The ordinary test of the difference between direct and indirect taxes,
is whether the tax falls ultimately on the tax-payer, or whether, through
the tax-payer, it falls ultimately on the consumer. If it falls ultimately
on the tax-payer, then it is direct in its nature, as in the case of
poll taxes and land taxes. If, on the contrary, it falls ultimately
on the consumer, then it is an indirect tax.
Such is the test, as laid down by all writers on the subject. Adam Smith,
who was the great and universally received authority on political economy,
in the day when the Federal Constitution was framed, sets forth a tax
on a person's revenue to be a direct tax. 5 Mill,6 Say,7 J. R. McCulloch,8
Lieber,9 among political economists, do the same in specific
[74 U.S. 433, 438] language. Mr.
Justice Bouvier, in his learned Law Dictionary, defines a capitation
tax, 'A poll tax; an imposition which is yearly laid on each person
according to his estate and ability.'
Indeed, it is obvious that an income tax, levied on the profits of any
business, does not fall ultimately on the consumer or patron of that
business, in any other sense than that in which a poll tax or land tax
may be said ultimately to fall, or be charged over by the payer of those
taxes upon the persons with whom and for whom they do business, or to
whom they rent their lands. The refinement which would argue otherwise,
abolishes the whole distinction, and under it all taxes may be regarded
as direct or indirect, at pleasure.
But, if the distinction is recognized (and it must be, for the Constitution
makes it), then it follows, that an income tax is, and always heretofore
has been, regarded as being a direct tax, as much so as a poll tax or
as a land tax. If it be a direct tax, then the Constitution is imperative
that it shall be apportioned.
If it be argued that an income tax cannot be apportioned, then, it cannot
be levied; for only such direct taxes can be levied as can be apportioned.
But an income tax can be apportioned as easily as any other direct tax;
first, by determining the amount to be raised from incomes throughout
the United States, and then by ascertaining the proportion to be paid
by the people of each State. An income tax, in the matter of its apportionment,
is not embarrassed by any other difficulties than those which grow out
of apportionment, in the admitted cases of poll taxes and land taxes.”
[Pacific Insurance
Co. v. Soule, 74 U.S. 433 (1868)]