Brushaber v. Union Pacific R.R. Co. (1916)


Brushaber v. Union Pacific R.R. Co. (1916)Hot!

          This Supreme Court case, Brushaber v. Union Pacific R.R. Co., is the very first decision handed down by the Supreme Court regarding the constitutionality of the Subtitle A income tax laws enacted in 1913.  HOWEVER, it is not a case about any individual (Brushaber) paying income tax directly, it is a case about contesting the legal duty TO  COLLECT INCOME TAX, not pay it !   This decision, together with the Stanton decision, a case about a CORPORATION paying the income tax on its MINING (of  commodities) activity, handed down consecutively, immediately after this one, are still the recognized, controlling Supreme Court decisions on the issue of the constitutionality of the income tax laws. 


In the very first sentence, of the very first paragraph of this decision, it clearly states:


“As a stockholder…the appellant filed his bill to enjoin the corporation from complying with the income tax provisions of the tariff act of October 3, 1913."  Brushaber, supra at 9


          Do you know what a TARIFF is?  A TARIFF is a tax laid on FOREIGN GOODS entering America and on FOREIGN ACTIVITY occurring IN America.  




And then, on page 21 of this (Brushaber) Decision, the Supreme Court tells us how the tax is to be collected:


"2. The act provides for collecting the tax at the source; that is, makes it the duty of corporations, etc., to retain and pay the sum of the tax on interest due on bonds and mortgages, unless the owner to whom the interest is payable gives a notice that he claims an exemption.. This duty cast upon corporations, because of the cost to which they are subjected, is asserted to be repugnant to due process of law as a taking of their property without compensation…"
Brushaber v. Union Pacific R.R. Co., 240 US 1, 21 (1916) (Entire text of ruling)


          I am going to show you the omitted portion, the  “…”, in a moment, but first notice that the Court identifies in this decision that the tax is collected through the legislatively created duty of the “corporations, etc., to “retain and pay the sum of the tax.   In this case the Court recognizes that it was the federal tax collectors, the “corporations, etc.”, the legislatively defined "Withholding Agent"  who, under the laws enacted, had to collect the income tax and pay the collected tax over to the Treasury.  The case does not say that the income tax is paid by individual citizens directly to the government because the scheme of the tax being tested in this case, is the “scheme” of collecting the tax at the source.   This case is not about citizens having to pay income tax on their own income because that is not in the law.   This case is about the  allegedly undue burdens imposed on the company in being made a federal tax collector in the form of a Withholding Agent, with a legal duty imparted by the tested legislation to collect tax for the federal government as a Withholding Agent.


          It says right there in that first sentence that “As a stockholder…the appellant filed his bill to enjoin the corporation from complying with the income tax provisions…”.    Frank Brushaber filed this suit not because tax was being taken from him, and NOT because he had to pay the tax himself on his own income, but to contest the burden laid upon his corporation in being forced to bear the burden and expense of being made a federal tax collector in the form of a Withholding Agent, and as such, to consequently collect income tax for the federal government from certain persons.   As a shareholder (an owner of the company), Frank Brushaber had legal standing to contest the legal and economic burdens placed on the company by the legislation in mandating that the company collect tax for the federal government from certain persons.


          And Treasury Decision 2313 clearly shows the Orders emanating from the Treasury as a resultant of this Supreme Court decision.  That Treasury Decision says to collect the income tax from foreign persons, not citizens.


          The Brushaber decision determined that since the provisions of Article I of the Constitution regarding direct taxation were not repealed or amended, and since it is improper to use one provision of the law to destroy another, then those Article I provisions are still in full force and effect.   (Article I, Section 2, Clause 3 specifies that Direct taxes must be apportioned (to the state governments for collection), and Article I, Section 9, Clause 4 requires that any direct tax be laid in proportion to the census.)


 The Court ruled, in assessing whether or not the tested legislation imposed a direct or indirect income tax, that:


“We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear…”   Brushaber v. Union Pacific R.R., 240 U.S. 1, 11 (1916) 


Here the Court states that it is an erroneous conclusion to believe that the 16th Amendment did away with apportionment requirement regarding direct taxes.  And, in further denying the proposition and contention that the 16th Amendment authorizes a direct income tax, the Court very clearly states:


“…it clearly results that the proposition and the contentions under it, if acceded to, would cause one provision of the Constitution to destroy another; that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned ... This result … would create radical and destructive changes in our constitutional system and multiply confusion.”   Brushaber v. Union Pac. R.R., 240 U.S. 1, 12


          The Court recognized that since the power granted by the Amendment to tax income, by virtue of the wording of the 16th Amendment itself, is "without apportionment", then it cannot be applied as a direct tax, because direct taxes MUST still be apportioned, as per Article 1, Section 2, Clause 3, and must be laid in proportion to the census, as per Article 1 Section 9, Clause 4.  So, under the 16th Amendment, the income tax authorized is an indirect tax, not a direct tax.    And the 16th Amendment also does not provide for any “new” type of tax, or power to tax, or third category of federal taxation, besides direct and indirect.


          Now, if you remember, indirect taxes can only be either an impost, a duty, or an excise, as clearly specified under Article 1, Section 8, Clause 1 of the Constitution.  Imposts are taxes on foreign activity or goods entering the country, duties are taxes on activity or goods leaving the country, and according to the Supreme Court excise taxes are taxes on corporations, and on commodities, licenses and certain taxable activities. 


          Do I need to remind you that the Supreme Court identified in the first sentence of this decision that they are testing the provisions of a TARIFF ACT?  And that a tariff, being applied to foreign goods and activity entering the country, is one form of an impost! 


