The principle that the states cannot tax official agencies of
the federal government does not apply to obligations such as checks
and warrants available for immediate use. A tax upon them is
virtually a tax upon the money which can be drawn upon their
This was an action by the plaintiff in error, begun in the state
superior court, to recover certain taxes paid under protest upon
two checks or orders for $120,000 and $1,875, respectively, signed
by the Treasurer of the United States, and addressed to the
Treasurer or an Assistant Treasurer of the United States, for
interest accrued upon certain registered bonds of the United States
owned by the plaintiff. These checks were issued in compliance with
Rev.Stat. § 3698, which requires that
"the Secretary of the Treasury shall cause to be paid, out of
any money in the Treasury not otherwise appropriated, any interest
falling due or accruing on any portion of the public debt
authorized by law."
Page 200 U. S. 311
which were payable at the United States Treasury at San
Francisco at any time within four months from their date, were not
presented immediately for payment, but were withheld by the
plaintiff until the first Monday in March, 1899, the day when the
status of property, for the purpose of taxation, is determined.
Plaintiff did not list these two checks for assessment, but the
assessor, in making up his roll for the ensuing year, included
them, and, after a fruitless effort to be relieved from the
assessment, plaintiff paid the amount of the tax, and brought this
suit to recover it back. There were claims for other taxes included
in the action, upon which plaintiff was successful, but, in respect
to the tax upon the two orders above mentioned, judgment went for
the defendant, which was affirmed by the supreme court. 139 Cal.
Page 200 U. S. 313
MR. JUSTICE BROWN delivered the opinion of the Court.
This case involves the question whether the two checks or orders
upon which the tax was imposed are exempt from state taxation under
Rev.Stat. § 3701, declaring that "all stocks, bonds, Treasury
notes, and other obligations of the United States shall be exempt
from taxation by or under state or municipal or local authority."
The basis of this exemption is the fact that a tax upon the
obligations of the United States is virtually a tax upon the credit
of the government, and upon its power to raise money for the
purpose of carrying on its civil and military operations. The
efficiency of the government service cannot be impaired by a
taxation of the agencies which it employs for such service, and, as
one of the most valuable and best known of these agencies is the
borrowing of money, a tax which diminishes in the slightest degree
the value of the obligations issued by the government for that
purpose impairs pro tanto
their market value.
The inability of the states to tax the official agencies of the
federal government, whether in the form of banks chartered under
its authority, or of obligations issued by it as a means of
providing a revenue, or for the payment of its debts, was applied
in M'Culloch v.
4 Wheat. 316, to a stamp tax upon notes
of the United States bank; in Weston v.
2 Pet. 449, and in Bank of
Commerce v. New York,
2 Black 620, to stock issued
for loans made to the government of the United States, and in the
Bank Tax Case,
2 Wall. 200, to a tax laid on banks on a valuation equal to the
amount of their capital stock, when their property consisted of
stocks of the federal government; in The Banks
v. The Mayor,
7 Wall. 16, to certificates of
indebtedness of the United States, issued to
Page 200 U. S. 314
the creditors of the government for supplies furnished in
carrying on the Civil War; in Bank v.
7 Wall. 26, to notes of the United
States intended to circulate as money, and in Van Brocklin v.
Tennessee, 117 U. S. 151
land purchased by the United States for the amount of a direct tax
The principle, however, upon which this exemption is claimed
does not apply to obligations such as checks and warrants, intended
for immediate use and designed merely to stand in the place of
money until presented at the Treasury, and the money actually drawn
thereon. In such case, the tax is virtually a tax upon the money
which may be drawn immediately upon presentation of the checks. As
was said by Mr. Justice Miller in National
Bank v. Commonwealth,
9 Wall. 353, 76 U. S.
"That limitation [upon the power to tax] is that the agencies of
the federal government are only exempted from state legislation so
far as that legislation may interfere with or impair their
efficiency in performing the functions by which they are designed
to serve that government."
In Railroad Co. v.
18 Wall. 5, it was insisted by the
plaintiff in error that the property of the Union Pacific Railroad
Company was exempt from state taxation by virtue of the
incorporation of the company by the United States, as a means for
the performance of certain public duties of the government,
enjoined and authorized by the Constitution. It was said, however,
by Mr. Justice Strong, in delivering the opinion of the Court, that
no constitutional implications prohibited a state tax upon the
property of an agent of the government merely because it is the
property of such agent, but
"that the agencies of the federal government are uncontrollable
by state legislation, so far as it may interfere with, or impair,
their efficiency in performing the functions by which they are
designed to serve that government. It is therefore manifest 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
Page 200 U. S. 315
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."
Had the government, in the absence of money for the immediate
payment of interest upon its bonds, issued new obligations for the
payment of this interest at a future day, it might well be claimed
that these were not taxable, as the taxation of such notes would,
to the extent of the tax, impair their value and negotiability in
the hands of the holder. This was practically the case in
The Banks v. The
7 Wall. 16, where certificates were issued
at a time when the government had no money to pay its obligations,
and made use of its credit to obtain further time. But where checks
are issued payable immediately, they merely stand in the place of
coin, which may be immediately drawn thereon. As observed by the
court below, the checks were, for all practical purposes, the money
itself. People v. Stockton &c. R. Co.,
45 Cal. 306,
313; Metropolitan National Bank v. Sirret,
97 N.Y. 320,
325; In re Staten Island R. Co.,
38 Hun. 381, 101 N.Y.
636. A check may be given in evidence under the money counts.
Wells v. Brigham,
6 Cush. 6; Cruger v. Armstrong,
3 Johns.Cas. 5.
While Congress has not amended Rev.Stat. § 3701, upon which
plaintiff relies in this case, it did, by Act approved August 13,
1894, 28 Stat. 278, declare
"that circulating notes of national banking associations and
United States legal tender notes, and other notes and certificates
of the United States, payable on demand, and circulating, or
intended to circulate, as currency, . . . shall be subject to
[state] taxation as money on hand or on deposit."
Although the checks in question were not intended to
Page 200 U. S. 316
as money, and therefore do not fall within the letter of the
statute, the reasons that apply to that class of obligations we
think apply with equal force to checks intended for immediate
payment, though not intended to circulate as money. While the
checks are obligations of the United States, and within the letter
of § 3701, they are not within its spirit, and are proper subjects
Had the plaintiff drawn the money immediately upon these checks,
it would have become at once a part of the general property of the
bank, and the fact that the money had been derived from the United
States and paid to the bank as interest on its obligations would
not have prevented its becoming part of the general property of the
bank, and subject to state taxation.