Income Tax Brief

There is much confusion surrounding the so-called "income" tax, both as to what is being taxed, i.e., the subject of the tax, and which individuals are laible for the so-called "income" tax. In this brief, we will explore both the United States Constitution and case law to show that the two areas of confusion are, in fact, clearly defined. This brief will show that it is well settled in case law that income is not the subject of the so-called "income" tax. Rather, the subject of the so-called "income" tax is certain revenue taxable activities, such as importing or distilling spirits or doing business as a corporation, and the income derived from these revenue taxable activities is used merely to measure the amount of tax due.

It has been established that governments have an inherent power of taxation. However, the US Constitution requires that Congress implement taxes in certain ways.

The original thirteen states did not give the limited confederate government under the Articles of Confederation any power to tax. Later, the national government was created under the United States Constitution. The United States Constitution provides a limited grant of power to the national government.

The   Powers  not  delegated  to  the  United  States  by  the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
United States Constitution, Tenth Amendment.

The States possessed the inherent power of taxation. The people of the States, through their representatives, gave the national government (by way of the Constitution) a concurrent, but complete, power of taxation, with one exception. The United States Constitution expressly forbids the national government from taxing exports.

The power to tax was granted by Article I, § 8, cl. 1.

The  Congress shall have power to  lay and  collect  taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States.
United States Constitution, Article I, § 8, cl. 1.

The provision expressly prohibiting the national government from taxing exports is found in Article I, § 9, cl. 5.

No tax or duty shall be laid on articles exported from any State.
United States Constitution, Article I, § 9, cl. 1.

At the same time the founding fathers granted the national government the power to tax, they laid down two rules that govern the imposition of the two great classes of taxes. Direct taxes are subject to the rule of apportionment. Indirect taxes are subject to the rule of geographical uniformity.

The rule requiring indirect taxes (duties, imposts and excises) to be uniform throughout the United States is provided in Article I, § 8, cl. 1, supra.

There are two clauses in the Constitution that require all direct taxes imposed by Congress to be apportioned among the States according to population.

Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective numbers,  which shall be determined by adding to the whole number of free persons, including those bound to service for a term of years, and excluding Indians not taxed,  three-fifths of all other persons.
United States Constitution, Article I, § 2, cl. 3. (In part.)

No Capitation, or other direct, Tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.
United States Constitution, Article I, § 9, cl. 4.

Black's Law Dictionary defines "Capitation tax" as follows.

Capitation tax. A poll tax (q.v.). A tax or imposition upon the person.
Black's Law Dictionary, Sixth Edition. (In part.)

Congress has never imposed a capitation tax but has imposed direct taxes on property. A direct tax upon real estate has been imposed by Congress several times in the history of the United States, starting as far back as 1798. These direct taxes on real estate have always been apportioned among the States according to population. The last time a direct tax was successfully imposed by Congress was during the Civil War period. See Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 573 (1895).

We have now seen that all direct taxes must be apportioned among the States according to population and all indirect taxes must be uniform. Now let's look at the difference between a direct tax and an indirect tax. For this information, we will turn to the courts, especially the United States Supreme Court.

We will first look at indirect taxes (duties, imposts and excises).

A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax.
Tyler v. United States, 281 U.S. 497, at 502 (1930).

Some people think that the excise taxes on cigarettes and whiskey, for example, are taxes on the cigarettes or whiskey as property, but this is not so. The subject of these taxes is the manufacturing, importing, or distilling of these products.  A "sales" tax is not on the property sold but rather on the event, or activity, of the sale. The subject of an indirect tax (such as an excise tax) is never the property, but rather the event, activity, incident, or occasion, and these terms are used interchangeably when discussing indirect taxes.

The United States Supreme Court tells us that:

Excises  are  "taxes  laid  upon  the  manufacture,  sale  or consumption   of  commodities  within a country, upon licenses to pursue certain occupations, and upon corporate privileges." Cooley, Const. Lim., 7th ed., 680.
Flint v. Stone Tracy Co., 220 U.S. 107, at 151 (1911).

Thus, when trying to decide whether the subject of  a so-called "income" tax is people, property, or activities, we must keep in mind that the subject of indirect taxes (duties, imposts and excises) is never property, but rather some taxable activity.

The fact that a direct tax must be apportioned is again verified by the United States Supreme Court in 1937. In one of the "social security" tax cases, Steward Machine Company was arguing that the tax collected from the corporation under the name of "unemployment taxes" was, for various reasons, unconstitutional. The Supreme Court held that it was a valid excise tax. The Court further clarified the fact that taxes on property and capitation taxes were indeed direct taxes and did indeed require apportionment.

The  subject matter of taxation open to the power of the Congress is as comprehensive as that open to the power of the  states, though the method of apportionment may at times  be  different.  "The Congress shall have power to lay and collect taxes,  duties,  imposts and  excises."  Art I, § 8.

