A tax imposed by a law of any state of the United States or
under the authority of such a law on stock issued for loans made to
the United States is unconstitutional.
The power of this Court to revise the judgments of state
tribunals, depends on the 25th section of the Judiciary Act. That
section enacts "that a final judgment or decree in any suit in the
highest court of law or equity of a state in which a decision in
the suit could be had" where is drawn in question the validity of a
statute or of an authority exercised under any state, on the ground
of their being repugnant to the Constitution, treaties or laws of
the United States and the decision is in favor of their validity
"may be reexamined and reversed or affirmed in the Supreme Court of
the United States."
The City Council of Charleston, exercising an authority under
the State of South Carolina, enacted an ordinance, by which a tax
was imposed on the six and
seven percent stock of the United States, and in the Court of
Common Pleas of the Charleston District, an application was made
for a prohibition to distrain them from levying the tax on the
ground that the ordinance violated the Constitution of the United
States. The prohibition was granted, and the proceedings in the
case were removed to the constitutional court, the highest court of
law of the state, and in that court it was held that the ordinance
did not violate the Constitution of the United States, and a writ
of error was prosecuted on this decision to this Court.
Held that the question decided by the constitutional court
was the very question on which the revising power of this Court is
to be exercised.
A writ of error to this Court may be prosecuted where by the
judgment of the highest court of the State of South Carolina, a
prohibition, issued in a state court to prevent the levying of a
tax which was imposed by a law repugnant to the Constitution of the
United States, was refused on the ground that the law was not so
repugnant to the Constitution.
The term suit is certainly a very comprehensive one, and is
understood to apply to any proceeding in a court of justice in
which an individual pursues that remedy in a court of justice which
the law affords him.
The words "final judgment" in the 25th section of the Judiciary
Act must be understood in the section under consideration as
applying to all judgments and decrees which determine the
particular cause, and it is not required that such judgments shall
finally decide upon the rights which are litigated, that the same
shall be within purview of the section.
It is not the want of original power in an independent sovereign
state to prohibit loans to a foreign government which restrains the
state 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 the
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 and the declaration of
supremacy is a declaration that no such distraining or controlling
power shall be exercised.
Page 27 U. S. 450
On 20 February, 1823, the City Council of Charleston passed "an
ordinance to raise supplies for the use of the City of Charleston,
for the year 1823." The ordinance provides
"That the following species of property, owned and possessed
within the limits of the City of Charleston, shall be subject to
taxation in the manner, and at the rate, and conformably to the
provisions hereinafter specified -- that is to say, all personal
estate, consisting of bonds, notes, insurance stock, six and seven
percent stock of the United States, or other obligations upon which
interest has been or will be received during the year, over and
above the interest which has been paid (funded stock of this state,
and stock of the incorporated banks of this state and the United
States bank excepted) twenty-five cents upon every hundred
dollars."
In the Court of Common Pleas for the Charleston District, the
plaintiffs in error, in May, 1823, filed a suggestion for a
prohibition, as owners of United States stock, against the City
Council of Charleston, to restrain them from levying under the
ordinances, on six and seven percent stock of the United States and
the tax imposed under the ordinance, on the ground that the
ordinance, so far as it imposes a tax on the stock of the United
States is contrary to the Constitution of the United States.
The prohibition having been granted, the city council applied to
the constitutional court, the highest court of law in the state, to
reverse the order, on the ground that the ordinance was not
repugnant to the Constitution of the United States, and the
proceedings in the case having been removed to the said court, the
said court, in May term, 1823, by a majority of their judges (four
being in favor of the constitutionality of the ordinance, and three
against it) decided that the said ordinance did not violate the
Constitution of the United States in imposing a tax upon the
holders of United States stock. From this decision the relators
appealed by writ of error to the Supreme Court of the United
States.
The error assigned in this Court was that the judgment
Page 27 U. S. 451
of the constitutional court was erroneous in that it decided the
ordinance of the City Council of Charleston not to be repugnant to
the Constitution of the United States.
