1. An act of Congress which clearly, on its face, is designed to
penalize, and thereby to discourage or suppress, conduct the
regulation of which is reserved by the Constitution exclusively to
the States, cannot be sustained under the federal taxing power by
calling the penalty a tax. P.
259 U. S. 37.
Veazie Bank v.
Fenno, 8 Wall. 533;
McCray v. United
States, 195 U. S. 27;
Flint v. Stone Tracy Co., 220 U.
S. 107, and
United States v. Doremus,
249 U. S. 86,
distinguished.
Page 259 U. S. 21
2. Title XII of the Revenue Act of February 24, 1919, c. 18, 40
Stat. 1138, entitled "Tax on Employment of Child Labor," provides
that any person operating (a) any mine or quarry in which children
under the age of sixteen years have been employed or permitted to
work during any portion of the taxable year, or (b) any mill,
cannery, workshop or factory in which children under the age of
fourteen years have been employed or permitted to work, or children
between the ages of fourteen and sixteen have been employed or
permitted to work more than eight hour in any day, or more than six
days in any week, or after 7 o'clock P.M. or before 6 o'clock A.M.,
during any portion of the taxable year, shall pay for such taxable
year an excise equivalent to ten percent of the entire net profits
received or accrued for such year from the sale or disposition of
the product of his mine or other establishment, but relieves from
liability one who employs a child believing him to be above the
specified ages, relying on a certificate issued under authority of
a board consisting of the Secretary of the Treasury, the
Commissioner of Internal Revenue and the Secretary of Labor, or
under the laws of a State designated by them. Provision is made for
inspection of the mines, etc., by or under authority of the
Commissioner of Internal Revenue, or by or under authority of the
Secretary of Labor upon request of the Commissioner, and
obstruction of such inspections is made punishable by fine and
imprisonment.
Held unconstitutional. P.
259 U. S.
34.
276 Fed. 452, affirmed.
Error to a judgment of the District Court for the plaintiff in
an action against an internal revenue collector to recover the
amount of a tax previously paid under protest.
Page 259 U. S. 34
MR. CHIEF JUSTICE TAFT delivered the opinion of the Court.
This case presents the question of the constitutional validity
of the Child Labor Tax Law. The plaintiff below, the Drexel
Furniture Company, is engaged in the manufacture of furniture in
the Western District of North Carolina. On September 20, 1921, it
received a notice from Bailey, United States Collector of Internal
Revenue for the District, that it had been assessed $6,312.79 for
having during the taxable year 1919 employed and permitted to work
in its factory a boy under fourteen years of age, thus incurring
the tax of ten percent on its net profits for that year. The
Company paid the tax under protest, and after rejection of its
claim for a refund, brought this suit. On demurrer to an amended
complaint, judgment was entered for the Company against the
Collector for the full amount with interest. The writ of error is
prosecuted by the Collector direct from the District Court under §
238 of the Judicial Code.
The Child Labor Tax Law is Title XII of an act entitled "An Act
To provide revenue, and for other purposes", approved February 24,
1919, c. 18, 40 Stat. 1057, 1138. The heading of the title is "Tax
on Employment of Child Labor". It begins with § 1200, and includes
eight sections. Section 1200 is as follows:
"SEC. 1200. That every person (other than a bona fide boys' or
girls' canning club recognized by the Agricultural Department of a
State and of the United States) operating (a) any mine or quarry
situated in the United States in which children under the age of
sixteen years have been employed or permitted to work during any
portion of the taxable year; or (b) any mill, cannery, workshop,
factory, or manufacturing establishment situated in the United
States in which children under the age of fourteen years have been
employed or permitted to
Page 259 U. S. 35
work, or children between the ages of fourteen and sixteen have
been employed or permitted to work more than eight hours in any day
or more than six days in any week, or after the hour of seven
o'clock post meridian, or before the hour of six o'clock ante
meridian, during any portion of the taxable year, shall pay for
each taxable year, in addition to all other taxes imposed by law,
an excise tax equivalent to 10 percentum of the entire net profits
received or accrued for such year from the sale or disposition of
the product of such mine, quarry, mill, cannery, workshop, factory,
or manufacturing establishment."
Section 1203 relieves from liability to the tax anyone who
employs a child, believing him to be of proper age, relying on a
certificate to this effect issued by persons prescribed by a Board
consisting of the Secretary of the Treasury, the Commissioner of
Internal Revenue and the Secretary of Labor, or issued by state
authorities. The section also provides in paragraph (b) that
"the tax imposed by this title shall not be imposed in the case
of any person who proves to the satisfaction of the Secretary that
the only employment or permission to work which but for this
section would subject him to the tax has been of a child employed
or permitted to work under a mistake of fact as to the age of such
child, and without intention to evade the tax."
