1. This Court cannot revise the taxing systems of the states in
an attempt to produce a more just distribution of the burdens of
taxation than that arrived at by the state legislatures. P.
256 U. S.
598.
2. A state tax law, to be in conflict with the Fourteenth
Amendment, must propose, or clearly result in, such flagrant and
palpable inequality between the burden imposed and the benefit
received as to amount to the arbitrary taking of property without
compensation. P.
256 U. S.
598.
3. In Massachusetts, the state and local taxes on real estate,
tangible personal property and polls are laid and collected by the
respective municipal subdivisions, each paying its quota to the
state, but intangible personal property has been largely exempted
from local taxation, and the revenue therefrom is derived through a
uniform income tax, laid and collected directly by the state, and
is distributed to the subdivisions not in proportion to the amounts
of it contributed from each, but under a plan whereby, in
increasing percentages through a series of years, and thereafter in
its entirety, it is to be divided among them annually in proportion
to the amounts of their respective state taxes, based on real
estate, tangible personal property and polls. (Gen. Acts 1919, c.
314.)
Held:
(1) That this plan of distribution, part of a complex scheme
designed to correct inequalities and prevent evasion, cannot be
interfered with, as in violation of the Fourteenth Amendment, upon
the ground that, in operation, it returns to the plaintiff's town
less income tax than he and its other inhabitants pay, and
distributes the overplus to other subdivisions which may elect to
use it for their local purposes not beneficial to those who paid
it. P.
256 U. S.
569.
(2) It is to be presumed that the moneys so distributed will be
devoted to lawful public uses. P.
256 U. S.
601.
129 N.E. 606 affirmed.
The case is stated in the opinion,
post, 256 U. S.
594.
Page 256 U. S. 594
MR. JUSTICE CLARKE delivered the opinion of the Court.
In this proceeding, we are asked to review and reverse a
judgment of the Supreme Judicial Court of Massachusetts holding
valid an act of the General Court (General Acts 1919, c. 314)
providing for the distribution of the proceeds of an income tax
among the towns, cities, and taxing districts of that state against
the contention that it violates the due process and equal
protection of the law
Page 256 U. S. 595
clauses of the Fourteenth Amendment to the Constitution of the
United States.
By amendment to the Constitution of Massachusetts, approved by
the people in 1915 (XLIV), the General Court was given power to
impose a tax at different rates upon income derived from different
classes of property, but at a rate uniform throughout the
commonwealth on incomes derived from the same class of property and
to exempt the property producing such income from other taxes.
Pursuant to this authority, a law was enacted in 1916 (General
Acts 1916, c. 269), which it is sufficient to describe as taxing,
with exceptions negligible here, income received from bonds, notes,
money at interest and debts due the person paying the tax,
dividends on shares of any corporations not organized under the
laws of Massachusetts, dividends on shares in partnerships,
associations or trusts, the interest in which is represented by
transferable shares, and income derived from professions,
employments, trade or business. Intangible property, the income
from which is taxed by the act, is practically exempted from local
taxation.
The validity of this act is not assailed.
Prior to the enactment of this law, the taxing subdivisions of
the state had taxed the real estate and tangible and intangible
personal property, within their respective jurisdictions, for both
state and local purposes, and the exemption from local taxation of
intangible property, provided for in the act, necessarily resulted
in an important reduction in their revenues.
The proceeds of the income tax thus provided for were
distributed by temporary acts applicable only to the years 1917 and
1918, but, in the year 1919, the act was passed, the validity of
which is assailed in this proceeding, which provides, in substance:
that the State Treasurer shall pay to each city, town, and
district, from the income tax
Page 256 U. S. 596
collected for the year 1919, an amount equal to ninety percent
of the difference between the average amount of the tax levied on
tangible and intangible personal property therein in the years 1915
and 1916 and the average that would be produced by a tax upon the
personal property actually assessed therein for the years 1917 and
1918 at the average of the rates of taxation prevailing therein in
1915 and 1916. In each succeeding year, until and including the
year 1927, the amount payable was reduced to an amount ten percent
less than it was for the next preceding year. Any amount collected
in any year prior to 1928 in excess of the required payments must
be distributed to the cities, towns and districts of the state in
proportion to the amount of the state tax imposed upon each for
such year, and in 1928 and thereafter the whole of the amount of
the income tax must be so distributed each year.
