The Constitution of the United States of America: Analysis and Interpretation Part 136

SUPREMACY CLAUSE VERSUS TENTH AMENDMENT

The logic of the supremacy clause would seem to require that the powers of Congress be determined by the fair reading of the express and implied grants contained in the Const.i.tution itself, without reference to the powers of the States. For a century after Marshall's death, however, the Court proceeded on the theory that the Tenth Amendment had the effect of withdrawing various matters of internal police from the reach of power expressly committed to Congress. This point of view was originally put forward in New York _v._ Miln,[6] which was first argued, but not decided, before Marshall's death. The Miln Case involved a New York statute which required the captains of vessels entering New York Harbor with aliens aboard to make a report in writing to the Mayor of the City, giving certain prescribed information. It might have been distinguished from Gibbons _v._ Ogden on the ground that the statute involved in the earlier case conflicted with an act of Congress, whereas the Court found that no such conflict existed in this case. But the Court was unwilling to rest its decision on that distinction. Speaking for the majority, Justice Barbour seized the opportunity to proclaim a new doctrine. He wrote: "But we do not place our opinion on this ground. We choose rather to plant ourselves on what we consider impregnable positions. They are these: That a State has the same undeniable and unlimited jurisdiction over all persons and things, within its territorial limits, as any foreign nation, where that jurisdiction is not surrendered or restrained by the Const.i.tution of the United States. That, by virtue of this, it is not only the right, but the bounden and solemn duty of a State, to advance the safety, happiness and prosperity of its people, and to provide for its general welfare, by any and every act of legislation, which it may deem to be conducive to these ends; where the power over the particular subject, or the manner of its exercise is not surrendered or restrained, in the manner just stated. That all those powers which relate to merely munic.i.p.al legislation, or what may, perhaps, more properly be called _internal police_, are not thus surrendered or restrained; and that, consequently, in relation to these, the authority of a State is complete, unqualified, and exclusive."[7] Justice Story, in dissent, stated that Marshall had heard the previous argument and reached the conclusion that the New York statute was unconst.i.tutional.[8]

Status of the Issue Today

The conception of a "complete, unqualified and exclusive" police power residing in the States and limiting the powers of the National Government was endorsed by Chief Justice Taney ten years later in the License Cases.[9] In upholding State laws requiring licenses for the sale of alcoholic beverages, including those imported from other States or from foreign countries, he set up the Supreme Court as the final arbiter in drawing the line between the mutually exclusive, reciprocally limiting fields of power occupied by the National and State Governments.[10] This view has, in effect, and it would seem in theory also, been repudiated in recent cases upholding labor relations,[11]

social security,[12] and fair labor standards acts[13] pa.s.sed by Congress.

TASK OF THE SUPREME COURT UNDER THE CLAUSE

In applying the supremacy clause to subjects which have been regulated by Congress, the primary task of the Court is to ascertain whether a challenged State law is compatible with the policy expressed in the federal statute. When Congress condemns an act as unlawful, the extent and nature of the legal consequences of the condemnation are federal questions, the answers to which are to be derived from the statute and the policy which it has adopted. To the federal statute and policy, conflicting State law and policy must yield.[14] But Congress in enacting legislation within its const.i.tutional authority will not be deemed to have intended to strike down a State statute to protect the health and safety of the public unless its purpose to do so is clearly manifested.[15]

When the United States performs its functions directly, through its own officers and employees, State police regulations clearly are inapplicable. In reversing the conviction of the governor of a national soldiers' home for serving oleomargarine in disregard of State law, the Court said that the federal officer was not "subject to the jurisdiction of the State in regard to those very matters of administration which are thus approved by Federal authority."[16] An employee of the Post Office Department is not required to submit to examination by State authorities concerning his competence and to pay a license fee before performing his official duty in driving a motor truck for transporting the mail.[17] To Arizona's complaint, in a suit to enjoin the construction of Boulder Dam, that her quasi-sovereignty would be invaded by the building of the dam without first securing approval of the State engineer as required by its laws, Justice Brandeis replied that, "if Congress has power to authorize the construction of the dam and reservoir, Wilbur [Secretary of the Interior] is under no obligation to submit the plans and specifications to the State Engineer for approval."[18]

FEDERAL INSTRUMENTALITIES AND THE STATE POLICE POWER

Federal instrumentalities and agencies have never enjoyed the same degree of immunity from State police regulation as from State taxation.

