Important Tax Cases: McCullough v. Maryland and the Sovereign Power to Tax

August 10, 2005

In McCullough v. Maryland, the U.S. Supreme Court ruled that the state of Maryland could not levy a direct tax on a branch of the national bank located in Maryland. Having ruled that a national bank was a reasonable exercise of the constitutional powers of Congress, the Supreme Court ruled that the Constitution restricted Maryland from taxing the bank.

The state of Maryland had made two arguments in this case: first, that the Constitution did not give Congress the power to charter a national bank, and; second, that even if Congress did have such a power, Maryland could levy a tax on the bank. The Court rejected both of these arguments, fearful that such an interpretation would severely injure the letter and spirit of the Constitution:

“If we apply the principle for which the State of Maryland contends, to the Constitution generally, we shall find it capable of changing totally the character of that instrument. We shall find it capable of arresting all the measures of the Government, and of prostrating it at the foot of the States. The American people have declared their Constitution and the laws made in pursuance thereof to be supreme, but this principle would transfer the supremacy, in fact, to the States.”

More important, perhaps, than the ruling in this case was the principle it espoused on taxation. Chief Justice John Marshall, writing for the Court, said that the “power to tax involves the power to destroy.” Marshall understood that allowing direct state taxes on federal government operations could completely undermine the sovereignty and legitimacy of the federal government. This principle should ever be on the minds of our lawmakers.


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