Flint v. Stone Tracy Co., 220 U.S. 107 (1911), was a United States Supreme Court case in which a taxpayer challenged the validity of a federal income tax on corporations. The privilege of incorporation is a state function, and the challengers argued that only the states should tax corporations. The Court ruled that the privilege of operating in corporate form is valuable and justifies imposition of a federal income tax:

Background

President William Howard Taft proposed a constitutional amendment to allow federal income taxes on individuals and an excise tax "upon the privilege of doing business as an artificial entity and of freedom from a general partnership liability enjoyed by those who own the stock" on June 16, 1909. The Sixteenth Amendment to the United States Constitution, which permitted federal income taxation without apportionment, was enacted in 1913; and the Corporation Excise Tax Act, sometimes known as the Corporation Tax Act, was enacted on August 5, 1909 and taxed corporation income at 1%, with the first $5000 exempt. Dictionaries often cite the case for the definition of excise tax in the United States: "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.' Cooley, Const. Lim. 7th ed. 680." "The tax under consideration, as we have construed the statute, may be described as an excise upon the particular privilege of doing business in a corporate capacity, i. e., with the advantages which arise from corporate or quasi corporate organization; or, when applied to insurance companies, for doing the business of such companies. As was said in the Thomas Case, 192 U. S. supra, the requirement to pay such taxes involves the exercise of privileges, and the element of absolute and unavoidable demand is lacking. If business is not done in the manner described in the statute, no tax is payable."

Constitutionality arguments

The New International Yearbook reported: According to the Tax History Project, "the tax was challenged on the theory that it was a direct tax that had not been apportioned among the states by population." The U.S. Constitution provides (in part): The power to impose taxes, whether direct or indirect, is granted by Article I, section 8, clause 1. Indirect taxes (or "duties, imposts and excises," sometimes called simply "excises") are required to be geographically uniform, according to Article I, section 8, clause 1. Another issue raised in the case was whether section 38 of the Act in question was unconstitutional because it originated in the Senate, in violation of the Origination Clause, section 7 of article 1 of the Constitution, providing that "all bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with the amendments, as on other bills." The Court rejected that argument, upholding the statute and ruling that the bill had indeed originated in the House of Representatives:

Criticism

Henry Campbell Black stated:

Similar cases

In ''Quaker City Cab. v. Pennsylvania'', the Supreme Court held that the state of Pennsylvania could not discriminate between corporations and individuals and partnerships in imposing taxes on gross receipts of operators of taxicabs: The vote was 6-3, and the dissent by Louis Brandeis cited Flint v. Stone Tracy Co.: The Court, 45 years later, explicitly reversed the Quaker City Cab decision in upholding an Illinois property tax that was higher on corporations than individuals, and it quoted the dissenting opinion of Holmes in the taxicab case and the Flint v. Stone Tracy Co. case.