CRS Annotated Constitution
|Article VI -- Table of Contents|
Clause 1. All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation.
There are no annotations to this clause.
Clause 2. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Marshall’s Interpretation of the National Supremacy Clause
Although the Supreme Court had held, prior to Marshall’s appointment to the Bench, that the supremacy clause rendered null and void a state constitutional or statutory provision which was inconsistent with a treaty executed by the Federal Government,1 it was left for him to develop the full significance of the clause as applied to acts of Congress. By his vigorous opinions in McCulloch v. Maryland2 and Gibbons v. Ogden,3 he gave the principle a vitality which survived a century of vacillation under the doctrine of dual federalism. In the former case, he asserted broadly that “the States have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by Congress to carry into execution the powers vested in[p.918]the general government. This is, we think, the unavoidable consequence of that supremacy which the Constitution has declared.”4 From this he concluded that a state tax upon notes issued by a branch of the Bank of the United States was void.
In Gibbons v. Ogden, the Court held that certain statutes of New York granting an exclusive right to use steam navigation on the waters of the State were null and void insofar as they applied to vessels licensed by the United States to engage in coastal trade. Said the Chief Justice: “In argument, however, it has been contended, that if a law passed by a State, in the exercise of its acknowledged sovereignty, comes into conflict with a law passed by Congress in pursuance of the Constitution, they affect the subject, and each other, like equal opposing powers. But the framers of our Constitution foresaw this state of things, and provided for it, by declaring the supremacy not only of itself, but of the laws made in pursuance of it. The nullity of an act, inconsistent with the Constitution, is produced by the declaration, that the Constitution is the supreme law. The appropriate application of that part of the clause which confers the same supremacy on laws and treaties, is to such acts of the State legislatures as do not transcend their powers, but though enacted in the execution of acknowledged State powers, interfere with, or are contrary to the laws of Congress, made in pursuance of the Constitution, or some treaty made under the authority of the United States. In every such case, the act of Congress, or the treaty, is supreme; and the law of the State, though enacted in the exercise of powers not controverted, must yield to it.”5
Task of the Supreme Court Under the Clause: Preemption
In applying the supremacy clause to subjects which have been regulated by Congress, the primary task of the Court is to ascertain whether a challenged state law is compatible with the policy expressed in the federal statute. When Congress legislates with regard to a subject, the extent and nature of the legal consequences of the regulation are federal questions, the answers to which are to be derived from a consideration of the language and policy of the state. If Congress expressly provides for exclusive federal dominion or if it expressly provides for concurrent federal–state jurisdiction, the task of the Court is simplified, though, of course, there may still be doubtful areas in which interpretation will be necessary. Where Congress is silent, however, the Court must itself decide[p.919]whether the effect of the federal legislation is to oust state jurisdiction.6
The Operation of the Supremacy Clause
When Congress legislates pursuant to its delegated powers, conflicting state law and policy must yield.7 Although the preemptive effect of federal legislation is best known in areas governed by the commerce clause, the same effect is present, of course, whenever Congress legislates constitutionally. And the operation of the supremacy clause may be seen as well when the authority of Congress is not express but implied, not plenary but dependent upon state acceptance. The latter may be seen in a series of cases concerning the validity of state legislation enacted to bring the States within the various programs authorized by Congress pursuant to the Social Security Act.8 State participation in the programs is voluntary, technically speaking, and no State is compelled to enact legislation comporting with the requirements of federal law. Once, however, a State is participating, its legislation, which is contrary to federal requirements, is void under the supremacy clause.9
Federal Immunity Laws and State Courts.—An example of the former circumstance is the operation of federal immunity acts10 to preclude the use in state courts of incriminating statements and testimony given by a witness before a committee of Congress or a federal grand jury.11 Because Congress in pursuance of its paramount authority to provide for the national defense, as[p.920]complemented by the necessary and proper clause, is competent to compel testimony of persons which is needful for legislation, it is competent to obtain such testimony over a witness’s self–incrimination claim by immunizing him from prosecution on evidence thus revealed not only in federal courts but in state courts as well.12
Priority of National Claims Over State Claims.—Anticipating his argument in McCulloch v. Maryland,13 Chief Justice Marshall in 1805 upheld an act of 1792 asserting for the United States a priority of its claims over those of the States against a debtor in bankruptcy.14 Consistent therewith, federal enactments providing that taxes due to the United States by an insolvent shall have priority in payment over taxes due by him to a State also have been sustained.15 Similarly, the Federal Government was held entitled to prevail over a citizen enjoying a preference under state law as creditor of an enemy alien bank in the process of liquidation by state authorities.16 A federal law providing that when a veteran dies in a federal hospital without a will or heirs his personal property shall vest in the United States as trustee for the General Post Fund was held to operate automatically without prior agreement of the veteran with the United States for such disposition and to take precedence over a state claim founded on its escheat law.17
Obligation of State Courts Under the Supremacy Clause
The Constitution, laws, and treaties of the United States are as much a part of the law of every State as its own local laws and constitution. Their obligation “is imperative upon the state judges, in their official and not merely in their private capacities. From the very nature of their judicial duties, they would be called upon to pronounce the law applicable to the case in judgment. They were not to decide merely according to the laws or Constitution of the[p.921]State, but according to the laws and treaties of the United States—‘the supreme law of the land’.”18 State courts are bound then to give effect to federal law when it is applicable and to disregard state law when there is a conflict; federal law includes, of course, not only the Constitution and congressional enactments and treaties but as well the interpretations of their meanings by the United States Supreme Court.19 While States need not specially create courts competent to hear federal claims or necessarily to give courts authority specially, it violates the supremacy clause for a state court to refuse to hear a category of federal claims when the court entertains state law actions of a similar nature.20 The existence of inferior federal courts sitting in the States and exercising often concurrent jurisdiction of subjects has created problems with regard to the degree to which state courts are bound by their rulings. Though the Supreme Court has directed and encouraged the lower federal courts to create a corpus of federal common law,21 it has not spoken to the effect of such lower court rulings on state courts.
