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Maryland. This case was all the stronger in that the federal agency, with whose activity it was alleged that Maryland had attempted to interfere by taxing it, was an agency neither essential to the National Government nor expressly provided for by the Constitution. The power to establish a National Bank was at most only an implied one, and, in fact, its constitutionality was very widely denied, and, years after this, a bill providing for the establishment by the National Government of a similar institution was vetoed by President Jackson upon the ground of its unconstitutionality. But in this case Maryland had not only denied the constitutionality of the bank but took the position that, even were it constitutional, she had, under the general power reserved to her of taxing all occupations carried on within her territorial limits, the right to tax such branches of the bank as might be located within her borders. Thus, in this case, the State of Maryland did not claim that she might directly and deliberately interfere with the operation of a federal law, but that the exercise by her of an otherwise legitimate authority could not be declared unconstitutional simply upon the ground that, indirectly, or by remote possibility, its effect was, or might be, to interfere with the exercise of a legitimate federal power. In other words, the State took the ground that, while acting within their reserved spheres of authority, the States were as independent and sovereign as was the Union while operating within its constitutional sphere; and that, therefore, their direct interests, within such spheres, might not properly be subordinated to the merely indirect interests of the Union. This position the Supreme Court declared an invalid one. The reasoning of Marshall, who rendered the opinion, was as follows: "The sovereignty of a State," he declared, "extends to everything which exists by its own authority, or is introduced by its permission; but does it extend to those means which are employed by Congress to carry into execution powers conferred on that body by the people of the United States? We think it demonstrable that it does not. These powers are not given by the people of a single State. They are given by the people of the United States to a government whose laws, made in pursuance of the Con

stitution, are declared to be supreme." Then, after referring to the fact that the power to tax might be used to destroy, he continued: "That there is a plain repugnance in conferring on one government power to control the constitutional measures of another, which other with respect to those very measures is declared supreme over that which exerts the control . [is a] proposition not to be denied. . . . If the States may tax one instrument employed by the government in the execution of its powers, they may tax any and every instrument. They may tax the mail; they may tax the mint; they may tax patent rights; they may tax the papers of the custom-house; they may tax judicial processes; they may tax all the means employed by the government to an excess which would defeat all the ends of government. This was not intended by the American people. They did not design to make their government dependent on the American States.

The Court has bestowed on this subject its most deliberate consideration. The result is a conviction that the States have no power by taxation, or otherwise, to retard, impede, burden, or in any manner control the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in the General Government. This is, we think, the unavoidable consequences of that supremacy which the Constitution has declared."

In Osborn v. Bank of the United States,2 decided in 1824, the question of the power of a State to tax the Bank of the United States was reopened by the State of Ohio, and a strenuous attempt made to have the Supreme Court of the United States modify the views it had expressed in McCulloch v. Maryland. The argument was urged that a distinction should be made between the bank as a fiscal agent of the government and as a private company trading with individuals for its own advantage; and that so far as it existed and operated in this latter capacity it might be taxed and otherwise regulated by the States. The Supreme Court held, however, that in practice the distinction had no existence. "To tax its faculties, its trade, and occupation," it declared, "is to tax the bank itself. To destroy or pre29 Wh. 738; 6 L. ed. 204.

serve the one is to destroy or preserve the other." The opinion continues: "The bank is not considered as a private corporation, whose principal object is individual trade and individual profit, lut as a public corporation, created for public and national purposes. That the mere business of banking is, in its own nature, a private business, and may be carried on by individuals or companies having no political connection with the government, is admitted; but the bank is not such an individual or company. It was not created for its own sake, or for private purposes. It has never been supposed that Congress could create such a corporation. The operations of the bank are believed not only to yield the compensation for its services to the government, but to be essential to the performance of those services. Those operations give its value to the currency in which all the transactions of the government are conducted. They are, therefore, inseparably connected with those transactions. They enable the bank to render those services to the nation for which it was created, and are, therefore, of the very essence of its character, as national instruments. The business of the bank constitutes its capacity to perform its functions, as a machine for the money transactions of the government. Its corporate character is merely an incident, which enables it to transact the business more beneficially. Considering the capacity of carrying on the trade of banking, as an important feature in the character of this corporation, which was necessary to make it a fit instrument for the objects for which it was created, the court adheres to its decision in the case of McCulloch v. The State of Maryland, and is of opinion that the act of the State of Ohio, which is certainly much more objectionable than that of the State of Maryland, is repugnant to a law of the United States made in pursuance of the Constitution, and, therefore, void.”

