United States Supreme Court Cases & Opinions

U.S. Supreme Court

Willcuts v. Bunn, 282 U.S. 216 (1931)

Willcuts v. Bunn

No. 22

Argued December 2, 1930

Decided January 5, 1931

282 U.S. 216

Syllabus

1. The profits derived by an investor in municipal bonds from their sale by him at a higher price are taxable as income under the Revenue Act of 1924. P. 282 U. S. 223.

2. Federal taxation of such profits is not unconstitutional as a tax on state instrumentalities. So held where it did not appear that the bonds had been issued at a discount so that the gain derived from their resale could be considered to be in lieu of interest. P. 282 U. S. 224.

3. The power to tax is no less essential to our governmental system than the power to borrow money. To preserve the latter, it is not necessary to cripple the former by exempting subjects which fall within the general application of nondiscriminatory tax laws, where their taxation lays no direct burden upon a governmental instrumentality, and exerts only a remote, if any, influence upon the exercise of the functions of government. P. 282 U. S. 225.

4. In the case of the bonds of a state or its political subdivisions, the subject held to be exempt from federal taxation is the principal and interest of the bonds. Such obligations being contracts of the state or subdivision, a tax upon the amounts payable by their terms has been regarded as bearing directly upon the exercise of the governmental borrowing power. P. 282 U. S. 226.

5. But sales of such bonds by their owners, after they have been issued, are transactions distinct from the governmental contracts in the bonds, and the profits on such sales are in a different category of income from the interest payable on the bonds. P. 282 U. S. 227.

6. Sales of such bonds by those who have invested in them cannot be deemed inseparably connected with the exercise of the borrowing power of the state, so as to make immune from federal taxation the profits of the sales. P. 282 U. S. 228.

7. Before the power of Congress to lay the excise in question can be denied as imposing a burden upon the state's borrowing power, it must be made to appear that the burden is real, not imaginary; substantial, not negligible. Pp. 282 U. S. 230, 282 U. S. 234.

Page 282 U. S. 217

8. The assertion that such taxes operate to burden governmental power to borrow is at variance with uniform and long established practice. The history of income tax legislation is persuasive, if not controlling, upon this question of practical effect. Pp. 282 U. S. 232, 282 U. S. 234.

35 F.2d 29, reversed.

Certiorari, 280 U.S. 551, to review a judgment affirming a recovery by the present respondent in his suit against the Collector for money paid the latter, under protest, as an additional income tax.

Page 282 U. S. 223