Supremacy Clause Versus the Tenth Amendment
The logic of the supremacy clause would seem to require that the powers of Congress be determined by the fair reading of the express and implied grants contained in the Constitution itself, without reference to the powers of the States. For a century after Marshall’s death, however, the Court proceeded on the theory that the Tenth Amendment had the effect of withdrawing various matters of internal police from the reach of power expressly committed to Congress. This point of view was originally put forward in New York City v. Miln,22 which was first argued but not decided before Marshall’s death. The Miln case involved a New York statute which required the captains of vessels entering New York Harbor with aliens aboard to make a report in writing to the Mayor of the City, giving certain prescribed information. It might have been distinguished from Gibbons v. Ogden on the ground that the statute involved in the earlier case conflicted with an act of Congress,[p.922]whereas the Court found that no such conflict existed in this case. But the Court was unwilling to rest its decision on that distinction.
Speaking for the majority, Justice Barbour seized the opportunity to proclaim a new doctrine. “But we do not place our opinion on this ground. We choose rather to plant ourselves on what we consider impregnable positions. They are these: That a State has the same undeniable and unlimited jurisdiction over all persons and things, within its territorial limits, as any foreign nation, where that jurisdiction is not surrendered or restrained by the Constitution of the United States. That, by virtue of this, it is not only the right, but the bounden and solemn duty of a State, to advance the safety, happiness and prosperity of its people, and to provide for its general welfare, by any and every act of legislation, which it may deem to be conducive to these ends; where the power over the particular subject, or the manner of its exercise is not surrendered or restrained, in the manner just stated. That all those powers which relate to merely municipal legislation, or what may, perhaps, more properly be called internal police, are not thus surrendered or restrained; and that, consequently, in relation to these, the authority of a State is complete, unqualified, and exclusive.”23 Justice Story, in dissent, stated that Marshall had heard the previous argument and reached the conclusion that the New York statute was unconstitutional.24
The conception of a “complete, unqualified and exclusive” police power residing in the States and limiting the powers of the National Government was endorsed by Chief Justice Taney ten years later in the License Cases.25 In upholding state laws requiring licenses for the sale of alcoholic beverages, including those imported from other States or from foreign countries, he set up the Supreme Court as the final arbiter in drawing the line between the mutually exclusive, reciprocally limiting fields of power occupied by the national and state governments.26
Until recently, it appeared that in fact and in theory the Court had repudiated this doctrine,27 but in National League of Cities v. Usery,28 it revived part of this state police power limitation upon the exercise of delegated federal power. However, the decision was[p.923]by a closely divided Court and subsequent interpretations closely cabined the development and then overruled the case.
Following the demise of the “doctrine of dual federalism” in the 1930s, the Court confronted the question whether Congress had the power to regulate state conduct and activities to the same extent, primarily under the commerce clause, as it did to regulate private conduct and activities to the exclusion of state law.29 In United States v. California,30 upholding the validity of the application of a federal safety law to a state–owned railroad being operated as a non– profit entity, the Court, speaking through Justice Stone, denied the existence of an implied limitation upon Congress’ “plenary power to regulate commerce” when a state instrumentality was involved. “The state can no more deny the power if its exercise has been authorized by Congress than can an individual.” While the State in operating the railroad was acting as a sovereign and within the powers reserved to the States, the Court said, its exercise was “in subordination to the power to regulate interstate commerce, which has been granted specifically to the national government. The sovereign power of the states is necessarily diminished to the extent of the grants of power to the federal government in the Constitution.”31 A series of cases followed in which the Court refused to construct any state immunity from regulation when Congress acted pursuant to a delegated power.32 The culmination of this series had been thought to be Maryland v. Wirtz,33 in which the Court upheld the constitutionality of applying the federal wage and hour law to nonprofessional employees of state–operated schools and hospitals. In an opinion by Justice Harlan, the Court saw a clear connection between working conditions in these institutions and interstate commerce. Labor conditions in schools and hospitals affect commerce; strikes and work stoppages involving such[p.924]employees interrupt and burden the flow across state lines of goods purchased by state agencies and the wages paid have a substantial effect. The commerce clause being thus applicable, the Justice wrote, Congress was not constitutionally required to “yield to state sovereignty in the performance of governmental functions. This argument simply is not tenable. There is no general ‘doctrine implied in the Federal Constitution that “the two governments, national and state, are each to exercise its powers so as not to interfere with the free and full exercise of the powers of the other.”’ . . . [I]t is clear that the Federal Government when acting within a delegated power, may override countervailing state interests whether these be described as ‘governmental’ or ‘proprietary’ in character. . . . [V]alid general regulations of commerce do not cease to be regulations of commerce because a State is involved. If a State is engaging in economic activities that are validly regulated by the Federal Government when engaged in by private persons, the State too may be forced to conform its activities to federal regulation.”34
Wirtz was specifically reaffirmed in Fry v. United States,35 in which the Court upheld the constitutionality of presidentially imposed wage and salary controls, pursuant to congressional statute, on all state governmental employees. In dissent, however, Justice Rehnquist propounded a doctrine which was to obtain majority approval in League of Cities.36 In that opinion, he said for the Court: “[T]here are attributes of sovereignty attaching to every state government which may not be impaired by Congress, not because Con[p.925]gress may lack an affirmative grant of legislative authority to reach the matter, but because the Constitution prohibits it from exercising the authority in that manner.”37 The standard apparently, in judging between permissible and impermissible federal regulation, is whether there is federal interference with “functions essential to separate and independent existence.”38 In the context of this case, state decisions with respect to the pay of their employees and the hours to be worked were essential aspects of their “freedom to structure integral operations in areas of traditional governmental functions.”39 The line of cases, exemplified by United States v. California, was distinguished and preserved on the basis that the state activities there regulated were so unlike the traditional activities of a State that Congress could reach them;40 Case v. Bowles was held distinguishable on the basis that Congress had acted pursuant to its war powers and to have rejected the power would have impaired national defense;41 Fry was distinguished on the bases that it was emergency legislation tailored to combat a serious national emergency, the means were limited in time and effect, the freeze did not displace state discretion in structuring operations or force a restructuring, and, the federal action “operated to reduce the pressure upon state budgets rather than increase them.”42 Wirtz was overruled; it permitted Congress to intrude into the conduct of integral and traditional state governmental functions and could not therefore stand.43
League of Cities did not prove to be much of a restriction upon congressional power in subsequent decisions. First, its principle was held not to reach to state regulation of private conduct that affects interstate commerce, even as to such matters as state jurisdiction over land within its borders.44 Second, it was held not to immunize state conduct of a business operation, that is, proprietary activity not like “traditional governmental activities.”45 Third, it was held not to preclude Congress from regulating the way States regulate private activities within the State, even though such state activity is certainly traditional governmental action, on the theory that because Congress could displace or preempt state regulation it may require the States to regulate in a certain way if they wish[p.926]to continue to act in this field.46 Fourth, it was held not to limit Congress when it acts in an emergency or pursuant to its war powers, so that Congress may indeed reach even traditional governmental activity.47 Fifth, it was held not to apply at all to Congress’ enforcement powers under the Thirteenth, Fourteenth, and Fifteenth Amendments.48 Sixth, it apparently was to have no application to the exercise of Congress’ spending power with conditions attached.49 Seventh, not because of the way the Court framed the statement of its doctrinal position, which is absolutist, but because of the way it accommodated precedent and because of Justice Blackmun’s concurrence, it was always open to interpretation that Congress was enabled to reach traditional governmental activities not involving employer–employee relations or is enabled to reach even these relations if the effect is “to reduce the pressures upon state budgets rather than increase them.”50 In his concurrence, Justice Blackmun suggested his lack of agreement with “certain possible implications” of the opinion and recast it as a “balancing approach” which “does not outlaw federal power in areas such as environmental protection, where the federal interest is demonstrably greater and where state facility compliance with imposed federal standards would be essential.”51 Indeed, Justice Blackmun’s deviation from League of Cities in the subsequent cases usually made the difference in the majority. dispute.
