Sixteenth Amendment: Federal income tax

The Sixteenth Amendment lets Congress tax income "from whatever source derived, without apportionment among the several States." It undid the practical effect of an 1895 Supreme Court decision that had made a national income tax nearly impossible. It created no new taxing power, and it has nothing to do with city taxes. California law, not this amendment, is the reason Williams has no city income tax.

The text

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Source: National Archives transcription Verified1

The problem it solved

The original Constitution has two tax rules. Most taxes must be "uniform throughout the United States." But "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken" (Art. I, §9) Verified7. That means a direct tax had to be divided so each state's share matched its share of the population.

Our reading: apportionment makes an income tax absurd. A state with a tenth of the population would owe a tenth of the tax no matter how much income its residents earned, so people in poorer states would pay higher rates. See Article I limits.

History

• Civil War. Congress taxed incomes during the Civil War. In Springer v. United States (1881) "the Justices had unanimously sustained" that tax Verified2.
• 1895: Pollock. Congress passed a peacetime income tax in 1894. Pollock first asked "whether a tax on the rents or income of real estate is a direct tax within the meaning of the constitution" (Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429 (1895)) Verified8. "In Pollock I, the Court invalidated the tax at issue insofar as it was a tax upon income derived from real property" Verified2. In a rehearing (Pollock II) the same year, the Court struck down the whole tax Verified2.
• Workarounds. Congress then taxed corporations "as an excise 'measured by income'" on doing business in corporate form, and the Court upheld that in 1911 Verified2.
• 1909–1913. Congress proposed the amendment in 1909, and it was ratified in 1913 Verified1. "The adoption of the Sixteenth Amendment, however, put an end to speculation whether the Court would eventually reverse Pollock" Verified2.

How courts read it

• Brushaber v. Union Pacific (1916). "The Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress" from being restricted by apportionment (Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916)) Verified2,3.
• Eisner v. Macomber (1920). The amendment "did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the States of taxes laid on income" Verified2. So a tax that isn't really on income (a tax on simply owning property, for example) still faces Article I's rule Verified2.
• What "income" means. The Court has asked whether a tax reaches "profits or gains," and once described income as "gain derived from capital, from labor, or from both combined" Verified2.
• Moore v. United States (2024). The Court upheld a one-time tax on American shareholders' shares of a foreign company's undistributed earnings. It held that the tax "does not exceed Congress's constitutional authority," but stressed that its "holding is narrow." The decision does not "resolve the parties' disagreement over whether realization is a constitutional requirement for an income tax" (Moore v. United States, 602 U.S. 572 (2024)) Verified4. Our reading: whether Congress could tax gains that haven't been cashed in, such as a rise in stock value, remains open.

In Williams

The Sixteenth Amendment reaches Williams residents through their federal tax returns. It gives the city no taxing power. City taxes come from California law:

• No city income tax. State law says no city "shall levy or collect or cause to be levied or collected any tax upon the income, or any part thereof, of any person, resident or nonresident." It still allows a business license tax "measured by or according to gross receipts" (Rev. & Tax. Code §17041.5) Verified5.
• What the city does rely on. In the city's FY2026 budget, property taxes ($1,579,128, 27% of General Fund revenue) and local sales tax ($949,662, 17%) are the biggest sources. "Sales and property taxes bring in the most" Verified6. See the budget page.
• Voters control new local taxes. Under Article XIII C, a city can't impose, extend or raise a general tax without voter approval Verified9. Property taxes are capped by Article XIII A (Proposition 13).

Our reading: a federal income tax rests on the Sixteenth Amendment. A Williams income tax would be blocked by a California statute, whatever the U.S. Constitution allows.

Common misconceptions

• "The Sixteenth Amendment created Congress's power to tax income." It removed the apportionment barrier; the taxing power already existed Verified2,3.
• "The income tax was never properly ratified, so it's voluntary." The National Archives lists the amendment as ratified February 3, 1913 Verified1. The Supreme Court has applied it as valid law since Brushaber in 1916.
• "It lets Congress tax anything without apportionment." Only taxes on income. It "did not extend the taxing power to new subjects" Verified2.
• "Williams could add a local income tax if voters approved it." State law bars city income taxes regardless Verified5.

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