Weston v. City Council of Charleston/Opinion of the Court

The same causes which have concentrated the stock in these cities, will, in all probability, continue to operate, and the greater part of future loans will be effected there. Should, therefore, even so small a portion of the United States as these cities, unite in taxing stock to any considerable amount, the government may be defeated, and will certainly be impeded in its fiscal operations, to the extent of any tax imposed. It may be supposed, that these cities would be checked in such proceedings by their state legislatures. Whether this could be done, must depend upon the constitutions of the states, and the charters of the cities. It may not suit the prevailing policy of a state to interfere in such a case, even if it possess the power. We know, from the charter of the city of Charleston, that the legislature of this state can interfere and repeal the ordinance in question; this, however, has not been done, although they have refused to impose such a tax themselves; and South Carolina is, has always been, and I hope will ever continue to be, as national as any other state in the union. It may be said, that admit all this to be true, it cannot affect the question before the court; who are called upon to decide what the constitution is, and not what it ought to be. The judicial branch of the government most certainly does not possess the power of legislating; much less, then, can they claim the power of making a constitution. But, in construing the constitution, they must look to the objects it professes to attain, and they cannot so as to defeat the very end and aim of its creation, nor can they make it inconsistent with itself, if it be possible to avoid it. The general powers of congress may be sufficiently designated in the constitution, but the extent and ramifications of each power, it was not in the wisdom of man to foresee and precisely describe. How they are to operate and exhibit themselves, must depend upon the future contingent circumstances of the nation; and, as these must be forever varying, constitutional questions or doubts must arise, as long as the constitution Should the Supreme Court reverse the judgment below in this case, a mandate will be directed to the inferior state court. 3 Dall. 342. In the event of the state court declining or refusing to carry that mandate into offect, a question will then arise as to the mode of proceeding to be adopted as a remedy. That a futile exercise of jurisdiction may not on this occasion take place, the difficulty ought to be anticipated; for if it be insurmountable, this tribunal will not, from self-respect, hold cognizance of the principal inquiry involved in the present suit.

Unless the Supreme Court acts in this matter through the intervention of the state tribunal, it must issue a prohibition of itself, addressed to the tax collector individually. Should he disobey, it will then have to proceed against him for a contempt, and inflict a fine; and thus be thrown into a course of practice unprecedented, and extremely inconvenient. That it will not award compulsory process, directed to a recusant state court, may safely be assumed, upon the strength of the reasoning in Martin vs. Hunter's lessee, 1 Wheaton, 362. If not from a regard to the sovereignty of a state in its last refuge of the judiciary, this resort will not be had at least, because it seems to be negatively precluded by the 25th section of the act of the 24th of September 1789. That section provides for the Supreme Court's 'proceeding to a final decision of the cause, and awarding execution therein, if it has been once remanded before.' Whether under these words, on the refusal of a state court to fulfil its mandate, this Court has jurisdiction in prohibition so as to enable it to execute its own judgment, by inhibiting the officers personally from collecting the tax under consideration, if adjudged unconstitutional, must first be decided. If the power be wanting, nothing but an act of congress can supply the deficiency. The mode and forms of proceeding under the appellate authority of this Court, are dependent upon the acts of congress for their regulation. 6 Cra. 307. Although the 14th section of the judiciary act gives to the courts of the United States 'power to issue all writs necessary for the exercise of their respective jurisdictions, and agreeable to the principles and usages of law;' this general grant is limited by the 25th section, in the particular instance of writs of error from final judgments of state courts to 'awarding executions.' No construction of these words consistent with technical accuracy, will bring a prohibition within their meaning; and original jurisdiction will scarcely be assumed to admit the procedure.

The power of congress to incorporate a bank, or even to invade the territory of a state to establish its branches, cannot be controverted after the decisions in M'Cullough vs. Maryland, 4 Wheat. 316, and Osborne vs. United States Bank, 9 Wheat. 738; much less could their right to raise loans for carrying on the operations of government be drawn into question. On the other hand it would be taken as conceded, that the right of the states to impose taxes is sovereign, and concurrent; and that there are no express limitations upon this attribute; except those contained in the 18th section, article 1st, of the federal constitution as to duties or imposts on imports, exports, and tonnage.

Through these mutual admissions, the question now to be disposed of, is simply, can a state constitutionally tax the income accruing to its citizens from six and seven per cent. stock of the United States, owned by them individually?

The purpose of plaintiffs in error is to make out by implication a restriction upon a sovereign and vital, though a concurrent state right. This is attempted upon substantially three grounds. 1st. That the tax in dispute is a violation of the faith and obligation of a contract. 2d. That the credit of the United States upon which it bears, did not exist until after the constitution was framed. And 3dly. because it interferes with the means of the federal government necessary to carry their powers into effect.

