United States Government. Most important among those • powers is that to emit bills of credit.

§ 88. The States' power of taxation.-The power granted to Congress to "lay and collect taxes, duties, imposts and excises" does not take away from the State the power of taxation, although such right has been abridged by the Constitution. The main restrictions on the States' power of taxation are the Constitutional prohibitions against the levying of any import or export duties by any State without the consent of Congress (which practically amounts to an absolute prohibition of such duties) and the indirect prohibition against a State laying any tax which will in any way interfere with the operation of the Federal Government. In practice the entire field of direct taxes has been left almost exclusively to the States, or to the minor political divisions contained therein.

The imposition, modification and removal of taxes, and the exemptions of property therefrom, is an ordinary exercise of the power of State sovereignty.15 This power exists independently of the Constitution of the United States, and may be exercised to an unlimited extent, except so far as it has been surrendered to the Federal Government.16 Where the State has power to impose a tax the extent and the proportion to which it is imposed belongs to the judgment and discretion of the State only.17 So long as a State by its laws prescribing the mode and subjcct of taxation does not infringe upon the legitimate authority of the Union, or violate any right recognized or secured by the Constitution of the United States, the United States Supreme Court, as between the State and its citizens, can afford no valid relief against State taxation, however unjust, oppressive or onorous.' A law of the State taxing or prohibiting business already taxed by Congress may be constitutional.19 In the case, however, of a

15 Gilman v. Sheboygan, 2 Black, 510.

16 Union Pacific R. R. Co. V. Peniston, 18 Wallace, 5.

Erie R. Co. v. Pennsylvania,

21 Wallace, 497.

18 Kirtland v. Hotchkiss, 100 U.

18

tax upon the same subject by both governments the claim of the United States as the supreme authority must be preferred.20

$89. Protection of the United States Government against taxation by the States.-There is one important limitation upon the free exercise of the power of taxation belonging to the States which must be especially considered; this power cannot be exercised in relation to property owned by the United States or directed against any instrumentality or agency of the United States, or used in such a way as to interfere in any way with the exercise of the powers properly belonging to the United States. A long line of Supreme Court decisions have put this protection around the United States Government, the most important being the cases of McCulloch v. Maryland,1 Weston v. Charleston22 and Dobbins V. the Commissioners of Erie. County.23

McCulloch v. Maryland arose out of an attempt to tax the paper issued by the Maryland branch of the Bank of the United States. The Supreme Court held that the United States Bank had been made an agency of the United States Government and therefore could not be allowed to be subject in any way to State interference. Chief Justice Marshall in the course of his decision in this case said: "This great principle is that the Constitution and the laws made in pursuance thereof are supreme; that they control the Constitution and the laws of the several States, and cannot be controlled by them. From this, which may be almost termed an axiom, other propositions are deduced as corollaries, on the truth or error of which, and on their application to this case, the cause has been supposed to depend. These are: First. That a power to create implies a power to preserve. Second. That a power to destroy, if wielded by a different hand, is hostile to and incompatible with these powers. to create and preserve. Third. That where this repugnancy exists that authority which is supreme must control, not yield to that over which it is supreme.

"These propositions, as abstract truths would, perhaps never

20 Idem.

214 Wheaton, 316.

2 Peters, 449.

22

23 16 Peters, 435.

be controverted. Their application to this case, however, has been denied, and both in maintaining the affirmative and the negative a splendor of eloquence and strength of argument seldom, if ever, surpassed, has been displayed.

"The power of Congress to create and, of course, continue the bank was the subject of the preceding part of this opinion, and is no longer to be considered as questionable.

"That the power of taxing it by the State may be exercised, so as to destroy it, is too obvious to be denied. But taxation is said to be an absolute power which acknowledged no other limits than those expressly prescribed in the Constitution, and, like sovereign power of every other description, is trusted to the discretion of those who use it. But the very terms of this argument admit that the sovereignty of the State, in the Article of Taxation itself, is subordinate to and may be controlled by the Constitution of the United States. How far it has been controlled by that instrument must be a question of construction. In making this construction no principle can be declared, can be admissible, which would defeat the legitimate operations of a supreme government. It is of the very essence of supremacy to remove all obstacles to its action within its own sphere, and so to modify every power vested in subordinate governments as to exempt its own operations from their own influence. This effect need not be stated in terms. It is so involved in the declaration of supremacy, so necessarily implied in it, that the expression of it could not make it more certain. We must, therefore, keep it in view while construing the Constitution."

