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What the Constitution means by "duties, imposts, and excises" - and "taxes" direct or otherwise.


This Article recreates the original definitions of the U.S. Constitution's terms "tax," "direct tax," "duty," "impost," "excise," and "tonnage." It draws on a greater range of Founding-Era sources than accessed heretofore, including eighteenth-century treatises, tax statutes, and literary sources, and it corrects several errors made by courts and previous commentators. It concludes that the distinction between direct and indirect taxes was widely understood during the Founding Era and that the term "direct tax" was more expansive than commonly realized.

The Article identifies the reasons the Constitution required that direct taxes be apportioned among the states by population. It concludes that the Constitution's "three-fifths" formula was a response to certain economic facts about slavery but that the underlying decision to apportion had little or nothing to do with slavery.

Finally, the Article reviews the Supreme Court's holding that the Affordable Care Act's penalty for not acquiring insurance is a tax but not a direct tax and concludes that if the penalty was a tax, it was direct.

     A. Indirect Taxes in General
     B. The Terminology of Indirect Taxation
        1. Duties
        2. Imposts
        3. Tonnage
        4. Excises
     C. The Political and Moral Bases of the Direct Tax/Indirect Tax
     A. Reasons for Apportionment of Direct Taxes
     B. Adoption of an Apportionment Formula

"Mr King asked what was the precise meaning of direct taxation? No one answd."

--Madison's Constitutional Convention notes

"The objects of direct taxes are well understood ..."

--Future Chief Justice John Marshall at the Virginia Ratifying Convention


The Constitution's Taxation Clause empowers Congress to "lay and collect Taxes, Duties, Imposts and Excises." (2) It also imposes limitations on the tax power, including the requirement that "direct Taxes" be apportioned among the states. (3) To understand the intended scope of these powers and limitations--and, therefore, their original legal force (4)--one must understand what the words meant to the people who ratified them.

Although the Constitution's framers usually employed language in its ordinary sense, this was not invariably true. The Constitution contains some terms that, when used in legal documents, were widely understood to have specialized meanings. (5) This Article focuses on six technical terms the Constitution uses in defining Congress's financial powers: (1) duties, (2) excises, (3) imposts, (4) tonnage, (5) taxes, and (6) direct taxes. In its discussion of direct taxes, this Article also explains why the Constitution required them to be apportioned among the states.

I wrote this Article for two reasons. First, the subject has obvious modern significance--as the Supreme Court reminded us in its ruling on the Affordable Care Act in National Federation of Independent Business v. Sebelius. (6) Second, previous scholarship addressing it seemed inadequate; it is sparse for such an important topic and often is marred by methodological defects. The methodological shortcomings are explained in Part VII.

Part I of this Article is this Introduction. Part II introduces the constitutional text and identifies hints the text offers on the meaning of the terms discussed in this Article. Part III explains how the Founders distinguished a tax from the broader word imposition. Part IV defines the meaning of the controversial phrase direct Tax. Part V discusses indirect taxes and defines the four kinds of indirect taxes mentioned in the Constitution: duties, excises, imposts, and tonnage. Part V further identifies the dividing line between direct and indirect taxes and concludes that the line was not fundamentally economic but based on eighteenth century Anglo-American political and moral considerations.

Part VI explains the reasons behind the apportionment rule. Part VII discusses errors occurring in previous writings on the subject, including the Supreme Court's opinion in Sebelius. Part VIII, the Conclusion, presents a brief summary of what has gone before.

This study relies on a very wide range of primary sources. These include, besides the records of the Constitution's drafting and ratification, eighteenth century treatises, contemporaneous British and American tax statutes and other legislative documents, British and American newspaper articles, and various other materials. However, for reasons that should be obvious, but to many authors apparently are not, I rely only on sources arising before the end of 1790, the year Rhode Island became the thirteenth state to ratify the Constitution. Later material is too weakly probative, or not probative of all, of the ratification-era understanding. (7)


The constitutional text offers hints as to the meaning of the terms examined in this study. The following discussion addresses that text as it stood at the time of the Constitution's ratification, without the changes wrought subsequently by the Sixteenth Amendment (8) and by court decisions.