The Court overruled National League of Cities in Garcia v. San Antonio Metropolitan Transit Auth.,52 and seemingly returned to[p.927]the conception of federal supremacy embodied in Wirtz and Fry. For the most part, the Court indicated, States must seek protection from the impact of federal regulation in the political processes, and not in any limitations imposed on the commerce power or found in the Tenth Amendment. Justice Blackmun’s opinion for the Court in Garcia concluded that the National League of Cities test for “integral operations in areas of traditional governmental functions” had proven “both impractical and doctrinally barren.”53 State autonomy is both limited and protected by the terms of the Constitution itself, hence— ordinarily, at least—exercise of Congress’ enumerated powers is not to be limited by “a priori definitions of state sovereignty.”54 States retain a significant amount of sovereign authority “only to the extent that the Constitution has not divested them of their original powers and transferred those powers to the Federal Government.”55 There are direct limitations in Art. I, Sec. 10, and “Section 8 . . . works an equally sharp contraction of state sovereignty by authorizing Congress to exercise a wide range of legislative powers and (in conjunction with the supremacy clause of Article VI) to displace contrary state legislation.”56 On the other hand, the principal restraints on congressional exercise of the commerce power are to be found not in the Tenth Amendment, in the commerce clause itself, or in “judicially created limitations on federal power,” but in the structure of the Federal Government and in the political processes.57 “[T]he fundamental limitation that the constitutional scheme imposes on the Commerce Clause to protect the ’States as States’ is one of process rather than one of result.”58 While continuing to recognize that “Congress’ authority under the Commerce Clause must reflect [the] position . . . that the States occupy a special and specific position in our constitutional system,” the Court held that application of Fair Labor Standards Act minimum wage and overtime provisions to state employment does not require identification of these “affirmative limits.”59 Thus, arguably, the Court has not totally abandoned the National League of Cities premise that there are limits on the extent to which federal regulation may burden States as States. Rather, it has stipulated[p.928]that any such limits on exercise of federal power must be premised on a failure of the political processes to protect state interests, and “must be tailored to compensate for [such] failings . . . rather than to dictate a ‘sacred province of state autonomy.”’60
Further indication of what must be alleged in order to establish affirmative limits to commerce power regulation was provided in South Carolina v. Baker.61 The Court expansively interpreted Garcia as meaning that there must be an allegation of “some extraordinary defects in the national political process” before the Court will intervene. A claim that Congress acted on incomplete information will not suffice, the Court noting that South Carolina had “not even alleged that it was deprived of any right to participate in the national political process or that it was singled out in a way that left it politically isolated and powerless.”62 Thus, the general rule is that “limits on Congress’ authority to regulate state activities . . . are structural, not substantive—i.e., that States must find their protection from congressional regulation through the national political process, not through judicially defined spheres of unregulable state activity.”63
Dissenting in Garcia, Justice Rehnquist predicted that the doctrine propounded by the dissenters and by those Justices in National League of Cities “will . . . in time again command the support of a majority of the Court.”64 As the membership of the Court changed, it appeared that the prediction was proving true.65 Confronted with the opportunity in New York v. United States,66 to re–examine Garcia, the Court instead distinguished it,67 striking down a federal law on the basis that Congress could not “commandeer” the legislative and administrative processes of state government to compel the administration of federal programs.68 The[p.929]line of analysis pursued by the Court makes clear, however, the result when a Garcia kind of federal law is reviewed.
That is, because the dispute involved the division of authority between federal and state governments, Justice O’Connor wrote for the Court, one could inquire whether Congress acted under a delegated power or one could ask whether Congress had invaded a state province protected by the Tenth Amendment. But, said the Justice, “the two inquiries are mirror images of each other. If a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States; if a power is an attribute of state sovereignty reserved by the Tenth Amendment, it is necessarily a power the Constitution has not conferred on Congress.”69
Powers delegated to the Nation, therefore, are subject to limitations that reserve power to the States. This limitation is not found in the text of the Tenth Amendment, which is, the Court stated, “but a truism,”70 but is a direct constraint on Article I powers when an incident of state sovereignty is invaded.71 The “take title” provision was such an invasion. Both the Federal Government and the States owe political accountability to the people. When Congress encourages States to adopt and administer a federally–prescribed program, both governments maintain their accountability for their decisions. When Congress compels the States to act, state officials will bear the brunt of accountability that properly belongs at the national level.72The “take title” provision, because it presented the States with “an unavoidable command”, transformed state governments into “regional offices” or “administrative agencies” of the Federal Government, impermissibly undermined the accountability owing the people and was void.73 Whether viewed as lying outside Congress’ enumerated powers or as infringing the core of state sovereignty reserved by the Tenth Amendment, “the provision is inconsistent with the federal structure of our Government established by the Constitution.”74
Federal laws of general applicability, therefore, are surely subject to examination under the New York test rather than under the Garcia structural standard. The exercise of Congress’ commerce[p.930]powers will likely be reviewed under a level of close scrutiny in the foreseeable future.
