Benjamin N. Cardozo

“ Many, perhaps most, courts hold that a net income tax is to be classified as an excise. [7] 'The tax levied on income is not a property tax, but is a percentage laid on the amount which a man receives, irrespective of whether he spends it, wastes it, or invests it.' Featherstone v. ”

“ The ruling that a tax upon net income is without the scope of the exemption cannot be adjudged unreasonable, for it will be found to be supported by decisions in many other states, and even, indeed, by decisions of this court. ”

“ Unless the foregoing analysis is faulty, the tax complained of by appellants is not laid upon the obligation to pay the principal or interest created by the bonds, at all events within the meaning of the contract of exemption. The tax is laid upon the net results of a bondle or aggregate of occupations and investments. Under a statute so conceived and framed a man may own a quantity of state and county bonds and pay no tax whatever. ”

“ The question is whether interest upon bonds of the state of Iowa or its political subdivisions may be included in the assessment of a tax on the net income of the owners without detracting from earlier exemptions in respect of taxes upon property and without an unconstitutional impairment of the obligation of contract.
Appellants, residents of Iowa, were the owners in 1934 and afterwards of Iowa School District bonds, Iowa Road bonds, Iowa County bonds, and an Iowa Soldiers' Bonus bond, of the face value, aside from interest, of $752,900. ”

“ Whether the limitation should be accepted is thus the pivotal inquiry. The power is ours, when the impairment of an obligation is urged against a law, to determine for ourselves the effect and meaning of the contract as well as its existence. ”

“ For reasons to be developed, obvious error is not discernible in the ruling of the highest court of Iowa that the statutory exemptions invoked by the appellants were not intended to include taxes upon the net income derived from business or investments. ”

“ Enough for present purposes that with authority so nearly balanced the Iowa construction of the contract is at least not plainly wrong. The propriety of our keeping to it is the clearer when we bear in mind that there were Iowa decisions pointing the same way before appellants became owners.
(b) Finally, and even more conclusively, decisions of our own court forbid us to stigmatize as unreasonable the classification of a tax upon net income as something different from a property tax, if not substantially an excise. People ex rel. ”

“ A bond, for example, promises to pay the bearer at the end of ten years the sum of $1,000, and also interest at the rate of 5% per annum, to be paid semiannually; that is to say, promises to pay $25 at the end of every six-month period, and $1,000 at the end of ten years. ”

“ Of the total interest ($36,893.75) collected on appellants' bonds, the greater portion ($32,776.25) is protected, if at all, by reason of the exemption given to bonds issued by any school district or county within the state. That exemption may best be studied as it stood in the Supplemental Supplement to 1915 Code. [4] It was then subdivision 1 of section 1304. There were other subdivisions exempting other items the grounds and buildings for public libraries; household furniture up to a prescribed value; the farming utensils of any person who makes his livelihood by farming ”