The Constitution imposed two limits on state financial exactions: (1) a requirement of congressional consent before a state could "lay any Duty of Tonnage" (9) and (2) with one exception, a like requirement before a state could "lay any Imposts or Duties on Imports or Exports." (10) The Constitution also authorized Congress to impose financial exactions. The Taxation Clause empowered Congress to "lay and collect Taxes, Duties, Imposts and Excises."11 The Commerce Clause empowered Congress to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." (12) During the founding era, commercial regulation was understood to entail financial impositions. (13)

The Constitution qualified these grants to Congress. Among the qualifications were the following three:

* "All Bills for raising Revenue" had to originate in the House of Representatives; (14)

* Congress could impose no "Tax or Duty" on exports; (15) and

* until 1808, Congress was prohibited from levying any "Tax or duty" on imported slaves in excess of ten dollars per person. (16)

In addition to these qualifications, the Constitution included several that reflected the Founders' belief that government was a fiduciary institution, and, to the extent possible, should serve its constituents in an impartial manner. (17) These were as follows:

* Taxes, duties, imposts, and excises were to be levied "to pay the Debts and provide for the Common Defence and general Welfare of the United States." (18) The Supreme Court no longer treats this as much of a restriction, (19) but the Founders understood it to limit Congress to imposing only those taxes, etc., as would raise revenue for "general" (national) purposes rather than merely for regional or special-interest ("partial") purposes. (20) This provision curbed congressional taxing authority even within the scope of Congress's enumerated powers.

* "Duties, Imposts and Excises" were to be "uniform throughout the United States." (21)

* The Constitution prohibited any "Preference [being] given by any Regulation of Commerce or Revenue to the Ports of one State over those of another." (22)

* Two clauses required that "Capitation[s]" and other "direct Taxes" be apportioned among the states according to their population, with the provisos that (1) Indians who did not pay taxes were excluded (23) and (2) five slaves were to be counted as three free persons. (24) These clauses were unamendable until 1808. (25)

The terms examined in this study all occurred in the grants and limitations just summarized. "Tax," "Duty," "Excise," "Impost," and "Tonnage" occurred in the Taxation Clause. Three of those five words also appeared elsewhere in conjunctive and disjunctive expressions: "Tax or duty," (26) "Imposts or Duties," (27) "Duties and Imposts." (28) The phrase "direct ... Taxes" appeared in two other locations. (29) It is therefore reasonable to infer that, in accordance with the canon of construction against surplus, none of these individual terms was a synonym for any of the others. This does not preclude the possibility of overlap.

The Constitution usually employed the word "Duty" in the context of trade: "Duty of Tonnage," (30) duties on imported slaves, (31) duties on imports and exports. (32) We can deduce that at least some duties were commercial in nature and that they were subject to the requirement of uniformity of "Regulation[s] of Commerce or Revenue." (33)

The text further distinguished between "direct Taxes" and other taxes. It stated outright that a "Capitation" was a direct tax, and it implied that there were other kinds of direct tax. (34) Only direct taxes were to be apportioned among the states by population. (35) Other taxes, presumably indirect, were not to be apportioned. A different requirement--uniformity--applied to duties, imposts, and excises. (36) This suggests that to the extent the latter exactions were "taxes," they were indirect.

In sum: The text appeared to distinguish between regulations of commerce and taxes ("Revenue"); between taxes, duties, excises, and imposts; and between direct taxes and other (presumably indirect) taxes. It stated that capitations were direct and implied that there were other direct taxes as well. The text further implied that taxes in the form of duties, excises, or imposts were indirect. It stated explicitly that "duties" included "tonnage," and it implied that duties were associated with commerce. Finally, the text imposed an apportionment rule on direct taxes and a uniformity requirement on other financial exactions.

We now turn to sources of meaning outside the text of the Constitution.


In founding-era financial usage, imposition could refer to any pecuniary exaction by the government. (37) A legislature might adopt an imposition purely for regulatory purposes--by, for example, levying tariffs high enough to inhibit foreign imports and thereby protect domestic producers. (38) Alternatively, it might enact an imposition to raise money for the expenses of government.