The Court has looked to the nature of each regulation to determine whether it is compatible with the functions committed by Congress to the federal agency. This problem has arisen most often with reference to the applicability of State laws to the operation of national banks. Two correlative propositions have governed the decisions in these cases. The first was stated by Justice Miller in First National Bank _v._ Kentucky:[19] "[National banks are] subject to the laws of the State, and are governed in their daily course of business far more by the laws of the State than of the Nation. All their contracts are governed and construed by State laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on State law. It is only when the State law incapacitates the banks from discharging their duties to the government that it becomes unconst.i.tutional."[20] In Davis _v._ Elmira Savings Bank,[21] the Court stated the second proposition thus: "National banks are instrumentalities of the Federal Government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt, by a State, to define their duties or control the conduct of their affairs is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the Federal Government to discharge the duties, for the performance of which they were created."[22] Instructive, too, is a comparison of two other decisions. In the first,[23] the Court held that the fact that the Texas and Pacific Railway Company was a corporation organized under a statute of the United States did not remove it from the control of the Texas railroad commission as to business done wholly within the State. In the second,[24] the Court vetoed the attempt of Maryland to require a post office employee to cease driving a United States motor truck in the transportation of mail over a post road until he should obtain a license by submitting to examination before a State official and paying a fee.

"Of course," said Justice Holmes, "an employee of the United States does not secure a general immunity from State law while acting in the course of his employment"; but this time the State went too far.

The extent to which States may go in regulating contractors who furnish goods or services to the Federal Government is not as clearly established as is their right to tax such dealers. In 1943, a closely divided Court sustained the refusal of the Pennsylvania Milk Control Commission to renew the license of a milk dealer who, in violation of State law, had sold milk to the United States for consumption by troops at an army camp located on land belonging to the State, at prices below the minima established by the Commission.[25] The majority was unable to find in Congressional legislation, or in the Const.i.tution, unaided by Congressional enactment, any immunity from such price-fixing regulations. On the same day, a different majority held that California could not penalize a milk dealer for selling milk to the War Department at less than the minimum price fixed by State law where the sales and deliveries were made in a territory which had been ceded to the Federal Government by the State and were subject to the exclusive jurisdiction of the former.[26]

OBLIGATION OF STATE COURTS UNDER THE SUPREMACY CLAUSE

The Const.i.tution, laws and treaties of the United States are as much a part of the law of every State as its own local laws and Const.i.tution.

Their obligation "is imperative upon the State judges, in their official and not merely in their private capacities. From the very nature of their judicial duties, they would be called upon to p.r.o.nounce the law applicable to the case in judgment. They were not to decide merely according to the laws or Const.i.tution of the State, but according to the laws and treaties of the United States--'the supreme law of the land.'"[27] State courts have both the power and the duty to enforce obligations arising under federal law, unless Congress gives the federal courts exclusive jurisdiction. The power of State courts to entertain such suits was affirmed in Claflin _v._ Houseman[28] in 1876, thus setting at rest the doubts which had been raised by an early dictum of Justice Story.[29] In the Claflin case Justice Bradley a.s.serted on behalf of a unanimous court that: "If an Act of Congress gives a penalty to a party aggrieved, without specifying a remedy for its enforcement, there is no reason why it should not be enforced, if not provided otherwise by some act of Congress, by a proper action in a State court.

The fact that a State court derives its existence and functions from the State laws is no reason why it should not afford relief, because it is subject also to the laws of the United States, and is just as much bound to recognize these as operative within the State as it is to recognize the State laws."[30] When the Supreme Court of Connecticut held that rights created by the Federal Employer's Liability Acts could not be enforced in the courts of that State because the act was contrary to State policy, the Supreme Court unanimously reversed that decision.

Said Justice Van Devanter: "The suggestion that the act of Congress is not in harmony with the policy of the State, and therefore that the courts of the State are free to decline jurisdiction, is quite inadmissible, because it presupposes what in legal contemplation does not exist. When Congress, in the exertion of the power confided to it by the Const.i.tution, adopted that act, it spoke for all the people and all the States, and thereby established a policy for all. That policy is as much the policy of Connecticut as if the act had emanated from its own legislature, and should be respected accordingly in the courts of the State."[31] Even if a federal statute is penal in character, a State may not refuse to enforce it if Congress allows it to take concurrent jurisdiction. In Testa _v._ Katt,[32] the Supreme Court reversed a holding of Rhode Island's highest court that, inasmuch as a State need not enforce the penal laws of another jurisdiction, a suit for treble damages for violation of OPA regulations could not be maintained in the courts of the State. Without determining the nature of the statute, it affirmed once more without dissent that "the policy of the federal Act is the prevailing policy in every state."[33]

