POLLOCK V. FARMERS' LOAN & TRUST CO.

A 5–4 decision of the Supreme Court, Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed 759, on rehearing, 158 U.S. 601, 15 S. Ct. 912, 39 L. Ed. 1108 (1895), declared the Income Tax Act of 1894 unconstitutional and ultimately led to the enactment of the sixteenth amendment, authorizing the imposition of an income tax by the federal government.

Charles Pollock—a Massachusetts stockholder employed by the New York defendant, Farmers' Loan & Trust Co.—appealed to the U.S. Supreme Court after unsuccessfully suing the defendant in federal courts to prevent it from breaching its fiduciary duty by filing returns for and paying a federal income tax. The tax was levied upon the profits that the defendant earned, including interest it received from income-producing real estate and bonds of New York City. Pollock alleged that such a tax, authorized by the Income Tax Act of 1894, was unconstitutional because it was a direct tax upon the property itself (28 Stat. 509). Article I, Section 2, of the U.S. Constitution mandated that all direct taxes be apportioned among the several states and Section 8 of the same article required that direct taxes be uniform. Pollock argued and the Supreme Court agreed that this tax did not satisfy either requirement. The tax was levied upon the rents or income of real property held by particular corporations and businesses and was, in effect, a direct tax upon the real property itself.

Pollock also raised the issue as to the validity of the tax as levied upon New York City bonds. The Court accepted the reasoning that since states were powerless to tax the operations or property of the United States, the United States had no constitutional power to tax either state instrumentalities or property.

The Supreme Court ruled that the Income Tax Act of 1894 violated the Constitution and that the taxes imposed pursuant to it were void. It reversed the decree of the federal circuit court and remanded the case.

As a result of the decision in Pollock v. Farmers' Loan & Trust Co., Congress recognized the need for a constitutional provision permitting the levy of federal income tax without apportionment among the several states. It took, however, eighteen more years before there was sufficient support for the passage of the Sixteenth Amendment.