What happens when state law conflicts with federal law? The answer relies on the doctrine known as federal preemption.
The Supremacy Clause is a clause within Article VI of the U.S. Constitution which dictates that federal law is the "supreme law of the land." This means that judges in every state must follow the Constitution, laws, and treaties of the federal government in matters which are directly or indirectly within the government's control. Under the doctrine of preemption, which is based on the Supremacy Clause, federal law preempts state law, even when the laws conflict. Thus, a federal court may require a state to stop certain behavior it believes interferes with, or is in conflict with, federal law.
But in the absence of federal law, or when a state law would provide more protections for consumers, employees, and other residents than what is available under existing federal law, state law holds. For instance, federal anti-discrimination law does not include LGBTQ individuals as a protected class. Therefore, an openly gay employee in Kansas can be lawfully fired simply for being gay. But an Illinois employee may sue under state law for wrongful termination if their sexual orientation or gender identity (either actual or presumed) was a factor in the firing.
Examples of the Supremacy Clause: State vs. Federal
Example 1
State A has enacted a law that says "no citizen may sell blue soda pop anywhere in the state." The federal government, however, has established the "Anti-Blue Sales Discrimination Act," prohibiting actions that discriminate against the color of goods sold. A local food and beverage vendor who sells blue soda pop in vending machines is charged with violating the state law. She may challenge the state law on the basis that it is preempted by federal law, and therefore violates the Supremacy Clause of the U.S. Constitution.
Example 2
The United States passes a law promising to preserve and to protect Indian tribes. State B wants to tax Indian tribes located within its state. Under the Supremacy Clause of the U.S., State B may not tax a federally recognized Indian tribe since doing so would violate the tribe's political interest in which the U.S. has promised to protect.
Federalism and Enumerated Federal Powers
The federal government has broad powers under the Supremacy Clause to create, regulate, and enforce the laws of the United States. The concept of federalism, or that of federal power, has a long-standing history dating back to the late 1700's, during the time in which the nation's founding fathers signed the U.S. Constitution. Among those powers, the federal government has certain express (or "enumerated") powers which are specifically spelled out in the U.S. Constitution, including the right to regulate commerce, declare war, levy taxes, establish immigration and bankruptcy laws, and so on.
Not only does the federal government have express powers under the U.S. Constitution, it also has implied powers, or powers not specifically mentioned in the Constitution. This was the decision in the landmark Supreme Court case of McCulloch v. Maryland. For example, the Constitution does not expressly mention the right to privacy, or the right of people to adopt, or seek an abortion, however, these rights can be inferred by the Constitution itself, or from the later amended Bill of Rights.
Whether express or implied, federal law will almost always prevail when it interferes or conflicts with state law, except in circumstances where the federal law is deemed unconstitutional, or where the Supremacy Clause does not apply. However, there are plenty of examples where tension between state and federal law remains unresolved. For instance, several states have legalized both the medical and recreational use of cannabis (marijuana), which is still a Schedule I controlled substance under federal law. In this case, it's mostly a matter of political will and resource allocation.
To that end, people living within the U.S. should be aware of the broad powers of the federal government, especially on issues affecting their daily lives, such as bankruptcy issues, discrimination claims, immigration challenges, federal taxation, and many others. A constitutional law attorney can help with the construction and interpretation of a federal law as applied to a particular state law.
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Clause 2. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Annotations
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 Constitution 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 City v. Miln, which was first argued but not decided before Marshall’s death. Miln involved a New York statute that required 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. “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 constitution 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 municipal 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.” Justice Story, in dissent, stated that Marshall had heard the previous argument and reached the conclusion that the New York statute was unconstitutional.
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. 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.
Until recently, it appeared that in fact and in theory the Court had repudiated this doctrine, but, in National League of Cities v. Usery, it revived part of this state police power limitation upon the exercise of delegated federal power. However, the decision was by a closely divided Court and subsequent interpretations closely cabined the development and then overruled the case.
Following the demise of the “doctrine of dual federalism” in the 1930s, the Court confronted the question whether Congress had the power to regulate state conduct and activities to the same extent, primarily under the Commerce Clause, as it did to regulate private conduct and activities to the exclusion of state law. In United States v. California, upholding the validity of the application of a federal safety law to a state-owned railroad being operated as a nonprofit entity, the Court, speaking through Justice Stone, denied the existence of an implied limitation upon Congress’s plenary power to regulate commerce when a state instrumentality was involved. “The state can no more deny the power if its exercise has been authorized by Congress than can an individual.” Although the state in operating the railroad was acting as a sovereign and within the powers reserved to the states, the Court said, its exercise was “in subordination to the power to regulate interstate commerce, which has been granted specifically to the national government. The sovereign power of the states is necessarily diminished to the extent of the grants of power to the Federal Government in the Constitution.”
