Intergovernmental Tax Immunities

AuthorEdward L. Barrett
Pages1383-1384

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To what extent should the federal government be able to collect taxes from the states? To what extent should the states be able to collect taxes from the federal government? The Supreme Court has struggled with these questions for over 170 years.

In 1819, in MCCULLOCH V. MARYLAND, the Court held that a state tax on the operations of a bank created by the United States was in violation of the SUPREMACY CLAUSE of the Constitution. Speaking for the Court, Chief Justice JOHN MARSHALL asserted that "the power to tax is the power to destroy" and stated "that the states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control the operations of the constitutional laws enacted by Congress to carry into the execution the powers vested in the general government." This same logic

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was used in WESTON V. CITY COUNCIL OF CHARLESTON (1829) to hold that a city tax imposed on stocks and bonds generally could not be applied to bonds issued by the federal government and in Dobbins v. Commissioners of Erie County (1842) to hold that states could not tax the salaries of federal employees.

In COLLECTOR V. DAY (1871) the Court took a major step and held the federal income tax could not be applied to the salaries of state officials. It said the immunity was reciprocal and that the exemption from taxation of the federal government by the states and the states by the federal government "rests upon necessary implication, and is upheld by the great law of self-preservation."

For over half a century the Court applied the intergovernmental immunity doctrine to permit large numbers of private taxpayers to escape federal and state taxes on the ground that the tax burden would be passed on to the federal or state governments. For example, in Indian Motorcycle Co. v. United States (1931) the Court held invalid a tax imposed by the United States on the sale of a motorcycle to a city for use in its police force. The Court said that the state and federal governments were equally exempt from taxes by the other. "This principle is implied from the independence of the national and state governments within their respective spheres and from the provisions of the Constitution which look to the maintenance of the dual system." The only exception to this broad doctrine recognized by the Court was that the federal government could impose taxes on state enterprises which departed from usual government functions...

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