IMMUNITY OF THE FEDERAL JUDICIAL PROCESS

It would seem self-evident that a State court cannot interfere with the functioning of a federal tribunal. But this proposition has not always gone unchallenged. Shortly before the Civil War, the Supreme Court of Wisconsin, holding the federal fugitive slave law invalid, ordered a United States marshal to release a prisoner who had been convicted of aiding and abetting the escape of a fugitive slave. In a further act of defiance, the State court instructed its clerk to disregard and refuse obedience to the writ of error issued by the United States Supreme Court. Strongly denouncing this interference with federal authority, Chief Justice Taney held that when a State court is advised, on the return of a writ of _habeas corpus_, that the prisoner is in custody on authority of the United States, it can proceed no further.[34] To protect the performance of its functions against interference by State tribunals, Congress may const.i.tutionally authorize the removal to a federal court of a criminal prosecution commenced in a State court against a revenue officer of the United States on account of any act done under color of his office.[35] In the celebrated case of Cunningham _v._ Neagle,[36] a United States marshal who, while a.s.signed to protect Justice Field, killed the man who had been threatening the life of the latter, was charged with murder by the State of California. Invoking the supremacy clause, the Supreme Court held that a person could not be guilty of a crime under State law for doing what it was his duty to do as an officer of the United States.

EFFECT OF LAWS Pa.s.sED BY STATES IN INSURRECTION

Since the efforts of States to depart from the Union, if successful, would have been _pro tanto_ a destruction of the Const.i.tution,[37] the ordinances of secession adopted by the Confederate States,[38] and all acts of legislation intended to give effect to such ordinances,[39] were treated as absolute nullities. The obligation of every State, as a member of the Union, and the obligation of every citizen of the State, as a citizen of the United States, remained perfect and unimpaired.[40]

But acts necessary to peace and good order among citizens, such, for example, as acts sanctioning and protecting marriage and domestic relations, governing the course of descents, regulating the conveyance of property, real and personal, and providing remedies for injuries to person and estate, and other similar acts, which would be valid if emanating from a lawful government, were regarded in general as valid when proceeding from an actual, though unlawful government.[41]

The Doctrine of Tax Exemption

McCULLOCH _v._ MARYLAND

Five years after the decision in McCulloch _v._ Maryland that a State may not tax an instrumentality of the Federal Government, the Court was asked to and did reexamine the entire question in Osborn _v._ Bank of the United States.[42] In that case counsel for the State of Ohio, whose attempt to tax the Bank was challenged, put forward two arguments of great importance. In the first place it was "contended, that, admitting Congress to possess the power, this exemption ought to have been expressly a.s.serted in the act of incorporation; and, not being expressed, ought not to be implied by the Court."[43] To which Marshall replied that: "It is no unusual thing for an act of Congress to imply, without expressing, this very exemption from state control, which is said to be so objectionable in this instance."[44] Secondly the appellants relied "greatly on the distinction between the bank and the public inst.i.tutions, such as the mint or the post-office. The agents in those offices are, it is said, officers of government, * * * Not so the directors of the bank. The connection of the government with the bank, is likened to that with contractors."[45] Marshall accepted this a.n.a.logy, but not to the advantage of the appellants. He simply indicated that all contractors who dealt with the Government were ent.i.tled to immunity from taxation upon such transactions.[46] Thus not only was the decision of McCulloch _v._ Maryland reaffirmed but the foundation was laid for the vast expansion of the principle of immunity that was to follow in the succeeding decades.

APPLICABILITY OF DOCTRINE _IN RE_ FEDERAL SECURITIES, ETC.

The first significant extension of the doctrine of the immunity of federal instrumentalities from State taxation came in Weston _v._ Charleston,[47] where Chief Justice Marshall also found in the supremacy clause a bar to State taxation of obligations of the United States.

