Brushaber v. Union Pacific Railroad Co.

Under a 1913 federal tax statute, the rental value of owner-occupied housing was not treated as gross income to the owner. However, people who lived in rented housing were not allowed to deduct their rent payments from their taxable income. The tax statute also provided that family expenses were generally not deductible from gross income, but farmers were allowed to omit from their income certain farm products used by their families. Frank Brushaber (plaintiff) was a stockholder of Union Pacific Railroad Company (Union Pacific) (defendant). Brushaber brought an action to enjoin Union Pacific from complying with the income-tax provisions of the tax statute, asserting that the statute violated the Sixteenth Amendment to the United States Constitution. That amendment provides that Congress has the power to lay and collect taxes on income “from whatever source derived” without apportionment among the states. The Constitution otherwise provides that direct taxes are subject to the apportionment requirement. Brushaber argued that because the Sixteenth Amendment authorized Congress to tax income “from whatever source derived,” the tax statute’s exclusions from income for some designated people and classes were not authorized and violated due process. Brushaber asserted that the statute thus had to satisfy the Constitution’s general taxation provisions, which the statute failed to do because the tax was not apportioned among the states. Union Pacific moved to dismiss Brushaber’s action, and the federal district court granted the motion. Brushaber appealed directly to the United States Supreme Court.