Pollock v. Farmers' Loan & Trust Co.: The Supreme Court Strikes Down the Income Tax (1895)
On April 8, 1895, the Supreme Court of the United States handed down its decision in Pollock v. Farmers' Loan & Trust Company, striking down the federal income tax created by the Wilson–Gorman Tariff Act of 1894. By a narrow 5–4 margin, the justices ruled that a tax on income derived from property was effectively a direct tax that had to be apportioned among the states by population, something Congress had not done. The ruling gutted the nation's first peacetime income tax and set the stage for one of the most consequential constitutional amendments in American history.
The Tax and the Lawsuit
In 1894, Congress passed the Wilson–Gorman Tariff Act, which lowered certain tariff rates but also introduced a 2% tax on annual incomes exceeding $4,000, a threshold that affected only the wealthiest Americans. Supporters argued the measure was a fair way to shift some of the federal tax burden away from consumers of tariffed goods and onto the rich. Opponents, however, viewed it as an assault on property rights and an unconstitutional overreach by the federal government. Charles Pollock, a Massachusetts citizen who owned only ten shares of stock in the Farmers' Loan & Trust Company, filed suit to block the company from paying the tax on its income, including interest and dividends the company held on behalf of shareholders. Pollock's attorneys argued that the tax on income from real estate and personal property was a 'direct tax' under the Constitution, meaning it could only be levied if apportioned among the states according to population, as required by Article I, Section 9. The Farmers' Loan & Trust Company, despite being the nominal defendant, did not vigorously oppose Pollock's claim, and the case quickly moved to the Supreme Court, where prominent attorneys, including former Senator Joseph Choate, argued against the tax's constitutionality.
Did You Know?
Justice Howell Jackson traveled to Washington to cast the deciding vote on rehearing despite being gravely ill with tuberculosis, only to vote in dissent, meaning the income tax was struck down without his vote actually being needed for the outcome. He died just months later, in August 1895.
A Divided Court Rules
The Supreme Court first heard arguments in March 1895, and Chief Justice Melville Fuller delivered the initial opinion on April 8. The Court held that taxes on income derived from real estate and from municipal bonds were unconstitutional direct taxes requiring apportionment, but the justices split evenly, 4–4, on whether taxes on income from personal property, such as stocks and investments, were similarly unconstitutional, since Justice Howell Jackson was absent due to illness. Because of this deadlock, the Court ordered a rehearing. When the case was reargued with Jackson present, the Court issued a second decision on May 20, 1895, reported at 158 U.S. 601, this time ruling 5–4 that the entire income tax scheme was unconstitutional because it could not be separated into valid and invalid parts. Ironically, Justice Jackson, who had traveled despite his failing health to cast the deciding vote, joined the dissent, meaning the tax was struck down by the votes of the other four justices in the majority. Justice John Marshall Harlan wrote a forceful dissent, warning that the decision would allow enormous accumulations of wealth to escape their fair share of taxation and would cripple the federal government's ability to raise revenue equitably.
Legacy and the Sixteenth Amendment
The Pollock decision effectively eliminated the federal income tax for nearly two decades, forcing the government to rely heavily on tariffs and excise taxes for revenue. Critics, including many progressive reformers and populists, denounced the ruling as a triumph for the wealthy and a distortion of the Constitution's original meaning, since earlier taxes on income, such as those levied during the Civil War, had been upheld without apportionment concerns. The controversy fueled a growing political movement to amend the Constitution explicitly. After years of advocacy, Congress proposed the Sixteenth Amendment in 1909, and the states ratified it in 1913, declaring that Congress could "lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." This amendment directly superseded Pollock, restoring Congress's power to tax income and paving the way for the modern federal income tax system that funds the vast majority of U.S. government operations today. Pollock remains a landmark case studied in law schools not only for its immediate impact but as a striking example of how a single Supreme Court decision can provoke a constitutional amendment.