Knowlton v. Moore
20 S. Ct. 747, 1900 U.S. LEXIS 1658, 178 U.S. 41 (1900)
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Rule of Law:
A federal tax on the transmission of property at death is an indirect excise tax, not a direct tax requiring apportionment. The constitutional requirement that such taxes be 'uniform throughout the United States' mandates only geographical uniformity, not intrinsic equality, thus permitting progressive tax rates and classifications based on relationship.
Facts:
- Edwin F. Knowlton died in October 1898 in Brooklyn, New York, leaving a will.
- His total personal estate was appraised at over $2.6 million, which he bequeathed to various legatees.
- Legatees included his brother, Eben J. Knowlton, who received $100,000, and other relatives and non-relatives who received various amounts.
- Pursuant to the War Revenue Act of 1898, the federal government sought to collect a tax on these legacies.
- The Collector of Internal Revenue calculated the tax rate for each legacy based on the total value of the entire personal estate.
- This method of calculation resulted in a higher progressive tax rate being applied to each individual legacy than if the rate had been based on the value of the legacy itself.
Procedural Posture:
- The executors of Edwin F. Knowlton's estate submitted a tax return to the Collector of Internal Revenue under protest.
- The executors paid the assessed tax of $42,084.67 under protest to avoid compulsory collection.
- They subsequently filed a petition for a refund with the Commissioner of Internal Revenue, which was denied.
- The executors (plaintiffs) sued the Collector of Internal Revenue (defendant) in the Circuit Court of the United States to recover the amount paid.
- The defendant demurred to the complaint, arguing that it failed to state a cause of action.
- The Circuit Court sustained the demurrer and dismissed the suit.
- The executors (plaintiffs-appellants) brought the case to the Supreme Court of the United States on a writ of error.
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Issue:
Does the federal legacy and distributive share tax imposed by the War Revenue Act of 1898, which includes exemptions, classifications based on beneficiary relationship, and progressive rates, violate the Constitution's direct tax apportionment or uniformity clauses?
Opinions:
Majority - Justice White
No. The federal legacy and distributive share tax is an indirect excise tax that does not violate the Constitution's direct tax or uniformity clauses. Historically, such 'death duties' are not taxes on property itself, but on the transmission or succession of property, which is a proper subject for an excise tax. The constitutional requirement for apportionment applies only to direct taxes, such as taxes on land or capitation. This court's decision in Scholey v. Rew established that an inheritance tax is an indirect excise, and the Pollock decision regarding income taxes did not overrule that precedent. Furthermore, the constitutional command that duties, imposts, and excises be 'uniform throughout the United States' requires only geographical uniformity, not intrinsic uniformity. This means the law must apply with the same force and effect in every state where the subject of the tax is found; it does not prohibit Congress from creating exemptions, classifications based on relationship, or a progressive rate structure. However, the statute itself, when properly construed, imposes the tax on each individual legacy or share, with the progressive rate determined by the amount of that specific legacy or share, not by the aggregate value of the entire estate. Therefore, the collector's assessment was erroneous.
Dissenting - Justice Harlan
No. While the tax is constitutional, the majority misinterprets the statute. The question of whether the tax is imposed should be determined by the whole amount of the personal property from which the legacies arise. If the total value of the estate exceeds the ten-thousand-dollar threshold, then every legacy or distributive share (except for a spouse's) should be taxed at the progressive rate stated in the act. The majority's construction, which bases the rate on individual legacy amounts, defeats the intent of Congress.
Dissenting in part - Justice Brewer
No. He concurred with the majority on all points except for the constitutionality of a progressive tax rate. He dissented from the holding that a progressive rate of tax can be validly imposed, believing it to be fundamentally unjust.
Analysis:
This landmark decision firmly established the federal government's authority to impose inheritance and estate taxes by classifying them as indirect excise taxes, thereby avoiding the constitutional requirement of apportionment. It also provided the definitive interpretation of the Uniformity Clause, clarifying that it mandates only geographical uniformity, not intrinsic equality among taxpayers. This gave Congress broad latitude to enact tax laws with various classifications, exemptions, and progressive rates, paving the way for the modern federal estate and gift tax system and significantly expanding the federal government's revenue-raising powers.