Supplement: [P. 930, add to text at end of carryover paragraph:]
Expanding upon its anti–commandeering rule, the Court in Printz v. United States 1 established “categorically” the rule that “[t]he Federal Government may not compel the States to enact or administer a federal regulatory program.” 2 At issue in Printz was a provision of the Brady Handgun Violence Prevention Act, which required, pending the development by the Attorney General of a national system by which criminal background checks on prospective firearms purchasers could be conducted, the chief law enforcement officers of state and local governments to conduct background checks to ascertain whether applicants were ineligible to purchase handguns. Confronting the absence of any textual basis for a “categorical” rule, the Court looked to history, which in its view demonstrated a paucity of congressional efforts to impose affirmative duties upon the States.3 More important, the Court relied on the “structural Constitution” to demonstrate that the Constitution of 1787 had not taken from the States “a residuary and inviolable sovereignty,” 4 that it had, in fact and theory, retained a system of “dual sovereignty” 5 reflected in many things but most notably in the constitutional conferral “upon Congress of not all governmental powers, but only discrete, enumerated ones,” which was expressed in the Tenth Amendment. Thus, while it had earlier rejected the commandeering of legislative assistance, the Court now made clear that administrative officers and resources were also fenced off from federal power.
The scope of the rule thus expounded was unclear. Particularly, Justice O’Connor in concurrence observed that Congress retained the power to enlist the States through contractual arrangements and on a voluntary basis. More pointedly, she stated that “the Court appropriately refrains from deciding whether other purely ministerial reporting requirements imposed by Congress on state and local authorities pursuant to its Commerce Clause powers are similarly invalid.” 6
A partial answer was provided in Reno v. Condon,7 in which the Court upheld the Driver’s Privacy Protection Act against a charge that it offended the anti–commandeering rule of New York and Printz. The Act in general limits disclosure and resale without a driver’s consent of personal information contained in the records of state motor vehicle departments, and requires disclosure of that information for specified government record–keeeping purposes. While conceding that the Act “will require time and effort on the part of state employees,” the Court found this imposition permissible because the Act regulates state activities directly rather than requiring states to regulate private activities.8
Federal Instrumentalities and Personnel and State Police Power
Federal instrumentalities and agencies have never enjoyed the same degree of immunity from state police regulation as from state taxation. The Court has looked to the nature of each regulation to determine whether it is compatible with the functions committed by Congress to the federal agency. This problem has arisen most often with reference to the applicability of state laws to the operation of national banks. Two correlative propositions have governed the decisions in these cases. The first was stated by Justice Miller in First National Bank v. Commonwealth.75 “[National banks are] subject to the laws of the State, and are governed in their daily course of business far more by the laws of the State than of the Nation. All their contracts are governed and construed by State laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts are all based on State law. It is only when the State law incapacitates the banks discharging their duties to the government that it becomes unconstitutional.”76 In Davis v. Elmira Savings Bank,77 the Court stated the second proposition thus: “National banks are instrumentalities of the Federal Government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a State to define their duties or control the conduct of their affairs is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation, or impairs the efficiency of these agencies of the Federal Government to discharge the duties for the performance of which they were created.”78
Similarly, a state law, insofar as it forbids national banks to use the word “saving” or “savings” in their business and advertising is void by reason of conflict with the Federal Reserve Act authorizing such banks to receive savings deposits.79 However, federal incorporation of a railroad company of itself does not operate to exempt it from control by a State as to business consummated wholly therein.80 Also, Treasury Department regulations, designed[p.931]to implement the federal borrowing power (Art. I, Sec. 8, cl. 2) by making United States Savings Bonds attractive to investors and conferring exclusive title thereto upon a surviving joint owner, override contrary state community property laws whereunder a one–half interest in such property remains part of the estate of a decedent co– owner.81 Similarly, the Patent Office having been granted by Congress an unqualified authorization to license and regulate the conduct throughout the United States of nonlawyers as patent agents, a State, under the guise of prohibiting unauthorized practice of law, is preempted from enjoining such activities of a licensed agent as entail the rendering of legal opinions as to patentability or infringement of patent rights and the preparation and prosecution of application for patents.82
The extent to which States may go in regulating contractors who furnish goods or services to the Federal Government is not as clearly established as is their right to tax such dealers. In 1943, a closely divided Court sustained the refusal of the Pennsylvania Milk Control Commission to renew the license of a milk dealer who, in violation of state law, had sold milk to the United States for consumption by troops at an army camp located on land belonging to the State, at prices below the minimum established by the Commission.83 The majority was unable to find in congressional legislation, or in the Constitution, unaided by congressional enactment, any immunity from such price fixing regulations. On the same day, a different majority held that California could not penalize a milk dealer for selling milk to the War Department at less than the minimum price fixed by state law where the sales and deliveries were made in a territory which had been ceded to the Federal Government by the State and were subject to the exclusive jurisdiction of the former.84 On the other hand, by virtue of its conflict with standards set forth in the Armed Services Procurement Act, 41 U.S.C. Sec. 152 , for determining the letting of contracts to responsible bidders, a state law licensing contractors cannot be enforced against one selected by federal authorities for work on an Air Force base.85
Most recently, the Court has done little to clarify the doctrinal difficulties.86 The Court looked to a “functional” analysis of state[p.932]regulations, much like the rule covering state taxation. “A state regulation is invalid only if it regulates the United States directly or discriminates against the Federal Government or those with whom it deals.”87In determining whether a regulation discriminates against the Federal Government, “the entire regulatory system should be analyzed.”88
The Doctrine of Federal Exemption From State Taxation
McCulloch v. Maryland.—Five years after the decision in McCulloch v. Maryland that a State may not tax an instrumentality of the Federal Government, the Court was asked to and did reexamine the entire question in Osborn v. United States Bank.89 In that case counsel for the State of Ohio, whose attempt to tax the Bank was challenged, put forward two arguments of great importance. In the first place it was “contended, that, admitting Congress to possess the power, this exemption ought to have been expressly asserted in the act of incorporation; and not being expressed, ought not to be implied by the Court.”90 To which Marshall replied: “It is no unusual thing for an act of Congress to imply, without expressing, this very exemption from state control, which is said to be so objectionable in this instance.”91 Secondly, the appellants relied “greatly on the distinction between the bank and the public institutions, such as the mint or the post office. The agents in those offices are, it is said, officers of government. . . . Not so the directors of the bank. The connection of the government with the bank, is likened to that with contractors.”92 Marshall accepted this analogy but not to the advantage of the appellants. He simply indicated that all contractors who dealt with the Government were entitled to immunity from taxation upon such transactions.93 Thus, not only was the decision of McCulloch v. Maryland reaffirmed but the foundation was laid for the vast expansion[p.933]of the principle of immunity that was to follow in the succeeding decades.