          According to the Supreme Court, the 16th Amendment does nothing in the way of creating a new taxing power or authority to tax (directly).    It (the 16th Amendment) merely prevents the income tax from being moved out of the category of INdirect taxation to which it inherently belongs. 


          Clearly, even under the 16th Amendment, the income tax  actually enacted by the tested legislation, is done so as an indirect tax.   It is not a direct tax without apportionment, as deceptively and fraudulently claimed by the I.R.S.    The Eisner v Macomber decision confirms this.


          Now, I told you earlier I was going to show you the part in the middle, the “…”, well here it is (below).  One should note, that while the court identifies that the withholding of income tax from the “interest on bonds and mortgages” is  the extent of the authority of the law under the instant circumstances before the court in this matter, and the focus of this specific case, , i.e.:


"2. The act provides for collecting the tax at the source; that is, makes it the duty of corporations, etc., to retain and pay the sum of the tax on interest due on bonds and mortgages, unless the owner to whom the interest is payable gives a notice that he claims an exemption. …" Brushaber v. Union Pacific R.R. Co., 240 US 1, 21 (1916) (Entire text of ruling) ;


that is not the extent of the legal authority of the Withholding Agent in the law to withhold income tax, it is just the focus of the circumstances of the case, and specific application of the law, in the instant matter (Brushaber). 


          The Withholding Agent is tasked under the law with the requirement to withhold tax on “interest …  dividends, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income,...” under the provisions of 26 U.S.C. Sec 1441(b) .  This provision exists, both still in today’s law, and also under the original instructions to the collectors of internal revenue provided in Treasury Decision 2313, distributed by the Treasury Department immediately after this Brushaber decision was handed down in 1916.


Also, please note that the withholding of tax is not required if:


          “…the owner to whom the interest is payable gives a notice that he claims an exemption”. 

Could that exemption be the exemption of the American citizens, from the collection at the source by withholding, provided for in regulation, and also, consistently provided as instructions to the federal  tax collectors in Publication 515.


Does Treasury Decision 2313 instruct the collectors of internal revenue to collect the income tax from citizens, or from non-resident aliens and foreign corporations?  


          The Brushaber decision concludes by referring the reader to the Flint v. Stone Tracy Co. (1911) decision, handed down five years earlier, for the definition of excise taxes, setting the stage for the enforcement of the income tax as a corporate tax and as a tax on the revenue derived from alcohol, tobacco and firearms activities and sales, and other excise taxable activities involving commodities UNDER Subtitles D and E of Title 26.


          In this case (Brushaber) The Supreme Court tells Frank Brushaber (an American citizen) that the tax IS Constitutional as an indirect tax, and that he (Brushaber) cannot interfere with its scheme of collection at the source by withholding, or the duty of the corporation to withhold tax from certain persons identified in the law.   The court knew that where the burden of the tax is shifted away from the third party tax collector and to the subject taxpayer by withholding, and that where there is no contact between the government and the taxpayer, only between the government and its tax collectors, that the tax is classically indirect, and recognized that the tax was therefore constitutional, and was not imposed by the enacting legislation as a direct tax without apportionment on all persons, or on all income, in the United States, but , rather, was imposed as an indirect tax in the form of a corporate excise and as an individual tax that is collected indirectly by federal tax collectors, those Withholding Agents, by withholding.


          The IRS relies on, and cites this Supreme Court ruling as absolute proof that the income tax IS CONSTITUTIONAL, AND THEY ARE RIGHT.  HOWEVER, Frank Brushaber, a citizen, filed this law suit “as a stockholder of the corporation” to try and prevent the company from having to take on the administrative duties and expenses of determining, and keeping track of, from whom to withhold tax and how much.  Most of this case is about whether or not there is an undue burden placed on the company in being made a Withholding Agent and compelled to perform as a tax collector for the government. It is not about individual citizens paying tax.


          Frank got told that he could not interfere with the collection of the tax because the Court determined that the burden placed on the company is not un-due or too great a burden to bear.  HOWEVER, he never got told to pay tax on his own income as a U.S. citizen living and working in one of the fifty states.  He was never told to file a FORM 1040 reporting his own income.  That was not the scheme of the tax enacted within the legislation whose constitutionality was being tested by the Court in this case.  The scheme being tested was that of “collection at the source”, of a tariff, or foreign tax, that is withheld at the source by Withholding Agents, acting as federal tax collectors who withhold tax from payments made to certain persons who are made subject to the withholding of tax by the provisions of the statutes.   If you don't believe me, please check the (entire text of the ruling) and note the very first sentence.


          This is a case about the duty and burdens of the Withholding Agent to withhold tax from non-resident foreign “persons”, who have NO rights under the Constitution, and who are under the federal jurisdiction over foreign affairs established for the federal government in the Constitution to exercise, and who, under the law, are the true and proper subjects of a tariff.   It is not a case related to the taxation of a citizen's own domestic income earned by right.   This is a case about whether or not being forced to act as a federal tax collector is a lawful burden, and being compelled to withhold tax as a tax collector is a legitimate tasking by the Congress.  The Court says it is.

BUT, It is a fundamental fraud to misrepresent this case as applicable or related to the issue of the domestic taxation of a citizen’s own income, as the IRS has done for over 60 years !!!

According to the Supreme Court in 1916, THERE IS STILL NO DIRECT TAXATION OF WE THE PEOPLE.  This is still true, even after the 16th Amendment:



Last Update: 02/28/07
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