Eisner v. Macomber, 252
U.S. 189 (1920)
This case presents the question whether, by virtue of the Sixteenth Amendment, Congress
has the power to tax, as income
of the stockholder and without apportionment, a stock dividend made
lawfully and in good faith against profits accumulated by the
corporation since March 1, 1913.
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This case raises an issue of
just what is the meaning of income in the Sixteenth Amendment.
In order, therefore, that
the clauses cited from article 1 of the Constitution may have proper
force and effect, save only as modified by the amendment, and that the
latter also may have proper effect, it
becomes essential to distinguish between what is and what is not
'income,' as the term is there used, and to apply the
distinction, as cases arise, according to truth and substance, without
regard to form.
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If it is essential to
determine "what is, and what is not income", an
implication arises that not all revenue is (16th amendment) income.
In order, therefore, that
the clauses cited from article 1 of the Constitution (direct taxes must be apportioned)
may have proper force and effect, save only as modified by the
amendment (power to lay and collect
taxes on incomes, from whatever source derived, without apportionment)
it becomes essential to distinguish between what is and what is not 'income,' as the term is there used...
For the present purpose we
require only a clear definition of the term 'income,' as used in common speech,
in order to determine its meaning in the amendment, and, having formed
also a correct judgment as to the nature of a stock dividend, we shall
find it easy to decide the matter at issue.
After examining dictionaries in common use (Bouv. L. D.; Standard
Dict.; Webster's Internat. Dict.; Century Dict.), we find little to add
to the succinct definition
adopted in two cases arising under the
Corporation Tax Act of 1909 (Stratton's Independence v. Howbert; Doyle
v. Mitchell Bros. Co.), 'Income may be
defined as the gain derived from capital, from labor, or from both
combined,' provided it be understood to include profit gained through a
sale or conversion of capital assets, to which it was applied in
the Doyle Case. |
Here's a parse to make sure
you do not forget the context of the Stratton's case:
| [Corporate] 'income' may be defined
as
the [corporate] gain derived
from capital, from labor, or from both
combined, provided it be
understood to include [corporate] profit
gained through a sale or conversion
of [corporate] capital assets, to which it was applied in the
Doyle Case. |
And don't forget what the
Doyle case said itself:
'Income,' ... imports, ... the
idea of gain or increase arising
from corporate activities.
Doyle v. Mitchell Bros.
Co., 247 U.S. 179 (1918)
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There can be NO
misunderstanding that the 1909 definition of income did NOT include the
revenue ("payroll" or "compensation for labor") coming in
to a natural person. What I refer to as "Payroll"
(compensation for labor), is
the particular
revenue stream to the natural person in exchange or trade for his
equally valued labor.
The 1909 Tax Act definition
of "income" did NOT
include the revenue that I refer to as "Return
On Investment" which is descriptive of the particular
revenue stream to the natural
person because of ownership of invested property. (They could
have as covered on page 2580 of the House report which will follow
shortly.)
The
definition of the "income" in
1909
Tax Act did not include "payroll"
or "compensation for labor" and
the door to taxing "payroll" or
"compensation for labor" AS
income was NEVER opened.
It is at this point in the
judicial chronology after the Supreme Court cases presented on the
previous three pages, the
[corporate]
context of the three rulings under the 1909 tax act is truncated from
the definition. Or so it appears.
The truncation
appears to exist from this point onward, and shall be examined in due
course.
Returning to Eisner v.
Macomber.
Eisner v. Macomber, 252
U.S. 189 (1920)
'Income may be
defined as the gain derived from capital, from labor, or from both
combined,' provided it be understood to include profit gained through a
sale or conversion of capital assets, to which it was applied in
the Doyle Case.
Brief as it is, it indicates the characteristic and distinguishing attribute
of income essential for a
correct solution of the present
controversy. The government, although basing its argument upon the
definition as quoted, placed chief emphasis upon the word 'gain,' which was extended to include
a variety of meanings; while the significance of the next three
words
was either overlooked or misconceived.
'Derived-from-capital';
'the
gain-derived-from-capital,' etc.
Here we have the essential
matter:
not a gain accruing to capital; not a growth or increment of value in
the investment; but a gain, a profit,
something of exchangeable value, proceeding from the property,
severed
from the capital,
however invested or employed, and
coming in,
being 'derived'-that is, received or drawn by the recipient (the
taxpayer) for his separate use, benefit and disposal- that is income
derived from property.
Nothing else
answers the description.
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The "description" itself can only be
described as "Return on Investment".
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