U.S. Supreme Court Veazie Bank v. Fenno, 75 U.S. 8 Wall.
533 533 (1869) Veazie Bank v. Fenno 75 U.S. (8 Wall.) 533 ON CERTIFICATE OF
DIVISION FOR THE CIRCUIT COURT FOR
MAINE Syllabus 1. The 9th section of the Act of July 13, 1866, amendatory of
prior internal revenue acts and which provides that every national
banking association, state bank, or state banking association shall
pay a tax of ten percentum on the amounts of the notes of any state
hank or state banking association paid out by them after the 1st
day of August, 1866, does not lay a direct tax within the meaning
of that clause of the Constitution which ordains that "direct taxes
shall be apportioned among the several states, according to their
respective numbers."

															2. Congress having undertaken, in the exercise of undisputed
constitutional power, to provide a currency for the whole country,
may constitutionally secure the benefit of it to the people by
appropriate legislation, and to that end may restrain, by suitable
enactments, the circulation of any notes not issued under its own
authority. Page 75 U. S. 534 3. The tax of ten percentum imposed by the Act of July 13, 1866,
on the notes of state banks paid out after the 1st of August, 1866,
is warranted by the Constitution.

															The Constitution ordains that:

															"The Congress shall have power:"

															"To lay and collect taxes, duties, imposts, and excises, to pay
the debts and provide for the common defense and general welfare of
the United States; but all duties, imposts, and excises shall be
uniform throughout the United States."

															"To regulate commerce with foreign nations, and among the
several states, and with the Indian tribes."

															"To coin money, regulate the value thereof, and of foreign
coin."

															It also ordains that:

															"Direct taxes shall be apportioned among the several states . .
. according to their respective numbers."

															"No capitation or other direct tax shall be laid unless in
proportion to the census or enumeration hereinbefore directed to be
made."

															"The powers not delegated to the United States by the
Constitution, nor prohibited by it to the states, are reserved to
the states respectively, or to the people."

															With these provisions in force as fundamental law, Congress
passed, July 13, 1866, [ Footnote
1 ] an act, the second clause of the 9th section of which
enacts:

															"That every national banking association, state bank, or state
banking association shall pay a tax of ten percentum on the amount
of notes of any person, state bank, or state banking association
used for circulation and paid out by them after the 1st day of
August, 1866, and such tax shall be assessed and paid in such
manner as shall be prescribed by the Commissioner of Internal
Revenue."

															Under this act, a tax of ten percent was assessed upon the
Veazie Bank for its bank notes issued for circulation after the day
named in the act. Page 75 U. S. 535 The Veazie Bank was a corporation chartered by the State of
Maine, with authority to issue bank notes for circulation, and the
notes on which the tax imposed by the act was collected were issued
under this authority. There was nothing in the case showing that
the bank sustained any relation to the state as a financial agent
or that its authority to issue notes was conferred or exercised
with any special reference to other than private interests.

															The bank declined to pay the tax, alleging it to be
unconstitutional, and the collector of internal revenue, one Fenno,
was proceeding to make a distraint in order to collect it with
penalty and costs when, in order to prevent this, the bank paid it
under protest. An unsuccessful claim having been made on the
Commissioner of Internal Revenue for reimbursement, suit was
brought by the bank against the collector in the court below.

															The case was presented to that court upon an agreed statement of
facts, and, upon a prayer for instructions to the jury, the judges
found themselves opposed in opinion on three questions, the first
of which -- the two others differing from it in form only, and not
needing to be recited -- was this:

															"Whether the second clause of the 9th section of the Act of
Congress of the 13th of July, 1866, under which the tax in his case
was levied and collected, is a valid and constitutional law. " Page 75 U. S. 536 THE CHIEF JUSTICE delivered the opinion of the Court.

															The necessity of adequate provision for the financial exigencies
created by the late rebellion suggested to the administrative and
legislative departments of the government important changes in the
systems of currency and taxation which had hitherto prevailed.
These changes, more or less distinctly shown in administrative
recommendations, took form and substance in legislative acts. We
have now to consider, within a limited range, those which relate to
circulating notes and the taxation of circulation.

															At the beginning of the rebellion, the circulating medium
consisted almost entirely of bank notes issued by numerous
independent corporations variously organized under state
legislation, of various degrees of credit, and very unequal
resources, administered often with great and not unfrequently with
little skill, prudence, and integrity. The acts of Congress then in
force prohibiting the receipt or disbursement, Page 75 U. S. 537 in the transactions of the national government, of anything
except gold and silver, and the laws of the states requiring the
redemption of bank notes in coin on demand, prevented the
disappearance of gold and silver from circulation. There was, then,
no national currency except coin; there was no general [ Footnote 2 ] regulation of any other by
national legislation, and no national taxation was imposed in any
form on the state bank circulation.

															The first act authorizing the emission of notes by the Treasury
Department for circulation was that of July 17, 1861. [ Footnote 3 ] The notes issued under this
act were Treasury notes, payable on demand in coin. The amount
authorized by it was $50,000,000, and was increased by the Act of
February 12, 1862, [ Footnote 4 ]
to $60,000,000.

