Cook v. Tait - 265 U.S. 47, 44 S. Ct. 444 (1924)

Rule:

The basis of the power to tax cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and the tax be legal, the government having power to impose the tax. 

Facts:

Plaintiff taxpayer was a native citizen of the United States when he took up his residence and became domiciled in the Republic of Mexico. Defendant Collector of Internal Revenue demanded that the taxpayer make a return of his income under the Revenue Laws of the United States. The taxpayer complied with the demand, but under protest, because the income was derived from property situated in the Republic of Mexico. The taxpayer paid the first installment of the tax assessed against him. The taxpayer then brought an action to recover it.

Issue:

Does Congress have the power to tax the income received by a native citizen of the United States domiciled abroad from property situated abroad?

Answer:

Yes.

Conclusion:

The Court rejected the taxpayer’s contention that the United States could only impose a tax when the person receiving the income and the property from which he received it were within the territorial limits of the United States, and found that a native citizen who was taxed could have domicile, and the property from which his income was derived could have situs, in a foreign country and the tax be legal, the government having the power to impose the tax.