Bailey v. Drexel Furniture Co. (1922)

Summary

Bailey v. Drexel Furniture Co. (1922), 259 U.S. 20, is a U.S. Supreme Court case that declared the Child Labor Tax Law of 1919 unconstitutional and made it clear that Congress cannot use their power to tax in an attempt to regulate behavior of local citizens, such as child labor. This case is also significant because this Act was almost identical to the Keating-Owen Child Labor Act declared unconstitutional in Hammer v. Dagenhart (1918), 247 U. S. 251, the prior year, which forbid the transport of goods made by child labor across state lines.  In response to this decision, the Child Labor Tax Law of 1919 was passed shortly thereafter, and could be perceived as a way to circumvent the previous Supreme Court decision. The differentiating factor was that in this case, instead of the Act resting on the commerce power by way of regulating the transport of goods, the Act rests on the taxing power instead by imposing a tax with a regulatory effect and purpose.

First Timeline

Background

The Child Labor Tax Law is Title XII of an act entitled “An Act To provide revenue, and for other purposes”, which was approved February 24, 1919, c. 18, 40 Stat. 1057, 1138.  This law imposed a federal excise tax of ten percent (10%) of annual net profit on companies employing children under the age of fourteen. On September 20, 1921, within the same year that the Act was enacted, Drexel Furniture Company, a manufacturer of furniture in the Western District of North Carolina, received a notice from Bailey, United States Collector of Internal Revenue for the District, that the company would be assessed a tax in the amount of ten percent of its annual profits for that year ($6,312.79) for employing a boy under the age of fourteen during that tax year. The Company paid the tax under protest and requested a refund, which was denied.

Procedural History

After paying the tax under protest and thereafter being denied a refund of the tax paid, Drexel Furniture Company brought suit in the U.S. District Court for the Western District of North Carolina.  The District Court held the law unconstitutional and found in favor of Drexel Furniture Company.  The Court of Appeals affirmed.  The United State Supreme Court granted certiorari and the matter was argued in the U.S. Supreme Court on March 7, 8, 1922 and decided May 15, 1922 in favor of Drexel Furniture Company.

Issues

Whether Congress, under the pretext of the power to tax and spend, may impose a tax on industries as a way to regulate child labor through the adoption of the Child Labor Tax Law of 1919?

Whether Congress violated the 10th Amendment of the Constitution in attempting to regulate the employment of children, a power reserved to the states?

Arguments by Petitioner (or Appellant, Drexel Furniture Company)

The Act is a regulation of the employment of child labor, which is exclusively a state function under the 10th Amendment.

Arguments by Respondent (or Appellee, Bailey)

The Act is an excise tax levied by Congress under its broad power of taxation under the power to tax and spend in the Constitution. 

Decision

On May 15, 1922, the U.S. Supreme Court ruled that the decision of the lower court was affirmed, finding in favor of Drexel Furniture Company.  The Child Labor Tax Law of 1919 was determined to be an unconstitutional attempt by Congress to regulate child labor through imposition of a penalty under the guise of an excise tax, which sought to coerce citizens to act in accordance with Congress’ views on child labor.  Further, the Court held that the regulation of child labor is exclusively a state function protected by the 10th Amendment and therefore the regulation under the guise of a tax is an improper exercise of the taxing power of Congress and will be held invalid.

Majority: Chief Justice Taft, joined by Justice McKenna, Justice Holmes, Justice Day, Justice Van Devanter, Justice Pitney, Justice McReynolds, and Justice Brandeis

Dissent: Justice Clarke

Majority Opinion (Taft)

Chief Justice William H. Taft wrote and delivered the majority opinion of the Court, joined by Justice McKenna, Justice Holmes, Justice Day, Justice Van Devanter, Justice Pitney, Justice McReynolds, and Justice Brandeis. The Court reasoned that the Child Labor Tax Law of 1919 must be deemed unconstitutional on the grounds that the provisions of the Act on their face were not valid, and that though Congress has broad powers, including the ability to tax and spend, this improper use of power goes beyond constitutional limitations. Further, implementation of this Act is a violation of the 10th Amendment as it relates to taking away the power of the states to regulate behavior of local citizens,

“To give such magic to the word “tax” would be to break down all constitutional limitation of the powers of Congress and completely wipe out the sovereignty of the States.”

The Court also reasoned that Bailey v. Drexel Furniture Company is indistinguishable from the ruling in Hammer v. Dagenhart by stating:

“In the case at the bar, Congress in the name of a tax which, on the face of the act, is a penalty seeks to do the same thing, and the effort must be equally futile.”

Further, the Court held that in Congress’ exercise of its taxing power to implement a tax with a regulatory and prohibitive purpose and effect that it is irrelevant whether that tax is also generating revenue in addition to serving the intended purpose and is an impermissible use of power, stating:

“…the provisions of the so-called taxing act must be naturally and reasonably adapted to the collection of the tax, and not solely to the achievement of some other purpose plainly within state power.”

The Court affirmed the judgment of the District Court, finding in favor of Drexel Furniture Company, and holding the Child Labor Tax Law invalid.

Dissenting Opinion (Clarke)

Justice Clarke did not author a separate dissenting opinion.