															On the 31st of December, 1861, the state banks suspended specie
payment. Until this time, the expenses of the war had been paid in
coin or in the demand notes just referred to, and for some time
afterwards they continued to be paid in these notes, which, if not
redeemed in coin, were received as coin in the payment of
duties.

															Subsequently, on the 25th of February, 1862, [ Footnote 5 ] a new policy became necessary in
consequence of the suspension and of the condition of the country,
and was adopted. The notes hitherto issued, as has just been
stated, were called Treasury notes, and were payable on demand in
coin. The act now passed authorized the issue of bills for
circulation under the name of United States notes, made payable to
bearer but not expressed to be payable on demand, to the amount of
$150,000,000, and this amount was increased by subsequent acts to
$450,000,000, of which $50,000,000 were to be held in reserve, and
only to be issued for a special purpose and under special
directions as to their withdrawal from circulation. [ Footnote 6 ] These notes, until after the
close of the war, were always convertible into, or receivable at
par for Page 75 U. S. 538 bonds payable in coin, and bearing coin interest, at a rate not
less than five percent, and the acts by which they were authorized
declared them to be lawful money and a legal tender.

															This currency, issued directly by the government for the
disbursement of the war and other expenditures, could not,
obviously, be a proper object of taxation.

															But on the 25th of February, 1863, the act authorizing national
banking associations [ Footnote
7 ] was passed, in which for the first time during many years
Congress recognized the expediency and duty of imposing a tax upon
currency. By this act a tax of two percent annually was imposed on
the circulation of the associations authorized by it. Soon after,
by the Act of March 3, 1863, [ Footnote 8 ] a similar but lighter tax of one percent
annually was imposed on the circulation of state banks in certain
proportions to their capital, and of two percent on the excess, and
the tax on the national associations was reduced to the same
rates.

															Both acts also imposed taxes on capital and deposits, which need
not be noticed here.

															At a later date, by the Act of June 3, 1864, [ Footnote 9 ] which was substituted for the Act
of February 25, 1863, authorizing national banking associations,
the rate of tax on circulation was continued and applied to the
whole amount of it, and the shares of their stockholders were also
subjected to taxation by the states; and a few days afterwards, by
the Act of June 30, 1864, [ Footnote 10 ] to provide ways and means for the support of
the government, the tax on the circulation of the state banks was
also continued at the same annual rate of one percent as before,
but payment was required in monthly installments of one-twelfth of
one percent, with monthly reports from each state bank of the
amount in circulation.

															It can hardly be doubted that the object of this provision was
to inform the proper authorities of the exact amount of paper money
in circulation, with a view to its regulation by law. Page 75 U. S. 539 The first step taken by Congress in that direction was by the
Act of July 17, 1862, [ Footnote
11 ] prohibiting the issue and circulation of notes under one
dollar by any person or corporation. The act just referred to was
the next, and it was followed some months later by the act of March
3, 1865, amendatory of the prior internal revenue acts, the sixth
section of which provides

															"That every national banking association, state bank, or state
banking association shall pay a tax of ten percentum on the amount
of the notes of any state bank or state banking association paid
out by them after the 1st day of July, 1866. [ Footnote 12 ]"

															The same provision was reenacted, with a more extended
application, on the 13th of July, 1866, in these words:

															"Every national banking association, state bank, or state
banking association shall pay a tax of ten percentum on the amount
of notes of any person, state bank, or state banking association
used for circulation and paid out by them after the first day of
August, 1866, and such tax shall be assessed and paid in such
manner as shall be prescribed by the Commissioner of Internal
Revenue. [ Footnote 13 ]"

															The constitutionality of this last provision is now drawn in
question, and this brief statement of the recent legislation of
Congress has been made for the purpose of placing in a clear light
its scope and bearing, especially as developed in the provisions
just cited. It will be seen that when the policy of taxing bank
circulation was first adopted in 1863, Congress was inclined to
discriminate for, rather than against, the circulation of the state
banks, but that when the country had been sufficiently furnished
with a national currency by the issues of United States notes and
of national bank notes, the discrimination was turned, and very
decidedly turned, in the opposite direction.

															The general question now before us is whether or not the tax of
ten percent, imposed on state banks of national banks paying out
the notes of individuals or state banks Page 75 U. S. 540 used for circulation, is repugnant to the Constitution of the
United States.

															In support of the position that the act of Congress, so far as
it provides for the levy and collection of this tax, is repugnant
to the Constitution, two propositions have been argued with much
force and earnestness.

															The first is that the tax in question is a direct tax, and has
not been apportioned among the states agreeably to the
Constitution.

															The second is that the act imposing the tax impairs a franchise
granted by the state, and that Congress has no power to pass any
law with that intent or effect.

															The first of these propositions will be first examined.

															The difficulty of defining with accuracy the terms used in the
clause of the Constitution which confers the power of taxation upon
Congress was felt in the Convention which framed that instrument,
and has always been experienced by courts when called upon to
determine their meaning.

