1. Where an act of a state legislature authorized the issue of
bonds, by way of refunding to banks such portions of a tax as had
been assessed on federal securities made by the Constitution and
statutes of the United States exempt from taxation, and the
officers who were empowered to issue the obligations refused to
sign them because, as they alleged, a portion of the securities for
the tax on which the bank claimed reimbursement, was, in law, not
exempt, and the highest court of the state sanctioned this
refusal,
Held that this was a decision by a state court against
a right, privilege, or immunity claimed under the Constitution or a
statute of the United States, and so that this Court had
jurisdiction under the 25th section of the Judiciary Act, and the
Amendatory Act of February 5, 1867.
2. Certificates of indebtedness issued by the United States to
creditors of the
Page 74 U. S. 17
government for supplies furnished to it in carrying on the
recent war for the integrity of the Union, and by which the
government promised to pay the sums of money specified in them,
with interest, at a time named, are beyond the taxing power of the
states.
These were three cases in error to the Court of Appeals of New
York in which the people of that state, at the relation of
different banks there, were plaintiffs in error and the Mayor and
Controller of the City of New York were defendants. Each presented,
under somewhat different forms, the same question, namely: "Are the
obligations of the United States, known as certificates of
indebtedness, liable to be taxed by state legislation?"
The certificates referred to were issued under authority of
Congress, empowering the Secretary of the Treasury to issue them to
any public creditor who might be desirous of receiving them. They
were payable in one year or earlier, at the option of the
government, and bore six percent interest. In the present cases,
they had been issued to creditors for supplies necessary to
carrying on the war for the suppression of the late rebellion.
The three cases were argued and considered together. The more
immediate case in each was thus:
In 1863 and in 1864, the proper officers of the state, acting
under the laws of New York, assessed certain taxes upon the capital
stock of the several banking associations in that state. Some of
these banking associations resisted the collection of the tax on
the ground that, though nominally imposed upon their respective
capitals, it was in fact imposed upon the bonds and obligations of
the United States in which a large proportion of these capitals was
invested, and which, under the Constitution and laws of the United
States, were exempt from state taxation.
This question was brought before the Court of Appeals, which
sustained the assessments and disallowed the claim of the banking
associations.
From this decision an appeal was taken to this Court, upon the
hearing of which, at the December Term 1864, it was adjudged that
the taxes imposed upon the capitals of the associations
Page 74 U. S. 18
were a tax upon the national bonds and obligations in which they
were invested, and therefore so far contrary to the Constitution of
the United States. [
Footnote
1]
A mandate in conformity with this decision was sent to the Court
of Appeals of New York, which court thereupon reversed its judgment
and entered a judgment agreeably to the mandate.
Afterwards, on the 30th of April, 1866, the Legislature of New
York provided by law for refunding to the banking associations and
other corporations in like condition the taxes of 1863 and 1864
collected upon that part of their capitals invested in securities
of the United States exempt by law from taxation. The Board of
Supervisors of the County of New York was charged with the duty of
auditing and allowing, with the approval of the mayor of the city
and the corporation counsel, the amount collected from each
corporation for taxes on the exempt portion of its capital,
together with costs, damages, and interest. Upon such auditing and
allowance, the sums awarded were to be paid to the corporations
severally entitled, by the issue to each of New York County seven
percent bonds of equal amounts. These bonds were to be signed by
the Controller of the City of New York, countersigned by the mayor,
and sealed with the seal of the board of supervisors, and attested
by the clerk of the board.
Under this act, the board of supervisors audited, and allowed to
the several institutions represented in the three cases under
consideration, their several claims for taxes collected upon the
national securities held by them, including in this allowance the
taxes paid on certificates of indebtedness, which the corporations
asserted to be securities of the United States exempt from
taxation. But the controller, mayor, and clerk refused to sign,
countersign, seal, and attest the requisite amount of bonds for
payment, insisting that certificates of indebtedness were not
exempt from taxation. A writ of mandamus was thereupon sued out of
the
Page 74 U. S. 19
supreme court of New York for the purpose of compelling these
officers to perform their alleged duties in this respect. An answer
was filed, and the court by its judgment sustained the refusal. An
appeal was taken to the Court of Appeals of New York, by which the
judgment of the supreme court was affirmed. Writs of error under
the 25th section of the Judiciary Act brought these judgments here
for revision; the section [
Footnote
2] which gives such writ where is drawn in question the
validity of a statute of, or authority exercised under any state on
the ground of their being repugnant to the Constitution or laws of
the United States and the decision is in favor of such validity, or
where is drawn in question the construction of any clause of the
Constitution or statute of the United States and the decision is
against the title, right, privilege, or exemption specially set up
&c. -- a paragraph, this last, reenacted by Act of February 5,
1867, [
Footnote 3] with
additional words, as
"where any title, right, privilege, or immunity is claimed under
the Constitution, or any statute of or authority exercised under
the United States, and the decision is against the title, right,
privilege, or immunity specially set up"
&c.
Page 74 U. S. 22
THE CHIEF JUSTICE delivered the opinion of the Court in all the
cases.
The first question to be considered is one of jurisdiction. It
is insisted in behalf of the defendants in error that the judgment
of the New York Court of Appeals is not subject to review in this
Court.
But is it not plain that under the act of the legislature of New
York, the banking associations were entitled to reimbursement by
bonds of the taxes illegally collected from them in 1863 and
1864?