It is obvious that it was the purpose of this act to reimburse
the various taxing subdivisions until the year 1928 to the extent
thought necessary to supply the loss which each would sustain by
the withdrawal from its taxing power of the intangible property the
income of which was taxed by the state, and that, prior to 1928,
any excess of the income tax fund over such requirements, and
beginning with that year and continuing thereafter, the whole of
that fund, should be distributed to such subdivisions in proportion
to the amount of the state tax paid by each.
The petition in the case is one for mandamus, and the essential
allegations of it are that the petitioner, an inhabitant of the
Town of Brookline, in the years 1919 and 1920, derived income from
intangible personal property and otherwise which rendered him
subject to the provisions of the Income Tax Act of 1916; that the
state tax in Massachusetts is imposed upon towns and cities in
proportion to the value of the real estate and tangible personal
property and polls taxable therein, without regard
Page 256 U. S. 597
to intangible property or incomes taxed; that a sum in excess of
$1,000,000 was raised in the year 1920 by the taxation of the
inhabitants of Brookline upon incomes derived during the year 1919
from intangible property located in that town and on other income
earned therein, and that as great an amount will be in like manner
raised in 1921; that, under the distribution statute of 1919, there
will be returned to the Town of Brookline not more than $500,000 in
the year 1920, and in each year thereafter a less amount, until, in
the year 1928, not more than $250,000 will be returned to it, while
other towns, having greater real estate and tangible personal
property valuation for taxation, will receive much more than their
inhabitants will have contributed to the income tax fund, and that
such payments may be used by the cities and towns receiving them,
if they so elect, for the exclusive use and benefit of their own
inhabitants for local and "proprietary" purposes, which would not
in any degree contribute to the benefit of the petitioner, or of
the inhabitants of Brookline or of the citizens generally of the
commonwealth. Upon these allegations, a writ of mandamus,
commanding the respondent not to distribute any of the income tax
collected in the years 1920 or 1921, was prayed for.
Upon demurrer, the petition was dismissed.
This statement of the case shows that it is admitted that the
Income Tax Act of 1916 is a valid law, that the contention is only
that the Act of 1919, providing for distribution of the tax, is
unconstitutional, and that this contention rests wholly upon the
allegation of the petition that such amount of the income tax
collected by the state from the plaintiff in error and from other
inhabitants of Brookline as may be returned to any other
subdivision thereof, may, if the subdivision so elects, be used for
local or "proprietary" purposes such that no benefit whatever will
accrue from the expenditure of the tax to the plaintiff
Page 256 U. S. 598
in error or to other inhabitants of the Town of Brookline or to
the inhabitants of the state in general.
It is argued that from these conditions it must follow that the
plaintiff in error and other inhabitants of Brookline are taxed for
the exclusive benefit of the inhabitants of other subdivisions of
the state, and that this violates the due process of law clause,
or, if not that, the equal protection of the laws clause of the
Fourteenth Amendment to the Constitution of the United States, and
that therefore the proposed distribution of the tax should be
restrained.
The relation of the power of the federal courts to the taxing
systems of the states has been the subject of much discussion in
the opinions of this Court, notably in the following cases:
McCullough v.
Maryland, 4 Wheat. 316,
17 U. S.
428-432;
Providence Bank v. Billings
and Pittman, 4 Pet. 514,
29 U. S. 563;
State Tax on Foreign Held
Bonds, 15 Wall. 300,
82 U. S. 319;
Davidson v. New Orleans, 96 U. S. 97,
96 U. S. 105;
Kirtland v. Hotchkiss, 100 U. S. 491,
100 U. S. 497;
Memphis Gas Light Co. v. Taxing District of Shelby County,
109 U. S. 398,
109 U. S. 400;
Bell's Gap Railroad Co. v. Pennsylvania, 134 U.
S. 232,
134 U. S.
237-238;
Merchants' & Manufacturers' Bank v.
Pennsylvania, 167 U. S. 461,
167 U. S.
463-464;
Henderson Bridge Co. v. Henderson
City, 173 U. S. 592,
173 U. S.
615-616;
Travelers' Insurance Co. v.
Connecticut, 185 U. S. 364,
185 U. S. 371;
Wagner v. Baltimore, 239 U. S. 207,
239 U. S.
220.