If the tax is a direct one, it shall be apportioned according to the census or enumeration. If it is a duty, impost, or excise, it  shall be uniform throughout the United States. Together, these classes include every form of tax appropriate to sovereignty.   [citations omitted.]  Whether the tax is to be classified as an "excise" is in truth not of critical importance. If not that, it is an "impost" [citations omitted], or a "duty" [citations omitted.]  A capitation or other "direct" tax it certainly is not.
Steward Machine Co. v. Davis, 301 U.S. 548, at 581-582 (1937).

Also, in a 1960 case, the United States Court of Appeals, Third Circuit, confirms the fact that taxes on property must be apportioned. In an income tax case, Penn Mutual Indemnity Company challenged the tax as a direct tax on property and, therefore, unconstitutional because it was not apportioned among the States as the Constitution requires of direct taxes. Without going into many of the details of the case, certain excerpts are cited below.

(This  is  an  income  tax  case  where  the  Tax  Court  has sustained the Commissioner [of Internal Revenue] as against the taxpayer, 1959, 32 T. C. 653.)

Indeed,  the  requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes.

It is not necessary to uphold the validity of the tax imposed by the United States that the tax itself bears an accurate label. Indeed, the tax upon the distillation of  spirits, imposed very early by federal authority, now reads and has read in terms of a tax upon the spirits themselves, yet the validity of this imposition has been upheld for a very great many years.

We do not think it profitable, however, to make the label as precise  as that required under the Food and Drug Act. Congress has the power to impose taxes generally, and if the  particular  imposition does not run afoul of any constitutional restrictions then the tax is lawful,  call it what you will.  
Penn Mutual Indemnity Co.  v.  C.I.R.,  277 F.2d  16, at  17, 19-20 (3rd Cir. 1960). (Emphasis and explanation added.)

So once again it is confirmed that a tax on property is a direct tax and as such it must be apportioned among the States according to population.

Additionally, we see that the name of the tax does not determine the nature of the tax (capitation, property, duty, impost or excise), as well as the fact that the name of the tax does not determine the subject of the tax. So the fact that we have a tax called an "income" tax does not necessarily mean that "income" is the subject of the tax.

The United States Supreme Court agrees.

The name by which the tax is described in the statute is, of course, immaterial.
Dawson v. Kentucky, 255 U.S. 288, at 292 (1921).

We can now be certain that the so-called "income" tax cannot be considered tax on property since it is not apportioned among the States as would be required of direct taxes. We can also be certain that the so-called "income" tax cannot be considered direct tax of any sort. But if not "income", then what is the subject of this tax?

A particular United States Supreme Court case which explains just how an indirect tax can be imposed on a revenue taxable activity (the lawful subject of the tax), and just how the income derived from that activity can be used merely to measure the amount of the tax, can be found in the United States Supreme Court Reports of 1911. Numerous corporations took their issues to court and the cases were consolidated in the landmark case of Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

On August 15, 1909, Congress passed "The Corporation Tax" law (Ch. 6, 36 Stat. 11). This revenue act was written without the use of abstract or cryptic language. In clear and unequivocal language, the statute names the lawful subject of the tax, which is the activity of carrying on or doing business by specified organizations. In other words, it is the exercise of the privilege that is the lawful subject of the tax. Section 38 of the Act reads in part as follows:

That every corporation, joint stock company or association organized  for profit and having a capital stock represented by  shares,    and  every  insurance  company. . . .  shall be subject to pay annually a special excise  tax with respect to the carrying on or doing business by such corporation, joint stock   company  or   association,  or   insurance  company, equivalent  to  one  percentum upon the  entire  net income over  and above five thousand dollars received by it from all sources during such year. . . .
"The Corporation Tax" law, (Ch. 6, 36 Stat. 11). (Emphasis added.)

The corporations challenged the 1909 Act on numerous grounds. One of the grounds upon which the Act was challenged was that it was a direct tax on the corporate franchise. The corporations claimed that to tax the income from this form of property (the franchise) would be the same as a direct tax on the property and thus unconstitutional. Additionally, the corporations claimed the national government could not tax a State granted privilege. The United States Supreme Court explains in Flint v. Stone Tracy Co., 220 U.S. 107 (1911), why it was not a direct tax and that the national government could indeed tax whatever the States could tax.

As the latter organizations share  many  of the benefits of corporate organization it may be  described generally as a tax upon the doing of business in a corporate capacity. . .  In  other words,   the tax  is  imposed  upon  the doing  of business  of  the character  described, and the measure of the tax is to be the income, . . . .
Flint v. Stone Tracy Co., 220 U.S. 107, at 146 (1911).

