SCOTUS
McCulloch
DecidedMar 6, 1819
Unanimousdecision
Source: CourtListener.
Supreme Court upholds federal bank and bars states from taxing federal government operations
Impact10/10
What it does
The Court ruled that Congress has the power to create a national bank as a means of carrying out its listed constitutional powers, even though "bank" or "corporation" appear nowhere in the Constitution. It also ruled that states cannot tax the operations of the federal government or its instruments, because allowing them to do so would give states the power to destroy what the federal government has the constitutional authority to create.
Who benefits
The federal government and its agencies or chartered institutions, which are shielded from state taxation on their operations. People across all states who rely on a functioning national financial system backed by a stable federal bank.
Who is affected
State governments, which lose the ability to tax federal government operations and instruments within their borders. Maryland specifically was required to void its tax on the Bank of the United States branch operating in the state.
Practical impact
Maryland's tax on the Bank of the United States was struck down as unconstitutional, and James McCulloch — the bank's cashier who had refused to pay the tax — won the case. Going forward, states cannot impose taxes or other burdens on the operations of federal government institutions. This ruling also established that Congress may use any means that are reasonably suited to carrying out its constitutional powers, even if those specific means are not listed in the Constitution, as long as they are not otherwise prohibited.
Majority — Marshall
The Court reasoned that the Constitution was created by the people — not by the states — and that the federal government, though limited to its listed powers, is supreme within those powers. Chief Justice Marshall held that the word "necessary" in the Necessary and Proper Clause (which gives Congress power to pass laws needed to carry out its listed powers) does not mean "absolutely indispensable" — it means "useful," "appropriate," or "conducive to" the goal; so Congress has broad flexibility in choosing the means to carry out its constitutional duties. Because Congress has clear powers over taxation, borrowing money, regulating commerce, and funding armies, the Court found that chartering a bank is a reasonable and appropriate tool for executing those powers. On the tax question, the Court held that the power to tax is the power to destroy, and allowing a state to tax a federal instrument would give a single state's government the ability to undermine a government created by and for all the people — which directly contradicts the Constitution's Supremacy Clause. The Court drew a key distinction: when Congress taxes state-chartered banks, it acts on behalf of all the people; when a state taxes the federal bank, it acts on behalf of only some of the people over an institution that belongs to everyone.
Constitutional question
Does Congress have the power to create a national bank, even though the Constitution does not explicitly say so? And if so, can a state tax that bank's operations?