1. Although confessedly Congress may constitutionally make or
authorize contracts with individuals or corporations for services
to the government; may grant aids by money or land in preparation
for and in the performance of such services; may make any
stipulation and conditions in relation to such aids not contrary to
the Constitution, and may exempt, in its discretion; the agencies
employed in such services from any state taxation which will really
prevent or impede the performance of them; yet in the absence of
all legislation on the part of Congress to indicate that such an
exemption is deemed by it essential to the full performance of the
party's obligations to the government, the exemption cannot be
applied to the case of a corporation deriving its existence from
state law, exercising its franchise under such law, and holding its
property within state jurisdiction and under state protection, only
because of the employment of the corporation in the service of the
government.
2. The point decided in
McCulloch v. Maryland does not
establish a broader doctrine even if some of its reasoning may seem
to do so.
The Union Pacific Railway Company, Eastern Division, was
originally incorporated in 1855, by the Legislature of the
territory of Kansas, as the Leavenworth, Pawnee, and Western
Railroad Company, with authority to construct the road from the
west bank of the Missouri to the western boundary of the territory.
Subsequently, in 1862, under an act of the State of Kansas, it
assumed its present name, with authority to unite or consolidate
with any other company
Page 76 U. S. 580
or companies organized, or to be organized, under the laws of
the United States, or of any state or territory.
Some months later, the Union Pacific Railroad Company was
incorporated by Congress, with power (conferred by the original act
of 1862 and various amendatory acts) to construct a railroad and
telegraph westward through the territory of the United States, from
the hundredth meridian east of Greenwich, to connect with the
Central Pacific Railway Company, incorporated by the State of
California, and so to form, in connection with eastern roads, a
continuous line from ocean to ocean. Several other railroad
companies, already incorporated by Missouri and Iowa, as well as
the company just mentioned, chartered by Kansas, were authorized to
construct roads through the national territory, so as to join the
Union Pacific road on the hundredth meridian; and to all these
roads large grants of land were made, and large subsidies engaged
on the security of a second mortgage, upon the condition of paying,
at maturity, the bonds advanced by way of subsidy, and of rendering
certain services to the government in the transmission of messages,
and in the transportation of mails, troops, munitions, and other
property, at reasonable rates of compensation.
But neither by the original act nor by any amendment did
Congress undertake to incorporate any railroad company, or
authorize the construction of any railroad within the limits of any
state, without the consent of the state concerned. And this was as
true of the Union Pacific Railway Company, Eastern Division, as of
any other of the roads aided by Congress. Whatever was done by
Congress in reference to this last named road was done not merely
with the consent, but upon the solicitation of the State of Kansas.
The corporation, however, remained a state corporation, though
entitled to certain benefits, and subject to certain duties under
the legislation of Congress.
In this state of things, and the Legislature of Kansas having
passed a law laying certain taxes upon the property of the company,
one Thomson and numerous other persons filed a bill in the Circuit
Court of the United States for the
Page 76 U. S. 581
District of Kansas, against the Union Pacific Railway Company,
Eastern Division, and three persons, whom the bill named,
treasurers, respectively, of Douglass, Wyandotte, and Jefferson
Counties in the State of Kansas. The bill stated that the
complainants were stockholders in the railway company; that under
an act of the Legislature of Kansas, certain taxes had been imposed
on the railroad and telegraph property of the company, which the
treasurers of the counties named were proceeding to collect; that
the property of the company was mortgaged to the United States;
that the company was bound to perform certain duties, and
ultimately to pay five percent of its net earnings to the United
States; that the company would be greatly hindered and embarrassed
in the performance of its obligations and duties to the United
States, if the taxes imposed should be collected; and that, to some
extent, taxes of the same description had been already paid by the
company, to the prejudice of the just rights of the complainants
and of the securities of the United States. Upon this case the
complainants prayed an injunction to restrain the company from
paying, and the other defendants from collecting, the taxes
assessed; and a temporary injunction was allowed by the district
judge.
The answer of the company admitted the allegations of the bill.
The answers of the three county treasurers admitted the assessment
of the taxes under the laws of Kansas, but denied that such taxes
had been imposed with any view to impede or embarrass the railway
company, and insisted that the property of the company only bore
its due proportion of the taxes levied upon all property in the
State of Kansas, and that no discrimination was made against the
company in the matter of taxation.
To these answers no replication was put in, but an agreed
statement of facts was filed, which recited sundry resolutions of
the Kansas Legislature, urging upon Congress legislation in aid of
the railway company; and admitted that the property of the company
was liable, under the laws of Kansas, to be taxed for state,
county, and municipal purposes; that the taxes complained of had
been assessed in conformity
Page 76 U. S. 582
with the statutes of the state; that the company had executed a
first mortgage prior in lien to the debt to the United States, and
that a table of earnings and expenditures for 1867-1868, appended
to the agreed statement, was correct.