Some contemporaneous British sources defined the word "tax" in a way to render it essentially a synonym for "imposition." (39) Others confined "tax" to a levy that raised money for the support of government. (40) During the decade before the Revolutionary War, Americans settled on the latter usage. (41)

Americans did so in reaction to British attempts to tax the colonies. In publications arguing the American cause, pamphleteers such as Richard Bland, John Adams, James Wilson, and, most notably, John Dickinson, (42) conceded the authority of the British government to regulate commerce though financial exactions (43)--by, for example, charging fees to fund inspections and imposing prohibitory tariffs to restrict trade. In view of the history of American acceptance of British trade regulations, they could hardly do otherwise. However, the pamphleteers staunchly contested efforts by Parliament to "tax" them. They defined "tax" so as to exclude trade regulations: a financial imposition for the sole purpose of raising revenue. (44) As Dickinson insisted, "every 'tax' being an imposition, though every imposition is not a 'tax.'" (45)

By the time of the constitutional debates of 1787-90, the distinction between impositions for regulation and impositions for revenue had eroded somewhat. Americans no longer claimed that a tax must be for the sole purpose of raising revenue. They conceded that a tariff or excise that raised significant revenue still qualified as a tax if the legislature imposed with the incidental purpose of protecting domestic producers (46) or suppressing vice. (47) Still, during the constitutional debates Americans considered exactions adopted primarily for regulatory purposes to be fundamentally different from taxes, which were enacted primarily for revenue.

Several provisions in the Constitution reflected this distinction. The House-origination requirement, for example, applied only to "Bills for raising Revenue," (48) not to other financial exactions. The Uniformity Clause distinguished between regulations of "Commerce or Revenue." (49) The Taxation Clause (50) authorized only exactions for financial reasons; (51) the authority for regulatory exactions was the Commerce Clause. (52)

The distinction between exactions for revenue and exactions for commerce affected the scope of federal powers granted by the Constitution, specifically:

* If an imposition was not designed to raise significant revenue but to regulate domestic or foreign commerce, then it was constitutional under the Commerce Clause.

* If it raised no significant revenue and Congress had levied it to regulate an activity outside the scope of Congress's enumerated powers (such as manufacturing was understood to be), then the imposition was outside congressional authority. (53)

* If, however, the imposition was designed to raise significant revenue, it could qualify as constitutional under the Taxation Clause--even if it impacted activities otherwise outside the scope of Congress's enumerated powers.

The following three illustrations exemplify these rules:

Illustration # 1: Congress decides to assist the cotton trade by discouraging wool clothing. It imposes a $1 million levy on each imported wool item. Under the Constitution's original legal force, this imposition was probably valid as a regulation of foreign commerce, even if (as is probable) it raised no revenue.

Illustration # 2: In an effort to assist the cotton trade by stamping out domestic manufacture of woolen garments, Congress imposes a $1 million levy on American manufacturers for each item of wool clothing they make. Under the Constitution's original legal force, this exaction would not qualify as a tax because it could not raise significant revenue. Nor would it qualify as a regulation of commerce because, by the founding era understanding, manufacturing was not "commerce." (54)

Illustration #3: In an effort to raise money and, incidentally, to assist the cotton trade, Congress imposes a ten percent retail sales levy on each item of wool clothing. Under the Constitution's original legal force, this would be a valid "tax," despite the incidental desire to affect behavior.