As to the first objection, certainly if the United States were to impose a tax, going to diminish the interest it had stipulated to pay the purchasers of this stock, such a measure would be a violation of faith. But the reason does not hold as to a third person, not a party to the contract; and in this light the state of South Carolina stands: for her faith is pledged as an integral part of the union in this respect only, quoad federal taxation. She has come under no obligation individually, not to draw her resources from these funds, though emanating from the common authority, whenever they pass into the hands of her peculiar citizens; and it may be presumed that the liability of this stock, so situated, to state taxation, was perfectly understood by those who became holders, and entered into their contract with the general government. As well might a tax imposed by a state on the public lands within its limits, when sold out to private persons, be treated as a departure from good faith, and a violation of the contract of sale; for here, as much as where public stock is created and sold, a state is a party to the engagement, that no more than a certain price is to be paid for the property, and that its profits are not to be diminished. It is said, however, that where lands are sold, the United States parts with the freehold with no prospect of resumption, and that it is otherwise with stock. Yet in point of fact, the only difference is between the real and personal property of the government; for in the case of a sale of the former on credit, liable to a foreclosure of mortgage, there will be a chance of its reverting to the public domain; and surely it will not be exempted from state taxation until the last cent of the price is paid off.

It is next said that this stock constitutes the credit of the union, which, not having existed anterior to the adoption of the constitution, cannot be subjected to state taxes, unless by virtue of some provision in that instrument. This reason if of any avail, will go to exonerate all the territories and other property of the United States acquired subsequently to that epoch; and failing of that result, must be discarded altogether.

The objection most strongly urged however against this ordinance is, that it interferes with a law of the general government, which, being supreme, must predominate, and it is roundly laid down that 'should any state directly or indirectly modify, alter, or abridge any of the acts of sovereignty of the United States, or render any of its measures nugatory, or inoperative, or in any manner impeach the credit, or impair the resources of the union, by taxation or otherwise; the act would be an interference repugnant to the constitution,' and that 'a state cannot tax any of the constitutional means employed by the government of the United States to execute its constitutional powers;' 'nor can it by taxation or otherwise, retard, impede, burthen, or in any manner control the operation of the constitutional laws enacted by congress to carry into effect the powers vested in the national government.'

Throughout this discussion the state has been treated of as in an antagonist position towards the federal government, and as seeking purposely to incommode, and destroy its fiscal operations; while the direct effect of these upon the resources of the state has been allowed no consideration. The ordinance in question is assumed to be a measure passed expressly to countervail and defeat a law of congress. But it is no where demonstrated that a tax on this stock, owned by individuals, will be attended by any such consequence. The utmost that may ensue, will be a prejudice to the preference of this stock in market, and perhaps the citizens of the state imposing the tax may find it more profitable to invest their capital otherwise. This creates a question of policy, at the discretion of the state alone, whether it will drive abroad a particular means of speculation; but the reflection is beside the constitutional inquiry now agitated.

The position broadly taken here is, that if the exercise of a concurrent power by a state, interferes with a power of the general government, the former must give way. What is the extent of interference which is be thus resisted? and how is this interference to be graduated? Here it is always put as mounting to the point of destruction, and as brought into action, ipso intuitu. To presuppose hostility on the part of the state is wholly gratuitous, and greatly to be deprecated. As much may be trusted to the liberality and forbearance of a state, as of the federal government; and comity, and cordial confidence should characterize all their relations. All the reasoning in this case is against the abuse of a conceded state right, and it is founded upon a quia timet, and its materials are extremes. Not even a surmise is thrown out, that this tax has, in point of fact, impeded, much less frustrated, a fiscal operation of government; but it is said, that if the power it involves were pushed further it might have that effect; and that, as it is without any limit or control, save the discretion of a state, no guarantee against its abuse, short of abolition, should be accepted. This is in a strain of hostility that well warrants the interrogatory, why should an unprescriptible sovereign, and indispensable right of a state be postponed, and put in derogation in favour of an implied, auxiliary, and optional means of the general government? Is not the power to use this means also a power to destroy, and alike unlimited?