During the Civil War, when Congress authorized the issuance of legal tender notes, it explicitly declared that such notes, as well as United States bonds and other securities, should be exempt from State taxation.[48] A modified version of this section remains on the statute books today.[49] The right of Congress to exempt legal tender notes to the same extent as bonds was sustained in People _v._ Board of Supervisors[50] over the objection that such notes circulated as money and should be taxable in the same way as coin. But a State tax on checks issued by the Treasurer of the United States for interest accrued upon government bonds was sustained since it did not in any wise affect the credit of the National Government.[51] Similarly, the a.s.sessment for an _ad valorem_ property tax of an open account for money due under a federal contract,[52] and the inclusion of the value of United States bonds owned by a decedent, in measuring an inheritance tax,[53] were held valid, since neither tax would substantially embarra.s.s the power of the United States to secure credit.

Income from federal securities is also beyond the reach of the State taxing power as the cases now stand.[54] Nor can such a tax be imposed indirectly upon the stockholders on such part of the corporate dividends as corresponds to the part of the corporation's income which is not a.s.sessed, i.e., income from tax exempt bonds.[55] A State may const.i.tutionally levy an excise tax on corporations for the privilege of doing business, and measure the tax by the property or net income of the corporation, including tax exempt United States securities or the income derived therefrom.[56] The designation of a tax is not controlling.[57]

Where a so-called "license tax" upon insurance companies, measured by gross income, including interest on government bonds, was, in effect, a commutation tax levied in lieu of other taxation upon the personal property of the taxpayer, it was still held to amount to an unconst.i.tutional tax on the bonds themselves.[58]

TAXATION OF GOVERNMENT CONTRACTORS

In the course of his opinion in Osborn _v._ Bank of the United States,[59] Chief Justice Marshall posed the question: "Can a contractor for supplying a military post with provisions, be restrained from making purchases within any state, or from transporting the provisions to the place at which the troops were stationed? or could he be fined or taxed for doing so? We have not yet heard these questions answered in the affirmative."[60] One hundred and thirteen years later, the Court did answer the last part of his inquiry in the affirmative. In James _v._ Dravo Contracting Company[61] it held that a State may impose an occupation tax upon an independent contractor, measured by his gross receipts under contracts with the United States. Previously it had sustained a gross receipts tax levied in lieu of a property tax upon the operator of an automobile stage line, who was engaged in carrying the mails as an independent contractor,[62] and an excise tax on gasoline sold to a contractor with the Federal Government and used to operate machinery in the construction of levees in the Mississippi River.[63]

Subsequently it has approved State taxes on the net income of a government contractor,[64] income[65] and social security[66] taxes on the operators of bath houses maintained in a National Park under a lease from the United States; sales and use taxes on sales of beverages by a concessionaire in a National Park,[67] and on purchases of materials used by a contractor in the performance of a cost-plus contract with the United States,[68] and a severance tax imposed on a contractor who severed and purchased timber from lands owned by the United States.[69]

STATUS OF DOCTRINE TODAY

Of a piece with James _v._ Dravo Contracting Co. was the decision in Graves _v._ O'Keefe,[70] handed down two years later. Repudiating the theory "that a tax on income is legally or economically a tax on its source," the Court held that a State could levy a nondiscriminatory income tax upon the salary of an employee of a government corporation.

In the opinion of the Court, Justice Stone intimated that Congress could not validly confer such an immunity upon federal employees. He wrote: "The burden, so far as it can be said to exist or to affect the government in any indirect or incidental way, is one which the Const.i.tution presupposes; and hence it cannot rightly be deemed to be within an implied restriction upon the taxing power of the national and state governments which the Const.i.tution has expressly granted to one and has confirmed to the other. The immunity is not one to be implied from the Const.i.tution, because if allowed it would impose to an inadmissible extent a restriction on the taxing power which the Const.i.tution has reserved to the state governments."[71] Chief Justice Hughes concurred in the result without opinion. Justices Butler and McReynolds dissented and Justice Frankfurter wrote a concurring opinion in which he reserved judgment as to "whether Congress may, by express legislation, relieve its functionaries from their civic obligations to pay for the benefits of the State governments under which they live...."[72]