															The general intent of the Constitution, however, seems plain.
The general government, administered by the Congress of the
Confederation, had been reduced to the verge of impotency by the
necessity of relying for revenue upon requisitions on the states,
and it was a leading object in the adoption of the Constitution to
relieve the government to be organized under it from this necessity
and confer upon it ample power to provide revenue by the taxation
of persons and property. And nothing is clearer from the
discussions in the Convention and the discussions which preceded
final ratification by the necessary number of states than the
purpose to give this power to Congress as to the taxation of
everything except exports in its fullest extent.

															This purpose is apparent also from the terms in which the taxing
power is granted. The power is "to lay and collect taxes, duties,
imposts, and excises, to pay the debt and provide for the common
defense and general welfare of the United States." More
comprehensive words could not have been used. Exports only are by
another provision excluded from its application. Page 75 U. S. 541 There are indeed certain virtual limitations arising from the
principles of the Constitution itself. It would undoubtedly be an
abuse of the power if so exercised as to impair the separate
existence and independent self-government [ Footnote 14 ] of the states, or if exercised for
ends inconsistent with the limited grants of power in the
Constitution.

															And there are directions as to the mode of exercising the power.
If Congress sees fit to impose a capitation, or other direct tax,
it must be laid in proportion to the census; if Congress determines
to impose duties, imposts, and excises, they must be uniform
throughout the United States. These are not strictly limitations of
power. They are rules prescribing the mode in which it shall be
exercised. It still extends to every object of taxation except
exports, and may be applied to every object of taxation, to which
it extends, in such measure as Congress may determine.

															The comprehensiveness of the power thus given to Congress may
serve to explain at least the absence of any attempt by members of
the Convention to define, even in debate, the terms of the grant.
The words used certainly describe the whole power, and it was the
intention of the Convention that the whole power should be
conferred. The definition of particular words therefore became
unimportant.

															It may be said indeed that this observation, however just in its
application to the general grant of power, cannot be applied to the
rules by which different descriptions of taxes are directed to be
laid and collected.

															Direct taxes must be laid and collected by the rule of
apportionment; duties, imposts, and excises must be laid and
collected under the rule of uniformity.

															Must diversity of opinion has always prevailed upon the question
what are direct taxes? Attempts to answer it by reference to the
definitions of political economists have been frequently made, but
without satisfactory results. The enumeration of the different
kinds of taxes which Congress was Page 75 U. S. 542 authorized to impose was probably made with very little
reference to their speculations. The great work of Adam Smith, the
first comprehensive treatise on political economy in the English
language, had then been recently published, but in this work,
though there are passages which refer to the characteristic
difference between direct and indirect taxation, there is nothing
which affords any valuable light on the use of the words "direct
taxes" in the Constitution.

															We are obliged, therefore, to resort to historical evidence and
to seek the meaning of the words in the use and in the opinion of
those whose relations to the government, and means of knowledge,
warranted them in speaking with authority.

															And considered in this light, the meaning and application of the
rule as to direct taxes appears to us quite clear.

															It is, as we think, distinctly shown in every act of Congress on
the subject.

															In each of these acts, a gross sum was laid upon the United
States, and the total amount was apportioned to the several states
according to their respective numbers of inhabitants, as
ascertained by the last preceding census. Having been apportioned,
provision was made for the imposition of the tax upon the subjects
specified in the act, fixing its total sum.

															In 1798, when the first direct tax was imposed, the total amount
was fixed at two millions of dollars; [ Footnote 15 ] in 1813, the amount of the second direct
tax was fixed at three millions; [ Footnote 16 ] in 1815, the amount of the third at six
millions, and it was made an annual tax; [ Footnote 17 ] in 1816, the provision making the tax
annual was repealed by the repeal of the first section of the act
of 1815, and the total amount was fixed for that year at three
millions of dollars. [ Footnote
18 ] No other direct tax was imposed until 1861, when a direct
tax of twenty millions of dollars was laid and made annual;
[ Footnote 19 ] but the
provision Page 75 U. S. 543 making it annual was suspended, and no tax except that first
laid was ever apportioned. In each instance, the total sum was
apportioned among the states by the constitutional rule, and was
assessed at prescribed rates on the subjects of the tax. These
subjects, in 1798, [ Footnote
20 ] 1813, [ Footnote 21 ]
1815, [ Footnote 22 ] 1816,
[ Footnote 23 ] were lands,
improvements, dwelling houses, and slaves; and in 1861 lands,
improvements, and dwelling houses only. Under the act of 1798,
slaves were assessed at fifty cents on each; under the other acts,
according to valuation by assessors.

															This review shows that personal property, contracts,
occupations, and the like have never been regarded by Congress as
proper subjects of direct tax. It has been supposed that slaves
must be considered as an exception to this observation. But the
exception is rather apparent than real. As persons, slaves were
proper subjects of a capitation tax, which is described in the
Constitution as a direct tax; as property, they were, by the laws
of some if not most of the states, classed as real property,
descendible to heirs. Under the first view, they would be subject
to the tax of 1798 as a capitation tax; under the latter, they
would be subject to the taxation of the other years as realty. That
the latter view was that taken by the framers of the acts after
1798, becomes highly probable, when it is considered, that in the
states where slaves were held, must of the value which would
possessed within the land passed into the slaves. If, indeed, the
land only had been valued without the slaves, the land would have
been subject to much heavier proportional imposition in those
states than in states where there were no slaves, for the
proportion of tax imposed on each state was determined by
population, without reference to the subjects on which it was to be
assessed.