Page 27 U. S. 463
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This case was argued on its merits at a preceding term, but a
doubt having arisen with the Court respecting its jurisdiction in
cases of prohibition, that doubt was suggested to the bar, and a
reargument was requested. It has been reargued at this term.
The power of this Court to revise the judgments of a state
tribunal depends on the 25th section of the Judicial Act. That
section enacts
"That a final judgment or decree in any suit in the highest
court of law or equity of a state in which a decision in the suit
could be had . . . where is drawn in question the validity of a
statute or of an authority exercised under any state on the ground
of their being repugnant to the Constitution, treaties, or laws of
the United States and the decision is in favor of such their
validity . . . may be reexamined and reversed or affirmed in the
Supreme Court of the United States."
In this case, the city ordinance of Charleston is the exercise
of an
"authority under the State of South Carolina . . .
Page 27 U. S. 464
the validity of which has been drawn in question on the ground
of its being repugnant to the Constitution,"
and "the decision is in favor of its validity." The question,
therefore, which was decided by the constitutional court, is the
very question on which the revising power of this tribunal is to be
exercised, and the only inquiry is whether it has been decided in a
case described in the section which authorizes the writ of error
that has been awarded. Is a writ of prohibition a suit?
The term is certainly a very comprehensive one, and is
understood to apply to any proceeding in a court of justice, by
which an individual pursues that remedy in a court of justice,
which the law affords him. The modes of proceeding may be various,
but if a right is litigated between parties in a court of justice,
the proceeding by which the decision of the court is sought is a
suit. The question between the parties is precisely the same as it
would have been in a writ of replevin or in an action of trespass.
The constitutionality of the ordinance is contested; the party
aggrieved by it applies to a court, and at his suggestion, a writ
of prohibition, the appropriate remedy, is issued. The opposite
party appeals, and in the highest court the judgment is reversed
and judgment given for the defendant. This judgment was, we think,
rendered in a suit.
We think also that it was a final judgment in the sense in which
that term is used in the 25th section of the Judicial Act. If it
were applicable to those judgments and decrees only in which the
right was finally decided, and could never again be litigated
between the parties, the provisions of the section would be
confined within much narrower limits than the words import, or than
Congress could have intended. Judgments in actions of ejectment,
and decrees in chancery dismissing a bill without prejudice,
however deeply they might affect rights protected by the
Constitution, laws, or treaties of the United States, would not be
subject to the revision of this Court. A prohibition might issue
restraining a collector from collecting duties, and this Court
would not revise and correct the judgment. The word "final" must be
understood in the section under consideration as
Page 27 U. S. 465
applying to all judgments and decrees which determine the
particular cause.
We think then that the writ of error has brought the cause
properly before this Court.
This brings us to the main question. Is the stock issued for
loans made to the government of the United States liable to be
taxed by states and corporations?
Congress has power "to borrow money on the credit of the United
States." The stock it issues is the evidence of a debt created by
the exercise of this power. The tax in question is a tax upon the
contract subsisting between the government and the individual. It
bears directly upon that contract, while subsisting and in full
force. The power operates upon the contract the instant it is
framed, and must imply a right to affect that contract.
If the states and corporations throughout the union, possess the
power to tax a contract for the loan of money, what shall arrest
this principle in its application to every other contract? What
measure can government adopt which will not be exposed to its
influence?
But it is unnecessary to pursue this principle through its
diversified application to all the contracts, and to the various
operations of government. No one can be selected which is of more
vital interest to the community than this of borrowing money on the
credit of the United States. No power has been conferred by the
American people on their government, the free and unburdened
exercise of which more deeply affects every member of our republic.
In war, when the honor, the safety, the independence of the nation
are to be defended, when all its resources are to be strained to
the utmost, credit must be brought in aid of taxation, and the
abundant revenue of peace and prosperity must be anticipated to
supply the exigencies, the urgent demands of the moment. The
people, for objects the most important which can occur in the
progress of nations, have empowered their government to make these
anticipations, "to borrow money on the credit of the United
States." Can anything be more dangerous, or more injurious, than
the admission of a principle which authorizes every state and every
corporation in
Page 27 U. S. 466
the union which possesses the right of taxation, to burden the
exercise of this power at their discretion?
