Steward Machine Co. v. Davis, 301 U.S. 548; 57 S. Ct. 883; 81 L. Ed. 1279 (1937)

Facts—The petitioner, an Alabama corporation, paid a tax in compliance with the Social Security Act. It filed claim for refund to recover the payment ($46.14), asserting a conflict between the statute and the Constitution. Funds realized are used to aid the states in the administration of their unemployment compensation laws.

Question—Is the tax a valid exercise of federal power?

Decision—Yes.

Reasons—J. Cardozo (5–4). Stewart Machine Co. contended that it is not lawful to tax a right, and that, as such, employment is not open to taxation. However, employment is a business relation, and business is a legitimate object of the taxing power.

Stewart Machine Co. further claimed that the tax was based on an ulterior motive that was essentially contrary to the Tenth Amendment. However, neither the taxpayer nor the state was coerced in this matter. The taxpayer fulfilled the mandate of his local legislature. The state chose to administer un- employment relief under laws of its own making. Nor did the statute call for the state to surrender powers essential to its quasi-sovereign existence. The state did not bind itself to keep the law in force. The state might repeal the statute.

J. McReynolds, J. Sutherland, and J. Butler, dissenting, argued that the federal power exercised in this case contravened the Tenth Amendment, with its reservation of certain powers to the states.