															The fact, then, that slaves were valued, under the acts referred
to, far from showing, as some have supposed, that Congress regarded
personal property as a proper object of Page 75 U. S. 544 direct taxation under the Constitution, shows only that
Congress, after 1798, regarded slaves, for the purposes of
taxation, as realty.

															It may be rightly affirmed, therefore, that in the practical
construction of the Constitution by Congress, direct taxes have
been limited to taxes on land and appurtenances and taxes on polls
or capitation taxes.

															And this construction is entitled to great consideration,
especially in the absence of anything adverse to it in the
discussions of the Convention which framed and of the conventions
which ratified the Constitution.

															What does appear in those discussions, on the contrary, supports
the construction. Mr. Madison informs us, [ Footnote 24 ] that Mr. King asked what was the
precise meaning of direct taxation, and no one answered. On another
day, when the question of proportioning representation to taxation
and both to the white and three-fifths of the slave inhabitants was
under consideration, Mr. Ellsworth said: "In case of a poll tax,
there would be no difficulty," and, speaking doubtless of direct
taxation, he went on to observe: "The sum allotted to a state may
be levied without difficulty according to the plan used in the
state for raising its own supplies." All this doubtless shows
uncertainty as to the true meaning of the term direct tax, but it
indicates also an understanding that direct taxes were such as may
be levied by capitation and on lands and appurtenances, or perhaps
by valuation and assessment of personal property upon general
lists. For these were the subjects from which the states at that
time usually raised their principal supplies.

															This view received the sanction of this Court two years before
the enactment of the first law imposing direct taxes eo
nomine. During the February Term 1796, the constitutionality of the act
of 1794 imposing a duty on carriages came under consideration in
the case of Hylton v. United States. [ Footnote 25 ] Suit was brought by the United
States against Daniel Hylton Page 75 U. S. 545 to recover the penalty imposed by the act for not returning and
paying duty on a number of carriages for the conveyance of persons
kept by the defendant for his own use. The law did not provide for
the apportionment of the tax, and, if it was a direct tax, the law
was confessedly unwarranted by the Constitution. The only question
in the case, therefore, was whether or not the tax was a direct
tax.

															The case was one of great expectation, and a general interest
was felt in its determination. It was argued, in support of the
tax, by Lee, Attorney General, and Hamilton, recently Secretary of
the Treasury; in opposition to the tax by Campbell, Attorney for
the Virginia District, and Ingersoll, Attorney General of
Pennsylvania.

															Of the Justices who then filled this bench, Ellsworth, Paterson,
and Wilson had been members, and conspicuous members, of the
Constitutional Convention, and each of the three had taken part in
the discussions relating to direct taxation. Ellsworth, the Chief
Justice, sworn into office that morning, not having heard the whole
argument, declined taking part in the decision. Cushing, Senior
Associate Justice, having been prevented by indisposition from
attending to the argument, also refrained from expressing an
opinion. The other judges delivered their opinions in succession,
the youngest in commission delivering the first, and the oldest the
last.

															They all held that the tax on carriages was not a direct tax
within the meaning of the Constitution. Chase, Justice, was
inclined to think that the direct taxes contemplated by the
Constitution are only two: a capitation or poll tax, and a tax on
land. He doubted whether a tax by a general assessment of personal
property can be included within the term direct tax. Paterson, who
had taken a leading part in the Constitutional Convention, went
more fully into the sense in which the words, giving the power of
taxation, were used by that body. In the course of this examination
he said:

															"Whether direct taxes in the sense of the Constitution
comprehend any other tax than a capitation tax and tax on Page 75 U. S. 546 land is a questionable point. If Congress, for instance, should
tax, in the aggregate or mass, things that generally pervade all
the states in the Union, then perhaps the rule of apportionment
would be the most proper, especially if an assessment was to
intervene. This appears from the practice of some of the states to
have been considered as a direct tax. Whether it be so under the
Constitution of the United States is a matter of some difficulty,
but as it is not before the Court, it would be improper to give any
decisive opinion upon it. I never entertained a doubt that the
principal -- I will not say the only -- objects that the framers of
the Constitution contemplated as falling within the rule of
apportionment were a capitation tax and a tax on land. [ Footnote 26 ]"

															Iredell J., delivering his opinion at length, concurred
generally in the views of Justices Chase and Paterson. Wilson had
expressed his opinion to the same general effect when giving the
decision upon the circuit, and did not now repeat them. Neither
Chief Justice Ellsworth nor Justice Cushing expressed any dissent,
and it cannot be supposed if, in a case so important, their
judgments had differed from those announced, that an opportunity
would not have been given them by an order for reargument to
participate in the decision.