If the right to impose the tax exists, it is a right which in
its nature acknowledges no limits. It may be carried to any extent
within the jurisdiction of the state or corporation which imposes
it, which the will of each state and corporation may prescribe. A
power which is given by the whole American people for their common
good, which is to be exercised at the most critical periods for the
most important purposes, on the free exercise of which the
interests certainly, perhaps the liberty of the whole may depend,
may be burdened, impeded, if not arrested, by any of the organized
parts of the confederacy.
In a society formed like ours, with one supreme government for
national purposes and numerous state governments for other
purposes, in many respects independent, and in the uncontrolled
exercise of many important powers, occasional interferences ought
not to surprise us. The power of taxation is one of the most
essential to a state, and one of the most extensive in its
operation. The attempt to maintain a rule which shall limit its
exercise is undoubtedly among the most delicate and difficult
duties which can devolve on those whose province it is to expound
the supreme law of the land in its application to the cases of
individuals. This duty has more than once devolved on this Court.
In the performance of it, we have considered it as a necessary
consequence from the supremacy of the government of the whole that
its action in the exercise of its legitimate powers should be free
and unembarrassed by any conflicting powers in the possession of
its parts; that the powers of a state cannot rightfully be so
exercised as to impede and obstruct the free course of those
measures which the government of the states united may rightfully
adopt.
This subject was brought before the court in the case of
McCulloch v.
Maryland, 4 Wheat. 316, when it was thoroughly
argued and deliberately considered. The question decided in that
case bears a near resemblance to that
Page 27 U. S. 467
which is involved in this. It was discussed at the bar in all
its relations, and examined by the court with its utmost attention.
We will not repeat the reasoning which conducted us to the
conclusion thus formed, but that conclusion was that
"all subjects over which the sovereign power of a state extends
are objects of taxation, but those over which it does not extend,
are upon the soundest principles exempt from taxation. . . . The
sovereignty of a state extends to everything which exists by its
own authority, or is introduced by its permission,"
but not "to those means which are employed by Congress to carry
into execution powers conferred on that body by the people of the
United States." "The attempt to use" the power of taxation
"on the means employed by the government of the union in
pursuance of the Constitution, is itself an abuse, because it is
the usurpation of a power which the people of a single state cannot
give."
The Court said in that case that
"the states have no power by taxation or otherwise to retard,
impede, burden, or in any manner control the operation of the
constitutional laws enacted by Congress, to carry into execution
the powers vested in the general government."
We retain the opinions which were then expressed. 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. 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
can not 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 consequentially
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
Page 27 U. S. 468
which exists between these two modes of acting on the
subject.
It is 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 extant,
however inconsiderable, it is a burden on the operations of
government. It may be carried to an extent which shall arrest them
entirely.
It is admitted by the counsel for the defendants that the power
to tax stock must affect the terms on which loans will be made, but
this objection, it is said, has no more weight when urged against
the application of an acknowledged power to government stock than
if urged against its application to lands sold by the United
States.
The distinction is, we think, apparent. When lands are sold, no
connection remains between the purchaser and the government. The
lands purchased become a part of the mass of property in the
country with no implied exemption from common burdens. All lands
are derived from the general or particular government, and all
lands are subject to taxation. Lands sold are in the condition of
money borrowed and repaid. Its liability to taxation in any form it
may then assume is not questioned. The connection between the
borrower and the lender is dissolved. It is no burden on loans, it
is no impediment to the power of borrowing, that the money, when
repaid, loses its exemption from taxation.
Page 27 U. S. 469
But a tax upon debts due from the government stands, we think,
on very different principles from a tax on lands which the
government has sold.