Full Text of Opinions

• Syllabus
• Majority Opinion (Taft)

Significance / Impact

This case is significant because the Child Labor Tax Law of 1919 was almost identical to the Keating-Owen Child Labor Act declared unconstitutional in Hammer v. Dagenhart (1918) the prior year, which forbid the transport of goods made by child labor across state lines.  In response to this decision, the Child Labor Tax Law of 1919 was passed shortly thereafter, and could be perceived as a way to circumvent the previous Supreme Court decision. The differentiating factor was that in this case, instead of the Act resting on the commerce power by way of regulating the transport of goods, the Act rests on the taxing power instead by imposing a tax with a regulatory effect and purpose.  Through this ruling, the Court shows that even though Congress has the power to tax and spend, it can not use that power for a regulatory purpose in the sense that the regulation or prohibition is intended to regulate local citizens’ behavior that is an area reserved to the states and protected by the 10th Amendment.  

Second Timeline

Constitutional Provisions

Article I, Sect. 8, Clause 1 of the U.S. Constitution, the Taxing and Spending Clause

10th Amendment of the U.S. Constitution

Major Statute Under Review

The Child Labor Tax Law is Title XII of an act entitled “An Act To provide revenue, and for other purposes”, approved February 24, 1919, c. 18, 40 Stat. 1057, 1138. The heading of the title is “Tax on Employment of Child Labor”. It begins with § 1200, and includes eight sections. Section 1200 is as follows:

“SEC. 1200. That every person (other than a bona fide boys’ or girls’ canning club recognized by the Agricultural Department of a State and of the United States) operating (a) any mine or quarry situated in the United States in which children under the age of sixteen years have been employed or permitted to work during any portion of the taxable year; or (b) any mill, cannery, workshop, factory, or manufacturing establishment situated in the United States in which children under the age of fourteen years have been employed or permitted to work, or children between the ages of fourteen and sixteen have been employed or permitted to work more than eight hours in any day or more than six days in any week, or after the hour of seven o’clock post meridian, or before the hour of six o’clock ante meridian, during any portion of the taxable year, shall pay for each taxable year, in addition to all other taxes imposed by law, an excise tax equivalent to 10 percentum of the entire net profits received or accrued for such year from the sale or disposition of the product of such mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment.”

Section 1203 relieves from liability to the tax anyone who employs a child, believing him to be of proper age, relying on a certificate to this effect issued by persons prescribed by a Board consisting of the Secretary of the Treasury, the Commissioner of Internal Revenue and the Secretary of Labor, or issued by state authorities. The section also provides in paragraph (b) that “the tax imposed by this title shall not be imposed in the case of any person who proves to the satisfaction of the Secretary that the only employment or permission to work which but for this section would subject him to the tax has been of a child employed or permitted to work under a mistake of fact as to the age of such child, and without intention to evade the tax.”

Section 1206 gives authority to the Commissioner of Internal Revenue, or any other person authorized by him, “to enter and inspect at any time any mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment.” The Secretary of Labor, or any person whom he authorizes, is given like authority in order to comply with a request of the Commissioner to make such inspection and report the same. Any person who refuses entry or obstructs inspection is made subject to fine or imprisonment or both.

Important Precedents

• Hammer v. Dagenhart (1918)
• United States v. Doremus (1919)

Important Subsequent Cases

• United States v. Butler (1936)

Web Resources

• BAILEY v. DREXEL FURNITURE CO.. The Oyez Project at IIT Chicago-Kent College of Law. 05 April 2016. http://today.oyez.org/cases/1901-1939/1921/1921_657. This article provides an overview of the case Bailey v. Drexel Furniture Co. including facts of the case, question and decision.
• Bailey v. Drexel Furniture Co. 259 U.S. 20 (1922) (n.d.). Retrieved December 13, 2016, from https://supreme.justia.com/cases/federal/us/259/20/case.html
• Bailey v. Drexel Furniture Co. Case Brief – Quimbee. (n.d.). Retrieved December 14, 2016, from https://www.quimbee.com/cases/child-labor-tax-case-bailey-v-drexel-furniture-co
• Bailey v. Drexel Furniture Co. – Wikipedia. (2013). Retrieved December 14, 2016, from https://en.wikipedia.org/wiki/Bailey_v._Drexel_Furniture_Co.
• Bailey v. Drexel Furniture Co. Constitutional Law Cases – Wiki Law School (July 10, 2011). Retrieved December 14, 2016, from http://www.wikilawschool.net/wiki/Bailey_v._Drexel_Furniture_Co.

Academic Books, Articles, and Law Reviews

• 1999. “Bailey v. Drexel Furniture Company.” Supreme Court Cases: Re-Establishing Order (1864-1930) N.PAG. History Reference Center, EBSCOhost (accessed December 14, 2016).
• Mason, Ruth. 2011. “Federalism and the Taxing Power.” California Law Review 99, 975. LexisNexis Academic: Law Reviews, EBSCOhost (accessed December 14, 2016).
• Yaver, Miranda. 2016. “Congressional Assertions of the Spending Power: Institutional Conflict and Regulatory Authority null [article].” Journal Of Law, Economics, And Organization no. 2: 272. HeinOnline, EBSCOhost (accessed December 14, 2016).
• Magliocca, Gerard N. 2010. “Court-Packing and the Child Labor Amendment [article].” Constitutional Commentary no. 2: 455. HeinOnline, EBSCOhost (accessed December 14, 2016).
• Olson, Marion A. 1925. The child labor amendment. [electronic resource]. n.p.: Austin : University of Texas, 1925., 1925. GEORGIA STATE UNIV’s Catalog, EBSCOhost (accessed December 14, 2016).

Contributors

Spring 2016: Tiana Taylor; Fall 2016: Reaghan Braun

Tasks for Future Contributors

Decision Analysis, Important Precedents, and Subsequent Cases.