Pollock V. Farmers' Loan and Trust Company
POLLOCK V. FARMERS' LOAN AND TRUST COMPANY
In 1898 the U.S. Supreme Court declared the income tax unconstitutional. It had been levied as part of the Wilson–Gorman Tariff Act (1894) and taxed all incomes over $4,000 at two percent. The ruling came in the case of Pollock v. Farmers' Loan and Trust Company. Massachusetts resident Charles Pollock was a stockholder in the loan and trust company. In 1895 Pollock sued on behalf of himself and other shareholders, challenging the payment of taxes on the interest and dividends on deposit in the bank during the previous year. In this case, the justices had to decide fundamental questions: (1) whether the federal government could apply "income duty" to the bank deposits of U.S. citizens; (2) whether it could levy an income tax at all. A bare majority of five judges agreed that the Constitution prohibited direct taxation and that, instead, the tax burden had to be apportioned to each state (based on their population). The high court's decision stated that the tax was "repugnant to the Constitution . . . income tax is invariably classified as a direct tax." But the need for an income tax did not abate, and after the turn of the century the graduated tax began receiving bipartisan political support. Eventually the states ratified the Sixteenth Amendment (1913), which authorizes the U.S. Congress to levy and collect income tax without regard to a census (apportionment).
See also: Sixteenth Amendment