"The Federalist" has been quoted in the argument, and an
eloquent and well merited eulogy has been bestowed on the great
statesman who is supposed to be the author of the number from which
the quotation was made. This high authority was also relied upon in
the case of
McCulloch v. Maryland, and was considered by
the court. Without repeating what was then said, we refer to it as
exhibiting our view of the sentiments expressed on this subject by
the authors of that work.
It has been supposed that a tax on stock comes within the
exceptions stated in the case of
McCulloch v. Maryland. We
do not think so. The Bank of the United States is an instrument
essential to the fiscal operations of the government, and the power
which might be exercised to its destruction was denied. But
property acquired by that corporation in a state was supposed to be
placed in the same condition with property acquired by an
individual.
The 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 to be repugnant to the
Constitution.
We are therefore of opinion that the judgment of the
Constitutional Court of the State of South Carolina reversing the
order made by the court of common pleas awarding a prohibition to
the City Council of Charleston to restrain them from levying a tax
imposed on six and seven percent stock of the United States, under
an ordinance to raise supplies to the use of the City of Charleston
for the year 1823 is erroneous in this, that the said
constitutional court adjudged that the said ordinance was not
repugnant to the Constitution of the United States, whereas this
Court is of opinion that such repugnancy does exist. We are
therefore of opinion that the said judgment ought to be reversed
and annulled and the cause remanded to the constitutional court for
the State of South Carolina that further proceedings may be had
therein according to law.
Page 27 U. S. 470
MR. JUSTICE JOHNSON, dissenting.
Entertaining different views on the questions in this cause from
the majority of the Court and wishing generally that my reasons for
my opinions on constitutional questions should appear where they
cannot be misunderstood or misrepresented, I will briefly state the
ground upon which I dissent from the decision now rendered.
On the first point, I am of opinion that the cause is not one
within either the letter or the policy of the 25th section of the
Judiciary Act.
That the suggestion and motion to obtain a prohibition is a suit
in its general sense cannot be questioned, but that is not enough
to give this Court jurisdiction; it must be a suit within the
meaning and policy of the law which gives this writ of error. The
words of the 25th section are "a final judgment or decree on any
suit," from which I think it unquestionable that it must be a suit
capable of terminating in a final judgment or decree. Now a
prohibition, especially where it is refused, as in this case, is
not final, and concludes nobody. If the party against which it was
prayed goes on to carry into effect an unconstitutional law, he to
whom it was refused is at liberty to bring his action of trespass,
and the refusal of the prohibition would be no bar to his
recovery.
Indeed, in cases of prohibition, there is no
consideratum
est, no judgment entered except, as well as I can recollect,
in two cases: in that where it is first granted and then dissolved,
and a writ of consultation awarded authorizing the defendant to
proceed, and in the case where the promovent is ruled to declare,
and the cause goes on to judgment in the usual form. When it is
refused, there is never a judgment entered, nor where it is granted
in ordinary cases, and hence it is laid down generally that no writ
of error lies in prohibition. There is no ground that I can
perceive to suppose that Congress intended any innovation in the
ordinary rules of law as to suing out writs of error. On the
contrary, in authorizing a writ of error to a final judgment in so
many words, the legal conclusion is that they need not to adhere to
the rule that a writ of error can only issue to recover a judgment
as technically understood.
Page 27 U. S. 471
Again,
the suit to which this section has relation must
be a suit in which this Court possesses or can exercise the power
to enter judgment and award execution, because the latter part of
the 25th section enacts
"That the Supreme Court may, at its discretion, if the cause
shall have been once remanded before, proceed to a final decision
of the same
and award execution."
Now if the term "execution" here be taken in its ordinary
technical meaning, this is not a case in which it can issue, the
sole object of this prohibition being to stay the proceedings of
the city council and city sheriff under the law complained off, and
if the issuing of a prohibition be considered as coming within the
meaning of execution as here used, then this Court has no power to
issue a prohibition to a state, court, or state officer. Congress
has not pretended to vest in it such authority. And I am well
satisfied that this power has been withheld from the courts of the
United States
ex industria. For every provision in the
Constitution and the uniform policy of the government have been to
prevent the immediate action of the one government upon the
constituted authorities of the other, a collision which it was a
leading object in the Constitution to avoid, because its effects
were unavoidably and fully anticipated.
