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 The Federal Corporation Tax Constitutional? By WILLIAM E. Doruum, or The Massacnusa'r'rs BAR

HE case against the constitution

ality of the federal corporation tax is not wanting in variety of attack, or in skill and ingenuity on the part of those who assail it. Several lines of reasoning have been formulated in sup port of the view that the Supreme Court cannot affirm the validity of the tax,

without doing violence to certain prin ciples heretofore sanctioned by that tribunal. Of these, two have been urged with much vigor.

One proceeds upon

the theory that the law contemplates a direct, the other, an indirect tax. At the basis of the contention that the tax is direct, and therefore void for want of apportionment, are the famous

Income Tax cases.1

Those who insist

ownership of an income that was taxed, and the court failed to ﬁnd any sub stantial difference between ownership of the property and that of the income resulting from it.

On the other hand,

the Act of 1909 purports to tax the doing of business by corporations and joint stock companies. Whether this is a tax on the corporate franchise, or on the "privilege of doing business as an

artiﬁcial entity and of freedom from a general partnership liability," which is

the view of President Taft,3 or whether it operates as a tax on the transaction of business through the agency of cor porations and joint stock companies, is

immaterial in considering this phase of the question. It cannot be seriously

that the fate of Section 38 of the Tariff Act of 1909 is concluded by these deci sions, profess to see no difference be tween a “special excise tax—with respect to the carrying on or doing business"

doubted that the foregoing rights and

by a corporation, “equivalent to one per centum” upon its entire net income,

tax a state granted franchise.4 It is

privileges are proper subjects of a federal excise or indirect tax, waiving, for the

time being, the further question, herein after discussed, of the federal right to

and a tax upon incomes generally, as

apparent, then, that no fault is found with the law on this score, when it describes the measure as a "special

imposed by the Act of 1894.2 If there is‘

excise tax-with respect to the carrying

no difference, the exchequers of the

on or doing business by a corporation" until are reached the words “equivalent to one per centum upon its entire net

as imposed by the act under discussion,

corporations will escape, for the assail ants of the law are well justiﬁed in

assuming that the court will consider

income."

the substance and not the form.

Granted, then, that the assess

The income tax law of 1894 purported

ment of corporate franchises, or the conduct of business thereunder, consti

to be a tax on incomes, and on nothing

tutes an indirect tax within the meaning

else. Its provisions aﬂorded no ground for disagreement as to the subject matter of the tax. It was the bald

of the Constitution, is a tax which pur

1 Pollack v. Farmers’ Loan & Trust Co., 157 U. S. 429. 158 U. S. 601; Hyde v. Continental Trust Co.,

157 U. S. 654, 158 U. S. 601. a 28 Statutes at Large, 509.

' President Taft's message to Congress June 16, 1909. Congressional Rword, p. 3450. ‘ Paciﬁc Insurance Co. v. Scale, 7 Wall. 433; Scholcy v. Run. 23 Wall. 331; Knowllon v. Moore, 178 U. S. 41; SprackeLr Sugar Reﬁning Co. v. McLain, 192 U. S. 397; Portland Bank v. Apthorp, 12 Mass. 252.