## Facts

- Congress enacted Title XII of the Revenue Act of 1919, labeled a “Tax on Employment of Child Labor.”
- The law imposed a 10% excise on an employer’s entire net profits for a taxable year if the employer used specified child labor.
- Covered workplaces included mines and quarries employing children under 16, and factories and other manufacturing establishments employing children under 14, or employing children aged 14–16 beyond specified hour, day, and time limits.
- The statute provided a good-faith defense based on specified age certificates.
- It authorized federal workplace inspections by or under federal officials and criminally punished obstruction of inspections.
- Drexel Furniture Company was assessed \$6,312.79 for allegedly employing a boy under 14 in 1919, triggering the 10% exaction.
- Drexel paid under protest, sought a refund, was denied, and sued the federal tax collector in federal district court to recover the payment.
- The district court held the law unconstitutional and entered judgment for Drexel; the collector sought Supreme Court review.

## Issues

1. Whether the 10% exaction labeled a tax was a valid exercise of Congress’s Article I taxing power or an unconstitutional penalty aimed at regulating child labor in manufacturing.
2. Whether Congress may use the taxing power to coerce compliance with federal regulatory standards in an area reserved to the states.

## Decision

- The Supreme Court affirmed the judgment for Drexel and held the Child Labor Tax Law unconstitutional.
- The Court concluded the exaction was a penalty “on its face,” designed to discourage or suppress child labor, rather than a genuine revenue measure.
- The Court relied on the statute’s regulatory features—detailed labor standards, inspection authority, and criminal sanctions—to characterize the measure as regulation under the guise of a tax.
- The Court reasoned that allowing Congress to regulate state-reserved matters through a “tax” would undermine constitutional limits on federal power.

## Legal Principles

- A charge labeled a tax is invalid under the taxing power when, in substance and operation, it functions as a regulatory penalty directed at conduct outside Congress’s regulatory authority.
- The presence of revenue generation does not save an exaction whose dominant design and mechanism are coercive regulation rather than taxation.
- Statutory features typical of regulation—precise behavioral standards, enforcement inspections, and criminal punishment—support treating an exaction as a penalty rather than a tax.
- Federalism limits constrain use of the taxing power where the measure’s practical object is to control local manufacturing and labor conditions traditionally regulated by states.

## Conclusion

The Court invalidated the “child labor tax” because it operated as a coercive regulatory penalty aimed at controlling child labor in manufacturing, a subject left to state governance, and could not be sustained merely by labeling it a tax.


Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922)