Upon these pleadings and this agreed statement the question
arose, whether the property of the railway company described in the
bill was subject to the tax which the statutes of Kansas authorized
to be levied on all other property, not specially exempted, for
state, county, and municipal purposes. And upon this question the
judges of the circuit court were divided in opinion, and certified
it for decision here.
Page 76 U. S. 586
THE CHIEF JUSTICE delivered the opinion of the Court.
In this case, the Court has no concern with any of the connected
roads which form, or are destined to form, links in
Page 76 U. S. 587
the great chain of transcontinental railway. We have only to
consider the liabilities and rights of the Union Pacific Railroad
Company in respect to taxation under state legislation. Argument
has been heard on behalf of some of the connected corporations,
only because of their interest in the question, by reason of their
similar situation and circumstances in reference to like
legislation.
The counsel for the complainants have justly said that the
question certified here for decision is one of very grave
importance.
It was suggested, rather than argued, by one of them that the
property of the state is exempt by the state constitution from
taxation, and that the state, having reserved to itself in the
charter the right to purchase the road at the end of fifty years at
a valuation then to be made, upon two years' notice to the company,
has therefore a property in the road which cannot be taxed. But it
is too plain for argument that the interest thus reserved is too
remote and too contingent to be regarded as within the meaning of
the exemption.
The main argument for the complainants, however, is that the
road, being constructed under the direction and authority of
Congress for the uses and purposes of the United States and being a
part of a system of roads thus constructed, is therefore exempt
from taxation under state authority. It is to be observed that this
exemption is not claimed under any act of Congress. It is not
asserted that any act declaring such exemption has ever received
the sanction of the national legislature. But it is earnestly
insisted that the right of exemption arises from the relations of
the road to the general government. It is urged that the aids
granted by Congress to the road were granted in the exercise of its
constitutional powers to regulate commerce, to establish post
offices and post roads, to raise and support armies, and to
suppress insurrection and invasion, and that by the legislation
which supplied aid, required security, imposed duties, and finally
exacted upon a certain contingency a percentage of income, the road
was adopted as an instrument of the government, and as such was not
subject to taxation by the state.
Page 76 U. S. 588
The case of
McCulloch v. Maryland is much relied on in
support of this position. But we apprehend that the reasoning of
the Court in that case will hardly warrant the conclusion which
counsel deduce from it in this. In that case, the main questions
were whether the incorporation of the Bank of the United States,
with power to establish branches, was an act of legislation within
the constitutional powers of Congress, and whether the bank and its
branches as actually established were exempt from taxation by state
legislation. Both questions were resolved in the affirmative. In
deciding the first, the Court did not hold, as counsel suppose,
that Congress under the Constitution has absolute and exclusive
power to determine whether an act of legislation is or is not
necessary and proper as a means for carrying into effect one or
more of its enumerated powers. It defined the words "necessary and
proper" as equivalent in meaning to the words "appropriate, plainly
adapted, not prohibited, but consistent with the letter and spirit
of the Constitution," and held that the incorporation of a bank
with branches was a necessary and proper means to the effectual
exercise of granted power within the definition thus given. It held
further that Congress was, within this limit, the exclusive judge
as to the means best adapted to the end proposed, and that its
choice of any means of the defined character was restricted only by
its own discretion. But the question whether the particular means
adopted was within the general grant of incidental powers was
determined by the court. A great part of the argument was directed
to the proposition that the incorporation of a bank was an exercise
of incidental power within the true meaning of the terms "necessary
and proper," as explained by the Court -- an argument which would
have been quite superfluous if that question was to be determined
finally by the legislative, and not by the judicial, department of
the government.
We do not doubt, however, that upon the principles settled by
that judgment, Congress may, in the exercise of powers incidental
to the express powers mentioned by counsel, make or authorize
contracts with individuals or corporations
Page 76 U. S. 589
for services to the government, may grant aids, by money or
land, in preparation for, and in the performance of, such services,
may make any stipulation and conditions in relation to such aids
not contrary to the Constitution, and may exempt, in its
discretion, the agencies employed in such services from any state
taxation which will really prevent or impede the performance of
them.
But can the right of this road to exemption from such taxation
be maintained in the absence of any legislation by Congress to that
effect?