Section 1206 gives authority to the Commissioner of Internal
Revenue, or any other person authorized by him, "to enter and
inspect at any time any mine, quarry, mill, cannery, workshop,
factory, or manufacturing establishment." The Secretary of Labor,
or any person whom he authorizes, is given like authority in order
to comply with a request of the Commissioner to make such
inspection and report the same. Any person who refuses entry or
obstructs inspection is made subject to fine or imprisonment or
both.
Page 259 U. S. 36
The law is attacked on the ground that it is a regulation of the
employment of child labor in the States -- an exclusively state
function under the Federal Constitution and within the reservations
of the Tenth Amendment. It is defended on the ground that it is a
mere excise tax levied by the Congress of the United States under
its broad power of taxation conferred by § 8, Article I, of the
Federal Constitution. We must construe the law and interpret the
intent and meaning of Congress from the language of the act. The
words are to be given their ordinary meaning unless the context
shows that they are differently used. Does this law impose a tax
with only that incidental restraint and regulation which a tax must
inevitably involve? Or does it regulate by the use of the so-called
tax as a penalty? If a tax, it is clearly an excise. If it were an
excise on a commodity or other thing of value, we might not be
permitted under previous decisions of this court to infer solely
from its heavy burden that the act intends a prohibition, instead
of a tax. But this act is more. It provides a heavy exaction for a
departure from a detailed and specified course of conduct in
business. That course of business is that employers shall employ in
mines and quarries children of an age greater than sixteen years;
in mills and factories, children of an age greater than fourteen
years, and shall prevent children of less than sixteen years in
mills and factories from working more than eight hours a day or six
days in the week. If an employer departs from this prescribed
course of business, he is to pay to the Government one-tenth of his
entire net income in the business for a full year. The amount is
not to be proportioned in any degree to the extent or frequency of
the departures, but is to be paid by the employer in full measure
whether he employs five hundred children for a year, or employs
only one for a day. Moreover, if he does not know the child is
within the named age limit, he is not to pay;
Page 259 U. S. 37
that is to say, it is only where he knowingly departs from the
prescribed course that payment is to be exacted.
Scienter
is associated with penalties, not with taxes. The employer's
factory is to be subject to inspection at any time not only by the
taxing officers of the Treasury, the Department normally charged
with the collection of taxes, but also by the Secretary of Labor
and his subordinates, whose normal function is the advancement and
protection of the welfare of the workers. In the light of these
features of the act, a court must be blind not to see that the
so-called tax is imposed to stop the employment of children within
the age limits prescribed. Its prohibitory and regulatory effect
and purpose are palpable. All others can see and understand this.
How can we properly shut our minds to it?
It is the high duty and function of this court in cases
regularly brought to its bar to decline to recognize or enforce
seeming laws of Congress, dealing with subjects not entrusted to
Congress, but left or committed by the supreme law of the land to
the control of the States. We cannot avoid the duty even though it
require us to refuse to give effect to legislation designed to
promote the highest good. The good sought in unconstitutional
legislation is an insidious feature because it leads citizens and
legislators of good purpose to promote it without thought of the
serious breach it will make in the ark of our covenant or the harm
which will come from breaking down recognized standards. In the
maintenance of local self-government, on the one hand, and the
national power, on the other, our country has been able to endure
and prosper for near a century and a half.
Out of a proper respect for the acts of a coordinate branch of
the Government, this court has gone far to sustain taxing acts as
such, even though there has been ground for suspecting from the
weight of the tax it was intended to destroy its subject. But, in
the act before
Page 259 U. S. 38
us, the presumption of validity cannot prevail, because the
proof of the contrary is found on the very face of its provisions.
Grant the validity of this law, and all that Congress would need to
do, hereafter, in seeking to take over to its control anyone of the
great number of subjects of public interest, jurisdiction of which
the States have never parted with, and which are reserved to them
by the Tenth Amendment, would be to enact a detailed measure of
complete regulation of the subject and enforce it by a so-called
tax upon departures from it. To give such magic to the word "tax"
would be to break down all constitutional limitation of the powers
of Congress and completely wipe out the sovereignty of the
States.