If it be asked or has been argued, why may not this Court
proceed as far as it can proceed, and reverse the judgment of the
state court, or enter a judgment for a prohibition, though it
cannot issue it; I answer simply because the case wants those
distinctive features which are necessary to make out a case for the
interference of this Court under the 25th section. And I cannot
imagine that the legislature would place this Court in the
unenviable dilemma of thus assuming ungranted powers or of
exercising jurisdiction in a case over which it could assume no
coercive power.
Hence I conclude that neither the letter nor the policy of the
law sanctions us in exercising this jurisdiction. Nor is there the
least necessity for it, since every beneficial end may be answered,
when individuals are brought into controversy, by the ordinary
proceedings under an
Page 27 U. S. 472
unconstitutional law, and until this conflict of interest arise
from the actual execution of process, the law remains a mere
"brutum fulmen."
My views of the question of jurisdiction would exempt me from
the necessity of giving an opinion on the constitutionality of the
case under consideration. But I have no objection to expressing my
opinion upon this question.
If I could bring myself to consider this question in the form in
which it is considered by the majority of the Court, I should
certainly concur in the opinion that the tax was unconstitutional.
For the exercise of a power which, under the mask of imposing a
tax, may defeat or impede the operation of the government of the
United States in borrowing money could not be tolerated. But I am
strongly impressed with the opinion that the record does not
authorize this state of the question. It is true the act of the
City Council of Charleston which imposes this tax is most clumsily
worded. But I think it clear that, taken together, the object is to
impose an income tax. This, I think, is necessarily inferred from
the fact that the tax is not imposed upon money at interest
generally, but only on so much as the individual has at interest
above what he owes or pays an interest upon. The operation of this
is to charge no more than his clear income from money at interest.
It is objected that it makes discriminations and exempt from
taxation state stock, city stock, and stock of their own chartered
banks. But then it exempts also stock of the United States Bank,
and there can be no better proof demanded to show that the law is
conceived in the spirit of fairness, with a view to revenue, and no
masked attack upon the powers of the general government. Had they
in fact, taxed any one of these excepted objects, we should have
had the law brought up here as a violation of the obligation of
contracts, since the statute books of the state will show that all
their banks, with the exception of the state bank, have paid a
bonus to the state. And it would have been impossible to tax the
state bank, because the stock is altogether owned by the state and
the laws of the council are subject to be repealed by the
state.
Page 27 U. S. 473
As to the specification of six and seven percent stock of the
United States as objects of taxation, this also admits of an
explanation showing that the council acted in the spirit of
fairness and candor, although certainly not happy in expressing the
legislative mind. This specification became necessary from their
imposing the tax by means of a percentage of twenty-five cents upon
the capital at interest, instead of a percentage on the interest
received. Hence to have brought the four and three percent stock of
the United States under the tax would have been unequal and unjust,
and there can be little doubt that to avoid this inequality was
their object.
I consider the case therefore as one of a tax upon income
arising from the interest of money -- a very unwise and suicidal
tax unquestionably, and not very judiciously arranged and expressed
-- but still characterized by no unfairness and no masked attack
upon the powers of the general government. And if so, with what
correctness can it be characterized as unconstitutional?
Why should not the stock of the United States, when it becomes
mixed up with the capital of its citizens, become subject to
taxation in common with other capital? Or why should one who enjoys
all the advantages of a society purchased at a heavy expense and
lives in affluence upon an income derived exclusively from interest
on government stock be exempted from taxation?
No one imagines that it is to be singled out and marked as an
object of persecution, and that a law professing to tax, will be
permitted to destroy: this subject was sufficiently explained in
McCulloch's Case. But why should the states be held to
confer a bonus or bounty on the loans made by the general
government? The question is not whether their stock is to be
exposed to peculiar burdens; but whether it shall enjoy privileges
and exemptions, directly interfering with the power of the states
to tax or to borrow.