Applicability of Doctrine to Federal Securities.—The first significant extension of the doctrine of the immunity of federal instrumentalities from state taxation came in Weston v. Charleston,94 where Chief Justice Marshall also found in the supremacy clause a bar to state taxation of obligations of the United States. During the Civil War, when Congress authorized the issuance of legal tender notes, it explicitly declared that such notes, as well as United States bonds and other securities, should be exempt from state taxation.95 A modified version of this section remains on the statute books today.96 The right of Congress to exempt legal tender notes to the same extent as bonds was sustained in Bank v. Supervisors,97 over the objection that such notes circulate as money and should be taxable in the same way as coin. But a state tax on checks issued by the Treasurer of the United States for interest accrued upon government bonds was sustained since it did not in any way affect the credit of the National Government.98 Similarly, the assessment for an ad valorem property tax of an open account for money due under a federal contract,99 and the inclusion of the value of United States bonds owed by a decedent, in measuring an inheritance tax,100 were held valid, since neither tax would substantially embarrass the power of the United States to secure credit.101 A state property tax levied on mutual savings banks and federal savings and loan associations and measured by the amount of their capital, surplus, or reserve and undivided profits, but without deduction of the value of their United States securities, was voided as a tax on obligations of the Federal Government. Apart from the fact that the ownership interest of depositors in such institutions was different from that of corporate stockholders, the tax was im[p.934]posed on the banks which were solely liable for payment thereof.102
Income from federal securities is also beyond the reach of the state taxing power as the cases now stand.103 Nor can such a tax be imposed indirectly upon the stockholders on such part of the corporate dividends as corresponds to the part of the corporation’s income which is not assessed, i.e., income from tax exempt bonds.104 A State may constitutionally levy an excise tax on corporations for the privilege of doing business, and measure the tax by the property of net income of the corporation, including tax exempt United States securities or the income derived therefrom.105 The designation of a tax is not controlling.106 Where a so–called “license tax” upon insurance companies, measured by gross income, including interest on government bonds, was, in effect, a commutation tax levied in lieu of other taxation upon the personal property of the taxpayer, it was still held to amount to an unconstitutional tax on the bonds themselves.107
Taxation of Government Contractors.—In the course of his opinion in Osborn v. United States Bank,108 Chief Justice Marshall posed the question: “Can a contractor for supplying a military post with provisions, be restrained from making purchases within any state, or from transporting the provisions to the place at which the troops were stationed? Or could he be fined or taxed for doing so? We have not yet heard these questions answered in the affirmative.”109 Today, the question insofar as taxation is concerned is answered in the affirmative. While the early cases looked toward immunity,110 in James v. Dravo Contracting Co.,111 by a 5–to–4 vote, the Court established the modern doctrine. Upholding a state tax on the gross receipts of a contractor providing services to the Fed[p.935]eral Government, the Court said that “‘[I]t is not necessary to cripple [the State’s power to tax] by extending the constitutional exemption from taxation to those subjects which fall within the general application of non–discriminatory laws, and where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of the functions of government.”’112 A state–imposed sales tax upon the purchase of goods by a private firm having a cost–plus contract with the Federal Government was sustained, it not being critical to the tax’s validity that it would be passed on to the Government.113 Previously, it had sustained a gross receipts tax levied in lieu of a property tax upon the operator of an automobile stage line, who was engaged in carrying the mails as an independent contractor114 and an excise tax on gasoline sold to a contractor with the Government and used to operate machinery in the construction of levees on the Mississippi River.115 While the decisions have not set an unwavering line,116 the Court has in recent years hewed to a very restrictive doctrine of immunity. “[T]ax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned.”117 Thus, New Mexico sustained a state gross receipts tax and a use tax imposed upon contractors with the Federal Government which operated on “advanced funding,” drawing on federal deposits so that only federal funds were expended by the contractors to meet their obligations.118[p.936]
Of course, Congress may statutorily provide for immunity from taxation of federal contractors generally or in particular programs.119
Taxation of Salaries of Employees of Federal Agencies.—Of a piece with James v. Dravo Contracting Co. was the decision in Graves v. New York ex rel. O’Keefe,120 handed down two years later. Repudiating the theory “that a tax on income is legally or economically a tax on its source,” the Court held that a State could levy a nondiscriminatory income tax upon the salary of an employee of a government corporation. In the opinion of the Court, Justice Stone intimated that Congress could not validly confer such an immunity upon federal employees. “The burden, so far as it can be said to exist or to affect the government in any indirect or incidental way, is one which the Constitution presupposes; and hence it cannot rightly be deemed to be within an implied restriction upon the taxing power of the national and state governments which the Constitution has expressly granted to one and has confirmed to the other. The immunity is not one to be implied from the Constitution, because if allowed it would impose to an inadmissible extent a restriction on the taxing power which the Constitution has reserved to the state governments.”121 Chief Justice Hughes concurred in the result without opinion. Justices Butler and McReynolds dissented and Justice Frankfurter wrote a concurring opinion in which he reserved judgment as to “whether Congress may, by express legislation, relieve its functionaries from their civic obligations to pay for the benefits of the State governments under which they live.”122
That question is academic, Congress having consented to state taxation of its employees’ compensation as long as the taxation “does not discriminate against the . . . employee, because of the[p.937]source of the . . . compensation.”123 This statute, the Court has held, “is coextensive with the prohibition against discriminatory taxes embodied in the modern constitutional doctrine of intergovernmental tax immunity.”124