															It may be safely assumed, therefore, as the unanimous judgment
of the Court that a tax on carriages is not a direct tax. And it
may further be taken as established upon the testimony of Paterson
that the words "direct taxes," as used in the Constitution,
comprehended only capitation taxes and taxes on land, and perhaps
taxes on personal property by general valuation and assessment of
the various descriptions possessed with the several states.

															It follows necessarily that the power to tax without
apportionment extends to all other objects. Taxes on other objects
are included under the heads of taxes not direct, duties, imposts,
and excises, and must be laid and collected by the rule of
uniformity. The tax under consideration is a tax on bank Page 75 U. S. 547 circulation, and may very well be classed under the head of
duties. Certainly it is not, in the sense of the Constitution, a
direct tax. It may be said to come within the same category of
taxation as the tax on incomes of insurance companies, which this
Court, at the last term, in the case of Pacific Insurance
Company v. Soule, [ Footnote
27 ] held not to be a direct tax.

															Is it, then, a tax on a franchise granted by a state, which
Congress, upon any principle exempting the reserved powers of the
states from impairment by taxation, must be held to have no
authority to lay and collect?

															We do not say that there may not be such a tax. It may be
admitted that the reserved rights of the states, such as the right
to pass laws, to give effect to laws through executive action, to
administer justice through the courts, and to employ all necessary
agencies for legitimate purposes of state government, are not
proper subjects of the taxing power of Congress. But it cannot be
admitted that franchises granted by a state are necessarily exempt
from taxation, for franchises are property, often very valuable and
productive property, and when not conferred for the purpose of
giving effect to some reserved power of a state, seem to be as
properly objects of taxation as any other property.

															But in the case before us, the object of taxation is not the
franchise of the bank, but property created, or contracts made and
issued under the franchise, or power to issue bank bills. A
railroad company, in the exercise of its corporate franchises,
issues freight receipts, bills of lading, and passenger tickets,
and it cannot be doubted that the organization of railroads is
quite as important to the state as the organization of banks. But
it will hardly be questioned that these contracts of the company
are objects of taxation within the powers of Congress, and not
exempted by any relation to the state which granted the charter of
the railroad. And it seems difficult to distinguish the taxation of
notes issued for circulation from the taxation of these railroad
contracts. Both descriptions of contracts are means Page 75 U. S. 548 of profit to the corporations which issue them, and both, as we
think, may properly be made contributory to the public revenue.

															It is insisted, however, that the tax in the case before us is
excessive, and so excessive as to indicate a purpose on the part of
Congress to destroy the franchise of the bank, and is therefore
beyond the constitutional power of Congress.

															The first answer to this is that the judicial cannot prescribe
to the legislative departments of the government limitations upon
the exercise of its acknowledged powers. The power to tax may be
exercised oppressively upon persons, but the responsibility of the
legislature is not to the courts, but to the people by whom its
members are elected. So if a particular tax bears heavily upon a
corporation or a class of corporations, it cannot for that reason
only be pronounced contrary to the Constitution.

															But there is another answer which vindicates equally the wisdom
and the power of Congress.

															It cannot be doubted that under the Constitution, the power to
provide a circulation of coin is given to Congress. And it is
settled by the uniform practice of the government and by repeated
decisions that Congress may constitutionally authorize the emission
of bills of credit. It is not important here to decide whether the
quality of legal tender, in payment of debts, can be
constitutionally imparted to these bills; it is enough to say that
there can be no question of the power of the government to emit
them, to make them receivable in payment of debts to itself, to fit
them for use by those who see fit to use them in all the
transactions of commerce, to provide for their redemption, to make
them a currency, uniform in value and description, and convenient
and useful for circulation. These powers until recently were only
partially and occasionally exercised. Lately, however, they have
been called into full activity, and Congress has undertaken to
supply a currency for the entire country.

															The methods adopted for the supply of this currency were briefly
explained in the first part of this opinion. It now Page 75 U. S. 549 consists of coin, of United States notes, and of the notes of
the national banks. Both descriptions of notes may be properly
described as bills of credit, for both are furnished by the
government, both are issued on the credit of the government, and
the government is responsible for the redemption of both, primarily
as to the first description, and immediately upon default of the
bank as to the second. When these bills shall be made convertible
into coin at the will of the holder, this currency will perhaps
satisfy the wants of the community in respect to a circulating
medium as perfectly as any mixed currency that can be devised.

															Having thus, in the exercise of undisputed constitutional
powers, undertaken to provide a currency for the whole country, it
cannot be questioned that Congress may constitutionally secure the
benefit of it to the people by appropriate legislation. To this
end, Congress has denied the quality of legal tender to foreign
coins, and has provided by law against the imposition of
counterfeit and base coin on the community. To the same end,
Congress may restrain by suitable enactments the circulation as
money of any notes not issued under its own authority. Without this
power, indeed, its attempts to secure a sound and uniform currency
for the country must be futile.