During the founding era, the distinction between direct and indirect taxes seems not to have been obscure. Among British sources, the distinction appears in Adam Smith's Wealth of Nations (55) (a text whose influence was greater among Americans than once believed), (56) newspapers and pamphlets, (57) Parliamentary proceedings, (58) and government documents. (59)

American references to the distinction are, if anything, even more plentiful, (60) and many Americans apparently were familiar with the criteria that classified a levy as "direct" or "indirect." As John Marshall, the future Chief Justice, observed in a speech at the Virginia ratifying convention, "The objects of direct taxes are well understood." (61) Marshall listed them as "[l]ands, slaves, stock [i.e., business capital] of all kinds, and a few other articles of domestic property." (62) Another future Chief Justice--Connecticut's Oliver Ellsworth (63)--told his state's ratifying convention that targets of direct taxes included (he did not say "were limited to") the "tools of a man's business ... necessary utensils of his family." (64) Ellsworth thus corroborated Marshall's references to "stock" and "domestic property." After the Pennsylvania ratifying convention, delegates in the Anti-Federalist minority issued a statement that identified the subjects of direct taxes as those on polls (as confirmed by the Constitution) (65) and on "land, cattle, trades, occupations, etc." (66) The most highly regarded of the Anti-Federalist writers, the "Federal Farmer," listed as objects of Congress's power of direct taxation, "polls, lands, houses, labour, &c." (67) Remarks such as these strongly suggest that direct taxes included a good deal more than, as is sometimes claimed, land levies and capitations. (68)

In fact, the scope of direct taxation was rather wide (69)--so much so that it offered the Anti-Federalists an opportunity for attack. The author signing his essay as "The Impartial Examiner" argued against granting Congress authority to levy direct taxes by pointing out that:
   So different are many species of property, so various the
   productions, so unequal the profits arising, even from the same
   species of property, in different states, that no general mode of
   contribution can well be adopted in such a manner as at once to
   affect all in an equitable degree. (70)

The Federalist rejoinder implicitly acknowledged the wide scope of direct taxes. Federalists such as James Madison, Alexander Hamilton, and George Nicholas responded by observing that the Constitution's uniformity requirement applied only to indirect levies. Therefore, as long as Congress honored the apportionment rule, Congress could tailor the subjects of direct federal taxes to fit the needs of each state. (71) "The most proper articles will be selected in each State," said Madison. He added that " [i]f one article in any State should be deficient, it will be laid on another article." (72)

The wide range of "articles" subject to direct tax reflects not merely a theoretical view but the actual operation of Anglo-American tax systems. Both in Britain and America, direct taxes commonly were imposed by omnibus statutes that combined a range of items into an integrated base and then imposed on the base one or more rates of tax. The base and the rate had various names; in colonial Connecticut, the base was called the "ratable estate" and the rate was the "colony pound rate." (73)

The valuation (or, to use the prevalent modern term, "assessment") of each subject in the base was tailored to its nature. Head taxes varied according to the condition of the person being taxed. (74) Real property might be assessed by an acreage or ad valorem formula, (75) and personal property (such as livestock or plate) by the item or ad valorem. Income and profits usually were taxed by assessing a percentage, reflecting likely annual return, of the value of their sources. Among the sources subject to percentage assessment were interest-bearing loans (called "money at interest"), (76) trades and businesses, (77) and sometimes land. (78) When taxes were imposed on wealth-generating activities, they were said to be imposed on "faculties]." (79)

The belief among some judges and commentators that direct taxes were limited to levies on heads and land may be attributable in part to the practice of the British Parliament and of some American jurisdictions of labeling their omnibus tax laws as the "land tax," even though those measures included far more than land in their assessable base. In Britain, for example, the so-called "land-tax" authorized exactions on various kinds of tangible personal property, on "money at interest," and on government pensions, annuities and salaries. (80) Similarly, Pennsylvania's "land tax" included levies on livestock, slaves, and indentured servants as well as land. (81) The South Carolina direct tax statute imposed levies on carriages and slaves, stock-in-trade, and occupations, as well as real estate. (82) A 1778 Virginia law exacted "an annual tax of ten shillings for each 100 [pounds sterling] value of all land, plate, slaves, horses and mules and 'all salaries, and ... the neat [sic] income of all offices of profit.'" (83) New Hampshire's statute covered polls, land (including mills and wharves), livestock, and ferries. (84)