The general government, by carrying their power to extremes in the creation of extensive loans, might furnish facilities of exempt investment, that would entirely absorb from the reach of state taxation all the funds of its citizens, and thus destroy one of its highest prerogatives and very existence. If the possible abuse of the power to tax by a state, is to infringe upon the right, the like objection will assuredly attach to the power of borrowing on the part of the United States. In answer to this a suggestion has been made, that the general government does not hoard up its revenue, but immediately reinstates by expenditure, all that has been substracted from the resources of a state. This is only partially true, and yields but indifferent consolation, and affords occasion for another most forcible impeachment of the prevaling system of internal improvements, and other government expenditures of the public money. By the supposed operation the southern states not only have their capital drawn off from local taxation, but in the existing state of things supply another means of conferring benefits, or rather gratuities, in which they have no participation.

The doctrine that interference with federal power will suffice, by implication, to neutralize or even annihilate state rights is startling in itself, and most pernicious when carried out to its legitimate results. The degree of interference being entirely unsettled, and incapable of adjustment, however slight or shadowy it may be, the objection can never be started but to a fatal issue. Indeed it will go to abolish all power in the states, under some circumstances, to levy and collect taxes. In the event of a resort to direct taxation, on the part of congress, whatever is subjected to federal assessment must, ipso facto, be discharged from all other imposition; inasmuch as a tax by a state, on any given article, must necessarily diminish its capacity of bearing other exactions, and, if carried to excess, must frustrate any attempt on the part of the general government to raise a revenue from the same sources. In fact, there are but few powers reserved to the states that, upon the possibility of abuse, may not be brought under the ban of interference with federal measures.

In the case of Bulow et al. vs. the City Council of Charleston, 1 Nott & M'Cord, 527, it has been decided that United States bank stock, in the hands of individuals, may constitutionally be taxed by a state. And in M'Cullough vs. Maryland, it is admitted, that the principle there ascertained 'does not extend to a tax paid by the real property of the bank of the United States, in common with the other real property in a particular state, nor to a tax imposed upon the proprietary interest which the citizens of that state may hold in this institution, in common with other property of the same description throughout the state,' and that, 'as to the bank stock belonging to its own citizens, it still continues liable to state taxation, as a portion of their individual property in common with all other private property in the state.' The stock brought under contribution by the city ordinance now attacked, comes within this exception. When taxed it had been sold out by government, and was in the hands of individuals, whose proprietary interest in the fund was subjected in common with property of a similar description. The tax here assessed was not in the nature of a penalty on lending to the United States, being neither excessive nor discriminating. If charged on the stock, eo nomine, the name was inserted in the ordinance merely as a description of one among several sources, from whence the income of the citizens might arise on which it was to bean. The words of the ordinance evince clearly that this species of property was not singled out for proscription, or a sinister purpose, as various others are enumerated; and if an exception is made in favor of stock of the United States bank, and of local institutions, motives of expediency, or the fact that a bonus had been paid in commutation of taxes, probably influenced the departure from, while they recognized the existence of the general rule.

This tax then is not obnoxious to the objections urged against it, and being upon the interest held by individuals in the funded debt of the United States, in common with other property of the same description in South Carolina, it comes within the exception made in the leading case decided by this Court upon the subject, and the ordinance imposing it is constitutional and valid.

Mr Chief Justice MARSHALL delivered the opinion of the Court.

This case was argued on its merits at a preceding term; but a doubt having arisen with the Court respecting its jurisdiction in cases of prohibition, that doubt was suggested to the bar, and a re-argument was requested. It has been reargued at this term.

The power of this Court to revise the judgments of a state tribunal, depends on the 25th section of the judicial act. That section enacts 'that a final judgment or decree in any suit in the highest court of law or equity of a state in which a decision in the suit could be had,' 'where is drawn in question the validity of a statute or of an authority exercised under any state, on the ground of their being repugnant to the constitution, treaties, or laws of the United States, and the decision is in favour of such their validity,' 'may be re-examined and reversed or affirmed in the Supreme Court of the United States.'

In this case the city ordinance of Charleston is the exercise of an 'authority under the state of South Carolina,' 'the validity of which has been drawn in question on the ground of its being repugnant to the constitution,' and 'the decision is in favour of its validity.' The question therefore which was decided by the constitutional court, is the very question on which the revising power of this tribunal is to be exercised, and the only inquiry is, whether it has been decided in a case described in the section which authorises the writ of error that has been awarded. Is a writ of prohibition a suit?

The term is certainly a very comprehensive one, and is understood to apply to any proceeding in a court of justice, by which an individual pursues that remedy in a court of justice, which the law affords him. The modes of proceeding may be various, but if a right is litigated between parties in a court of justice, the proceeding by which the decision of the court is sought, is a suit. The question between the parties, is precisely the same as it would have been in a writ of replevin, or in an action of trespass. The constitutionality of the ordinance is contested; the party aggrieved by it applies to a court; and at his suggestion, a writ of prohibition, the appropriate remedy, is issued. The opposite party appeals; and, in the highest court, the judgment is reversed and judgment given for the defendant. This judgment was, we think, rendered in a suit.

