Source: https://supreme.justia.com/cases/federal/us/76/579/
Timestamp: 2019-04-19 01:08:12+00:00

Document:
1. Although confessedly Congress may constitutionally make or authorize contracts with individuals or corporations for services to the government; may grant aids by money or land in preparation for and in the performance of such services; may make any stipulation and conditions in relation to such aids not contrary to the Constitution, and may exempt, in its discretion; the agencies employed in such services from any state taxation which will really prevent or impede the performance of them; yet in the absence of all legislation on the part of Congress to indicate that such an exemption is deemed by it essential to the full performance of the party's obligations to the government, the exemption cannot be applied to the case of a corporation deriving its existence from state law, exercising its franchise under such law, and holding its property within state jurisdiction and under state protection, only because of the employment of the corporation in the service of the government.
2. The point decided in McCulloch v. Maryland does not establish a broader doctrine even if some of its reasoning may seem to do so.
or companies organized, or to be organized, under the laws of the United States, or of any state or territory.
Some months later, the Union Pacific Railroad Company was incorporated by Congress, with power (conferred by the original act of 1862 and various amendatory acts) to construct a railroad and telegraph westward through the territory of the United States, from the hundredth meridian east of Greenwich, to connect with the Central Pacific Railway Company, incorporated by the State of California, and so to form, in connection with eastern roads, a continuous line from ocean to ocean. Several other railroad companies, already incorporated by Missouri and Iowa, as well as the company just mentioned, chartered by Kansas, were authorized to construct roads through the national territory, so as to join the Union Pacific road on the hundredth meridian; and to all these roads large grants of land were made, and large subsidies engaged on the security of a second mortgage, upon the condition of paying, at maturity, the bonds advanced by way of subsidy, and of rendering certain services to the government in the transmission of messages, and in the transportation of mails, troops, munitions, and other property, at reasonable rates of compensation.
But neither by the original act nor by any amendment did Congress undertake to incorporate any railroad company, or authorize the construction of any railroad within the limits of any state, without the consent of the state concerned. And this was as true of the Union Pacific Railway Company, Eastern Division, as of any other of the roads aided by Congress. Whatever was done by Congress in reference to this last named road was done not merely with the consent, but upon the solicitation of the State of Kansas. The corporation, however, remained a state corporation, though entitled to certain benefits, and subject to certain duties under the legislation of Congress.
District of Kansas, against the Union Pacific Railway Company, Eastern Division, and three persons, whom the bill named, treasurers, respectively, of Douglass, Wyandotte, and Jefferson Counties in the State of Kansas. The bill stated that the complainants were stockholders in the railway company; that under an act of the Legislature of Kansas, certain taxes had been imposed on the railroad and telegraph property of the company, which the treasurers of the counties named were proceeding to collect; that the property of the company was mortgaged to the United States; that the company was bound to perform certain duties, and ultimately to pay five percent of its net earnings to the United States; that the company would be greatly hindered and embarrassed in the performance of its obligations and duties to the United States, if the taxes imposed should be collected; and that, to some extent, taxes of the same description had been already paid by the company, to the prejudice of the just rights of the complainants and of the securities of the United States. Upon this case the complainants prayed an injunction to restrain the company from paying, and the other defendants from collecting, the taxes assessed; and a temporary injunction was allowed by the district judge.
with the statutes of the state; that the company had executed a first mortgage prior in lien to the debt to the United States, and that a table of earnings and expenditures for 1867-1868, appended to the agreed statement, was correct.
the great chain of transcontinental railway. We have only to consider the liabilities and rights of the Union Pacific Railroad Company in respect to taxation under state legislation. Argument has been heard on behalf of some of the connected corporations, only because of their interest in the question, by reason of their similar situation and circumstances in reference to like legislation.
The counsel for the complainants have justly said that the question certified here for decision is one of very grave importance.
It was suggested, rather than argued, by one of them that the property of the state is exempt by the state constitution from taxation, and that the state, having reserved to itself in the charter the right to purchase the road at the end of fifty years at a valuation then to be made, upon two years' notice to the company, has therefore a property in the road which cannot be taxed. But it is too plain for argument that the interest thus reserved is too remote and too contingent to be regarded as within the meaning of the exemption.
The main argument for the complainants, however, is that the road, being constructed under the direction and authority of Congress for the uses and purposes of the United States and being a part of a system of roads thus constructed, is therefore exempt from taxation under state authority. It is to be observed that this exemption is not claimed under any act of Congress. It is not asserted that any act declaring such exemption has ever received the sanction of the national legislature. But it is earnestly insisted that the right of exemption arises from the relations of the road to the general government. It is urged that the aids granted by Congress to the road were granted in the exercise of its constitutional powers to regulate commerce, to establish post offices and post roads, to raise and support armies, and to suppress insurrection and invasion, and that by the legislation which supplied aid, required security, imposed duties, and finally exacted upon a certain contingency a percentage of income, the road was adopted as an instrument of the government, and as such was not subject to taxation by the state.