After Independence, Connecticut became known for its "shockingly high taxes." (85) In 1777, that state's legislature integrated a business profits levy into its land tax code by requiring town assessors to include gross profits in the "ratable estate." By the same technique, the legislature extended the land tax to cattle and sheep the taxpayer had loaned to others. (86) A 1779 Connecticut statute imposed a head tax and required that the following items be wrapped into the ratable estate: land, improvements to land, cattle, horses, swine, ships and other vessels, coaches and other vehicles, clocks and watches, silver plate, all individual net wealth exceeding 50 [pounds sterling] (!), income from interest received on loans, traders' and shopkeepers' inventory, the individual businesses of attorneys at law, the profits of ironworks and other enterprises, and (subject to particularly high rates) the businesses of speculators. (87)

As a colony, Massachusetts had imposed a faculty tax that levied on '"the incomes or profits which any person or persons ... do or shall receive from any trade, faculty, business or employment what so ever, and all profits which shall or may arise by money or commissions of profit, in their improvement.'" (88) In 1780, the Commonwealth enacted a law imposing a unified tax on polls (males, both free and slave), land, livestock, interest income, business income, plate, "vessels of all sorts," money on hand, business inventory, (89) grain and other "produce of the land, and all other property whatsoever" not specifically exempt. (90) The exempt items were "household furniture, wearing apparel, farming utensils, and the tools of mechanicks." (91) The same statute provided for exemptions for particular professions and for the poor. (92)

Almost every American jurisdiction seems to have had a similar, if sometimes less elaborate, arrangement, whether or not a poll tax was part of it. (93)

These statutes, corroborated by additional sources, reveal that taxes were direct when levied on the following items:

* Wealth employed in business and domestic life. Direct taxes included those imposed on land, (94) improvements to land, (95) inventory ("stock in trade), (96) business equipment, (97) and livestock. (98)

* Personal and business income. Direct taxes included levies on rents, (99) business profits, (100) wages, (101) interest, (102) and other income. (103)

* Business enterprises. Levies on business profits and occupational fees were direct taxes. (104)

* Heads. (105) Poll taxes, also called head taxes or capitations, (106) existed in all of the New England states (107) and in most other states as well. (108) They were levied both on free persons and slaves. Capitations were the prevalent way of taxing slaves. (109)

Laws imposing capitations did not necessarily require the same payment from everyone. Rates often were adjusted according to the taxpayer's circumstances, just as the capitations known as "council taxes" are graduated in Britain today. (110) American legislatures could, and often did, reduce or eliminate the poll tax due from the poor. (111) American legislatures also granted complete or partial exemptions to persons who lived in particular places, (112) who had reached (or not reached) a stated age, (113) who were married, (114) or who pursued particular occupations--especially the military (115) and the clergy. (116) The Massachusetts legislature, for example, exempted soldiers, (117) the staff of Harvard College, and "settled Ministers of the Gospel [and] Grammar School-Masters." (118) The Connecticut legislature exempted the president of Yale University. (119) Nevertheless, capitations tended to be less reflective of wealth or income than other levies, which accounts for their unpopularity.

Despite the variety among the objects of direct taxation, one can divine a unifying principle: A tax was direct if it was imposed on people's lives, homes, or on the productive occupations by which they supported and expressed themselves. Direct taxes, in other words, were levies on living and producing.


A. Indirect Taxes in General

Indirect taxes were those taxes that were not direct. Stated more positively, indirect taxes were those "duties" imposed not principally for regulation but for the raising of revenue. The term duty is defined more closely below; (120) suffice to say for current purposes that the word encompassed, but was not limited to, excises, imposts, and tonnage.

The principal targets of indirect taxation were consumption (especially of luxuries), domestic and foreign trade, and enumerated business and official transactions.

