As for Murphy's reliance upon Pollock II, the Government contends that although it has never been overruled, "every aspect of its reasoning has been eroded," see, e.g., Stanton v. Baltic Mining Co., 240 U.S. 103, 112-13 (1916), and notes that in Pollock II itself the Court acknowledged that "taxation on business, privileges, or employments has assumed the guise of an excise tax," 158 U.S. at 635. Pollock II, in the Government's view, is therefore too weak a reed to support Murphy's broad definition of "direct tax" and certainly does not make "a tax on the conversion of human capital into money ... problematic."
Murphy replies that the Government's historical analysis does not respond to the contemporaneous sources she and the amici identified showing that taxes imposed upon individuals are direct taxes. As for Hylton, Murphy argues nothing in that decision precludes her position; the Justices viewed the carriage tax there at issue as a tax upon an expense, see 3 U.S. (3 Dall.) at 175 (Chase, J.); see also id. at 180-81 (Paterson, J.), which she agrees is not a direct tax. See Pollock II, 158 U.S. at 626-27. To the extent Hylton is inconsistent with her position, however, Murphy contends her references to the Federalist are more authoritative evidence of the Framers' understanding of the term.
Murphy makes no attempt to reconcile her definition with the long line of cases identifying various taxes as excise taxes, although several of them seem to refute her position directly. In particular, we do not see how a known excise, such as the estate tax, see, e.g., New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921); Knowlton, 178 U.S. at 81-83, or a tax upon income from
[Page 26]
employment, see Pollock II, 158 U.S. at 635; Pollock I, 157 U.S. at 579; cf. Steward Mach. Co. v. Davis, 301 U.S. 548, 580-81 (1937) (tax upon employers based upon wages paid to employees is an excise), can be shifted to another person, absent which they seem to be in irreconcilable conflict with her position that a tax that cannot be shifted to someone else is a direct tax. Though it could be argued that the incidence of an estate tax is inevitably shifted to the beneficiaries, we see at work none of the restraint upon excessive taxation that Murphy claims such shifting is supposed to provide; the tax is triggered by an event, death, that cannot be shifted or avoided. In any event, Knowlton addressed the argument that Pollock I and II made ability to shift the hallmark of a direct tax, and rejected it. 178 U.S. at 81-82. Regardless what the original understanding may have been, therefore, we are bound to follow the Supreme Court, which has strongly intimated that Murphy's position is not the law.
That said, neither need we adopt the Government's position that direct taxes are only those capable of satisfying the constraint of apportionment. In the abstract, such a constraint is no constraint at all; virtually any tax may be apportioned by establishing different rates in different states. See Pollock II, 158 U.S. at 632-33. If the Government's position is instead that by "capable of apportionment" it means "capable of apportionment in a manner that does not unfairly tax some individuals more than others," then it is difficult to see how a land tax, which is widely understood to be a direct tax, could be apportioned by population without similarly imposing significantly non-uniform rates. See Hylton, 3 U.S. (3 Dall.) at 178-79 (Paterson, J.); Johnson, Constitutional Absurdity, supra, at 328. But see, e.g., Hylton, 3 U.S. (3 Dall.) at 183 (Iredell, J.) (contending land tax is capable of apportionment).
[Page 27]
We find it more appropriate to analyze this case based upon the precedents and therefore to ask whether the tax laid upon Murphy's award is more akin, on the one hand, to a capitation or a tax upon one's ownership of property, or, on the other hand, more like a tax upon a use of property, a privilege, an activity, or a transaction, see Thomas, 192 U.S. at 370. Even if we assume one's human capital should be treated as personal property, it does not appear that this tax is upon ownership; rather, as the Government points out, Murphy is taxed only after she receives a compensatory award, which makes the tax seem to be laid upon a transaction. See Tyler v. United States, 281 U.S. 497, 502 (1930) ("A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax which Congress, in respect of some events ... undoubtedly may impose"); Simmons v. United States, 308 F.2d 160, 166 (4th Cir. 1962) (tax upon receipt of money is not a direct tax); cf. Penn Mut., 277 F.2d at 20. Murphy's situation seems akin to an involuntary conversion of assets; she was forced to surrender some part of her mental health and reputation in return for monetary damages. Cf. 26 U.S.C. § 1033 (property involuntarily converted into money is taxed to extent of gain recognized).