Duties  and  imposts  are  terms  commonly applied to levies made by governments  on the importation or exportation of commodities.  Excises are "taxes  laid upon the manufacture, sale or consumption of commodities within a country,  upon licenses to pursue certain occupations, and upon corporate privileges." Cooley, Const. Lim., 7th ed., 680.
Flint v. Stone Tracey Co., supra, at 151.

The  tax  under consideration,   as  we have construed the statute, may be described as an excise upon the particular privilege of  doing  business  in  a  corporate capacity,  i.e.,  with  advantages  which  arise  from  corporate  or  quasi-corporate  organization;  or,   when  applied  to  insurance companies,  for  doing the business of such companies. As was  said  in  the  Thomas Case,   192 U.S. 363 supra, the requirement  to  pay  such  taxes  involves the exercise of privileges, and  the  element of absolute and unavoidable demand is lacking.   If business is not done in the manner described in the statute, no tax is payable.
Flint v. Stone Tracy Co., supra, at 151-152. (Emphasis added.)

We must remember, too, that the revenues of the United States must be obtained in the same territory, from the same people, and excise taxes must be collected from the same activities, as are also reached by the States in order to support their local government.
Flint v. Stone Tracy Co., supra, at 154. (Emphasis added.)

Conceding the power of Congress to tax the business activities of private corporations. . . .  the tax must be measured by some standard. . . .
Flint v. Stone Tracy Co., supra, at 165. (Emphasis added.)

It is therefore well settled by the decisions of this court that when the sovereign authority has exercised the right to tax a legitimate subject of taxation as an exercise of a franchise or privilege, it is no objection that the measure of taxation is found in the income. …
Flint v. Stone Tracy Co., supra, at 165. (Emphasis added.)

Clearly, in 1911, the United States Supreme Court has stated that a tax on a revenue taxable activity can be measured by the income derived from that activity, which in this case was the exercise of a government granted privilege.

In equally clear language, the courts have stated that capitation taxes and taxes on property imposed by Congress must be apportioned among the States as is required by the United States Constitution. And of course, the so-called "income" tax is not apportioned among the States. Thus, it cannot be considered as a capitation tax or a tax on property. To so consider it would make it unconstitutional on its face. But then what, if anything, is the subject of this tax?

1. The Sixteenth Amendment conferred no new power of taxation.
2. The Sixteenth Amendment did not extend the taxing power to new or excepted subjects.
3. The Sixteenth Amendment prohibited the power of income taxation, possessed by Congress from the beginning of our national government under the Constitution, from being taken out of the category of indirect taxation to which it inherently belonged.

The exact wording of the Sixteenth Amendment is 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.
United States Constitution, Sixteenth Amendment.

A cursory reading of the Sixteenth Amendment would certainly cause a person to adopt the "direct tax" theory. And the "direct tax" theory certainly is in direct contradiction to the statements made in items numbered 1, 2, and 3 above. The "direct tax" theory is also in direct contradiction to the rulings of the United States Supreme Court and other courts.

The Sixteenth Amendment was ratified in 1913. Immediately thereafter, Congress passed the Tariff Act of October 3, 1913, (Ch. 16, 38 Stat. 166). There were a number of challenges to this revenue act that was supposedly written under the authority of the Sixteenth Amendment. It should be noted that these challenges were made by people who were involved in corporate activities. They were not of the same type individuals as of the average working class.

After the Sixteenth Amendment and the Tariff Act of October 3, 1913, two landmark cases were ruled on by the United States Supreme Court. The first was Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916). The next was Stanton v. Baltic Mining Co., 240 U.S. 103 (1916). Both of these cases were argued on October 14-15, 1915. The Brushaber Case was decided on January 24, 1916, and the Stanton Case was decided on February 21, 1916.

Chief Justice Edward Douglas White delivered the opinions in both cases. The Brushaber Case is quite difficult to read and comprehend and has led to much confusion and misunderstanding. But in the Stanton Case, Chief Justice White quite nicely tells us what was settled in the Brushaber Case and the real purpose of the Sixteenth Amendment. The Brushaber Case is the case most relied upon by the Internal Revenue Service (IRS) to show that the "income" tax and the Sixteenth Amendment are constitutional. The IRS is quite correct, but not because of the mistaken theory that the Sixteenth Amendment conferred to Congress some sort of new taxing power or that the Sixteenth Amendment authorized a direct tax without apportionment. Quite the contrary.