Ad Valorem Taxes Under the Doctrine.—Property owned by a federally chartered corporation engaged in private business is subject to state and local ad valorem taxes. This was conceded in McCulloch v. Maryland,125 and confirmed a half century later with respect to railroads incorporated by Congress.126 Similarly, a property tax may be levied against the lands under water which are owned by a person holding a license under the Federal Water Power Act.127 However, when privately owned property erected by lessees on tax exempt state lands is taxed by a county at less than full value, and houses erected by contractors on land leased from a federal Air Force base are taxed at full value, the latter tax, solely by reason of the discrimination against the United States and its lessees, is rendered void.128 Likewise, when under state laws, a school district does not tax private lessees of state and municipal realty, whose leases are subject to termination at the lessor’s option in the event of sale, but does levy a tax, measured by the entire value of the realty, on lessees of United States property utilized for private purposes and whose leases are terminable at the option of the United States in an emergency or upon sale, the discrimination voided the tax collected from the latter. “A state tax may not discriminate against the Government or those with whom it deals” in the absence of significant differences justifying levy of higher taxes on lessees of federal property.129 Land conveyed by[p.938]the United States to a corporation for dry dock purposes was subject to a general property tax, despite a reservation in the conveyance of a right to free use of the dry dock and a provision for forfeiture in case of the continued unfitness of the dry dock for use or the use of land for other purposes.130 Also, where equitable title has passed to the purchaser of land from the Government, a State may tax the equitable owner on the full value thereof, despite retention of legal title;131 but, in the case of reclamation entries, the tax may not be collected until the equitable title passes.132 In the pioneer case of Van Brocklin v. Tennessee,133 the State was denied the right to sell for taxes lands which the United States owned at the time the taxes were levied, but in which it had ceased to have any interest at the time of sale. Similarly, a State cannot assess land in the hands of private owners for benefits from a road improvement completed while it was owned by the United States.134
In 1944, with two dissents, the Court held that where the Government purchased movable machinery and leased it to a private contractor the lessee could not be taxed on the full value of the equipment.135 Twelve years later, and with a like number of Justices dissenting, the Court upheld the following taxes imposed on federal contractors: (1) a municipal tax levied pursuant to a state law which stipulated that when tax exempt real property is used by a private firm for profit, the latter is subject to taxation to the same extent as if it owned the property, and based upon the value of real property, a factory, owned by the United States and made available under a lease permitting the contracting corporation to deduct such taxes from rentals paid by it; the tax was collectible only by direct action against the contractor for a debt owed, and was not applicable to federal properties on which payments in lieu of taxes are made; (2) a municipal tax, levied under the authority of the same state law, based on the value of the realty owned by the United States, and collected from a cost–plus–fixed– fee contractor, who paid no rent but agreed not to include any part of the cost of the facilities furnished by the Government in the price of goods supplied under the contract; (3) another municipal tax levied in the[p.939]same State against a federal subcontractor, and computed on the value of materials and work in process in his possession, notwithstanding that title thereto had passed to the United States following his receipt of installment payments.136
In sustaining the first tax, the Court held that it was imposed, not on the Government or on its property, but upon a private lessee, that it was computed by the value of the use to the contractor of the federally leased property, and that it was nondiscriminatory; that is, it was designed to equalize the tax burden carried by private business using exempt property with that of similar businesses using taxed property. Distinguishing the Allegheny case, the Court maintained that in this older decision, the tax invalidated was imposed directly on federal property and that the question of the legality of a privilege on use and possession of such property had been expressly reserved therein. Also insofar as the economic incidents of such tax on private use curtails the net rental accruing to the Government, such burden was viewed as insufficient to vitiate the tax.137
Deeming the second and third taxes similar to the first, the Court sustained them as taxes on the privilege of using federal property in the conduct of private business for profit. With reference to the second, the Court emphasized that the Government had reserved no right of control over the contractor and, hence, the latter could not be viewed as an agent of the Government entitled to the immunity derivable from that status.138 As to the third tax, the Court asserted that there was no difference between taxing a private party for the privilege of using property he possesses, and taxing him for possessing property which he uses; for, in both instances, the use was private profit. Moreover, the economic burden thrust upon the Government was viewed as even more remote than in the administration of the first two taxes.139[p.940]
Federal Property and Functions.—Property owned by the United States is, of course, wholly immune from state taxation.140 No State can regulate, by the imposition of an inspection fee, any activity carried on by the United States directly through its own agents and employees.141 An early case, the authority of which is now uncertain, held invalid a flat rate tax on telegraphic messages, as applied to messages sent by public officers on official business.142
Federally Chartered Finance Agencies: Statutory Exemptions.— Fiscal institutions chartered by Congress, their shares and their property, are taxable only with the consent of Congress and only in conformity with the restrictions it has attached to its consent.143 Immediately after the Supreme Court construed the statute authorizing the States to tax national bank shares as allowing a tax on the preferred shares of such a bank held by the Reconstruction Finance Corporation,144 Congress passed a law exempting such shares from taxation. The Court upheld this measure, saying: “When Congress authorized the states to impose such taxation, it did no more than gratuitously grant them political power which they theretofore lacked. Its sovereign power to revoke the grant remained unimpaired, the grant of the privilege being only a declaration of legislative policy changeable at will.”145 In Pittman v. Home Owners’ Corp.,146 the Court sustained the power of Congress under the necessary and proper clause to immunize the activities of the Corporation from state taxation; and in Federal Land Bank v. Bismarck Co.,147 the like result was reached with respect to an attempt by the State to impose a retail sales tax on a sale of lumber and other building materials to the bank for use in repairing and improving property that had been acquired by foreclosure or mortgages.[p.941]