At the Connecticut ratifying convention, Oliver Ellsworth argued that, as a rule, indirect taxes were preferable to direct taxes:
   Direct taxation can go but little way towards raising a revenue. To
   raise money in this way, people must be provident; they must be
   constantly laying up money to answer the demands of the collector.
   But you cannot make people thus provident; if you
   would do any thing to purpose, you must come in when they are
   spending, and take a part with them. This does not take away the
   tools of a man's business, or the necessary utensils of his family:
   It only comes in, when he is taking his pleasure, and feels
   generous, when he is laying out a shilling for superfluities. (121)

   * * *

   All nations have seen the necessity and propriety of raising a
   revenue by indirect taxation, by duties upon articles of
   consumption. France raises a revenue of 24 Millions Sterling per
   annum, and it is chiefly in this way. 50 Millions of Livres they
   raise upon the single article of Salt. The Swiss cantons raise
   almost the whole of their revenue upon Salt. Those States purchase
   all the Salt which is to be used in the country; they sell it out
   to the people at an advanced price; the advance is the revenue of
   the country. In England, the whole public revenue is about 12
   Millions Sterling per annum. The land tax amounts to about 2
   Millions, the window and some other taxes to about two millions
   more. The other 8 Millions is raised upon articles of
   consumption.... In Holland their prodigious taxes amounting to
   forty shillings for each inhabitant, are levied chiefly upon
   articles of consumption. They excise every thing, not excepting
   even their houses of infamy. (122)

Ellsworth proceeded to offer predictions of how indirect taxes might raise revenue for the federal government.

B. The Terminology of Indirect Taxation

1. Duties

Eighteenth century British lay dictionaries defined "duty" widely enough to include almost any financial exaction, (123) and Blackstone employed the term the same way. (124) However, commercial treatises used the word more narrowly. For example, Giles Jacob in his Lex Mercatoria, defined "duty" to encompass "Customs, Subsidies, Tolls, Imposts, and other Duties upon Commodities imported or exported." (125) By 1787, Americans had developed their own usage, employing the word "duty" specifically to mean any financial exaction that did not qualify as a direct tax. (126) Therefore, not all duties were taxes: Some were imposed not for revenue but merely to regulate (or effectively prohibit) trade in particular articles. (127)

In America, the word "duties" included levies on imports (128) and exports, (129) whether imposed for revenue or to regulate commerce. Duties imposed on imports and exports also were called customs, (130) although the latter word seems to have been less common in America than in Britain. An example of a custom was the specialized levy called tonnage. (131)

An excise was also a kind of duty. (132) Other duties included ad hoc impositions on specific transactions or events, such as fees imposed on goods brought into a fort or garrison, (133) fees on vessels for using public wharves, (134) fees on auction sales, (135) fees on legal proceedings, (136) and charges on certain written documents. (137) The notorious pre-Revolution Stamp Tax was a kind of duty. (138) It was imposed on court orders, ship clearances, deeds, mortgages, licenses, pamphlets, newspapers, gambling supplies, and even college diplomas. (139)

2. Imposts

English dictionaries often defined "impost" very broadly. Johnson's Dictionary, for example, described it as "[a] tax; a toll; a custom paid." (140) However, Giles Jacob's New Law-Dictionary, the most popular work of its kind in America, (141) limited the term to only exactions on imports, (142) which necessarily rendered an impost a kind of duty. (143) Americans seem to have adopted that usage almost exclusively. (144) Thus, Massachusetts called its import duty an impost. (145) The Confederation Congress made repeated attempts to induce the states to approve a five percent "impost" on imports, including the import of foreign prizes. (146)

In founding era discourse, one could speak of a "duty" being imposed on either imports or exports. (147) It also was common to couple the word "imposts" on imports with "duties" on exports. (148)

3. Tonnage

Tonnage (originally "tunnage") had begun as a Medieval import duty on "tuns" (casks) of wine. (149) By the time of the Founding, the term had broadened into any duty (150) levied on the carrying capacity of ships. (151) It could be imposed on ships either importing or exporting. In 1787, for example, Virginia imposed a tonnage duty of six shillings per ton on all vessels entering and clearing the harbors of that state. (152)
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Title Annotation:Abstract through IV. Indirect Taxes B. The Terminology of Indirect Taxation 3. Tonnage, p. 297-324
Author:Natelson, Robert G.
Publication:Case Western Reserve Law Review
Date:Dec 22, 2015
Previous Article:The Constitution: An Introduction.
Next Article:What the Constitution means by "duties, imposts, and excises" - and "taxes" direct or otherwise.

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