In the Brushaber Case, Frank Brushaber sought to restrain the corporation (Union Pacific Railroad Company) from voluntarily paying the tax that Mr. Bushaber thought was unconstitutional. Mr. Brushaber presented many erroneous contentions that the United States Supreme Court had to address. It must be pointed out that it will be much easier to read and study the Brushaber Case once you understand that the Court spends considerable time paraphrasing Mr. Brushaber's many erroneous contentions, assumptions, conclusions, etc. The Court said:

The various  propositions are  so intermingled as to cause it to  be  difficult  to  classify  them.  We  are  of  the  opinion, however, that the confusion is not inherent, but rather arises from  the conclusion  that the Sixteenth Amendment provides for a hitherto unknown power of taxation,   that is, a power to levy an income tax which although direct should not be subject to the regulation of apportionment  applicable to all other direct taxes.    And the far-reaching effect of this erroneous assumption  will  be  made clear by generalizing the   many contentions  advanced  in  argument to support it, as follows:        (a)   The   Amendment  authorizes only a particular character of direct tax without  apportionment, and  therefore  if  a  tax is levied under its assumed authority which does not partake  of the characteristics exacted by the Amendment,   it  is  outside the Amendment and is void as a direct  tax  in  the  general  constitutional  sense  because not apportioned. . . .
Brushaber v. Union Pacific R. R. Co., 240 U.S. 1 at 10-11.
(Emphasis added.)

The Court proceeds to address these erroneous assumptions, propositions, and contentions by saying:

But  it  clearly  results   that  the  propositions and  the contentions under it,  if acceded to, would  cause one provision of the Constitution to destroy another; that is, they  would  result  in bringing the provisions of  the Amendment  exempting a direct tax from apportionment into irreconcilable conflict  with  the general requirement that all direct taxes be apportioned.    Moreover,  the tax authorized  by  the Amendment,  being  direct, would not come  under  the rule of uniformity applicable under the Constitution to other than  direct  taxes,  and thus it would come to pass that the result of the Amendment would be to authorize a particular direct tax not  subject  either to apportionment or to the rule of geographical  uniformity, thus  giving  power to impose a different tax in one State or States  than  was  levied  in  another  State  or  States. This result  instead  of simplifying  the situation and  making clear the limitation on  the taxing  power,  which  obviously the Amendment must have been intended to accomplish, would create radical and destructive changes in our constitutional system and multiply confusion.
Brushaber, supra, at 11-12. (Emphasis added.)

In other words, the Court has said that if the tax authorized by the Sixteenth Amendment were considered a direct tax, as Mr. Brushaber had erroneously assumed, it would cause one provision of the Constitution to destroy another; bringing one part of the Constitution into irreconcilable conflict with the general requirement that all direct taxes be apportioned.  Obviously, this could not be allowed. If the Sixteenth Amendment was in irreconcilable conflict with other parts of the Constitution, it would have been held to be unconstitutional.

Next, the Court lays out the constitutional principles and the rules relating to direct and indirect taxes applicable both before and after the Sixteenth Amendment.

In fact the two great subdivisions embracing  the complete and perfect delegation of the power to tax and the two correlated limitations as to such power were  thus  aptly  stated  by Mr. Chief Justice Fuller in  Pollock  v.  Farmer's Loan & Trust Company, supra, at page 557: "In the matter of  taxation,   the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely:   The rule  of apportionment as to direct taxes,  and the rule of uniformity as to duties,  imposts and excises." It is to be observed, however,  as long ago pointed out in Veazie Bank v.  Fenno,   8  Wall.   533, 541,  that  the requirement  of apportionment  as  to  one of the great classes  and of uniformity as to the other class were not so much a limitation upon the complete  and  all embracing authority to tax, but in their essence were simply regulations  concerning the mode in which the plenary power was to be exerted.   In the  whole history of the Government down to the time of the  adoption  of  the  Sixteenth  Amendment,   leaving aside some  conjectures  expressed of the possibility of a tax lying intermediate  between  the  two great classes and embraced by  neither,  no question has been anywhere made as to the correctness of these propositions.
Brushaber, supra, at 13. (Emphasis added.)

To further show that "income" taxes are not generically or necessarily direct taxes, the Brushaber Court said:

Moreover  in addition  the conclusion reached  in  the Pollock Case  did  not  in  any degree involve holding that income taxes generically  and  necessarily came  within the  class  of direct taxes on property, but on the contrary recognized the fact that taxation on income was in its nature an excise entitled  to  be  enforced  as   such  unless  and  until  it  was concluded that  to enforce  it would  amount to accomplishing  the result which the requirement  as  to apportionment of direct taxation was adopted to prevent,  in which case the duty [meaning the  duty of  the court]  would arise  to  disregard  form  and  consider substance alone and hence  subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it.
Brushaber, supra, at 16-17. (Emphasis and explanation added.)

[T]he  contention  that  the Amendment  treats  a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the  rule  of  uniformity  as such rule only applies to taxes which are  not direct, thus destroying  the two great classifications  which  have been recognized and enforced from the beginning [of the national government under the Constitution], is also wholly without foundation…
Brushaber, supra, at 18. (Emphasis and explanation added.)

