Court Opinion

ID: 9418962
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:43:56.752157+00
Date Added: 2024-06-11T08:03:46.725131
License: Public Domain

Mr. Justice Butler,
dissenting.
At least since M’Culloch v. Maryland (1819), 4 Wheat. 316, the dual form of government resulting from the adoption of the Constitution has been deemed necessarily to imply that no State may tax the operations of the Federal Government in the exertion of powers that the people delegated to it and that, for the same reason, the Federal Government may not tax the operations of any State in the exertion of any of its essential functions of government. As to that principle, the urgency of governmental demand for money does not justify yielding here. No one can foresee the extent to which the decision just announced surrenders it. The transactions of a State *388for the purpose of raising money to provide for schools are admittedly within the principle as heretofore it has been understood and applied. Now this Court makes it lawful for the United States to lay tribute upon them.
A few citations will be sufficient to suggest the character of the change so wrought.
M’Culloch v. Maryland held that impliedly the Federal Constitution forbade imposition by Maryland of any tax upon the operations of the Bank of the United States within that State. There Chief Justice Marshall, speaking for a unanimous Court, demonstrates (p. 426): “1st. That a power to create implies a power to preserve. 2nd. That a power to destroy, if wielded by a different hand, is hostile to, and incompatible with these powers to create and to preserve. 3d. That where this repugnancy exists, that authority which is supreme must control, not yield to that over which it is supreme.”
Farmers & Mechanics Bank v. Minnesota (1914), 232 U. S. 516, held that a State cannot tax bonds issued by a territory of the United States; that a tax upon the bonds is a tax on the government issuing them; that such a tax, if allowed at all, may be carried to an extent that will entirely arrest governmental operations. The Court rested that decision upon M’Culloch v. Maryland, saying (p. 521): “The principle has never since been departed from, and has often been reasserted and applied.” 1
Choctaw, O. & G. R. Co. v. Harrison (1914), 235 U. S. 292, held that, where by agreement with an Indian tribe the United States assumed a duty in regard to operation of coal mines, the lessees of the mines were instrumen-talities of the government and could not be subjected to a state occupation or privilege tax.2
*389Indian Territory Oil Co. v. Oklahoma (1916), 240 U. S. 522, held that oil leases in Oklahoma made by the Osage tribe were under the protection of the Federal Government; that the corporation owning the leases was a federal instrumentality and that therefore the State could not tax its interest in the leases, either directly or by taxing the capital stock of the corporation owning them.3
Gillespie v. Oklahoma (1922), 257 U. S. 501, held that net income derived from leases like those considered in Choctaw, O. & G. R. Co. v. Harrison, supra, and Indian Territory Oil Co. v. Oklahoma, supra, could not be taxed by the State; for the lessee was an instrumentality used by the United States in fulfilling its duties to the Indians.4 The Court said (p. 506): “The same considerations that invalidate a tax upon the leases invalidate a tax upon the profits of the leases, and, stopping short of theoretical possibilities, a tax upon such profits is a direct hamper upon the effort of the United States to make the best terms that it can for its wards.”
*390Jaybird Mining Co. v. Weir (1926), 271 U. S. 609, held that where mining land was leased by incompetent Indian owners with the approval of the Secretary of the Interior, in consideration of royalty in kind, a state ad valorem tax assessed to lessee on ores in bins on the land, before sale or segregation, was void as an attempt to tax an agency of the Federal Government.5
In Burnet v. Coronado Oil & Gas Co. (1932), 286 U. S. 393, it appeared that lands granted by the United States to Oklahoma for the support of common schools were leased by the State to a private company for extraction of oil and gas, the State reserving a part of the gross production, the proceeds of which were paid into the school fund. We held that the lease was an instrumentality of the State in the exercise of a strictly governmental function, and that application of the federal income tax to the income derived from the lease by the lessee was therefore unconstitutional.6
To reach in this case the conclusion that respondent’s affiliate is subject to federal income tax on the proceeds of its share of the oil received under the lease of state school lands, this Court expressly overrules Gillespie v. Oklahoma, supra, and Burnet v. Coronado Oil & Gas Co., supra; and with them necessarily goes a long line of decisions of this and other courts. The opinion brings forward no real reason for so sweeping a change of con*391struction of the Constitution. It is to the plain disadvantage-of Indian wards of the National Government and school children of the several States; it threatens many business arrangements that have been made for their benefit.
I dissent.
Mr. Justice McReynolds concurs in this opinion.

 Citing Osborn v. U. S. Bank, 9 Wheat. 738, 859; Home Savings Bank v. Des Moines, 205 U. S. 503, 513; Grether v. Wright, 75 Fed. 742, 753.

 Citing M’Culloch v. Maryland, 4 Wheat. 316; Farmers & Mechanics Bank v. Minnesota, 232 U. S. 516.

 Citing Choctaw, O. & G. R. Co. v. Harrison, 235 U. S. 292.

 Citing Choctaw, O. & G. R. Co. v. Harrison, 235 U. S. 292; Indian Territory Oil Co. v. Oklahoma, 240 U. S. 522; Howard v. Gipsy Oil Co., 247 U. S. 503; Large Oil Co. v. Howard, 248 U. S. 549.
As to taxability of gains from interstate commerce, see U. S. Glue Co. v. Oak Creek, 247 U. S. 321; Shaffer v. Carter, 252 U. S. 37, 57.
In Burnet v. Coronado Oil & Gas Co., 285 U. S. 393, 399, 400, it is stated that Gillespie v. Oklahoma has often been referred to as the expression of an accepted principle, citing Metcalf & Eddy v. Mitchell, 269 U. S. 514, 522; Jaybird Mining Co. v. Weir, 271 U. S. 609, 613; Northwestern Mutual Ins. Co. v. Wisconsin, 275 U. S. 136, 140; Heiner v. Colonial Trust Co., 275 U. S. 232, 234; Shaw v. Gibson-Zahniser Oil Corp., 276 U. S. 575, 579; Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U. S. 218, 221, 222; Carpenter v. Shaw, 280 U. S. 363, 366; Willcuts v. Bunn, 282 U. S. 216, 229; Group No. 1 Oil Corp. v. Bass, 283 U. S. 279, 282, 283; Indian Motocycle Co. v. United States, 283 U. S. 570, 576; Choteau v. Burnet, 283 U. S. 691, 696.

 Citing Farmers & Mechanics Bank v. Minnesota, 232 U. S. 516; Choctaw, O. & G. R. Co. v. Harrison, 235 U. S. 292; Indian Territory Oil Co. v. Oklahoma, 240 U. S. 522; Gillespie v. Oklahoma, 257 U. S. 501; Howard v. Gipsy Oil Co., 247 U. S. 503; Large Oil Co. v. Howard, 248 U. S. 549.

 Following Gillespie v. Oklahoma, 257 U. S. 501. Citing Texas v. White, 7 Wall. 700, 725; Collector v. Day, 11 Wall. 113; Pollock v. Farmers Loan & Trust Co., 157 U. S. 429, 584; Farmers & Mechanics Bank v. Minnesota, 232 U. S. 516, 527.