The State’s principal argument proceeded thus: “Congress has authority to extend immunity only to the governmental functions of the federal land banks; the only governmental functions of the land banks are those performed by acting as depositories and fiscal agents for the federal government and providing a market for government bonds; all other functions of the land banks are private; petitioner here was engaged in an activity incidental to its business of lending money, an essentially private function; therefore 26 cannot operate to strike down a sales tax upon purchases made in furtherance of petitioner’s lending functions.”148 The Court rejected this argument and invalidated the tax saying: “The argument that the lending functions of the federal land banks are proprietary rather than governmental misconceives the nature of the federal government with respect to every function which it performs. The federal government is one of delegated powers, and from that it necessarily follows that any constitutional exercise of its delegated powers is governmental. . . . It also follows that, when Congress constitutionally creates a corporation through which the federal government lawfully acts, the activities of such corporation are governmental.”149
Similarly, the lease by a federal land bank of oil and gas in a mineral estate, which it had reserved in land originally acquired through foreclosure and thereafter had conveyed to a third party, was held immune from a state personal property tax levied on the lease and on the royalties accruing thereunder. The fact that at the time of the conveyance and lease, the bank had recouped its entire loss resulting from the foreclosure did not operate to convert the mineral estate and lease into a non–governmental activity no longer entitled to exemption.150 However, in the absence of federal legislation, a state law laying a percentage tax on the users of safety deposit services, measured by the bank’s charges therefore, was held valid as applied to national banks. The tax, being on the user, did not, the Court held, impose an intrinsically unconstitutional burden on a federal instrumentality.151
Royalties.—In 1928, the Court went so far as to hold that a State could not tax as income royalties for the use of a patent issued by the United States.152 This proposition was soon overruled in Fox Film Corp. v. Doyal,153 where a privilege tax based on gross income and applicable to royalties from copyrights was upheld.[p.942]Likewise a State may lay a franchise tax on corporations, measured by the net income from all sources and applicable to income from copyright royalties.154
Immunity of Lessees of Indian Lands.—Another line of anomalous decisions conferring tax immunity upon lessees of restricted Indian lands was overruled in 1949. The first of these cases, Choctaw, O. & G. R. Co. v. Harrison,155 held that a gross production tax on oil, gas, and other minerals was an occupational tax, and, as applied to a lessee of restricted Indian lands, was an unconstitutional burden on such lessee, who was deemed to be an instrumentality of the United States. Next, the Court held the lease itself a federal instrumentality immune from taxation.156 A modified gross production tax imposed in lieu of all ad valorem taxes was invalidated in two per curiam decisions.157 In Gillespie v. Oklahoma,158 a tax upon net income of the lessee derived from sales of his share of oil produced from restricted lands also was condemned. Finally a petroleum excise tax upon every barrel of oil produced in the State was held inapplicable to oil produced on restricted Indian lands.159 In harmony with the trend to restricting immunity implied from the Constitution to activities of the Government itself, the Court overruled all these decisions in Oklahoma Tax Comm. v. Texas Co. and held that a lessee of mineral rights in restricted Indian lands was subject to nondiscriminatory gross production and excise taxes, so long as Congress did not affirmatively grant him immunity.160
Summation and Evaluation
Although McCulloch v. Maryland and Gibbons v. Ogden were expressions of a single thesis, the supremacy of the National Government, their development after Marshall’s death has been sharply divergent. During the period when Gibbons v. Ogden was eclipsed by the theory of dual federalism, the doctrine of McCulloch[p.943]v. Maryland was not merely followed but greatly extended as a restraint on state interference with federal instrumentalities. Conversely, the Court’s recent return to Marshall’s conception of the powers of Congress has coincided with a retreat from the more extreme positions taken in reliance upon McCulloch v. Maryland. Today, the application of the supremacy clause is becoming, to an ever increasing degree, a matter of statutory interpretation; a determination whether state regulations can be reconciled with the language and policy of federal enactments. In the field of taxation, the Court has all but wiped out the private immunities previously implied from the Constitution without explicit legislative command. Broadly speaking, the immunity which remains is limited to activities of the Government itself, and to that which is explicitly created by statute, e.g., that granted to federal securities and to fiscal institutions chartered by Congress. But the term, activities, will be broadly construed.
Clause 3. The Senators and Representatives before mentioned, and the Members of the several State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution; but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.
Power of Congress in Respect to Oaths
Congress may require no other oath of fidelity to the Constitution, but it may superadd to this oath such other oath of office as its wisdom may require.161 It may not, however, prescribe a test oath as a qualification for holding office, such an act being in effect an ex post facto law,162 and the same rule holds in the case of the States.163[p.944]
National Duties of State Officers
Commenting in The Federalist on the requirement that state officers, as well as members of the state legislatures, shall be bound by oath or affirmation to support the Constitution, Hamilton wrote: “Thus the legislatures, courts, and magistrates, of the respective members, will be incorporated into the operations of the national government as far as its just and constitutional authority extends; and it will be rendered auxiliary to the enforcement of its laws.”164 The younger Pinckney had expressed the same idea on the floor of the Philadelphia Convention: “They [the States] are the instruments upon which the Union must frequently depend for the support and execution of their powers . . .”165 Indeed, the Constitution itself lays many duties, both positive and negative, upon the different organs of state government,166 and Congress may frequently add others, provided it does not require the state authorities to act outside their normal jurisdiction. Early congressional legislation contains many illustrations of such action by Congress.