Therefore, any statements made today by anyone claiming the Sixteenth Amendment authorized a direct tax are wholly without foundation.

After having paraphrased some more of Mr. Brushaber's erroneous contentions, the United States Supreme Court said:

[T]he  Amendment  was  drawn  for the purpose of  doing away  for  the  future  with  the  principle  upon which  the Pollock Case was decided. . . .
Brushaber, supra, at 18. (Emphasis added.)

[T]he  command of  the Amendment that all  income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed  income may be derived, forbids  the application  to such  taxes of the rule  applied in the Pollock Case. . . .
Brushaber, supra, at 18-19. (Emphasis added.)

Indeed,  from  another point of view, the Amendment demonstrates that no such purpose was intended and on the contrary shows that it was drawn  with the object of maintaining  the  limitations  of  the Constitution and harmonizing their operation.
Brushaber, supra, at 19. (Emphasis added.)

[T]he  Amendment  contains   nothing repudiating or challenging  the ruling  in the Pollock Case …
Brushaber, supra, at 19. (Emphasis added.)
(Also included in the citation below.)

Probably the sentence in the Brushaber Case that has created the most confusion, and often times big problems for individuals, is the 191-word sentence on page 19 of that case. It reads as follows:

We say this because it is to be observed that although from the date of the Hylton Case because of statements made in the opinions in that  case it had come to be  accepted  that direct  taxes  in the  constitutional sense  were  confined  to taxes levied directly on real estate because of its ownership, the  Amendment contains nothing repudiating or challenging  the  ruling  in the Pollock  Case that  the  word direct had a  broader significance since it embraced also taxes  levied directly on  personal property  because  of its ownership, and therefore the Amendment  at least impliedly makes such wider significance a  part of the Constitution --- a condition which clearly  demonstrates that the purpose  was not to change the existing interpretation except to the extent necessary  to  accomplish  the  result  intended,  that is,  the prevention of the resort to the sources from which a taxed income  was  derived in order to cause a  direct  tax  on  the income to  be direct tax on  the source  itself and thereby to take an income tax out  of  the  class  of excises, duties and imposts and place it in the class of direct taxes.
Brushaber, supra, at 19. (Emphasis added.)

The reason the above 191-word sentence has caused big problems for individuals is that government personnel, as well as others, have totally misinterpreted the latter part of the sentence by ignoring the word "prevention". Where the sentence shows that the purpose of the Sixteenth Amendment was not to change the interpretation of the Constitution or to change the distinction between direct taxes on property and indirect taxes (which are imposed on activities), but the purpose of the Amendment was to prevent the courts from considering the source of the income (such as the property from which income is derived) in order to cause a direct tax on the income to be a direct tax on the source. In other words, the purpose of the Amendment was for the courts to consider the activity and not the property to be the source of the income.

For example, if a corporation owned rental property, it would derive rental income from this property. In earlier cases, the corporations would argue that a tax "on" this income would be the same as a direct tax on the property and would be unconstitutional if the tax was not apportioned; attempting to rely on the 1895 ruling in the Pollock Case cited below. For example, see Spreckels Sugar v. McClain, 192 U.S. 397 (1904). Another example is shown in the Flint Case (1911), cited above, wherein the corporations argued that a tax "on" the corporate franchise was a tax on the franchise as property. The command of the Amendment that "income" taxes shall not be subject to apportionment by considering the source from which the income may be derived, forbids the courts from treating an "income" tax as a direct tax on property. See Brushaber at pages 18-19 above. Thus, the courts can lawfully only consider the activity, event, incident, or occasion that is being taxed to keep an "income" tax in the class of an excise, duty, or impost.

In short, when the government, as well as others, misinterpret this sentence, they do so by simply ignoring the word "prevention" and falsely claim that the purpose was "to take an income tax out of the class of excises, duties and imposts and place it in the class of direct taxes".

Notice the words and phrases used by the Court, such as "forbids", "maintaining the limitations", "harmonizing their operation", "prevent", "prevention", and "simplifying the situation and making clear the limitation".

In using the word "forbids", the Court is saying that the Sixteenth Amendment forbids the courts from applying the rule of apportionment to "income" taxes. Brushaber, supra, at 18-19.

In using the phrases "maintaining the limitations" and "harmonizing their operations", the Court is saying that the Sixteenth Amendment was drawn with the object of maintaining the rule of apportionment as to direct taxes and the rule of uniformity as to indirect taxes and to harmonize the operations of these two rules by not considering the property source from which the income is derived when dealing with "income" taxes. Brushaber, supra, at 19.

In using the word "prevent", the Court is saying that the Constitutional rule of apportionment was adopted to prevent the imposition of direct taxes (including taxes on property) unless such taxes were apportioned among the States according to population. Brushaber, supra, at 16-17.