I can see no reason for the exemption, and certainly cannot
acquiesce in it.
MR. JUSTICE THOMPSON, dissenting.
This case comes before us under the 25th section of the
Judiciary Act of 1789
Page 27 U. S. 474
on a writ of error to the Constitutional Court of the State of
South Carolina, the highest court of appeals in that state. The
question in the state court arose upon proceedings commenced in an
inferior court and the issuing of a prohibition to restrain the
City Council of Charleston and all other persons acting under their
authority from levying and collecting a tax on stock of the United
States, held by the appellants; on the ground that such tax was a
violation of the Constitution of the United States. The prohibition
having been granted by the inferior court, the order and judgment
of that court were reversed in the constitutional court, thereby
upholding the constitutionality of the tax.
A preliminary question has been raised whether this Court has
jurisdiction of the case, under the 25th section of the Judiciary
Act. I think it has not. It is not a suit within the meaning of
that section, and if it were, the writ of error is brought to
reverse a judgment refusing to grant the prohibition. And if that
judgment or order should be reversed here, this Court has no power
to enforce its judgment or give the party any relief or protection
against the imposition of the tax. But I shall not enter into an
examination of this question; it is one of minor importance; as I
understand this Court does not claim the power of enforcing its
judgment in any manner whatever, and the ordinance will remain in
full force, and the payment of the tax be enforced unless the city
council shall voluntarily repeal it and revoke the order to collect
the tax. The judgment of this Court is therefore no more than an
opinion expressed upon an abstract question, and in its nature and
effect only monitory.
In considering this case on the merits, it is to be borne in
mind that this ordinance of the city council is subject to be
repealed by the Legislature of South Carolina, and not having been
done, we must consider it as having tacitly received the sanction
of the legislature, and comes before us therefore with all the
force and authority of a state law, and involves one of those
delicate and difficult inquiries of conflicting powers between the
general and state governments.
It is necessary in the first place that we should understand the
true character of this tax. Much importance seemed to
Page 27 U. S. 475
be attached to this both in the court below and on the argument
here. In the opinion of the minority of the state court, which has
been submitted to us by the appellants' counsel as a part of his
argument, it is said
"This ordinance does not affect to regard the tax as an income
tax. It is a tax upon the United States stock
eo nomine.
As it is not a tax on income, it is unnecessary to inquire if the
city council or a state has the power to tax income and include
therein the interest received on United States stock. The inquiry
is whether there is any such power to tax United States stock
eo nomine."
This distinction being so emphatically relied upon by the
minority of the court, it is a fair inference that if it had been
considered a tax on income, it would not be objectionable on
constitutional grounds.
What are we to understand by its being a tax on United States
stock
eo nomine? Certainly nothing more than that it is
enumerated as one description in a long list of specified property
subject to taxation.
We have not the ordinance at large before us, but the clause
upon which the question arises is stated as follows: all personal
estate, consisting of bonds, notes, insurance stock, &c., six
and seven percent stock of the United States, or other obligations,
upon which interest has been, or will be received during the year,
over and above the interest which has been paid, twenty-five cents
on every hundred dollars. There is excepted out of this enumeration
stock of the state, stock of the city, and bank stock. But this
exception cannot certainly affect the present question. No part of
the Constitution of the United States prohibits the states from
exempting from taxation certain species of property according to
their own views of policy or expediency.
What, then, is the ordinance in substance? It is a tax upon the
net income of interest, upon money secured by bonds, notes,
insurance stock, six and seven percent stock of the United States,
or other obligations, upon which interest has been received,
&c. It is the net interest received upon which the tax is laid.
For the ordinance declares the tax shall be on the interest
received over and above that
Page 27 U. S. 476
which has been paid. For example, he who receives $1,000
interest and pays out $500 interest is taxed only upon the balance.