															Viewed in this light as well as in the other light of a duty on
contracts or property, we cannot doubt the constitutionality of the
tax under consideration. The three questions certified from the Circuit Court of the
District of Maine must therefore, be answered
affirmatively. [ Footnote 1 ]

															14 Stat. at Large 146.

															[ Footnote 2 ]

															See the act of December 27th, 1854, to suppress small notes in
the District of Columbia, 10 Stat. at Large 599.

															[ Footnote 3 ]

															12 Stat. at Large 259.

															[ Footnote 4 ] Ib., 338.

															[ Footnote 5 ] Ib., 345.

															[ Footnote 6 ]

															Act of July 11, 1862, ib., 532; Act of March 3, 1863, ib., 710.

															[ Footnote 7 ]

															Act of March 3, 1863, 12 Stat. at Large 670.

															[ Footnote 8 ] id., 712.

															[ Footnote 9 ]

															13 ib., 111.

															[ Footnote 10 ] id., 277.

															[ Footnote 11 ]

															Act of March 3d, 1863, 12 Stat. at Large 592.

															[ Footnote 12 ]

															13 id. 484.

															[ Footnote 13 ]

															14 id. 146.

															[ Footnote 14 ] Lane County v.
Oregon , 7 Wall. 73.

															[ Footnote 15 ]

															Act of July 14, 1798, 1 Stat. at Large 597.

															[ Footnote 16 ]

															Act of August 2, 1813, 3 id. 53.

															[ Footnote 17 ]

															Act of July 9, 1815, ib., 164.

															[ Footnote 18 ]

															Act of March 5, 1816, ib. 255.

															[ Footnote 19 ]

															Act of August 5, 1861, 12 id. 294.

															[ Footnote 20 ]

															Act of July 9, 1798, 1 Stat. at Large 586.

															[ Footnote 21 ]

															Act of July 22, 1813, 3 id. 26.

															[ Footnote 22 ] Ib., 166.

															[ Footnote 23 ] Ib., 255.

															[ Footnote 24 ]

															3 Madison Papers 1337.

															[ Footnote 25 ]

															3 Dall. 3 U. S. 171 .

															[ Footnote 26 ]

															3 Dall. 3 U. S. 177 .

															[ Footnote 27 ] 74 U. S. 7 Wall. 434.

															MR. JUSTICE NELSON, with whom concurred MR. JUSTICE DAVIS,
dissenting.

															I am unable to concur in the opinion of a majority of the Court
in this case.

															The Veazie Bank was incorporated by the Legislature of the State
of Maine in 1848 with a capital of $200,000, and was invested with
the customary powers of a banking institution, and, among others,
the power of receiving deposits, Page 75 U. S. 550 discounting paper, and issuing notes or bills for circulation.
The constitutional authority of the state to create these
institutions, and to invest them with full banking powers is hardly
denied. But, it may be useful to recur for a few moments to the
source of this authority.

															The Tenth Amendment to the Constitution is as follows:

															"The powers not delegated to the United States by the
Constitution, nor prohibited by it to the states, are reserved to
the states respectively, or to the people."

															On looking into the Constitution, it will be found that there is
no clause or provision which either expressly, or by reasonable
implication, delegates this power to the federal Government which
originally belonged to the states, nor which prohibits it to them.
In the discussions on the subject of the creation of the first Bank
of the United States in the first Congress and in the Cabinet of
Washington in 1790 and 1791, no question was made as to the
constitutionality of the state banks. The only doubt that existed
and which divided the opinion of the most eminent statesmen of the
day, many of whom had just largely participated in the formation of
the Constitution, the government under which they were then engaged
in organizing, was whether or not Congress possessed a concurrent
power to incorporate a banking institution of the United
States.

															Mr. Hamilton, in his celebrated report on a national bank to the
House of Representatives, discusses at some length the question
whether or not it would be expedient to substitute the Bank of
North America, located in Philadelphia, and which had accepted a
charter from the Legislature of Pennsylvania in the place of
organizing a new bank. And although he finally came to the
conclusion to organize a new one, there is not a suggestion or
intimation as to the illegality or unconstitutionality of this
state bank.

															The act incorporating this bank, passed February 25, 1791,
prohibited the establishment of any other by Congress during its
charter, but said nothing as to the state banks. A like prohibition
is contained in the act incorporating the Bank of the United States
of 1816. The constitutionality of a Page 75 U. S. 551 bank incorporated by Congress was first settled by the judgment
of this Court in McCulloch v. State of Maryland [ Footnote 2/1 ] in 1819. In that case, both
the counsel and the Court recognize the legality and
constitutionality of banks incorporated by the states.