In using the word "prevention", the Court is saying that the Sixteenth Amendment was to prevent the resort to, or the consideration of, the property source from which the income was derived in regard to "income" taxes. This leaves the courts in a position of considering the activity (instead of the property) in regard to "income" taxes. Brushaber, supra, at 19.

The purpose of the Sixteenth Amendment was not to change an "income" tax from an indirect tax into a direct tax, as many people have erroneously concluded. This is an important point. Direct taxes are taxes on property and capitation taxes. Indirect taxes are taxes on revenue taxable activities. Neither the Sixteenth Amendment nor the United States Supreme Court changed the nature of any tax.

In using the phrase "simplifying the situation and making clear the limitation", the Court is saying, in effect, that the Sixteenth Amendment eliminated the problem of determining each time whether a particular so-called "income" tax is a tax on property or a tax on an activity.

Previous to the Sixteenth Amendment, cases would be brought to court arguing that a tax measured by the income derived from an activity was direct tax on the property source of the income and, therefore, had to be apportioned in order to be constitutional. Each time, the courts would have to evaluate the statutes to determine whether the particular tax was a direct or indirect tax, and perhaps "disregard the form and consider the substance alone".  Brushaber, supra, at 16-17. According to the Brushaber Court, the purpose of the Sixteenth Amendment was to relieve the courts from considering the source.   Brushaber, supra, at 18.

Now, because of the Sixteenth Amendment, the courts simply cannot lawfully (without violating the Sixteenth Amendment) consider any so-called "income" tax as a property tax or any other kind of direct tax. The courts cannot lawfully consider the property (or the property source) as being the subject of a so-called "income" tax. But that leaves the courts in such a position that they can lawfully only consider the activity as the subject of the tax. Brushaber, supra, at 18.

One should wonder where(?), if there is a place, within the revenue laws does it impose a tax on their own particular activities that they are involved in?

Regardless of the difficulty one may have in reading and comprehending what Chief Justice Edward Douglas White says in the Brushaber Case, he very plainly tells us in the Stanton Case what was settled in the Brushaber Case when he said:

[B]y the previous ruling [Brushaber Case] it was settled that the Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from  the  beginning [of our national government under the Constitution] from being taken out of the category of indirect taxation to which it inherently belonged. . . .
Stanton v. Baltic Mining Co., 240 U.S. 103, at 112 (1916).
(Emphasis and explanation added.)

Thus, when people in government and others falsely claim that the Sixteenth Amendment authorized a direct tax, they are directly contradicting the ruling of the United States Supreme Court as so clearly expressed in the Stanton Case.

And just to cover all the bases, let's add the fact that in 1918 the United States Supreme Court stated:

The Sixteenth Amendment … does not extend the taxing power to new or excepted subjects. . . .
Peck & Co. v. Lowe, 247 U.S. 165, at 172 (1918).

Also, it probably is worth remembering that Chief Justice Edward Douglas White stated at pages 16-17 of the Brushaber Case that taxation on income was in its nature an excise entitled to be enforced as such.

Some people have claimed that Chief Justice White was simply fabricating the statement when he said that the Pollock Court recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such. Brushaber, supra, at 16-17.   It seems that the reason some people have come to such an erroneous conclusion is that they do not see this particular wording in the Court's opinion in the Pollock Case.   Another reason is probably because these people do not read the rest of that sentence.   The latter part of that sentence explains that the courts (prior to the Sixteenth Amendment) would consider taxation on income as an excise tax unless to enforce it the tax would amount to a direct tax on the property.   If this were the case, the court would disregard the form (the wording) of the act of Congress and consider the substance (the effect of the act), and if to enforce the act would amount to a direct tax on property without apportionment, the court would find the act of Congress unconstitutional. This is exactly what the Court did in Pollock in 1895.

Let's take a look at the ruling summarized in the Pollock Case.

Our conclusions may, therefore, be summed up as follows:

First.   We adhere to the opinion already announced, that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.

Second.   We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.

Third.    The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and of personal property, being a direct tax within the meaning of the Constitution, and, therefore, unconstitutional and void because not apportioned according to representation, all those sections, consisting of one entire scheme of taxation, are necessarily invalid.
Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601, at 637 (1895).  (Emphasis added.)

It is important to note that the Pollock Case has never been overruled. It was not overruled by either the Sixteenth Amendment nor the Brushaber decision.

So when the Brushaber Court uses the word "principle", it is saying that the Sixteenth Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided. Brushaber, supra, at 18. The principal was to disregard the form, if necessary, and consider the substance alone. Now, after the Sixteenth Amendment, the courts can lawfully consider only the activity.

