Stanton v. Baltic Mining Co. (1916)


Stanton v. Baltic Mining Co. (1916)Hot!

Stanton v. Baltic Mining Co., 240 US 103 (1916) (Entire text of ruling)

" the previous ruling, it was settled that the provisions of the 16th Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of INDIRECT taxation to which it inherently belonged.." (emphasis added)

This decision was handed down immediately after the Brushaber decision (it was the next case decided) in 1916. It confirmed the holding in the previous case (Brushaber) that the income tax legislation that had been enacted by Congress was (is) constitutional because it was (is) enacted under a scheme of INDIRECT taxation, clearly stating that the power of income taxation possessed by Congress is inherently indirect.

NOW, while the income tax legislation tested by the Court in these cases in 1916 was  laid in the form of a tariff, which is one form of an impost authorized under Article 1 Section 8, Clause 1, this Stanton decision addresses a different aspect of the legislation than was tested in Brushaber.  In the Brushaber decision, the Court tests whether or not the burden to pay the personal income tax was constitutional.  It found that the burden (is) shifted from the federal tax collector  who collects the tax (defined in the law at Section 7701(a)(16) as a "Withholding Agent", who is made liable under Section 1461for the payment of the federal income tax that he has collected from other persons), to the actual underlying taxed subjects who pay it, and that therefore, it was a legitimate exercise of the indirect taxing powers possessed by Congress under the actual scheme of tax that was enacted by the legislation that was tested and upheld by the Court. 

HOWEVER, in the Stanton decision the Court addresses a different aspect of the same legislation.  In the Stanton decision the Court addresses the legitimacy of the income tax as it applies to the corporate profits of a mining company, Baltic Mining Co.  The company argues that the tax on its income, derived from mining operations, is unconstitutionally direct.  The Court rejects that argument stating conclusively:

“We say wholly fallacious assumption because, independently of the effect of the operation of the 16th Amendment, it was settled in Stratton's Independence v. Howbert, 231 U.S. 399 , 58 L. ed. 285, 34 Sup. Ct. Rep. 136, that such tax is not a tax upon property as such because of its ownership, but a true excise levied on the results of the business of carrying on mining operations. (pp. 413 et seq.)”  Stanton v. Baltic Mining Co., 240 US 103, 114 (1916)


The first sentence in the Stratton's Independence v. Howber Opinion, states:


“This action was brought in the district court of the United States by Stratton's Independence, Limited, a British corporation carrying on mining operations in the state of Colorado upon mining lands owned by itself, to recover certain moneys paid under protest for taxes assessed and levied for the years 1909 and 1910 under the provisions of the corporation tax act, being 38 of the act of August 5, 1909 (36 Stat. at L. 11, 112, chap. 6, U. S. Comp. Stat. Supp. 1911, pp. 741, 946)” 

Stratton's Independence v. Howber, 231 U.S. 399 , 58 L. ed. 285, 34 Sup. Ct. Rep. 136    (emphasis added)


This case is about the taxation of a foreign company !   And it relies on Flint v. Stone Tracy Co. stating:


“The act of 1909 (being tested) avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, with certain qualifications prescribed by the act itself. Flint v. Stone Tracy Co. 220 U.S. 107 , 55 L. ed. 389, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912 B, 1312; McCoach v. Minehill & S. H. R. Co. 228 U.S. 295 , 57 L. ed. 842, 33 Sup. Ct. Rep. 419; United States v. Whitridge (decided at this term), 231 U.S. 144 , 58 L. ed. --, 34 Sup. Ct. Rep. 24. 

Stratton's Independence v. Howber, 231 U.S. 399 , 58 L. ed. 285, 34 Sup. Ct. Rep. 136      (emphasis added)


In Flint v. Stone Tracy Co., the Court holds that excise taxes are


."Excises are taxes laid upon:  the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges;  the requirement to pay such taxes involves the exercise of the privilege and if business is not done in the manner described no tax is is the privilege which is the subject of the tax and not the mere buying, selling or handling of goods.”  Flint v. Stone Tracy Co, 220 U.S. 107 (1911)  (emphasis added)


Additionally, the Court clearly identifies that there is a distinction in treatment between individuals and corporations under the legislation being challenged and tested


“The bill contained many averments on the following subjects, which may be divided into two generic classes: (A) Those concerning the operation of the law in question upon individuals generally and upon other than mining corporations, and the discrimination against mining corporations which arose in favor of such other corporations and individuals by the legislation”   Stanton v. Baltic Mining Co., 240 US 103, 108-109 (1916)


So, the court recognizes relies on a case about the taxation of a foreign company (Stratton's Independence, Limited), LEGITIMATELY SUBJECT AS A CORPORATION to an EXCISE tax that was legitimately imposed on its privileged corporate activity of mining (commodities in the form of precious metals), to uphold the income tax of 1909 as an indirect excise.  That legislation was repealed by the (current) income tax act of 1913, but it is unclear whether or not the court is upholding the CORPORATE income tax of 1913 (the current income tax legislation) as an indirect tax in the form of a tariff - imposed on foreign mining operations (and in territories and possessions), OR as an indirect tax in the form of an excise - legitimately imposed only on corporate, commodity, and licensed activities as identified in Flint v. Stone Tracy Co.


Either way, the corporate income tax provisions of the income tax legislation that was tested in this 1913 Stanton decision, is clearly upheld and sustained by the Court ONLY as an INDIRECT tax, not a direct one. 


I’m investigating whether or not the Baltic Mining Co. was actually a foreign held company or operation (probably not), or if it was operating a mine in a territory or possession of the U.S. (Alaska ?) where a tariff would apply, to determine if this corporate portion of the income tax legislation (of 1913)  is laid (and was upheld) as a tariff  (impost), or as an excise on corporate activity, in this specific instance, mining commodities. 


However, the personal income tax is clearly laid and collected as a tariff, and cannot also be construed to be an excise (as it applies to citizens), because citizens are not subject to the payment of any excise tax (or any other tax for that matter) on their constitutionally secured right to contract (work) and to earn a living without government interference or direct taxation of the earnings.


SO, the court does indeed seem to uphold the corporate income tax as an indirect excise, rather than as an indirect impost (tariff), ignoring the fact that the legislation originates as “the income tax provisions of the tariff act of Oct. 3, 1913”.


But, THAT REASONING CAN ONLY APPLY to justify a CORPORATE income tax, NOT the PERSONAL income tax on individuals.


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