It is therefore a general tax upon an income from money at
interest, and this too only included as one item in the enumeration
of taxable property. It is not an objection that can be made here,
if anywhere, that the tax is not upon the whole income. It is a
tax, general in its application to income, from interest derived
from investments of every description (with the exception
mentioned) and money on loan. It cannot be considered as an
exorbitant tax or in any manner partaking of the character of a
penalty, it being only a tax of a quarter of one percent
If the objection to this tax is to be sustained, it must be on
the broad ground that stock of the United States is not taxable in
any shape or manner whatever, that it is not to be included in the
estimate of property subject to taxation, and that I understand is
the extent to which a majority of this Court means to carry the
exemption. As I am unable to come to this conclusion, and it being
a constitutional question of vital importance, I am constrained to
dissent from the opinion of the Court and, contrary to my usual
practice in ordinary cases, briefly to assign my reasons.
I shall, for the reason already mentioned, consider this
ordinance as standing upon the same grounds precisely as if it had
been a law of the State of South Carolina.
It is not pretended that there is any express prohibition in the
Constitution of the United States which has been violated by this
law.
The only express limitation to the power of the individual
states to lay and collect taxes is to be found in the 10th section
of the first article of the Constitution.
"No state shall, without the consent of Congress, lay any
imposts or duties on imports or exports except what may be
absolutely necessary for executing its inspection laws. . . . No
state shall, without the consent of Congress, lay any duty of
tonnage."
The tax in question can certainly not fall within either of
these prohibitions.
The objection to the tax is rested chiefly, if not entirely,
upon that part of the 8th section of the first article which
Page 27 U. S. 477
gives to Congress the power "to borrow money on the credit of
the United States." And it is said that to permit the states to tax
the stock might, by possibility, sometimes embarrass the United
States in procuring loans. In the examination of the powers of the
general government under the Constitution, "The Federalist" is
often referred to as a work of high authority on questions of this
kind, and the author has seldom been charged with surrendering any
powers that can be brought fairly within the letter or spirit of
the Constitution. In No. 32 of that work, the writer, in discussing
the subject of taxation and the conflicts that might arise between
the general and state governments, says
"Although I am of opinion that there would be no real danger of
the consequences to the state governments which seem to be
apprehended from a power in the union to control them in the levies
of money, yet I am willing to allow in its full extent the justness
of the reasoning which requires that the individual states should
possess an independent and uncontrollable authority to raise their
own revenues for the supply of their own wants. And making this
concession, I affirm that (with the sole exception of duties on
imports and exports) they would, under the plan of the convention,
retain that authority in the most absolute and unqualified sense,
and that an attempt on the part of the national government to
abridge them in the exercise of it would be a violent assumption of
power unwarranted by any article or clause of its Constitution.
That a negation of the authority of the states to impose taxes on
imports and exports is an affirmance of their authority to impose
them on all other articles. That it is not a mere possibility of
inconvenience in the exercise of powers, but an immediate
constitutional repugnancy that can by implication alienate and
extinguish a preexisting right of sovereignty."
The power of the general government to borrow money on the
credit of the United States is not only an express power granted to
Congress, but one that it must have been foreseen would be brought
into practical operation, and that stock would of course be
created, and yet it never entered into the discriminating mind of
the writer referred
Page 27 U. S. 478
to that merely investing property subject to taxation in stock
of the United States would withdraw the property from taxation. It
is said the credit of the United States is a creation of the
general government, which did not exist until they brought it into
being, and in the production of which the state governments did not
participate; that the states could not tax it before the
Constitution was formed, for it did not exist. This view of the
subject is calculated to make an erroneous impression. It is true
it did not exist in the shape of stock, but the property existed in
some other form. No one procures stock without exchanging for it an
equivalent in money or some other property, all which was doubtless
subject to the payment of taxes. Exemption from taxation may hold
out an inducement to invest property in stock of the United States,
and might possibly enable the government to procure loans with more
facility and perhaps on better terms. But this possible or even
certain benefit to the United States cannot extinguish preexisting
state rights. To consider this a tax upon the means employed by the
general government for carrying on its operations is certainly very
great refinement. It is not a tax that operates directly upon any
power or credit of the United States. The utmost extent to which
the most watchful jealousy can lead is that it may by possibility
prevent the government from borrowing money on quite so good terms.