Several times previously in this brief, it has been indicated that the purpose of the Sixteenth Amendment was to prohibit the courts from treating a tax on income as a direct tax on property. Up to this point, however, no concrete documentation to support this statement has been supplied. Such concrete documentation can be found in a Congressional Research Service report.

The Congressional Research Service does legal research for Congress. The particular report of interest here is Report No. 84-168 A, 784/725, titled 'Some Constitutional Questions Regarding The Federal Income Tax Laws', dated May 25, 1979, and updated September 26, 1984. This report is on record in the Library of Congress and will hereinafter be referred to as CRSR-84-168A.

CRSR-84-168A was written by Howard Zaritsky, Legislative Attorney of the American Law Division of the Congressional Research Service. It was updated by John R. Luckey, Legislative Research Assistant of the American Law Division of the Congressional Research Service.

The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still subject to  the rule of uniformity. Rather, the Court found that the Sixteenth Amendment sought to restrain the Court from viewing an income tax as a direct tax because of its close effect on the underlying property.
CRSR-84-168A, page 5. (Emphasis added.)

So we now see that, as stated at the beginning of this section:

1. The Sixteenth Amendment conferred no new power of taxation.
2. The Sixteenth Amendment did not extend the taxing power to new or excepted subjects.
3. The Sixteenth Amendment prohibited the power of income taxation, possessed by Congress from the beginning of our national government under the Constitution, from being taken out of the category of indirect taxation to which it inherently belonged.

In plain English, the so-called "income" tax is and always has been an indirect tax meaning that the subject of the tax must be a revenue taxable activity and that the income arising from the revenue taxable activity is used simply to determine the amount of the tax.

How could Chief Justice White correctly say that taxation "on "income was in its nature an excise? Income is essentially profit or gain. Profit or gain always results in property (tangible or intangible) in one form or another. Income is not in the category of people, and it is not in the category of activities. Income can only be in the category of property. Property taxes are direct taxes, not excise taxes. So what does Chief Justice White mean when he talks about taxation "on" income being in its nature an excise?

Let's look at the word "on" to see what it possibly could mean as used in the Sixteenth Amendment. The word "on" has more than one definition.

One of the definitions given in Webster's Seventh New Collegiate Dictionary (1971) shows that the word "on" means "with regard or respect to". The dictionary also shows that the word "regard" means "an aspect to be taken into consideration".

So the Sixteenth Amendment could just as easily read as follows:

Congress shall  have power  to lay and collect taxes with regard to or with respect  to  or  in  consideration of or measured by the income, from whatever source derived, without  apportionment  among  the several States, and without regard to any census or enumeration.

The above definitions reasonably and logically explain Chief Justice White's statement regarding taxation "on" income.

Cases cited previously show that taxes on property must be apportioned. The Flint Case (1911) tells us that indirect taxes are never upon any kind of property, money or otherwise, but rather on revenue taxable activities such as the doing of business in a corporate capacity. The Brushaber Case (1916) reaffirms the fact that taxation "on" income is in its nature an excise and that excise taxes are in the class of indirect taxes. The Stanton Case (1916) tells us that the Sixteenth Amendment (1913) conferred no new power of taxation and was to keep an income tax in the category of indirect taxation. The Peck & Co. Case (1918) tells us that the Sixteenth Amendment does not extend the taxing power to new or excepted subjects. The Tyler Case (1930) tells us that indirect taxes are not on the tangible fruits (property) but on the happening of an event. The Steward Case (1937) and the Penn Mutual Case (1960) (well after the Sixteenth Amendment) tell us that taxes on property must be apportioned and that the so-called "income" tax is not apportioned so it cannot be a tax on property.

Based on the above information, the word "on" as used in the Sixteenth Amendment could not possibly relate to a property tax, but only to indirect taxes 'with regard to' or 'with respect to' or 'in consideration of' or 'measured by' income.

There are other sources of documentation to show that the income is not the SUBJECT OF the so-called "income" tax. For example, the 1943 House Congressional Record reiterates these basic facts.

The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges  which  is  measured  by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax.
House Congressional Record, March 27, 1943, page 2580.

Part 3

Where does one start in an attempt to decode the Internal Revenue Code?  A good place to start is to find out just who it is that is subject to the Code.

The United States courts have ruled:

The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to nontaxpayers. The latter are without their scope. No procedure is prescribed for nontaxpayers, and no attempt is made to annul any of their rights and remedies in due course of law. With them Congress does not assume to deal, and they are neither of the subject nor of the object of the revenue laws.
Economy Plumbing and Heating v. United States, 470 F.2d 585, at 589 (Ct.Cl. 1972). (Emphasis added.)