The Judiciary Act of 1789 167 not only left the state courts in sole possession of a large part of the jurisdiction over controversies between citizens of different States and in concurrent possession of the rest, and by other sections state courts were authorized to entertain proceedings by the United States itself to enforce penalties and forfeitures under the revenue laws, examples of the principle that federal law is law to be applied by the state courts, but also any justice of the peace or other magistrates of any of the States were authorized to cause any offender against the United States to be arrested and imprisoned or bailed under the usual mode of process. From the beginning, Congress enacted hundreds of statutes that contained provisions authorizing state officers to enforce and execute federal laws.168 Pursuant to same idea of treating state governmental organs as available to the National Government for administrative purposes, the act of 1793 entrusted the rendition of fugitive slaves in part to national officials and in part to state offi[p.945]cials and the rendition of fugitives from justice from one State to another exclusively to the state executives.169
With the rise of the doctrine of States Rights and of the equal sovereignty of the States with the National Government, the availability of the former as instruments of the latter in the execution of its power came to be questioned.170 In Prigg v. Pennsylvania,171 decided in 1842, the constitutionality of the provision of the act of 1793 making it the duty of state magistrates to act in the return of fugitive slaves was challenged; and in Kentucky v. Dennison,172 decided on the eve of the Civil War, similar objection was leveled against the provision of the same act which made it “the duty” of the Chief Executive of a State to render up a fugitive from justice upon the demand of the Chief Executive of State from which the fugitive had fled. The Court sustained both provisions, but upon the theory that the cooperation of the state authorities was purely voluntary. In the Prigg case the Court, speaking by Justice Story, said that “while a difference of opinion has existed, and may exist still on the point, in different states, whether state magistrates are bound to act under it, none is entertained by this Court, that state magistrates may, if they choose, exercise that authority, unless prohibited by state legislation.”173 Subsequent cases confirmed the point that Congress could authorize willing state officers to perform such federal duties.174 Indeed, when Congress in the Selective Service Act of 1917 authorized enforcement to a great extent through state employees, the Court rejected “as too wanting in merit to require further notice” the contention that the Act was invalid because of this delegation.175 State officials were frequently employed in the enforcement of the National Prohibition Act, and suits to abate nuisances as defined by the statute were authorized to be brought, in the name of the United States, not only by federal[p.946]officials, but also by “any prosecuting attorney of any State or any subdivision thereof.”176
In the Dennison case, however, it was held that while Congress could delegate it could not require performance of an obligation. The “duty” of state executives in the rendition of fugitives from justice was construed to be declaratory of a “moral duty.” Said Chief Justice Taney for the Court: “The act does not provide any means to compel the execution of this duty, nor inflict any punishment for neglect or refusal on the part of the Executive of the State; nor is there any clause or provision in the Constitution which arms the Government of the United States with this power. Indeed, such a power would place every State under the control and dominion of the General Government, even in the administration of its internal concerns and reserved rights. And we think it clear that the Federal Government, under the Constitution, has no power to impose on a State officer, as such, any duty whatever, and compel him to perform it[.] . . . It is true,” the Chief Justice conceded, “that in the early days of the Government, Congress relied with confidence upon the co–operation and support of the States, when exercising the legitimate powers of the General Government, and were accustomed to receive it, [but this, he explained, was] upon principles of comity, and from a sense of mutual and common interest, where no such duty was imposed by the Constitution.”177
Eighteen years later, in Ex parte Siebold,178 the Court sustained the right of Congress, under Article I, Sec. 4, parag. 1 of the Constitution, to impose duties upon state election officials in connection with a congressional election and to prescribe additional penalties for the violation by such officials of their duties under state law. While the doctrine of the holding was expressly confined to cases in which the National Government and the States enjoy “a concurrent power over the same subject matter,” no attempt was made to catalogue such cases. Moreover, the outlook of Justice Bradley’s opinion for the Court was decidedly nationalistic rather than dualistic, as is shown by the answer made to the contention of counsel “that the nature of sovereignty is such as to preclude the joint cooperation of two sovereigns, even in a matter in which they are mutually concerned.” To this Justice Bradley replied: “As a general rule, it is no doubt expedient and wise that the operations[p.947]of the State and national governments should, as far as practicable, be conducted separately, in order to avoid undue jealousies and fears and conflicts of jurisdiction and power. But there is no reason for laying this down as a rule of universal application. It should never be made to override the plain and manifest dictates of the Constitution itself. We cannot yield to such a transcendental view of state sovereignty. The Constitution and laws of the United States are the supreme law of the land, and to these every citizen of every State owes obedience, whether in his individual or official capacity.”179
Conflict, thus, developed early between these two doctrinal lines. But was the Siebold line that was to prevail. Enforcement of obligations upon state officials through mandamus or through injunctions was readily available, even when the State itself was immune, through the fiction of Ex parte Young,180 under which a state official could be sued in his official capacity but without the immunities attaching to his official capacity. Although the obligations were, for a long period, in their origin based on the Federal Constitution, the capacity of Congress to enforce statutory obligations through judicial action was little doubted.181 Nonetheless, it was only recently that the Court squarely overruled Dennison. “If it seemed clear to the Court in 1861, facing the looming shadow of a Civil War, that ‘the Federal Government, under the Constitution, has no power to impose on a State officer, as such, any duty whatever, and compel him to perform it,’ . . . basic constitutional principles now point as clearly the other way.”182 That case is doubly important, inasmuch as the Court spoke not only to the extradition clause and the federal statute directly enforcing it, but it also enforced a purely statutory right on behalf of a Territory that could not claim for itself rights under the clause itself.183
Even as the Court imposes new federalism limits upon Congress’ powers to regulated the States as States, it has reaffirmed the principle that Congress may authorize the federal courts to compel state officials to comply with federal law, statutory as well as constitutional. “[T]he Supremacy Clause makes federal law paramount over the contrary positions of state officials; the power[p.948]of federal courts to enforce federal law thus presupposes some authority to order state officials to comply.”184
No doubt, there is tension between the exercise of Congress’ power to impose duties on state officials185 and the developing doctrine under which the Court holds that Congress may not “commandeer” state legislative or administrative processes in the enforcement of federal programs.186 However, the existence of the supremacy clause and the federal oath of office, as well as a body of precedent indicates that coexistence of the two lines of principles will be maintained.
Supplement: [P. 921, add to n.20:]
Supplement: [P. 935, add to n.118:]
Arizona Dep’t of Revenue v. Blaze Constr. Co., 526 U.S. 32 (1999) (the same rule applies when the contractual services are rendered on an Indian reservation).
Supplement: [P. 937, add to n.123:]
For application of the Act to salaries of federal judges, see Jefferson County v. Acker, 527 U.S. 423 (1999) (upholding imposition of a local occupational tax).
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