Article 1, Section 8, Clause 1 — Intergovernmental Tax Immunity Doctrine

prev | next

Article I, Section 8, Clause 1:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; . . .

There is no provision in the Constitution that expressly provides that the federal government is immune from state taxation,[1](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn1art1 " Collector v. Day, 78 U.S. (11 Wall.) 113, 127 (1871), overruled by Graves v. New York ex rel. O’Keefe, 306 U.S. 466, 486 (1939). ") just as there is no provision in the Constitution that expressly provides that states are immune from federal taxation.[2](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn2art1 " Day, 78 U.S. (11 Wall.) at 127. ") However, the Supreme Court has applied the intergovernmental tax immunity doctrine to invalidate taxes that impair the sovereignty of the Federal Government or state governments. The intergovernmental tax immunity doctrine is a limitation on federal and state taxing powers by implication.[3](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn3art1 " Graves, 306 U.S. at 477–78 (1939). ") The Court has explained that the origins of the intergovernmental tax immunity doctrine lie in the Supremacy Clause,[4](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn4art1 " U.S. Const. art. VI, cl. 2. ") the Tenth Amendment , and the preservation of the Constitution’s system of dual federalism.[5](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn5art1 " See, e.g., South Carolina v. Baker, 485 U.S. 505, 523, 523 n.14 (1988); United States v. New Mexico, 455 U.S. 720, 735–36 (1982); New York v. United States, 326 U.S. 572, 586–87 (1946); Day, 78 U.S. (11 Wall.) at 123–27; McCulloch, v. Maryland, 17 U.S. (4 Wheat.) 316, 427–37 (1819). ")

The Court first articulated the principles underlying the intergovernmental tax immunity doctrine in 1819 in McCulloch v. Maryland.[6](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn6art1 " 17 U.S. (4 Wheat.) at 427–37. ") In McCulloch, the Court ruled that the Supremacy Clause barred Maryland from imposing taxes on notes issued by the Second Bank of the United States and related penalties.[7](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn7art1 " Id. at 436. ") The Court reasoned that if a state had the power to tax the means of the Federal Government, the Supremacy Clause would be empty and without meaning.[8](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn8art1 " Id. at 433. ") Thus, the Court held states had “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 execution the powers vested in the general government.” [9](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn9art1 " Id. at 436. ")

Initially, following McCulloch, there were few limitations on federal immunity from state taxation and state immunity from federal taxation.[10](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn10art1 " Jefferson Cnty. v. Acker, 527 U.S. 423, 436 (1999), superseded on other grounds by statute, Removal Clarification Act of 2011, Pub. L. No. 112–51, 125 Stat. 545 (broadening grounds for removal of certain litigation to federal courts); see also Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U.S. 218 (1928) (holding a state tax on the privilege of distributing gasoline measured by gallons of gasoline sold was unconstitutional as applied to sales a distributor made to the United States), abrogated by Alabama v. King & Boozer, 314 U.S. 1 (1941). ") The Court applied the intergovernmental tax immunity doctrine to prohibit federal and state governments from imposing a nondiscriminatory tax on the income or the assets an individual or business received from a contract with the other sovereign. In 1842, in Dobbins v. Commissioners of Erie County,[11](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn11art1 " 41 U.S. (16 Pet.) 435, 450 (1842), superseded by statute, Public Salary Act of 1939, Pub. L. No. 76–32, tit. 1, ch. 59, § 4, 53 Stat. 574, 575 (codified as amended at 4 U.S.C. § 111). ") the Supreme Court held that the compensation of a federal officer was immune from state taxes.[12](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn12art1 " Id. at 450. ") In 1870, in Collector v. Day,[13](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn13art1 " 78 U.S. (11 Wall.) 113 (1871), overruled by Graves v. New York ex rel. O’Keefe, 306 U.S. 466 (1939). ") the Court relied on the dual federalism principles laid out in McCulloch to hold that the salary of a state officer was immune from federal taxes.[14](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn14art1 " Id. at 120–21. ") In 1895, building upon Day, the Court held in Pollock v. Farmers’ Loan & Trust[15](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn15art1 " Pollock v. Farmers’ Loan & Tr. Co., 157 U.S. 429 (1895), overruled by South Carolina v. Baker, 485 U.S. 505 (1988). ") that the interest earned from municipal bonds was immune from a nondiscriminatory federal tax because it was a tax on the power of states and their instrumentalities to borrow money, which was repugnant to the Constitution.[16](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn16art1 " Id. at 586 (citing Weston v. City Council of Charleston, 27 U.S. (2 Pet.) 449, 468 (1829) (holding federal bond interest was immune from state taxation)). ")

By the beginning of the twentieth century, the Supreme Court began to outline the limits of Day and the scope of state immunity from nondiscriminatory federal taxation. In 1903, the Court upheld a federal succession tax upon a bequest to a municipality for public purposes on the ground that the tax was payable by the executor of an estate before distribution to the legatee, the municipality.[17](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn17art1 " Snyder v. Bettman, 190 U.S. 249 (1903). ") A closely divided Court declined to “regard it as a tax upon the municipality though it might operate incidentally to reduce the bequest by the amount of the tax.” [18](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn18art1 " Id. at 254. ") The Court noted “many, if not all, forms of taxation—indeed it may be said generally that few taxes are wholly paid by the person upon whom they are directly and primarily imposed.” [19](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn19art1 " Id. ") When South Carolina embarked upon the business of dispensing “intoxicating liquors,” its agents were held to be subject to the federal license tax on dealers in intoxicating liquors, the ground of the holding being that agents were not carrying out the ordinary functions of government, but carrying on an ordinary private business.[20](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn20art1 " South Carolina v. United States, 199 U.S. 437 (1905); see also Ohio v. Helvering, 292 U.S. 360 (1394); but see New York v. United States, 326 U.S. 572 (1946) (abandoning the governmental/proprietary distinction in determining state immunity from federal taxation). ")

Another decision marking a clear departure from the logic of Collector v. Day was Flint v. Stone Tracy Co.,[21](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn21art1 " 220 U.S. 107 (1911). ") in which the Court sustained an act of Congress taxing the privilege of doing business as a corporation, the tax being measured by the income.[22](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn22art1 " Id. at 146, 177. ") The argument that the tax imposed an unconstitutional burden on the exercise by a state of its reserved power to create corporate franchises was rejected, partly because of the principle of national supremacy and partly on the ground that state immunity did not extend to private businesses.[23](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn23art1 " Id. at 152–58. ") This case also qualified Pollock v. Farmers’ Loan & Trust Co. to the extent that it allowed Congress to impose a privilege tax on the income of corporations from all sources, including state bond interest.[24](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-1/intergovernmental-tax-immunity-doctrine#fn24art1 " See id. at 162–65. ")

Subsequent cases have sustained an estate tax on a decedent’s estate that included state bonds,[25](https://www.law.cornell.edu/constitution-conan/article-1/se