We think also that it was a final judgment in the sense in which that term is used in the 25th section of the judicial act. If it were applicable to those judgments and decrees only in which the right was finally decided, and could never again be litigated between the parties, the provisions of the section would be confined within much narrower limits than the words import, or than congress could have intended. Judgments in actions of ejectment, and decrees in chancery dismissing a bill without prejudice, however deeply they might affect rights protected by the constitution, laws, or treaties of the United States, would not be subject to the revision of this Court. A prohibition might issue, restraining a collector from collecting duties, and this Court would not revise and correct the judgment. The word 'final' must be understood in the section under consideration, as applying to all judgments and decrees which determine the particular cause.

We think then that the writ of error has brought the cause properly before this Court.

This brings us to the main question. Is the stock issued for loans made to the government of the United States liable to be taxed by states and corporations?

Congress has power 'to borrow money on the credit of the United States.' The stock it issues is the evidence of a debt created by the exercise of this power. The tax in question is a tax upon the contract subsisting between the government and the individual. It bears directly upon that contract, while subsisting and in full force. The power operates upon the contract the instant it is framed, and must imply a right to affect that contract.

If the states and corporations throughout the union, possess the power to tax a contract for the loan of money, what shall arrest this principle in its application to every other contract? What measure can government adopt which will not be exposed to its influence?

But it is unnecessary to pursue this principle through its diversified application to all the contracts, and to the various operations of government. No one can be selected which is of more vital interest to the community than this of borrowing money on the credit of the United States. No power has been conferred by the American people on their government, the free and unburthened exercise of which more deeply affects every member of our republic. In war, when the honour, the safety, the independence of the nation are to be defended, when all its resources are to be strained to the utmost, credit must be brought in aid of taxation, and the abundant revenue of peace and prosperity must be anticipated to supply the exigences, the urgent demands of the moment. The people, for objects the most important which can occur in the progress of nations, have empowered their government to make these anticipations, 'to borrow money on the credit of the United States.' Can any thing be more dangerous, or more injurious, than the admission of a principle which authorizes every state and every corporation in the union which possesses the right of taxation, to burthen the exercise of this power at their discretion?

If the right to impose the tax exists, it is a right which in its nature acknowledges no limits. It may be carried to any extent within the jurisdiction of the state or corporation which imposes it, which the will of each state and corporation may prescribe. A power which is given by the whole American people for their common good, which is to be exercised at the most critical periods for the most important purposes, on the free exercise of which the interests certainly, perhaps the liberty of the whole may depend; may be burthened, impeded, if not arrested, by any of the organized parts of the confederacy.

In a society formed like ours, with one supreme government for national purposes, and numerous state governments for other purposes; in many respects independent, and in the uncontrolled exercise of many important powers, occasional interferences ought not to surprise us. The power of taxation is one of the most essential to a state, and one of the most extensive in its operation. The attempt to maintain a rule which shall limit its exercise, is undoubtedly among the most delicate and difficult duties which can devolve on those whose province it is to expound the supreme law of the land in its application to the cases of individuals. This duty has more than once devolved on this Court. In the performance of it we have considered it as a necessary consequence from the supremacy of the government of the whole, that its action in the exercise of its legitimate powers, should be free and unembarrassed by any conflicting powers in the possession of its parts; that the powers of a state cannot rightfully be so exercised as to impede and obstruct the free course of those measures which the government of the states united may rightfully adopt.

This subject was brought before the Court in the case of M'Cullough vs. The state of Maryland(b), when it was thoroughly argued and deliberately considered. The question decided in that case bears a near resemblance to that which is involved in this. It was discussed at the bar in all its relations, and examined by the Court with its utmost attention. We will not repeat the reasoning which conducted us to the conclusion thus formed; but that conclusion was that 'all subjects over which the sovereign power of a state extends, are objects of taxation; but those over which it does not extend, are upon the soundest principles exempt from taxation.' 'The sovereignty of a state extends to every thing which exists by its own authority, or is introduced by its permission;' but not 'to those means which are employed by congress to carry into execution powers conferred on that body by the people of the United States.' 'The attempt to use' the power of taxation 'on the means employed by the government of the union in pursuance of the constitution, is itself an abuse, because it is the usurpation of a power which the people of a single state cannot give.'

The Court said in that case, that 'the states have no power by taxation, or otherwise, to retard, impede, burthen, or in any manner control the operation of the constitutional laws enacted by congress, to carry into execution the powers vested in the general government.'