The case of McCulloch v. Maryland is much relied on in support of this position. But we apprehend that the reasoning of the Court in that case will hardly warrant the conclusion which counsel deduce from it in this. In that case, the main questions were whether the incorporation of the Bank of the United States, with power to establish branches, was an act of legislation within the constitutional powers of Congress, and whether the bank and its branches as actually established were exempt from taxation by state legislation. Both questions were resolved in the affirmative. In deciding the first, the Court did not hold, as counsel suppose, that Congress under the Constitution has absolute and exclusive power to determine whether an act of legislation is or is not necessary and proper as a means for carrying into effect one or more of its enumerated powers. It defined the words "necessary and proper" as equivalent in meaning to the words "appropriate, plainly adapted, not prohibited, but consistent with the letter and spirit of the Constitution," and held that the incorporation of a bank with branches was a necessary and proper means to the effectual exercise of granted power within the definition thus given. It held further that Congress was, within this limit, the exclusive judge as to the means best adapted to the end proposed, and that its choice of any means of the defined character was restricted only by its own discretion. But the question whether the particular means adopted was within the general grant of incidental powers was determined by the court. A great part of the argument was directed to the proposition that the incorporation of a bank was an exercise of incidental power within the true meaning of the terms "necessary and proper," as explained by the Court -- an argument which would have been quite superfluous if that question was to be determined finally by the legislative, and not by the judicial, department of the government.
for services to the government, may grant aids, by money or land, in preparation for, and in the performance of, such services, may make any stipulation and conditions in relation to such aids not contrary to the Constitution, and may exempt, in its discretion, the agencies employed in such services from any state taxation which will really prevent or impede the performance of them.
But can the right of this road to exemption from such taxation be maintained in the absence of any legislation by Congress to that effect?
It is unquestionably true that the court, in determining the second general question, already stated, did hold that the Bank of the United States, with its branches, was exempt from taxation by the state of Maryland, although no express exemption was found in the charter. But it must be remembered that the Bank of the United States was a corporation created by the United States; and as an agent in the execution of the constitutional powers of the government, was endowed by the act of creation with all its faculties, powers, and functions. It did not owe its existence, or any of its qualities, to state legislation. And its exemption from taxation was put upon this ground. Nor was the exemption itself without important limitations. It was declared not to extend to the real property of the bank within the state; nor to interests held by citizens of the state in the institution.
Congress thought fit to prescribe the extent to which state taxation may be applied. [Footnote 4] In all these cases, as in the case of the Bank of the United States, exemption from liability to taxation was maintained upon the same ground. The state tax held to be repugnant to the Constitution was imposed directly upon an operation or an instrument of the government. That such taxes cannot be imposed on the operations of the government, is a proposition which needs no argument to support it. And the same reasoning will apply to instruments of the government, created by itself for public and constitutional ends. But we are not aware of any case in which the real estate, or other property of a corporation not organized under an act of Congress, has been held to be exempt, in the absence of express legislation to that effect, to just contribution, in common with other property, to the general expenditure for the common benefit, because of the employment of the corporation in the service of the government.
It is true that some of the reasoning in the case of McCulloch v. Maryland seems to favor the broader doctrine. But the decision itself is limited to the case of the bank, as a corporation created by a law of the United States, and responsible, in the use of its franchises, to the government of the United States.
case of a corporation deriving its existence from state law, exercising its franchise under state law, and holding its property within state jurisdiction and under state protection.
We do not doubt the propriety or the necessity, under the Constitution, of maintaining the supremacy of the general government within its constitutional sphere. We fully recognize the soundness of the doctrine, that no state has a "right to tax the means employed by the government of the Union for the execution of its powers." But we think there is a clear distinction between the means employed by the government and the property of agents employed by the government. Taxation of the agency is taxation of the means; taxation of the property of the agent is not always, or generally, taxation of the means.
whether the whole income of the property which will remain liable to state taxation, if the principle contended for is admitted and applied in its fullest extent, may not ultimately be found inadequate to the support of the state governments.
The nature of the claims to exemption which would be set up, is well illustrated by that which is advanced in behalf of the complainants in the case before us. The very ground of claim is in the bounties of the general government. The allegation is that the government has advanced large sums to aid in construction of the road, has contented itself with the security of a second mortgage, has made large grants of land upon no condition of benefit to itself, except that the company will perform certain services for full compensation, independently of those grants, and will admit the government to a very limited and wholly contingent interest in remote net income. And because of these advances and these grants and this fully compensated employment, it is claimed that this state corporation, owing its being to state law, and indebted for these benefits to the consent and active interposition of the state legislature, has a constitutional right to hold its property exempt from state taxation, and this without any legislation on the part of Congress which indicates that such exemption is deemed essential to the full performance of its obligations to the government.
Weston v. City of Charleston, 2 Pet. 467.
The Banks v. Mayor, 7 Wall. 24.
Bank v. Supervisors, 7 Wall. 28.
Van Allen v. Assessors, 3 id. 573; Bradley v. People, 4 id. 459; People v. Commissioners, Ib. 244.
National Bank v. Commonwealth, supra, <|76 U.S. 353|>353; Lionberger v. Rowse, supra, <|76 U.S. 468|>468.
Lane County v. Oregon, 7 Wall. 77; National Bank v. Commonwealth, supra, <|76 U.S. 353|>353.

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