At oral argument Murphy resisted this formulation on the ground that the receipt of an award in lieu of lost mental health or reputation is not a transaction. This view is tenable, however, only if one decouples Murphy's injury (emotional distress and lost reputation) from her monetary award, but that is not beneficial to Murphy's cause, for then Murphy has nothing to offset the obvious accession to her wealth, which is taxable as income. Murphy also suggested at oral argument that there was no transaction because she did not profit. Whether she profited is irrelevant, however, to whether a tax upon an award of damages is a direct tax requiring apportionment; profit is relevant only to whether, if it is a direct tax, it nevertheless need
[Page 28]
not be apportioned because the object of the tax is income within the meaning of the Sixteenth Amendment. Cf. Spreckels, 192 U.S. at 412-13 (tax upon gross receipts associated with business of refining sugar not a direct tax); Penn Mut., 277 F.2d at 20 (tax upon gross receipts deemed valid indirect tax despite taxpayer's net loss).
So we return to the question: Is a tax upon this particular kind of transaction equivalent to a tax upon a person or his property? Cf. Bromley, 280 U.S. at 138 (assuming without deciding that a tax "levied upon all the uses to which property may be put, or upon the exercise of a single power indispensable to the enjoyment of all others over it, would be in effect a tax upon property"). Murphy did not receive her damages pursuant to a business activity, cf. Flint, 220 U.S. at 151; Spreckels, 192 U.S. at 411, and we therefore do not view this tax as an excise under that theory. See Stratton's Independence, Ltd. v. Howbert, 231 U.S. 399, 414-15 (1913) ("The sale outright of a mining property might be fairly described as a mere conversion of the capital from land into money"). On the other hand, as noted above, the Supreme Court several times has held a tax not related to business activity is nonetheless an excise. And the tax at issue here is similar to those.
Bromley, in which a gift tax was deemed an excise, is particularly instructive: The Court noted it was "a tax laid only upon the exercise of a single one of those powers incident to ownership," 280 U.S. at 136, which distinguished it from "a tax which falls upon the owner merely because he is owner, regardless of the use or disposition made of his property," id. at 137. A gift is the functional equivalent of a below-market sale; it therefore stands to reason that if, as Bromley holds, a gift tax, or a tax upon a below-market sale, is a tax laid not upon ownership but upon the exercise of a power "incident to ownership," then a tax upon the sale of property at fair market
[Page 29]
value is similarly laid upon an incidental power and not upon ownership, and hence is an excise. Therefore, even if we were to accept Murphy's argument that the human capital concept is reflected in the Sixteenth Amendment, a tax upon the involuntary conversion of that capital would still be an excise and not subject to the requirement of apportionment. But see Nicol, 173 U.S. at 521 (indicating pre-Bromley that tax upon "every sale made in any place ... is really and practically upon property").
In any event, even if a tax upon the sale of property is a direct tax upon the property itself, we do not believe Murphy's situation involves a tax "upon the sale itself, considered separate and apart from the place and the circumstances of the sale." Id. at 520. Instead, as in Nicol, this tax is more akin to "a duty upon the facilities made use of and actually employed in the transaction." Id. at 519. To be sure, the facility used in Nicol was a commodities exchange whereas the facility used by Murphy was the legal system, but that hardly seems a significant distinction. The tax may be laid upon the proceeds received when one vindicates a statutory right, but the right is nonetheless a "creature of law," which Knowlton identifies as a "privilege" taxable by excise. 178 U.S. at 55 (right to take property by inheritance is granted by law and therefore taxable as upon a privilege);9 cf. Steward, 301 U.S. at 580-81 ("[N]atural rights, so called, are as much subject to taxation as rights of less importance. An excise is not limited to vocations or activities that may be prohibited altogether. ... It extends to vocations or activities pursued as of common right.") (footnote omitted).
