McCulloch v. Maryland

McCulloch v. Maryland Summary

The Supreme Court ruled in favor of McCulloch and his employer, the Bank of United States. It found that a tax imposed by the state of Maryland on the Bank’s branch in the state was unconstitutional as a violation of the Supremacy Clause. Moreover, the Court held that Congress was given the power to establish a federal bank based on the “necessary and proper clause” of the Constitution.

Key Players in McCulloch v. Maryland

• 1Appellant: McCulloch, cashier of the Bank of the United States.
• 2Appellee: The State of Maryland, who passed local legislation which taxed the Bank.

McCulloch v. Maryland Brief

The central themes of this case were the power of state governments to tax a federal bank, the power of Congress to establish a federal bank, and blanket exemptions from tax for federal banks.

McCulloch v. Maryland Facts

The Maryland legislature passed an act which taxed all banks operating in Maryland which were not chartered by the state of Maryland. The State sought to apply the tax against a branch of the Bank of the United States that was located in the state of Maryland.

The McCulloch v. Maryland Decision

The ruling focused on the following central issues: whether state governments have the power to tax federal banks, whether Congress has the authority to establish the Bank of the United States, and whether federal banks are explicitly exempt from taxation by states. The Court cited the Supremacy Clause in noting that federal law is the “supreme law of the land, anything in the laws of any state to the contrary notwithstanding” and went on to say that a tax by state governments of a federal bank would necessarily cause the federal bank, to the extent that it is taxed, to “depend on the discretion of the [said] state governments for its [continued] existence”. That is, once a state government has the discretion to tax the federal bank, it could use that discretion to such an extent as to deplete as much of the resources of the federal bank as it sees fit. The Court said that such discretion violated the Constitution because, under the Supremacy Clause, a federal law has to be allowed to operate without restriction from state laws like the Maryland state tax law.

The Court also addressed plaintiff’s argument that Congress was not empowered to establish a federal bank, concluding that such power was “implied” through the “necessary and proper clause” and through the idea that the establishment by the federal government of corporations is a “necessary and proper” means to achieving the federal end of “raising revenue”. To show that Congress’s establishment of a bank was unconstitutional, the Court held that the operations of the Bank of the United States had “no fair connection” with the “powers and duties” of the federal government and that, therefore, its establishment constituted a significant over-extension of the power of Congress.

In evaluating the argument that the Bank of the United States was specially exempt from taxation, the Court turned to the standard for a blanket exemption on taxation for an institution, noting that such an exemption requires that either the specific “nature of the property” held by the institution exempts it from tax, that the bank’s status as the “Bank of the United States” exempts it from tax, that the Constitution expressly exempts the bank from tax, or that the exemption is indispensable to the exercise of some Constitutional power. The Court concluded that the bank’s stock—it’s property—does not necessarily subject it to taxation because such property is routinely taxed. It went on to explain that the bank’s status as the Bank of the United States does not exempt it from tax because the property of the United States had recently been held to not be exempt from tax. The Court clarified that there is no express exemption from tax for federal banks in the Constitution. Finally, the Court explained how there is no need to exempt the bank from tax in order to have it achieve the purpose for which it was established.

Key Takeaways for Law Students

• 1In accordance with the “necessary and proper clause” of the Constitution, Congress may establish a federal bank.
• 2In accordance with the Supremacy Clause of the Constitution, state governments do not have the power to tax branches of a federal bank established by Congress within their territory.