William E. Peck & Co. v. Lowe

Background

A domestic corporation bought goods in several States, shipped them to foreign countries, and sold them abroad. For 1914 it reported $30,173.66 net from that export business and $12,436.24 from other sources. Under the Act of October 3, 1913, Congress taxed a corporation’s entire net income from all sources. The company paid the tax under protest and sued to recover the portion it said came from exporting, arguing that the Constitution forbids taxes on exported articles. The lower court ruled for the government, and that judgment was reviewed here.

Reasoning

The central question was whether the constitutional ban on taxes “laid on articles exported from any State” prevents taxing profits from goods sold abroad. The Court explained that the export clause protects articles and charges that directly burden exportation while the goods are being exported. A general income tax that is applied to net profits after the export, after expenses and losses are settled, does not single out exportation. The Court noted the Sixteenth Amendment did not change what subjects Congress may tax and concluded the tax here was general and not a tax on exportation itself. The Court therefore affirmed the judgment for the government.

Real world impact

Companies that sell goods abroad can be taxed on their net profits under a generally applied federal income tax, provided the tax is not a direct levy on the export process. This decision upholds the application of the 1913 income tax to export-related profits in these circumstances and leaves the earlier export-related exemptions limited to taxes that directly burden exports.