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edly recognized in adjudged cases in this court, is a concurrent power. The qualifications of the rule are the exclusion of the States from the taxation of the means and instruments employed in the exercise of the functions of the Federal Government."

43 In Van Allen v. Assessors, as previously stated, the court held that the congressional permission to the States to tax the shares of national banks in the hands of the shareholders was not defeated by the fact that such banks have their capital wholly or in part invested in federal securities.

The power of the States under Section 5219 to tax property and the shares of stock of national banks of their holders, does not carry with it the authority to levy a tax that will in any wise operate as a tax on the franchise of the banks, that is, their right to be and to do business within the State.

In Owensboro National Bank v. Owensboro the only question held by the court to be open to argument was as to whether in fact the State tax involved operated as a tax on the franchise of the bank. That it would be void if it did so operate the court held not open to doubt. In this case, the tax, while not a tax on the franchise in a technical sense, was held to be not upon the shares of stock in the names of the shareholders, but upon all the intangible property of the bank and, therefore, void.

§ 57. Federal Taxation of State Agencies.

Correlative to the implied limitation upon the States with respect to interference with federal agencies of government, is the implied obligation upon the Federal Government not to interfere with the operation of the governmental agencies of the States. This limitation upon the Federal Government is not, however, so strictly construed as that laid upon the States. Here, as in every other case, where a conflict arises between the exercise of federal

42 Compare In re Rahrer (140 U. S. 545; 11 Sup. Ct. Rep. 865; 35 L. ed. 572) in which was sustained the power of Congress to permit a State to extend police jurisdiction over imported liquors upon their arrival within the State. 43 3 Wall. 573; 18 L. ed. 229.

44 173 U. S. 664; 19 Sup. Ct. Rep. 537; 43 L. ed. 850

powers, and of state powers, the State must yield, although, except for this opposition, it would be within its constitutional rights. Thus franchises granted to interstate railway companies by the United States are not taxable by the States.45 But in Veazie Bank v. Fenno1 the Federal Government, in the exercise of its constitutional powers to control the currency, was permitted to tax out of existence the issue of state banks, although it was not denied that the States had the constitutional power to charter such banks.47

In this Veazie Bank case it was argued on behalf of the State that the federal tax in question was, in effect, a tax on a franchise granted by the State, and as such unconstitutional. The court held that, in fact, the tax was not upon the franchise of the bank, but declared, obiter. "We do not say that there may not be such a tax. It may be admitted that the reserved rights of the States, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts, and to employ all necessary agencies for legitimate purposes of state government, are not proper subjects of the taxing power of Congress. But it cannot be admitted that franchises granted by a State are necessarily exempt from taxation; for franchises are property, often very valuable and productive property, and when not conferred for the purpose of giving effect to some reserved power of a State, seems to be as properly objects of taxation as any other property."

Similarly in Ex parte Rapier48 it was held that the fact that a lottery company was chartered by a State did not prevent the Federal Government from excluding its tickets from the mails.

The Supreme Court has not, however, permitted this principle of the supremacy of the Federal Government to authorize the National Government, by taxation or otherwise, to interfere with the States in the exercise of their governmental rights, except in as far as such interference is necessary to the exercise of a fed

45 Calif v. Pacific R. R. Co. (127 U. S. 1; 8 Sup. Ct. Rep. 1073; 32 L. ed. 150).

46 8 Wall. 533; 19 L. ed. 482.

47 Briscoe v. Bank of Kentucky (11 Pet. 257; 9 L. ed. 709).

48 143 U. S. 110; 12 Sup. Ct. Rep. 374; 36 L. ed. 93.

49

eral power. In Lane County v. Oregon it was held that the Federal Government was without the power to compel the States to receive in payment of their taxes paper currency that had been declared legal tender by the Federal Government. In its opinion the court say: "The people of the United States constitute one nation, under one government, and this government within the scope of the powers with which it is invested, is supreme. On the other hand the people of each State compose a State. having its own government, and endowed with all the functions essential to separate and independent existence. The States disunited might continue to exist. Without the States in union there could be no such political body as the United States. Now, to the existence of the States, themselves, necessary to the existence of the United States, the power of taxation is indispensable. It is an essential function of the government.

