McCulloch v. Maryland (1819)
In Maryland, the state assembly imposed a tax on all banks, or their branches, located within the state which were not chartered by the state legislature. Under the act, the Bank of the United States, which was created through an act of Congress, would have been subject to the state tax.
In McCulloch v. Maryland, the Supreme Court had to decide whether Congress can establish a federal bank even though the Constitution does not specifically grant Congress the power to establish a federal bank. If so, does a tax levied by the State of Maryland on a federal bank established under an act of Congress violate the Constitution?
Congress May Pass All "Necessary and Proper" Laws
First, the Court addressed whether Congress had the authority to establish a national bank. The Court found that "Congress is authorized to pass all laws 'necessary and proper' to carry into execution the powers conferred on it." Moreover, "necessary and proper" meant that Congress could enact laws "suitable and fitted" to its conferred powers, not just those "absolutely indispensable to the existence of a granted power." So, the Court will only pronounce the congressional act which established the bank to be unconstitutional and void if "a bank has no fair connection with the execution of any power or duty of the national government, and that its creation is consequently a manifest usurpation."
The Court then stated that "[a] bank is a proper and suitable instrument to assist the operations of the government, in the collection and disbursement of the revenue; in the occasional anticipations of taxes and imposts; and in the regulation of the actual currency, as being a part of the trade and exchange between the states." Whether or not a bank, such as this one, is the best possible means of achieving these purposes is a political question for Congress and not a judicial question for the courts.
"An unlimited power to tax involves . . . a power to destroy"
After the Court found that Congress did not violate the Constitution when it established the bank, the Court addressed whether a state may tax the federal bank. The Court reasoned the Supremacy Clause of the Constitution prohibited states from defeating of impeding the federal government by acts of state legislation, such as through a state tax. After all, [a]n unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." So, "[i]f the states may tax, they have no limit but their discretion; and the bank, therefore, must depend on the discretion of the state governments for its existence." "To hold otherwise, would be to declare, that congress can only exercise its constitutional powers, subject to the controlling discretion, and under the sufferance, of the state governments.
This ruling affirmed the supremacy of federal law and established the doctrine of implied powers, which expanded the scope of federal power.