It is unquestionably true that the court, in determining the
second general question, already stated, did hold that the Bank of
the United States, with its branches, was exempt from taxation by
the state of Maryland, although no express exemption was found in
the charter. But it must be remembered that the Bank of the United
States was a corporation created by the United States; and as an
agent in the execution of the constitutional powers of the
government, was endowed by the act of creation with all its
faculties, powers, and functions. It did not owe its existence, or
any of its qualities, to state legislation. And its exemption from
taxation was put upon this ground. Nor was the exemption itself
without important limitations. It was declared not to extend to the
real property of the bank within the state; nor to interests held
by citizens of the state in the institution.
In like manner, other means and operations of the government
have been held to be exempt from state taxation, as bonds issued
for money borrowed; [
Footnote
1] certificates of indebtedness issued for money or supplies;
[
Footnote 2] bills of credit
issued for circulation. [
Footnote
3] There are other instances in which exemption, to the extent
it is established in
McCulloch v. Maryland, might have
been held to arise from the simple creation and organization of
corporations under acts of Congress, as in the case of the national
banking associations, but in which
Page 76 U. S. 590
Congress thought fit to prescribe the extent to which state
taxation may be applied. [
Footnote
4] In all these cases, as in the case of the
Bank of the
United States, exemption from liability to taxation was
maintained upon the same ground. The state tax held to be repugnant
to the Constitution was imposed directly upon an operation or an
instrument of the government. That such taxes cannot be imposed on
the operations of the government, is a proposition which needs no
argument to support it. And the same reasoning will apply to
instruments of the government, created by itself for public and
constitutional ends. But we are not aware of any case in which the
real estate, or other property of a corporation not organized under
an act of Congress, has been held to be exempt, in the absence of
express legislation to that effect, to just contribution, in common
with other property, to the general expenditure for the common
benefit, because of the employment of the corporation in the
service of the government.
It is true that some of the reasoning in the case of
McCulloch v. Maryland seems to favor the broader doctrine.
But the decision itself is limited to the case of the bank, as a
corporation created by a law of the United States, and responsible,
in the use of its franchises, to the government of the United
States.
And even in respect to corporations organized under the
legislation of Congress, we have already held, at this term, that
the implied limitation upon state taxation, derived from the
express permission to tax shares in the national banking
associations, is to be so construed as not to embarrass the
imposition or collection of state taxes to the extent of the
permission fairly and liberally interpreted. [
Footnote 5]
We do not think ourselves warranted, therefore, in extending the
exemption established by the case of
McCulloch v. Maryland
beyond its terms. We cannot apply it to the
Page 76 U. S. 591
case of a corporation deriving its existence from state law,
exercising its franchise under state law, and holding its property
within state jurisdiction and under state protection.
We do not doubt the propriety or the necessity, under the
Constitution, of maintaining the supremacy of the general
government within its constitutional sphere. We fully recognize the
soundness of the doctrine, that no state has a "right to tax the
means employed by the government of the Union for the execution of
its powers." But 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. [
Footnote
6]
We perceive no limits to the principle of 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. The amount of property now held by such corporations,
and having relations more or less direct to the national government
and its service, is very great. And this amount is continually
increasing, so that it may admit of question
Page 76 U. S. 592
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.
The nature of the claims to exemption which would be set up, is
well illustrated by that which is advanced in behalf of the
complainants in the case before us. The very ground of claim is in
the bounties of the general government. The allegation is that the
government has advanced large sums to aid in construction of the
road, has contented itself with the security of a second mortgage,
has made large grants of land upon no condition of benefit to
itself, except that the company will perform certain services for
full compensation, independently of those grants, and will admit
the government to a very limited and wholly contingent interest in
remote net income. And because of these advances and these grants
and this fully compensated employment, it is claimed that this
state corporation, owing its being to state law, and indebted for
these benefits to the consent and active interposition of the state
legislature, has a constitutional right to hold its property exempt
from state taxation, and this without any legislation on the part
of Congress which indicates that such exemption is deemed essential
to the full performance of its obligations to the government.
We are unable to find in the Constitution any warrant for the
exemption from state taxation claimed in behalf of the
complainants, and must therefore, answer the question certified to
us
In the affirmative.
[
Footnote 1]
Weston v. City of
Charleston, 2 Pet. 467.
[
Footnote 2]
The Banks v.
Mayor, 7 Wall. 24.
[
Footnote 3]
Bank v.
Supervisors, 7 Wall. 28.
[
Footnote 4]
Van Allen v. Assessors, 3
id. 573; Bradley v. People, 4
id. 459; People v. Commissioners, Ib. 244.
[
Footnote 5]
National Bank v. Commonwealth, supra, <|76 U.S.
353|>353;
Lionberger v. Rowse, supra, <|76 U.S.
468|>468.
[
Footnote 6]
Lane County v.
Oregon, 7 Wall. 77;
National Bank v.
Commonwealth, supra, <|76 U.S. 353|>353.