We retain the opinions which were then expressed. A contract made by the government in the exercise of its power, to borrow money on the credit of the United States, is undoubtedly independent of the will of any state in which the individual who lends may reside, and is undoubtedly an operation essential to the important objects for which the government was created. It ought, therefore, on the principles settled in the case of M'Cullough vs. The State of Maryland, to be exempt from state taxation, and consequently from being taxed by corporations deriving their power from states.

It is admitted that the power of the government to borrow money can not be directly opposed, and that any law directly obstructing its operation would be void; but, a distinction is taken between direct opposition and those measures which may consequentially affect it; that is, that a law prohibiting loans to the United States would be void, but a tax on them to any amount is allowable.

It is, we think, impossible not to perceive the intimate connexion which exists between these two modes of acting on the subject.

It is the want of original power in an independent sovereign state, to prohibit loans to a foreign government, which restrains the legislature from direct opposition to those made by the United States. The restraint is imposed by our constitution. The American people have conferred the power of borrowing money on their government, and by making that government supreme, have shielded its action, in the exercise of this power, from the action of the local governments. The grant of the power is incompatible with a restraining or controlling power, and the declaration of supremacy is a declaration that no such restraining or controlling power shall be exercised.

The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised, and have a sensible influence on the contract. The extent of this influence depends on the will of a distinct government. To any extant, however inconsiderable, it is a burthen on the operations of government. It may be carried to an extent which shall arrest them entirely.

It is admitted by the counsel for the defendants, that the power to tax stock must affect the terms on which loans will be made; but this objection, it is said, has no more weight when urged against the application of an acknowledged power to government stock, than if urged against its application to lands sold by the United States.

The distinction is, we think, apparent. When lands are sold, no connexion remains between the purchaser and the government. The lands purchased become a part of the mass of property in the country with no implied exemption from common burthens. All lands are derived from the general or particular government, and all lands are subject to taxation. Lands sold are in the condition of money borrowed and re-paid. Its liability to taxation in any form it may then assume is not questioned. The connexion between the borrower and the lender is dissolved. It is no burthen on loans, it is no impediment to the power of borrowing, that the money, when re-paid, loses its exemption from taxation. But a tax upon debts due from the government, stands, we think, on very different principles from a tax on lands which the government has sold.

'The Federalist' has been quoted in the agrument, and an eloquent and well merited eulogy has been bestowed on the great statesman who is supposed to be the author of the number from which the quotation was made. This high authority was also relied upon in the case of M'Cullough vs. The state of Maryland, and was considered by the Court. Without repeating what was then said, we refer to it as exhibiting our view of the sentiments expressed on this subject by the authors of that work.

It has been supposed that a tax on stock comes within the exceptions stated in the case of M'Cullough vs. The state of Maryland. We do not think so. The bank of the United States is an instrument essential to the fiscal operations of the government, and the power which might be exercised to its destruction was denied. But property acquired by that corporation in a state was supposed to be placed in the same condition with property acquired by an individual.

The tax on government stock is thought by this Court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently to be repugnant to the constitution.

We are, therefore, of opinion that the judgment of the constitutional court of the state of South Carolina, reversing the order made by the court of common pleas, awarding a prohibition to the city council of Charleston, to restrain them from levying a tax imposed on six and seven per cent. stock of the United States, under an ordinance to raise supplies to the use of the city of Charleston for the year 1823, is erroneous in this; that the said constitutional court adjudged that the said ordinance was not repugnant to the constitution of the United States; whereas, this Court is of opinion that such repugnancy does exist. We are, therefore, of opinion that the said judgment ought to be reversed and annulled, and the cause remanded to the constitutional court for the state of South Carolina, that farther proceedings may be had therein according to law.

This cause came on to be heard on the transcript of the record from the constitutional court of the state of South Carolina, and was argued by counsel; on consideration whereof, this Court is of opinion, that there is error in the judgment of the said court in this, that the said court decided that an ordinance passed by the city council of Charleston for the year 1823, entitled, an ordinance to raise supplies for the use of the city of Charleston for the year 1823, is, so far as the same imposes a tax on the six and seven per cent. stock of the United States, consistent with the constitution of the United States. Whereas, it is the opinion of this Court, that so much of the said ordinance as imposes the said tax, is repugnant to the constitution of the United States, and void. Whereupon it is considered, ordered and adjudged by this Court, that the said judgment be, and the same is hereby reversed and annulled, and that the said cause be, and the same is hereby remanded to the said constitutional court for the state of South Carolina, that such further proceedings may be had therein as may consist with law and justice.