1. Bailey v. Drexel Furniture, (1922)
2. Facts: After the Court held that regulation of child labor was unconstitutional if its basis was the Commerce Power (Hammer v. Dagenhart), Congress passed the Child Labor Tax Law of 1919 which imposed a federal excise tax of 10% of the annual net profits of any employer who exceeded the age or working hours limitations provided. It was almost identical to the Act declared unconstitutional in Hammer, but it rested on the taxing power instead.
3. Procedural Posture: Drexel brought this action for refund in the District Court after paying $6,000 under the tax, and won. The IRS appealed.
4. Issue: Whether Congress may impose a tax on industries as a means of regulating child labor, under the pretext of the taxing power.
5. Holding: No.
6. ∏ Argument: The Act is a regulation of the employment of child labor internal to the states, which is an exclusively state function under the 10th amendment.
7. ∆ Argument: The Act is a mere excise tax levied by the Congress under its broad power of taxation under the Constitution. The court has already gone so far un upholding taxing statutes that it is bound by precedent to uphold this one as well.
8. Majority Reasoning: The Act, on its face, appears to be a penalty enacted under the pretext of a tax. It provides a heavy burden for departure from a detailed and specific course of conduct. It is imposed without regard to the severity or proportion of the violation of the child labor provisions. It also requires a mens rea in that the violator knowingly depart from the standards. Thus, it clearly looks like a penalty. To allow it merely because it has the magic word “tax” would be to break down all constitutional limitations on Congress’ power to interfere with state activities, because then any subject of federal concern could be regulated by the taxing power. Even though some taxes have an incidental penalty-like action, this one is primarily a penalty. This case is the same as Hammer. Also, the previous authority relied upon by the government is distinguishable because it involved taxes that were not enacted under a pretext.