															The constitutionality of the Bank of the United States was again
discussed, and decided in the case of Osborn v. United States
Bank. [ Footnote 2/2 ] And in
connection with this was argued and decided a point in the case of The United States Bank v. Planters' Bank of Georgia, which
was common to both cases. The question was whether the circuit
courts of the United States had jurisdiction of a suit brought by
the United States Bank against the Planters' Bank of Georgia,
incorporated by that state, and in which the state was a
stockholder. [ Footnote 2/3 ]

															The Court held in both cases that it had. Since the adoption of
the Constitution down to the present act of Congress and the case
now before us, the question in Congress and in the courts has been
not whether the state banks were constitutional institutions, but
whether Congress had the power, conferred on it by the states, to
establish a national bank. As we have said, that question was
closed by the judgment of this Court in McCulloch v. State of
Maryland. At the time of the adoption of the Constitution,
there were four state banks in existence and in operation -- one in
each of the States of Pennsylvania, New York, Massachusetts, and
Maryland. The one in Philadelphia had been originally chartered by
the Confederation, but subsequently took a charter under the State
of Pennsylvania. The framers of the Constitution were therefore
familiar with these state banks and the circulation of their paper
as money, and were also familiar with the practice of the states
that was so common to issue bills of credit, which were bills
issued by the state exclusively on its own credit and intended to
circulate as currency, redeemable at a future day. They guarded the
people against the evils of this practice of the state
governments Page 75 U. S. 552 by the provision in the tenth section of the first article "that
no state shall" "emit bills of credit," and, in the same section,
guard against any abuse of paper money of the state banks in the
following words: "nor make anything but gold and silver coin a
tender in payment of debts." As bills of credit were thus entirely
abolished, the paper money of the state banks was the only currency
or circulating medium to which this prohibition could have had any
application, and was the only currency, except gold and silver,
left to the states. The prohibition took from this paper all
coercive circulation and left it to stand alone upon the credit of
the banks.

															It was no longer an irredeemable currency, as the banks were
under obligation, including, frequently, that of its stockholders,
to redeem their paper in circulation in gold or silver at the
counter. The state banks were left in this condition by the
Constitution untouched by any other provision. As a consequence,
they were gradually established in most or all of the states, and
had not been encroached upon or legislated against or in any other
way interfered with by acts of Congress for more than
three-quarters of a century -- from 1787 to 1864.

															But, in addition to the above recognition of the state banks,
the question of their constitutionality came directly before this
Court in the case of Briscoe v. Bank of the Commonwealth of
Kentucky. [ Footnote 2/4 ]

															The case was most elaborately discussed, both by counsel and the
Court. The Court, after the fullest consideration, held that the
states possessed the power to grant charters to state banks, that
the power was incident to sovereignty, and that there was no
limitation in the federal Constitution on its exercise by the
states. The Court observed that the Bank of North America and of
Massachusetts, and some others, were in operation at the time of
the adoption of the Constitution, and that it could not be supposed
the notes of these banks were intended to be inhibited by that
instrument, or that Page 75 U. S. 553 they were considered as bills of credit within its meaning. All
the judges concurred in this judgment, except Mr. Justice Story.
The decision in this case was affirmed in Woodruff v.
Trapnall, [ Footnote 2/5 ] in Darrington v. Bank of Alabama, [ Footnote 2/6 ] and in Curran v. State of
Arkansas. [ Footnote 2/7 ]

															Chancellor Kent observes that Mr. Justice Story in his
Commentaries on the Constitution, [ Footnote 2/8 ] seems to be of opinion that independent of
the long-continued practice, from the time of the adoption of the
Constitution, the states would not, upon a sound construction of
the Constitution, if the question was res integra, be
authorized to incorporate banks with a power to circulate bank
paper as currency, inasmuch as they are expressly prohibited from
coining money. He cites the opinions of Mr. Webster, of the Senate
of the United States, and of Mr. Dexter, formerly Secretary of War,
on the same side. But the Chancellor observes that the equal if not
the greater authority of Mr. Hamilton, the earliest Secretary of
the Treasury, may be cited in support of a different opinion, and
the contemporary sense and uniform practice of the nation are
decisive of the question. He further observes the prohibition (of
bills of credit) does not extend to bills emitted by individuals,
singly or collectively, whether associated under a private
agreement for banking purposes, as was the case with the Bank of
New York prior to its earliest charter, which was in the winter of
1791, or acting under a charter of incorporation, so long as the
state lends not its credit, or obligation, or coercion to sustain
the circulation.

															In the case of Briscoe v. Bank of the Commonwealth of
Kentucky, he observes that this question was put at rest by
the opinion of the Court that there was no limitation in the
Constitution on the power of the states to incorporate banks, and
their notes were not intended nor were considered as bills of
credit. [ Footnote 2/9 ]

															The constitutional power of the states being thus
established Page 75 U. S. 554 by incontrovertible authority to create state banking
institutions, the next question is whether or not the tax in
question can be upheld consistently with the enjoyment of this
power.

