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The Corporate Tax Act of 1909 (36 Stat. 11, 112) imposed an excise tax on corporations for the privilege of doing business in corporate form. However, the excise tax was measured by corporate income. Thus the act was the origin of the current corporate income tax, which has been part of our federal tax system ever since and is currently the source of about 10 percent of federal revenues.

In 1895 the Supreme Court decided that Congress could not impose an income tax directly on individuals, because that would violate the constitutional requirement that all “direct” taxes be apportioned (that is, divided in a proportionate way) among the states on the basis of their population. The 1909 act defined the corporate tax as an excise tax and therefore as an “indirect” tax that was not subject to apportionment. The constitutional problem of imposing an income tax without apportionment was resolved with the passage of the Sixteenth Amendment in 1913, so that from that point on the tax could be redefined as a direct income tax.


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