The same aspect of this question was brought again before the court in Osborn v. the Bank of the United States.24 The facts of this case proved the correctness of Marshall's contention, that the power to tax involved the power to destroy, as the State of Ohio had laid a special tax of $50,000 a year upon the branch of the United States Bank, located in Ohio, for the express purpose of destroying it. The decision in this case followed that in McCulloch v. Maryland.

In Weston et al. v. the City Council of Charleston, a case was

249 Wheaton, 738.

presented to the court where a local division of the States vested with taxing powers by the State Legislature had attempted to lay a tax upon the bonds of the United States Government owned by citizens of Charleston. Such tax was held to be unconstitutional. "A contract made by the government in the exercise of its power to borrow money on the credit of the United States is undoubtedly independent of the will of any State in which the individual who lends may reside, and is undoubtedly an operation essential to the important objects for which the government was created. It ought, therefore, on the principles settled in the case of McCulloch v. the State of Maryland, to be exempt from State taxation, and consequently from being taxed by corporations deriving their power from States.

"It is admitted that the power of the Government to borrow money cannot be directly opposed, and that any law directly obstructing its operation would be void, but a distinction is taken between direct opposition and those measures which may consequently affect it; that is, that a law prohibiting loans to the United States would be void, but a tax on them to any amount is allowable.

"It is, we think, impossible, not to perceive the intimate connection which exists between these two modes of acting on the subject.

"It is not the want of original power in an independent sovereign State to prohibit loans to a foreign government, which restrains the Legislature from direct opposition to those made by the United States. The restraint is imposed by our Constitution. The American people have conferred the power of borrowing money on their government and by making that government supreme, have shielded its action in the exercise of this power from the action of the local governments. The grant of the power is incompatible with a restraining or controlling power, and the declaration of supremacy is a declaration that no such restraining or controlling power shall be exercised.

"The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised,

and have a sensible influence on the contract. The extent of this influence depends on the will of a distinct government. To any extent, however inconsiderate, it is a burden on the operations of government. It may be carried to an extent which shall arrest them entirely."

The case of Dobbins v. the Commissioners of Erie County grew out of the attempt of the State of Pennsylvania to collect a tax upon the salary of a captain of a United States revenue cutter. The decision of the court was in part as follows:

"Taxation is a sacred right, essential to the existence of a government, an incident of sovereignty. The right of legislation is co-extensive with the incident, to attach it to all persons and property within the jurisdiction of a State. But in our system there are limitations upon that right. There is a concurrent right of legislation in the States and in the United States, except as both are restrained by the Constitution of the United States. Both are restrained by express prohibitions, and the States are restrained by such prohibitions as are implied when the exercise of the right of a State conflicts with the perfect execution of another sovereign power delegated to the United States. That occurs when taxation by a State acts upon the instruments and emoluments and persons which the United States may use and employ as necessary and proper means to execute their sovereign powers. The Government of the United States is supreme within its sphere of action. The court applied this principle to the salaries of officers under the general Government." The decisions quoted from have been referred to as settling the law on this question in a long line of subsequent decisions.25 The application of the principles stated must not, however, be extended beyond their proper limits. Government agencies of the United States are only exempt from State taxa

25 Dobbins v. Commissioners of Erie County, 16 Peters, 435; The Bank of Commerce v. The City of New York, 2 Black 620; Home Insurance Co. v. New York, 134 U. 8., 594; Palmer v. McMahon, 133

U. S., 660; Wisconsin Central R. R. Co. v. Price County, 133 U. S., 496; Shotwell v. Moore, 129 U. S., 590; Northern Pacific R. Co. V. Patterson, 154 U. S., 130; Stryker v. Crowe, 123 U. S., 527.