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§ 46. Property of Federal Agencies may be Taxed.

In McCulloch v. Maryland and Osborn v. Bank of Ohio the States had attempted to levy a tax, in the nature of a franchise

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tax, upon the operations of the federal bank. In the Maryland case Chief Justice Marshall said: "The opinion does not deprive the State of any resources which they originally possessed. It does not extend to a tax paid by the real property of the bank, in common with the other real property within the State, nor to a tax imposed on the interest which the citizens of Maryland may hold in this institution, in common with other property of the same description throughout the State."

This dictum of Marshall received judicial application in Thomson v. Union Pacific R. Co.,3 in which it was held that, in the absence of any legislation of Congress directing otherwise, the property of a railroad company, chartered by a State, but performing federal services, might be taxed by the State. Chief Justice Chase, speaking for a unanimous court, said. "We do not think ourselves warranted in extending the exemption [from state taxation] established by the case of McCulloch v. Maryland beyond its terms. We cannot apply it to the case of a corporation deriving its existence from state law, exercising its franchise under state law, and holding the property within state jurisdiction and under state protection.

We think there is a clear distinction between the means employed by the government and the property of agents employed by the government. Taxation of the agency is taxation of the means, taxation of the property of the agent is not always, or generally, taxation of the means. No one questions that the power to tax all property, business and persons, within their respective limits, is original in the States and has never been surrendered. It cannot be so used, indeed, as to defeat or hinder the operations of the National Government; but it will be safe to conclude, in general, in reference to persons and state corporations employed in government service, that when Congress has not interposed to protect their property from state taxation, such taxation is not obnoxious to that objection."

39 Wall. 579; 19 L. ed. 792.

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4 The objection to sustaining the principle that the property of corporations performing federal services is by that fact exempt from state taxation, is stated by the court as follows: "We perceive no limits to the principle of

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In Thomson v. Union Pacific R. Co. the railroad company concerned, although performing federal services, was chartered by the State. In Union Pacific R. Co. v. Peniston, the same doctrine was applied to a company chartered by Congress. This fact, it was held, did take the case out of the rule laid down in earlier case. "We do not perceive," the court declared, "that this presents any reason for the application of a rule different from that which was applied in the former case. The United States have no more ownership of the road authorized by Congress than they had in the road authorized by Kansas." "It is manifest," the court continues, "that exemption of federal agencies from state taxation is dependent, not upon the nature of the agents, or upon the mode of their constitution, or upon the fact that they are agents, but upon the effect of the tax; that is, upon the question whether the tax does in truth deprive them of power to serve the government as they were intended to serve it, or does hinder the efficient exercise of their power. A tax upon their property has no such necessary effect. It leaves them free to discharge the duties they have undertaken to perform. A tax upon their operations is a direct obstruction to the exercise of federal powers."

In Owensboro National Bank v. City of Owensboro it was held that the property of national banks, organized under a federal statute, is absolutely exempt from state taxation except in so far as Congress has expressly waived this immunity. This doctrine would be in opposition to that declared in Union Pacific R. Co. v. Penisexemption which the complainants seek to establish. It would remove from the reach of state taxation all the property of every agent of the government. Every corporation engaged in the transportation of mails, or of government property of any description, by land or water, or in supplying materials for the use of the government, or in performing any service of whatever kind, might claim the benefit of the exemption. It may admit of question whether the whole income of the property which will remain liable to state taxation, if the principle contended for is admitted and applied in its fullest extent, may not ultimately be found inadequate to the support of the state governments."

5 18 Wall. 5; 21 L. ed. 787.

€ 173 U. S. 664; 19 Sup. Ct. Rep. 537; 43 L. ed. 850.

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