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, but 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, there fore, 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.”

§ 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

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.

4

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

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. Penis

exemption 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.

6173 U. S. 664; 19 Sup. Ct. Rep. 537; 43 L. ed. 850.

ton but for the distinction between the national banks as, in themselves, governmental instrumentalities of the United States, and the railroads which are primarily private enterprises, but performing inter alia federal services. In Davis v. Bank the court had said: "National Banks are instrumentalities of the Federal Government, created for a public purpose, and as such necessarily subject to the permanent authority of the United States. It follows that an attempt by a State to define their duties, or control the conduct of their affairs is absolutely void, whenever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the Federal Government to discharge the duties for the performance of which they were created." "It follows, then, necessarily from these conclusions," the court say in the Owensboro case, "that the respective States would be wholly without power to levy any tax, either direct or indirect, upon the national banks, their property, assets or franchises, were it not for the permissive legislation of Congress."

the

Supreme

In National Bank V. Commonwealth 8 Court again resisted a claim attempted to be made under the authority of the doctrine of McCulloch v. Maryland, that the banks as governmental agencies are wholly exempt from the control of state law even with reference to matters unconnected with the services performed by them as federal agencies. The court declared: "It certainly cannot be maintained that banks or other corporations or instrumentalities of the government are to be wholly withdrawn from the operation of state legislation. The most important agents of the Federal Government are its officers, but no one will contend that when a man becomes an officer of the government he ceases to be subject to the laws of the State. The principle we are discussing has its limitation, a limitation growing out of the necessity on which the principle itself is founded. The limitation is, that the agencies of the Fed

7 161 U. S. 275; 16 Sup. Ct. Rep. 502; 40 L. ed. 700. 89 Wall. 353; 19 L. ed. 701.

eral Government are only exempted from state legislation, so far as the legislation may interfere with or impair their efficiency in performing the functions by which they are designed to serve that government. Any other rule would controvert a principle founded alone in the necessity of securing to the government of the United States the means of exercising its legitimate powers, into an unauthorized and unjustifiable invasion of the rights of the States. The salary of a federal officer may not be taxed; he may be exempted from any personal services which will interfere with the discharge of his official duties, because those exemptions are essential to enable him to perform those duties. But he is subject to all the laws of the State which affect his family, or social relations, or his property, and he is liable to punishment for crime, though that punishment be imprisonment or death. So of the [federal] banks. They are subject to the laws of the State, and are governed in their daily course of business far more by the laws of the State than of the Nation. All their contracts are Their acquisition and

governed and construed by state laws. transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on state law. It is only when the State incapacitates the bank from discharging their duties to the government that it becomes unconstitutional."

§ 47. State Taxation of Federal Franchises.

A franchise to be or to act as a corporation granted by a State, may be taxed by a State as a piece of intangible property. But franchises or other rights derived from the Federal Government may not be taxed by the States nor any hindrances placed by th States upon their exercise. In California v. Central Pacific R. Co." one of a series of cases dealing with the Pacific Railroads, the court say: "These franchises were granted to the company for national purposes and to subserve national ends. It seems very clear that the State of California can neither take them away, nor destroy, nor abridge them, nor cripple them by onerous burdens.

Can it tax them? It may undoubtedly tax outside visible.

9 127 U. S. 1; 8 Sup. Ct. Rep. 1073; 32 L. ed. 150.