_AD VALOREM_ TAXES UNDER THE DOCTRINE

Property owned by a federally chartered corporation engaged in private business is subject to State and local _ad valorem_ taxes. This was conceded in McCulloch _v._ Maryland,[73] and confirmed a half century later with respect to railroads incorporated by Congress.[74] Similarly, a property tax may be levied against the lands under water which are owned by a person holding a license under the Federal Water Power Act.[75] Land conveyed by the United States to a corporation for dry dock purposes was subject to a general property tax, despite a reservation in the conveyance of a right to free use of the dry dock and a provision for forfeiture in case of the continued unfitness of the dry dock for use, or the use of the land for other purposes.[76] Where equitable t.i.tle has pa.s.sed to the purchaser of land from the Government, a State may tax the equitable owner on the full value thereof, despite the retention of legal t.i.tle by the Government,[77] but the equitable t.i.tle pa.s.ses otherwise.[78] Recently a divided Court held that where the Government purchased movable machinery and leased it to a private contractor, the lessee could not be taxed on the full value of the equipment.[79] In the pioneer case of Van Brocklin _v._ Tennessee,[80]

the State was denied the right to sell for taxes lands which the United States owned at the time the taxes were levied, but in which it had ceased to have any interest at the time of sale. Nor can a State a.s.sess land in the hands of private owners for benefits from a road improvement completed while it was owned by the United States.[81]

PUBLIC PROPERTY AND FUNCTIONS

Property owned by the United States is, of course, wholly immune to State taxation.[82] No State can regulate, by the imposition of an inspection fee, any activity carried on by the United States directly through its own agents and employees.[83] An early case whose authority is now uncertain held invalid a flat rate tax on telegraphic messages, as applied to messages sent by public officers on official business.[84]

FISCAL INSt.i.tUTIONS; LEGISLATIVE EXEMPTIONS

Fiscal inst.i.tutions chartered by Congress, their shares and their property, are taxable only with the consent of Congress and only in conformity with the restrictions it has attached to its consent.[85]

Immediately after the Supreme Court construed the statute authorizing the States to tax national bank shares as allowing a tax on the preferred shares of such a bank held by the Reconstruction Finance Corporation,[86] Congress pa.s.sed a law exempting such shares from taxation. The Court upheld this measure saying, "when Congress authorized the States to impose such taxation, it did no more than gratuitously grant them political power which they theretofore lacked.

Its sovereign power to revoke the grant remained unimpaired, the grant of the privilege being only a declaration of legislative policy changeable at will."[87] In Pittman _v._ Home Owners' Loan Corporation[88] the Court sustained the power of Congress under the necessary and proper clause to immunize the activities of the Corporation from state taxation; and in Federal Land Bank _v._ Bismarck Lumber Co.,[89] the like result was reached with respect to an attempt by the State to impose a retail sales tax on a sale of lumber and other building materials to the bank for use in repairing and improving property that had been acquired by foreclosure of mortgages. The State's princ.i.p.al argument proceeded thus: "Congress has authority to extend immunity only to the governmental functions of the federal land banks; the only governmental functions of the land banks are those performed by acting as depositaries and fiscal agents for the federal government and providing a market for governmental bonds; all other functions of the land banks are private; pet.i.tioner here was engaged in an activity incidental to its business of lending money, an essentially private function; therefore -- 26 cannot operate to strike down a sales tax upon purchases made in furtherance of pet.i.tioner's lending functions."[90]

The Court rejected this argument and invalidated the tax saying: "The argument that the lending functions of the federal land banks are proprietary rather than governmental misconceives the nature of the federal government with respect to every function which it performs. The federal government is one of delegated powers, and from that it necessarily follows that any const.i.tutional exercise of its delegated powers is governmental. * * * It also follows that, when Congress const.i.tutionally creates a corporation through which the federal government lawfully acts, the activities of such corporation are governmental."[91] However, in the absence of federal legislation, a state law laying a percentage tax on the users of safety deposit services, measured by the banks' charges therefor, was held valid as applied to national banks. The tax, being on the user, did not, the Court held, impose an intrinsically unconst.i.tutional burden on a federal instrumentality.[92]

THE ATOMIC ENERGY COMMISSION; "ACTIVITIES" OF

In the recent case of Carson _v._ Roane-Anderson Co.,[93] the Court was confronted with an attempt on the part of Tennessee to apply its tax on the use within the State of goods purchased elsewhere to a private contractor for the Atomic Energy Commission and to vendors of such contractors. This, the Court held, could not be done under Section 9 b of the Atomic Energy Commission Act, which provides in part that: "The Commission, and the property, activities, and income of the Commission, are hereby expressly exempted from taxation in any manner or form by any State, county, munic.i.p.ality, or any subdivision thereof."[94] The power of exemption, said the Court, "stems from the power to preserve and protect functions validly authorized--the power to make all laws necessary and proper for carrying into execution the powers vested in Congress."[95] The term, "activities," as used in the Act described, was held to be nothing less "than all of the functions of the Commission."[96]