The difference between a tax and a penalty is sometimes
difficult to define, and yet the consequences of the distinction in
the required method of their collection often are important. Where
the sovereign enacting the law has power to impose both tax and
penalty, the difference between revenue production and mere
regulation may be immaterial, but not so when one sovereign can
impose a tax only, and the power of regulation rests in another.
Taxes are occasionally imposed in the discretion of the legislature
on proper subjects with the primary motive of obtaining revenue
from them and with the incidental motive of discouraging them by
making their continuance onerous. They do not lose their character
as taxes because of the incidental motive. But there comes a time
in the extension of the penalizing features of the so-called tax
when it loses its character as such and becomes a mere penalty with
the characteristics of regulation and punishment. Such is the case
in the law before us. Although Congress does not invalidate the
contract of employment or expressly declare that the employment
within the mentioned ages is illegal, it does exhibit its intent
practically to achieve the latter result by adopting the criteria
of wrongdoing and imposing its principal consequence on those who
transgress its standard.
Page 259 U. S. 39
The case before us cannot be distinguished from that of
Hammer v. Dagenhart, 247 U. S. 251.
Congress there enacted a law to prohibit transportation in
interstate commerce of goods made at a factory in which there was
employment of children within the same ages and for the same number
of hours a day and days in a week as are penalized by the act in
this case. This court held the law in that case to be void. It
said:
"In our view, the necessary effect of this act is, by means of a
prohibition against the movement in interstate commerce of ordinary
commercial commodities, to regulate the hours of labor of children
in factories and mines within the States, a purely state
authority."
In the case at the bar, Congress in the name of a tax which, on
the face of the act, is a penalty seeks to do the same thing, and
the effort must be equally futile.
The analogy of the
Dagenhart Case is clear. The
congressional power over interstate commerce is, within its proper
scope, just as complete and unlimited as the congressional power to
tax, and the legislative motive in its exercise is just as free
from judicial suspicion and inquiry. Yet when Congress threatened
to stop interstate commerce in ordinary and necessary commodities,
unobjectionable as subjects of transportation, and to deny the same
to the people of a State in order to coerce them into compliance
with Congress' regulation of state concerns, the Court said this
was not, in fact, regulation of interstate commerce, but rather
that of State concerns, and was invalid. So here, the so-called tax
is a penalty to coerce people of a State to act as Congress wishes
them to act in respect of a matter completely the business of the
state government under the Federal Constitution. This case
requires, as did the
Dagenhart case, the application of
the principle announced by Chief Justice Marshall in
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 423,
in a much quoted passage:
Page 259 U. S. 40
"Should Congress, in the execution of its powers, adopt measures
which are prohibited by the Constitution, or should Congress, under
the pretext of executing its powers, pass laws for the
accomplishment of objects not intrusted to the government, it would
become the painful duty of this tribunal, should a case requiring
such a decision come before it, to say that such an act was not the
law of the land."
But it is pressed upon us that this court has gone so far in
sustaining taxing measures the effect or tendency of which was to
accomplish purposes not directly within congressional power that we
are bound by authority to maintain this law.
The first of these is
Veazie Bank v.
Fenno, 8 Wheat. 533. In that case, the validity of
a law which increased a tax on the circulating notes of persons and
state banks from one percentum to ten percentum was in question.
The main question was whether this was a direct tax to be
apportioned among the several States "according to their respective
numbers" This was answered in the negative. The second objection
was stated by the Court:
"It is insisted, however, that the tax in the case before us is
excessive, and so excessive as to indicate a purpose on the part of
Congress to destroy the franchise of the bank, and is, therefore,
beyond the constitutional power of Congress."
To this the Court answered (p.
21 U. S.
548):
"The first answer to this is that the judicial cannot prescribe
to the legislative departments of the government limitations upon
the exercise of its acknowledged powers. The power to tax may be
exercised oppressively upon persons, but the responsibility of the
legislature is not to the courts, but to the people by whom its
members are elected. So if a particular tax bears heavily upon a
corporation, or a class of corporations, it cannot, for that reason
only, be pronounced contrary to the Constitution. "
Page 259 U. S. 41
It will be observed that the sole objection to the tax there was
its excessive character. Nothing else appeared on the face of the
act. It was an increase of a tax admittedly legal to a higher rate,
and that was all. There were no elaborate specifications on the
face of the act, as here, indicating the purpose to regulate
matters of state concern and jurisdiction through an exaction so
applied as to give it the qualities of a penalty for violation of
law, rather than a tax.