And even this inconvenience is extremely questionable, for the
stock only pays the same tax that the money with which it was
purchased did. And whether the property exists in one form or the
other would seem to be matter of very little importance to the
owner. But great injustice is done to others by exempting men who
are living upon the interest of their money, invested in stock of
the United States, from the payment of taxes; thereby establishing
a privileged class of public creditors who, though living under the
protection of the government, are exempted from bearing any of its
burdens. A construction of the Constitution drawing after it such
consequences ought to be very palpable before it is adopted.
But it seems to me that the right of the states to tax
Page 27 U. S. 479
property of this description is admitted by the Court, in the
case of
McCulloch v.
Maryland, 4 Wheat. 436. The Court there considered
the tax imposed directly upon the operations of the bank, which was
employed by the government as one of the means of carrying into
execution its constitutional powers, and in summing up the result
it is said the states have no power by taxation or otherwise to
retard, impede, burden, or in any manner control the operations of
the constitutional laws of Congress to carry into execution the
powers vested in the general government, and yet the Court says
this opinion 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 the bank in common with other property of the same
description throughout the state.
In the case now before us, the tax is not direct upon any means
used by the government to carry on its operation. It is only a tax
upon property acquired through one of the means employed by the
government to carry on its operations,
viz., the power of
borrowing money upon the credit of the United States, and it is not
perceived how any just distinction can be made in this respect
between bank stock and stock of the United States; both are
acquired through the medium of means employed by the government in
carrying on its operations, and both are held as private property,
and it is immaterial to the present question in what manner it was
acquired.
The broad proposition laid down in the case of
McCulloch v.
Maryland that the states cannot tax any instrument or means
used by the general government in the execution of its powers must
be understood as referring to a direct tax upon such means or
instrument, and that such was the understanding of the Court is to
be inferred from the exemption of bank stock from the operation of
the rule, and the parallel cases put to illustrate the application
of the doctrine lead to the same conclusion. Thus it is said the
states cannot tax the mint, but this does not imply that they may
not tax the money coined at the mint, when held and owned by
individuals. Again, it is said the states cannot
Page 27 U. S. 480
tax a patent right, but if the patentee, from the sale or use of
his patent has acquired property or is receiving an income, it
could not be intended to say that such property or income cannot be
taken into the estimate of his taxable property.
The unqualified proposition that a state cannot directly or
indirectly tax any instrument or means employed by the general
government in the execution of its powers cannot be literally
sustained. Congress has power to raise armies, such armies are made
up of officers and soldiers, and are instruments employed by the
government in executing its powers, and although the army as such
cannot be taxed, yet it will not be claimed that all such officers
and soldiers are exempt from state taxation. Upon the whole,
considering that the tax in question is a general tax upon the
interest of money on loan, I cannot think it any violation of the
Constitution of the United States to include therein interest
accruing from stock of the United States.
I am accordingly of opinion that there is no error in the
opinion of the state court.
This cause came on to be heard on the transcript of the record
from the Constitutional Court of the State of South Carolina and
was argued by counsel, on consideration whereof this Court is of
opinion that there is error in the judgment of the said court in
this, that the said court decided that an ordinance passed by the
City Council of Charleston for the year 1823, entitled "An
ordinance to raise supplies for the use of the City of Charleston
for the year 1823," is, so far as the same imposes a tax on the six
and seven percent stock of the United States, consistent with the
Constitution of the United States. Whereas, it is the opinion of
this Court that so much of the said ordinance as imposes the said
tax is repugnant to the Constitution of the United States and void.
Whereupon it is considered, ordered, and adjudged by this Court
that the said judgment be and the same is hereby reversed and
annulled, and that the said cause be and the same is hereby
remanded to the said Constitutional Court for the State of South
Carolina that such further proceedings may be had therein as may
consist with law and justice.