and "creating" is dominant in the meaning of the word "income." There is an undoubted tendency on the part of the courts to avoid the natural limitations of the term "income", in dealing with the proceeds of mining operations. I repeat, For some reason, to them sufficient, the framers of our Federal Constitution declared that no direct taxes should be levied, without apportionment among the several States. Prior to the Sixteenth Amendment, it had been established by judicial decision that a tax laid upon income from property was in fact a tax upon the property itself, direct in its nature, and subject to the rule of apportionment. The popular dissatisfaction with the opinion was that it treated a tax on "income", the incident, as being in law a tax on the principal thing the property. The Sixteenth Amendment bears no evidence of any intention to change the rule as to apportionment of taxes upon the property itself, but selected that incident of property which it designates as "income" and excluded it from the rule of apportionment. To lay a tax upon that thing which, while being derived from property, leaves the property intact, does no great violence to the original provision of the Constitution, protecting property from direct tax, without apportionment. If, by judicial construction, we include the proceeds of mining operations within the term "income" we subject that particular class of property to what is actually a direct tax, for the tax is taken, not out of those accretions to the property which arise from its use, yet leave the property intact, but from the very property itself. On that theory, the tax takes its per cent. out of the mining property, } |