It should be noted, too, that the Court, speaking of the extent
of the taxing power, used these cautionary words (p.
21 U. S.
541):
"There are, indeed, certain virtual limitations, arising from
the principles of the Constitution itself. It would undoubtedly be
an abuse of the power if so exercised as to impair the separate
existence and independent self-government of the States, or if
exercised for ends inconsistent with the limited grants of power in
the Constitution."
But, more than this, what was charged to be the object of the
excessive tax was within the congressional authority, as appears
from the second answer which the Court gave to the objection. After
having pointed out the legitimate means taken by Congress to secure
a national medium or currency, the Court said (p. 549):
"Having thus, in the exercise of undisputed constitutional
powers, undertaken to provide a currency for the whole country, it
cannot be questioned that Congress may, constitutionally, secure
the benefit of it to the people by appropriate legislation. To this
end, Congress has denied the quality of legal tender to foreign
coins, and has provided by law against the imposition of
counterfeit and base coin on the community. To the same end,
Congress may restrain, by suitable enactments, the circulation as
money of any notes not issued under its own authority. Without this
power, indeed, its attempts to secure
Page 259 U. S. 42
a sound and uniform currency for the country must be
futile."
The next case is that of
McCray v. United States,
195 U. S. 27. That,
like the
Veazie Bank case, was the increase of an excise
tax upon a subject properly taxable in which the taxpayers claimed
that the tax had become invalid because the increase was excessive.
It was a tax on oleomargarine, a substitute for butter. The tax on
the white oleomargarine was one-quarter of a cent a pound, and on
the yellow oleomargarine was first two cents and was then by the
act in question increased to ten cents per pound. This court held
that the discretion of Congress in the exercise of its
constitutional powers to levy excise taxes could not be controlled
or limited by the Courts because the latter might deem the
incidence of the tax oppressive, or even destructive. It was the
same principle as that applied in the
Veazie Bank case.
This was that Congress, in selecting its subjects for taxation,
might impose the burden where and as it would, and that a motive
disclosed in its selection to discourage sale or manufacture of an
article by a higher tax than on some other did not invalidate the
tax. In neither of these cases did the law objected to show on its
face, as does the law before, us the detailed specifications of a
regulation of a state concern and business with a heavy exaction to
promote the efficacy of such regulation.
The third case is that of
Flint v. Stone Tracy Co.,
220 U. S. 107. It
involved the validity of an excise tax levied on the doing of
business by all corporations, joint stock companies, associations
organized for profit having a capital stock represented by shares,
and insurance companies, and measured the excise by the net income
of the corporations. There was not in that case the slightest doubt
that the tax was a tax, and a tax for revenue, but it was attacked
on the ground that such a tax could be made excessive, and thus
used by Congress to destroy the existence
Page 259 U. S. 43
of state corporations. To this, this court gave the same answer
as in the
Veazie Bank and
McCray cases. It is not
so strong an authority for the Government's contention as they
are.
The fourth case is
United States v. Doremus,
249 U. S. 86. That
involved the validity of the Narcotic Drug Act, 38 Stat. 785, which
imposed a special tax on the manufacture, importation and sale or
gift of opium or coca leaves or their compounds or derivatives. It
required every person subject to the special tax to register with
the Collector of Internal Revenue his name and place of business,
and forbade him to sell except upon the written order of the person
to whom the sale was made on a form prescribed by the Commissioner
of Internal Revenue. The vendor was required to keep the order for
two years, and the purchaser to keep a duplicate for the same time,
and both were to be subject to official inspection. Similar
requirements were made as to sales upon prescriptions of a
physician and as to the dispensing of such drugs directly to a
patient by a physician. The validity of a special tax in the nature
of an excise tax on the manufacture, importation and sale of such
drugs was, of course, unquestioned. The provisions for subjecting
the sale and distribution of the drugs to official supervision and
inspection were held to have a reasonable relation to the
enforcement of the tax, and were therefore held valid.
The court said that the act could not be declared invalid just
because another motive than taxation, not shown on the face of the
act, might have contributed to its passage. This case does not
militate against the conclusion we have reached in respect of the
law now before us. The court there made manifest its view that the
provisions of the so-called taxing act must be naturally and
reasonably adapted to the collection of the tax, and not solely to
the achievement of some other purpose plainly within state
power.
Page 259 U. S. 44
For the reason given, we must hold the Child Labor Tax Law
invalid, and the judgment of the District Court is
Affirmed.
MR. JUSTICE CLARKE dissents.