Note 3 of this case as follows:

3. The term "taxpayer" in this opinion is used in the strict or narrow sense contemplated by the Internal Revenue Code and means a person who pays, overpays, or is subject to pay his own personal income tax. (See Section 7701(a)(14) of the Internal Revenue Code of 1954.) A "nontaxpayer" is a person who does not possess the foregoing requisites of a taxpayer.         
Economy, supra, fn. 3, at 590. (Emphasis added.)

Apparently, the Economy Court makes it clear that there are two(2) categories of people - 'taxpayer' (a term defined within the Internal Revenue Code) & nontaxpayer.

One should question oneself as to whether they possess the requisites of a "taxpayer"?   Wouldn't that depend upon the subject of the tax?  Is it people, property or activities?

Internal Revenue Code section 7701(a)(14), to which the Economy Court referred, reads as follows:

Sec. 7701.   Definitions.

(a)  When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent
thereof---

(14)  Taxpayer.  The term "taxpayer" means any person subject to any internal revenue tax.
26 U.S.C. 7701(A)(14). (Emphasis added.)

The term "taxpayer" is also defined in section 1313(b) of the code, as follows:

Sec. 1313.   Definitions.

(b)  Taxpayer.

Not withstanding section 7701(a)(14), the term "taxpayer" means any person subject to a tax under the applicable revenue law.
26 U.S.C. 1313(b). (Emphasis added.)

It can be shown that the term subject to means liable for, as cited below:

We see no distinction between the phrases "liable for such a tax" and "subject to a tax".
Houston Street Corp., supra,  (Emphasis added.)

It becomes clear that the term "taxpayer" for purposes of the the Internal Revenue Code relates to persons who are subject to or liable for a revenue tax.  

What activities are revenue taxable?

The Internal Revenue Code is quite clear in showing which persons are liable for a tax. A search of the United States Code reveals the following revenue taxable activities. Notice how specific persons are made liable for (subject to) the taxes imposed.

Sec. 5005.   Person liable for tax.
(a) General. The distiller or importer of distilled spirits shall be liable for the taxes imposed there on by section 5001(a)(1).
26 U.S. C. § 5005(a)  (Emphasis added.)

Sec. 5703.
(a)(1) Orginal liability. The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by section 5701.
26 U.S. C. § 5703(a)(1). (Emphasis added.)

Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax under this subchapter on all wagers placed with him. Each person who conducts any wagering pool or lottery shall be liable for and shall pay the tax under this subchapter on all wagers placed in such pool or lottery.  Any person required to register under section 4412 who receives wagers for or on behalf of another person without having registered under section 4412 the name and place of residence of such other person shall be liable for and shall pay the tax under this subchapter on all such wagers received by him.
26 U.S. C. § 4401(c)  (Emphasis added.)

There shall be imposed a special tax of $500 per year to be paid by each person who is liable for the tax imposed under section 4401 or who is engaged in receiving wagers for or on behalf of any person so liable.
26 U.S.C. § 4411(a)   (Emphasis added.)

Notice that there are specific numbered statutes that persons who are liable for a given tax are specifically defined in terms of the revenue taxable activities they are engaged in and that the revenue taxable activities are also specifically defined. Should we not then conclude that, if none of the activities engaged in by any given individual are defined in statute as revenue taxable, that such individuals are not liable for any revenue tax administered by the Internal Revenue Service? 

This brief shows that it is well settled in case law that income is not the subject of the so-called "income" tax. Rather, the subject of the so-called "income" tax is certain revenue taxable activities, such as distilling or importing spirits, and the income derived from these revenue taxable activities is used merely used to measure the amount of tax due. It is also shown that activities that are revenue taxable are specifically defined in the Internal Revenue Code statutes,  and individuals engaged in activities that are not so defined are not liable for any revenue tax administered by the Internal Revenue Service. 

Since:

1. The so-called "income" tax can only be applied to those individuals engaged in certain revenue taxable activities as defined in the revenue statutes of the United States, and
2. Some agents of the Internal Revenue service routinely apply the so-called"income" tax to individuals that are not engaged in those activities,

It can be concluded that those agents are misapplying the revenue statutes of the United States.

Furthermore, since:

1. Certain agents of the Internal Revenue service have been informed of this misapplication of the revenue statutes of the United States, and;
2. These same agents of the Internal Revenue Service continue to misapply the revenue statutes of the United States,

It can be concluded that those agents are misapplying the revenue statutes with the full knowledge that they are, in fact, misapplying those statutes and, thus, operating under the color of law in such a manner as to constitute fraud.

Furthermore, since the aforesaid agents use coercion and threats of fines, penalties, interest, and incarceration to fraudulently enforce those misapplied revenue statutes of the United States, those agents are operating under the color of law in such a manner as to constitute extortion.

(Copyright Otto Skinner)
SOURCE: https://freedom-school.com/tax-matters/income-tax-brief-skinner.html

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