Child Labor Tax Case

Background

The Drexel Furniture Company, a furniture manufacturer in the Western District of North Carolina, was assessed $6,312.79 by the United States Collector for employing a boy under fourteen during 1919. The company paid the amount under protest, sued for a refund, and won judgment in the District Court. The Collector brought the case to the Supreme Court under a direct writ of error to test the validity of the Child Labor Tax Law (Title XII of the 1919 revenue act).

Reasoning

The Court examined the law’s text and structure. The statute imposed a 10 percent tax on an employer’s entire net profits when children of certain ages or hours were employed, allowed inspections by Treasury and by the Secretary of Labor, and offered limited defenses such as a good-faith certificate or proof of mistake about a child’s age under Section 1203. The Court found the tax was a flat, nonproportional exaction tied to a knowing breach, had investigatory provisions, and aimed to stop the employment practices. Comparing prior decisions, the Court concluded the measure operated as a penalty to regulate child labor—a matter reserved to the states—and therefore was not a valid federal tax.

Real world impact

The ruling invalidates the specific 10 percent federal exaction challenged here and leaves primary control over child labor rules with the states. Employers will not be subject to enforcement of this federal penal tax as upheld law. The Supreme Court affirmed the District Court’s judgment in favor of the company, rejecting the Government’s defense of the statute as a legitimate tax.

Dissents or concurrances

One Justice dissented from the opinion of the Court, disagreeing with the conclusion that the statute was an invalid penalty.