While the nature of the subject does not permit of much finality
of general statement, it may plainly be derived from the cases
cited that, since the system of taxation has not yet been devised
which will return precisely the same measure of benefit to each
taxpayer or class of taxpayers, in proportion to payment made, as
will be returned to every other individual or class paying a given
tax, it is not within either the disposition or power of this Court
to revise the necessarily complicated taxing systems of the states
for the purpose of attempting to produce what might be thought to
be a more just distribution of the
Page 256 U. S. 599
burdens of taxation than that arrived at by the state
legislatures (
29 U. S. 4 Pet.
517;
82 U. S. 15
Wall. 319;
109 U. S. 109
U.S. 400;
185 U. S. 185
U.S. 371,
supra), and that where, as here, conflict with
federal power is not involved, a state tax law will be held to
conflict with the Fourteenth Amendment only where it proposes, or
clearly results in, such flagrant and palpable inequality between
the burden imposed and the benefit received as to amount to the
arbitrary taking of property without compensation -- "to spoliation
under the guise of exerting the power of taxing."
134 U. S. 134
U.S. 237;
173 U. S. 173
U.S. 615;
239 U. S. 239
U.S. 220,
supra. For other inequalities of burden or other
abuses of the state power of taxation, the only security of the
citizen must be found in the structure of our government itself. So
early as
29 U. S. 4 Pet.
563,
supra, it was said by Chief Justice Marshall:
"This vital power [of taxation] may be abused, but the
Constitution of the United States was not intended to furnish the
corrective for every abuse of power which may be committed by the
state governments. The interest, wisdom, and justice of the
representative body, and its relations with its constituents,
furnish the only security, where there is no express contract,
against unjust and excessive taxation; as well as against unwise
legislation generally."
The application of this summary of the law renders our
conclusion not doubtful.
The income tax involved is uniform in its application to all
income within the description of the act of all inhabitants of the
state without regard to the taxing subdivision in which they may
reside. It is collected by the state, and the capital value
producing the tax is practically exempted from other taxation. The
tax was authorized by the people of the state and the act was given
form by the legislature, for the purpose of correcting flagrant
inequalities of taxation, resulting from what the Supreme Judicial
Court, in the opinion in this case, called the "colonization" of
wealthy owners of intangible securities in
Page 256 U. S. 600
towns and cities which had exceptionally low rates of taxation
"brought about by avoidance and evasion, legal and illegal, of the
tax laws prevailing before the enactment of the income tax law."
Report to the Senate and House of Representatives of Massachusetts
by "the Joint Special Committee on Taxation," January 31, 1919. The
report just referred to was made after an elaborate study of the
subject of the distribution of this income tax, in the progress of
which largely attended public hearings were held in many cities of
the state, and it recommended the law assailed in substantially the
form in which it was enacted. The plan of returning the tax to the
various taxing districts in which those who paid it resided, which
is so strongly urged in argument, was carefully considered, and was
rejected as expensive and difficult, if not impracticable, of
application, and as calculated to ignore the considerations which
led to the enactment of the law and to restore the evils and
inequalities of taxation which it was devised to correct. It is
also apparent that this distribution law should not be considered
as an isolated provision, but as an important part, which it
clearly is, of an elaborate and involved system of state taxation
which would be seriously affected by the granting of such a writ of
mandamus as is prayed for.
Accepting as true, as we must, the allegation of the petition,
admitted by the demurrer, that the local subdivisions of the state
may, "if they so elect," devote the money derived from the income
tax through the distribution provided for in the act assailed, to
purposes which might not confer any certain benefit upon the
plaintiff in error or persons in like situations, yet it must be
accepted, on the other hand, that it is entirely clear that there
are many purposes to which these subdivisions may devote the money,
"if they so elect," which would be of such statewide influence that
the plaintiff in error and those similarly situated would very
certainly be benefited
Page 256 U. S. 601
by the expenditure of it. It must be said also in this case, as
was said by the Supreme Judicial Court of Massachusetts in the
decision of a similar case,
Duffy v. Treasurer and Receiver
General, 234 Mass. 42:
"There is nothing on the record to justify the assumption that
the several municipalities design to devote to other than public
use any portion of the income tax thus distributed to them. Every
presumption is in favor of legality in the absence of evidence to
the contrary."
This presumption of legality is a sound and strong one, and is
amply sufficient to prevail over the effect of the admitted
allegation of the petition.
The case presented is clearly not one of that extreme inequality
in taxation of which the federal courts should lay hold, but
involves, rather, a question of state policy of a character which
the people have been satisfied to leave to the judgment,
patriotism, and sense of justice of representatives in their state
legislature.
The judgment of the Supreme Judicial Court of Massachusetts
is
Affirmed.