2. Uniformity
[Page 30]
The Congress may not implement an excise tax that is not "uniform throughout the United States." U.S. CONST. art. I, § 8, cl. 1. A "tax is uniform when it operates with the same force and effect in every place where the subject of it is found." United States v. Ptasynski, 462 U.S. 74, 82 (1983) (internal quotation marks omitted); see also Knowlton, 178 U.S. at 84-86, 106. The tax laid upon an award of damages for a nonphysical personal injury operates with "the same force and effect" throughout the United States and therefore satisfies the requirement of uniformity.
III. Conclusion
For the foregoing reasons, we conclude (1) Murphy's compensatory award was not received on account of personal physical injuries, and therefore is not exempt from taxation pursuant to § 104(a)(2) of the IRC; (2) the award is part of her "gross income," as defined by § 61 of the IRC; and (3) the tax upon the award is an excise and not a direct tax subject to the apportionment requirement of Article I, Section 9 of the Constitution. The tax is uniform throughout the United States and therefore passes constitutional muster. The judgment of the district court is accordingly
Affirmed.
[ENDNOTES]
1 Insofar as compensation for nonphysical personal injuries appears to be excludable from gross income under 26 C.F.R. § 1.104-1, the regulation conflicts with the plain text of § 104(a)(2); in these circumstances the statute clearly controls. See Brown v. Gardner, 513 U.S. 115, 122 (1994) (finding "no antidote to [a regulation's] clear inconsistency with a statute").
2 The Sixteenth Amendment provides: "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."
3 Murphy also suggests further insight into whether her award is income can be gleaned from application of the "in lieu of" test. See Raytheon Prod. Corp. v. Comm'r, 144 F.2d 110, 113 (1st Cir. 1944). As she acknowledges, however, we would still be required to determine whether her award was compensatory or an accession to wealth, which is the same analysis Glenshaw Glass and its progeny demand. As discussed below, it is unnecessary to determine if there was an accession to wealth in this case; § 61 encompasses Murphy's award regardless.
4 As evidence the presumption is well-founded in this case, we note the House Report accompanying the 1996 amendment to § 104 explicitly presumes recoveries for nonphysical injuries would be included in gross income: Part of the section explaining the effect of the amendment is entitled "Include in income damage recoveries for nonphysical injuries." H.R. Rep. No. 104-586, at 143-44 (1996), reprinted in 1996-3 C.B. 331, 481-82.
5 Though it is unclear whether an income tax is a direct tax, the Sixteenth Amendment definitively establishes that a tax upon income is not required to be apportioned. See Stanton v. Baltic Mining Co., 240 U.S. 103, 112-13 (1916).
6 Pollock II also held that a tax upon the income of real or personal property is a direct tax. 158 U.S. at 637. Whether that portion of Pollock remains good law is unclear. See Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 480 (1939).
7 Many Northern delegates were opposed to the three-fifths compromise on the ground that if slaves were property, then they should not count for the purpose of representation. Apportionment effectively meant that if the slaveholding states were to receive representation in the House for their slaves, then because apportioned taxes must be allocated across states based upon their representation, the slaveholding states would pay more in taxes to the national government than they would have if slaves were not counted at all in determining representation. See Ackerman, supra, at 9. Apportionment was then limited to direct taxes lest it drive the Congress back to reliance upon requisitions from the States. See id. at 9-10.
8 The other Justice to hear the case, Wilson, J., had previously determined while sitting on the Circuit Court of Virginia, that the tax was not direct and so he did not write a full opinion. Id. at 183-84.
9 For the same reason, we infer from Knowlton that a tax laid upon an amount received in settlement of a suit for a personal nonphysical injury would also be an excise. See 178 U.S. at 55.