No objection was made in the state court to the process by which
the associations sought to enforce the issue of the bonds to which
they asserted their right. Mandamus to the officers charged with
the execution of the state law seems to have been regarded on all
hands as the appropriate remedy.
But it was objected on the part of those officers that the
particular description of obligations, of the tax on which the
associations claimed reimbursement, were not exempt from taxation.
The associations, on the other hand, insisted that these
obligations were exempt under the Constitution and laws of the
United States. If they were so exempt, the associations were
entitled to the relief which they sought. The judgment of the Court
of Appeals denied the relief upon the ground that certificates of
indebtedness were not entitled to exemption. Is it not clear that,
in the case before the state court, a right, privilege, or immunity
was claimed under the Constitution or a statute of the United
States, and that the decision was against the right, privilege, or
immunity claimed? And therefore that the jurisdiction of this Court
to review that decision is within the express words of the
amendatory act of February 5, 1867? There
Page 74 U. S. 23
can be but one answer to this question. We can find no ground
for doubt on the point of jurisdiction.
The general question upon the merits is this:
Were the obligations of the United States, known as certificates
of indebtedness, liable to state taxation?
If this question can be affirmatively answered, the judgments of
the Court of Appeals must be affirmed; if not, they must be
reversed.
Evidences of the indebtedness of the United States, held by
individuals or corporations, and sometimes called stock or stocks
but recently better known as bonds or obligations, have uniformly
been held by this Court not to be liable to taxation under state
legislation.
The authority to borrow money on the credit of the United States
is, in the enumeration of the powers expressly granted by the
Constitution, second in place, and only second in importance to the
authority to lay and collect taxes. Both are given as means to the
exercise of the functions of government under the Constitution, and
both, if neither had been expressly conferred, would be necessarily
implied from other powers. For no one will assert that without them
the great powers -- mentioning no others -- to raise and support
armies, to provide and maintain a navy, and to carry on war could
be exercised at all, or if at all, with adequate efficiency.
And no one affirms that the power of the government to borrow,
or the action of the government in borrowing, is subject to
taxation by the states.
There are those, however, who assert that although the states
cannot tax the exercise of the powers of the government, as for
example in the conveyance of the mails, the transportation of
troops, or the borrowing of money, they may tax the indebtedness of
the government when it assumes the form of obligations held by
individuals, and so becomes in a certain sense private
property.
This Court, however, has constantly held otherwise.
Forty years ago, in the case of
Weston v. City of
Charleston,
Page 74 U. S. 24
this Court, speaking through Chief Justice Marshall, said:
[
Footnote 4]
"The American people have conferred the power of borrowing money
upon their government, and by making that government supreme have
shielded its action in the exercise of that 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."
And applying these principles, the Court proceeded to say:
"The right to tax the contract to any extent, when made, must
operate on 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 inconsiderable, it is a burden upon the operations of the
government. It may be carried to an extent which shall arrest them
entirely."
And finally:
"A tax on government stock is thought by this Court to be a tax
on the contract, a tax on the power to borrow money on the credit
of the United States, and consequently repugnant to the
Constitution."
Nothing need be added to this except that in no case decided
since have these propositions been retracted or qualified. The last
cases in which the power of the states to tax the obligations of
the government came directly in question were those of the
Bank
of Commerce v. City of New York [
Footnote 5] in 1862 and the
Bank Tax Case
[
Footnote 6] in 1865, in both
of which the power was denied.
An attempt was made at the bar to establish a distinction
between the bonds of the government expressed for loans of money
and the certificates of indebtedness for which the exemption was
claimed. The argument was ingenious, but failed to convince us that
such a distinction can be maintained.
Page 74 U. S. 25
It may be admitted that these certificates were issued in
payment of supplies and in satisfaction of demands of public
creditors. But we fail to perceive either that there is a solid
distinction between certificates of indebtedness issued for money
borrowed and given to creditors, and certificates of indebtedness
issued directly to creditors in payment of their demands, or that
such certificates, issued as a means of executing constitutional
powers of the government other than of borrowing money, are not as
much beyond control and limitation by the states through taxation
as bonds or other obligations issued for loans of money.
The principle of exemption is that the states cannot control the
national government within the sphere of its constitutional powers
-- for there it is supreme -- and cannot tax its obligations for
payment of money issued for purposes within that range of powers,
because such taxation necessarily implies the assertion of the
right to exercise such control.
The certificates of indebtedness in the case before us are
completely within the protection of this principle. For the public
history of the country and the acts of Congress show that they were
issued to creditors for supplies necessary to the government in
carrying on the recent war for the integrity of the Union and the
preservation of our republican institutions. They were received
instead of money at a time when full money payment for supplies was
impossible, and according to the principles of the cases to which
we have referred are as much beyond the taxing power of the states
as the operations themselves in furtherance of which they were
issued.
It results that the several judgments of the Court of Appeals
must be
Reversed.
[
Footnote 1]
Bank Tax Case,
2 Wall. 200.
[
Footnote 2]
1 Stat. at Large 85.
[
Footnote 3]
14
id. 384.
[
Footnote 4]
27 U. S. 2 Pet.
467.
[
Footnote 5]
67 U. S. 2
Black 628.
[
Footnote 6]
69 U. S. 2 Wall.
200.