															The Act of Congress, July 13, 1866, [ Footnote 2/10 ] declares, that the state banks shall pay
ten percentum on the amount of their notes or the notes of any
person, or other state bank used for circulation and paid out by
them after the 1st of August, 1866. In addition to this tax, there
is also a tax of five percentum per annum, upon all dividends to
stockholders, [ Footnote 2/11 ]
besides a duty of one twenty-fourth of one percentum monthly upon
all deposits, and the same monthly duty upon the capital of the
bank. [ Footnote 2/12 ] This makes
an aggregate of some sixteen percent imposed annually upon these
banks. It will be observed the tax of ten percentum upon the bills
in circulation is not a tax on the property of the institutions.
The bills in circulation are not the property, but the debts, of
the bank, and in their account of debits and credits are placed to
the debit side. Certainly no government has yet made the discovery
of taxing both sides of this account, debit and credit, as the
property of a taxable person or corporation. If both these items
could be made available for this purpose, a heavy national debt
need not create any very great alarm, neither as it respects its
pressure on the industry of the country, for the time being, or of
its possible duration. There is nothing in the debts of a bank to
distinguish them in this respect from the debts of individuals or
persons. The discounted paper received for the notes in circulation
is the property of the bank, and is taxed as such, as is the
property of individuals received for their notes that may be
outstanding.

															The imposition upon the banks cannot be upheld as a tax upon
property; neither could it have been so intended. It is simply a
mode by which the powers or faculties of the states to incorporate
banks are subjected to taxation, and which, if maintainable, may
annihilate those powers. Page 75 U. S. 555 No person questions the authority of Congress to tax the
property of the banks, and of all other corporate bodies of a
state, the same as that of individuals. They are artificial bodies,
representing the associated pecuniary means of real persons, which
constitute their business capital, and the property thus invested
is open and subject to taxation with all the property, real and
personal, of the state. A tax upon this property, and which, by the
Constitution, is to be uniform, affords full scope to the taxing
power of the federal government, and is consistent with the power
of the states to create the banks, and, in our judgment, is the
only subject of taxation, by this government, to which these
institutions are liable.

															As we have seen in the forepart of this opinion, the power to
incorporate banks was not surrendered to the federal Government,
but reserved to the states, and it follows that the Constitution
itself protects them, or should protect them, from any encroachment
upon this right. As to the powers thus reserved, the states are as
supreme as before they entered into the Union, and are entitled to
the unrestrained exercise of them. The question as to the taxation
of the powers and faculties belonging to governments is not new in
this Court. The bonds of the federal Government have been held to
be exempt from state taxation. Why? Because they were issued under
the power in the Constitution to borrow money, and the tax would be
a tax upon this power, and, as there can be no limitation to the
extent of the tax, the power to borrow might be destroyed. So, in
the instance of the United States notes, or legal tenders, as they
are called, issued under a constructive power to issue bills of
credit, as no express power is given in the Constitution, they are
exempt from state taxation for a like reason as in the case of
government bonds, and we learn from the opinion of the Court in
this case that one step further is taken, and that is that the
notes of the national banks are to be regarded as bills of credit,
issued indirectly by the government; and it follows, of course,
from this that the banks used as instruments to issue and put in
circulation Page 75 U. S. 556 these notes are also exempt. We are not complaining of this. Our
purpose is to show how important it is to the proper protection of
the reserved rights of the states, that these powers and
prerogatives should be exempt from federal taxation and how fatal
to their existence if permitted. And also that even if this tax
could be regarded as one upon property, still, under the decisions
above referred to, it would be a tax upon the powers and faculties
of the states to create these banks, and therefore
unconstitutional.

															It is true that the present decision strikes only at the power
to create banks, but no person can fail to see that the principle
involved affects the power to create any other description of
corporations, such as railroads, turnpikes, manufacturing
companies, and others.

															This taxation of the powers and faculties of the state
governments which are essential to their sovereignty and to the
efficient and independent management and administration of their
internal affairs is, for the first time, advanced as an attribute
of federal authority. It finds no support or countenance in the
early history of the government or in the opinions of the
illustrious statesmen who founded it. These statesmen scrupulously
abstained from any encroachment upon the reserved rights of the
states, and within these limits sustained and supported them as
sovereign states.

															We say nothing as to the purpose of this heavy tax of some
sixteen percentum upon the banks, ten of which we cannot but regard
as imposed upon the power of the states to create them. Indeed, the
purpose is scarcely concealed, in the opinion of the Court --
namely to encourage the national banks. It is sufficient to add
that the burden of the tax, while it has encouraged these banks,
has proved fatal to those of the states, and if we are at liberty
to judge of the purpose of an act from the consequences that have
followed, it is not, perhaps, going too far to say that these
consequences were intended.

															[ Footnote 2/1 ] 17 U. S. 4 Wheat.
316.

															[ Footnote 2/2 ] 22 U. S. 9 Wheat.
738.

															[ Footnote 2/3 ] Ib., 804 [argument of counsel -- omitted].

															[ Footnote 2/4 ] 36 U. S. 11 Pet.
257.

															[ Footnote 2/5 ] 51 U. S. 10 How. 205.

															[ Footnote 2/6 ] 54 U. S. 13 How.
12.

															[ Footnote 2/7 ] 56 U. S. 15 How. 317.

															[ Footnote 2/8 ]

															Vol. 3, p. 19.

															[ Footnote 2/9 ]

															1 Kent's Commentaries p. 409, marg. note A, 10th ed.

															[ Footnote 2/10 ]

															14 Stat. at Large 146, § 9.

															[ Footnote 2/11 ]

															13 id. p. 283, § 120.

															[ Footnote 2/12 ] Ib., 277, § 110.