thereon.

While the checks are obligations of the United States, and within the letter of Sec. 3701, they are not within its spirit, and are proper subjects of taxation."

§ 55. State Taxation of Bequests to the United States.

66

Bequests to the United States may be subjected to state inheritance taxes, such taxes, the courts, both state and federal, holding to be not upon the property bequeathed, but upon its transmission by will or by descent. The legacy becomes the property of the United States only after it has suffered a diminution to the amount of the tax, and it is only upon this condition that the state legislature assents to a bequest of it." 38

Further, in Plumber v. Coler it was held that the state inheritance tax might be collected upon a bequest consisting of United States bonds issued under an act of Congress specifically declaring them to be exempt from state taxation in any form. After an exhaustive review of authorities the court say: “We think the conclusion fairly to be drawn from the federal cases is that the right to take property by will or by descent is derived from and regulated by municipal law; that, in assessing a tax upon such right or privilege, the State may lawfully measure or fix the amount of the tax by referring to the value of the property passing, and that the incidental fact that such property is composed, in whole or in part, of federal securities, does not invalidate the tax or the law under which it is imposed." In Murdock v. Ward 40 it was held that a similar bequest of federal securities was not exempt from the inheritance tax imposed by the War Revenue act of Congress of 1898.

$56. State Taxation of National Banks.

By act of June 3, 1864, certain powers of taxation with reference to national banks were given by Congress to the States. This permission now constituting Section 5219 of the Revised Statutes

38 United States v. Perkins (163 U. S. 625; 16 Sup. Ct. Rep. 1073; 41 L. ed. 297).

39 178 U. S. 115; 20 Sup. Ct. Rep. 829; 44 L. ed. 998. 40 178 U. S. 139; 20 Sup. Ct. Rep. 775; 44 L. ed. 1099.

is as follows: Nothing herein shall prevent all the shares in any association from being included in the valuation of the personal property of the owner or holder of such shares, in assessing taxes imposed by authority of the State in which the association is located; but the legislature of each State may determine and direct the manner and place of taxing all shares of national banking associations located within the State, subject to only the two restrictions, that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State, and that the shares of any national banking association owned by nonresidents of any State, shall be taxed in the city or town where the bank is located, and not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either state, county, or municipal taxes to the same extent, according to its value, as other real property is taxed."

As has been already pointed out this permission measures the entire extent of the State's power of taxation with reference to the national banks. This federal act has been construed to operate not as a grant by the United States to the States of a power not previously possessed, but as the removal by Congress of a hindrance to the exercise by the States of a power inherent in them. In Van Allen v. Assessors41 the court say: "It is said that Congress possesses no power to confer upon

State authority to be exercised which has been. exclusively delegated to that body by the Constitution and, consequently, that it cannot confer upon the State the sovereign right of taxation; nor is the State competent to receive a grant of any such power from Congress. We agree to this. But as it respects a subject-matter over which Congress and the States may exercise a concurrent power, but from the exercise of which Congress, by reason of its paramount authority, may exclude the States, there is no doubt Congress may withhold the exercise of that authority and leave the States free to act. The power of taxation. under the Constitution as a general rule, and as has been repeat

. . •

41 3 Wall. 573; 18 L. ed. 229.

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." 42

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.

44

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. But in Veazie Bank v. Fenno 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 Rapiers 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.

. . 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 legislation. 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.