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. . In respect, however, to property, business and persons, within their respective limits their power of taxation remained and remains entire. It is, indeed, a concurrent power, and in the case of a tax on the same subject by both governments, the claim of the United States, as the supreme authority, must be preferred; but, with this qualification it is absolute. The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the mode in which it shall be exercised, are equally within the discretion of the legislatures to which the States commit the exercise of the power. That discretion is restrained only by the will of the people expressed in the state Constitutions or through elections, and by the condition that it must not be so used as to burden or embarrass the operations of the National Government. There is nothing in the Constitution which contemplates or authorizes any direct abridgement of this power by national legisla tion. To the extent just indicated it is as complete in the States as the like power, within the limits of the Constitution, is complete in Congress. If, therefore, the condition of any State, in the judgment of its legislature, requires the collection of taxes in kind, that is to say, by the delivery to the proper officers of a

49 7 Wall. 71; 19 L. ed. 101.

certain proportion of products, or in gold or silver bullion, or in gold and silver coin, it is not easy to see upon what principle the National Legislature can interfere with the exercise, to that end, of this power, original in the States, and never as yet surrendered. If this be so, it is, certainly, a reasonable conclusion that Congress did not intend, by the general terms of the Currency Act, to restrain the exercise of this power in the manner shown by the Statutes of Oregon."

In the case of Collector v. Day-50 it held that the Federal Government could not levy an income tax upon the salaries of state officials. In that case the court said: "If the means and instrumentalities employed by that [the General] Government to carry into operation the powers granted to it, are, necessarily, and, for the sake of self-preservation, exempt from taxation by the States, why are not those of the States depending upon their reserved powers, for like reasons, equally exempt from federal taxation? Their unimpaired existence in the one case is as essential as in the other. It is admitted that there is no express provision in the Constitution that prohibits the General Government from taxing the means and instrumentalities of the States, nor is there any prohibiting the States from taxing the means and instrumentalities of that government. In both cases the exemption rests upon necessary implication, and is upheld by the great law of self-preservation, as any government, whose means employed in conducting its operations, if subject to the control of another and distinct government, can only exist at the mercy of that government. Of what avail are these means if

another power may tax them at discretion?"

Thus, the court goes on to point out that the alleged federal right that was involved, so far from being similar to that sustained in Veazie Bank v. Fenno, was included within that sphere of state interest which the court in that case expressly declared to be beyond the taxing power of the Federal Government.

50 11 Wall. 113; 20 L. ed. 122.

§ 58. Federal Taxation of Property of Municipalities.

In United States v. B. & O. Ry. it was held that the United States could not collect a tax on money due a municipality of one of the States, the court saying: "A municipal corporation like the City of Baltimore, is a representative not only of the State, but is a portion of its governmental power. It is one of its creatures, made for a specific purpose, to exercise within a limited sphere the powers of the State. The State may withdraw these local powers of government at pleasure, and may, through its legislature or other appointed channels, govern the local territory as it governs the State at large. It may enlarge or contract its powers or destroy its existence. As a portion of the State in the exercise of a limited portion of the powers of the State, its revenues, like those of the State, are not subject to taxation." 5:

In Mercantile Nat. Bank v. New York it was decided that the United States might not tax bonds issued by a State or one of its municipal bodies, under its authority, and held by private corporations.

In the Income Tax case it was held that a federal tax might not be levied on income derived from municipal bonds.

In Ambrosini v. United States the court held that bonds given to secure the proper enforcement of state laws in respect to the sale of intoxicating liquors, were not subject to federal taxation.

§ 59. South Carolina v. United States.

An interesting case of recent date bearing upon the right of the Federal Government, by taxation or otherwise, to interfere with

51 17 Wall. 322; 21 L. ed. 597.

52 In this case two justices dissented on the ground that, conceding that the instruments for conducting the public affairs of the municipality are entitled to the same exemption from federal taxation as those of the State at large, it did not follow that property possessed and used merely in a commercial way for income or profits was thus exempt.

53 121 U. S. 138; 7 Sup. Ct. Rep. 826; 30 L. ed. 895.

54 Pollock v. Farmers' Loan & Trust Co. (157 U. S. 429; 15 Sup. Ct. Rep. 673; 39 L. ed. 759).

55 187 U. S. 1; 23 Sup. Ct. Rep. 1; 47 L. ed. 49.

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