A series of cases followed in which the Court refused to construct any state immunity from regulation when Congress acted pursuant to a delegated power. The culmination of this series had been thought to be Maryland v. Wirtz, in which the Court upheld the constitutionality of applying the federal wage and hour law to nonprofessional employees of state-operated schools and hospitals. In an opinion by Justice Harlan, the Court saw a clear connection between working conditions in these institutions and interstate commerce. Labor conditions in schools and hospitals affect commerce; strikes and work stoppages involving such employees interrupt and burden the flow across state lines of goods purchased by state agencies, and the wages paid have a substantial effect. The Commerce Clause being thus applicable, the Justice wrote, Congress was not constitutionally required to “yield to state sovereignty in the performance of governmental functions. This argument simply is not tenable. There is no general doctrine implied in the Federal Constitution that the two governments, national and state, are each to exercise its powers so as not to interfere with the free and full exercise of the powers of the other. . . . [I]t is clear that the Federal Government, when acting within a delegated power, may override countervailing state interests whether these be described as ‘governmental’ or ‘proprietary’ in character. . . . [V]alid general regulations of commerce do not cease to be regulations of commerce because a State is involved. If a State is engaging in economic activities that are validly regulated by the Federal Government when engaged in by private persons, the State too may be forced to conform its activities to federal regulation.”
Wirtz was specifically reaffirmed in Fry v. United States, in which the Court upheld the constitutionality of presidentially imposed wage and salary controls, pursuant to congressional statute, on all state governmental employees. In dissent, however, Justice Rehnquist propounded a doctrine that was to obtain majority approval in League of Cities, in which he wrote for the Court: “[T]here are attributes of sovereignty attaching to every state government which may not be impaired by Congress, not because Congress may lack an affirmative grant of legislative authority to reach the matter, but because the Constitution prohibits it from exercising the authority in that manner.” The standard, apparently, in judging between permissible and impermissible federal regulation, is whether there is federal interference with “functions essential to separate and independent existence.” In the context of this case, state decisions with respect to the pay of their employees and the hours to be worked were essential aspects of their “freedom to structure integral operations in areas of traditional governmental functions.” The line of cases exemplified by United States v. California was distinguished and preserved on the basis that the state activities there regulated were so unlike the traditional activities of a state that Congress could reach them; Case v. Bowles was held distinguishable on the basis that Congress had acted pursuant to its war powers and to have rejected the power would have impaired national defense; Fry was distinguished on the bases that it upheld emergency legislation tailored to combat a serious national emergency, the means were limited in time and effect, the freeze did not displace state discretion in structuring operations or force a restructuring, and the federal action “operated to reduce the pressure upon state budgets rather than increase them.” Wirtz was overruled; it permitted Congress to intrude into the conduct of integral and traditional state governmental functions and could not therefore stand.
League of Cities did not prove to be much of a restriction upon congressional power in subsequent decisions. First, its principle was held not to reach to state regulation of private conduct that affects interstate commerce, even as to such matters as state jurisdiction over land within its borders. Second, it was held not to immunize state conduct of a business operation, that is, proprietary activity not like “traditional governmental activities.” Third, it was held not to preclude Congress from regulating the way states regulate private activities within the state—even though such state activity is certainly traditional governmental action—on the theory that, because Congress could displace or preempt state regulation, it may require the states to regulate in a certain way if they wish to continue to act in this field. Fourth, it was held not to limit Congress when it acts in an emergency or pursuant to its war powers, so that Congress may indeed reach even traditional governmental activity. Fifth, it was held not to apply at all to Congress’s enforcement powers under the Thirteenth, Fourteenth, and Fifteenth Amendments. Sixth, it apparently was to have no application to the exercise of Congress’s spending power with conditions attached. Seventh, not because of the way the Court framed the statement of its doctrinal position, which is absolutist, but because of the way it accommodated precedent and because of Justice Blackmun’s concurrence, it was always open to interpretation that Congress was enabled to reach traditional governmental activities not involving employer-employee relations or is enabled to reach even these relations if the effect is “to reduce the pressures upon state budgets rather than increase them.” In his concurrence, Justice Blackmun suggested his lack of agreement with “certain possible implications” of the opinion and recast it as a “balancing approach” that “does not outlaw federal power in areas such as environmental protection, where the federal interest is demonstrably greater and where state facility compliance with imposed federal standards would be essential.”
The Court overruled National League of Cities in Garcia v. San Antonio Metropolitan Transit Authority, and seemingly returned subject For the most part, the Court indicated, states must seek protection from the impact of federal regulation in the political processes, and not in any limitations imposed on the commerce power or found in the Tenth Amendment. Justice Blackmun’s opinion for the Court in Garcia concluded that the National League of Cities test for “integral operations in areas of traditional governmental functions” had proven “both impractical and doctrinally barren.” State autonomy is both limited and protected by the terms of the Constitution itself, hence—ordinarily, at least—exercise of Congress’s enumerated powers is not to be limited by “a priori definitions of state sovereignty.” States retain a significant amount of sovereign authority “only to the extent that the Constitution has not divested them of their original powers and transferred those powers to the Federal Government.” There are direct limitations in Art. I, § 10; and “Section 8 . . . works an equally sharp contraction of state sovereignty by authorizing Congress to exercise a wide range of legislative powers and (in conjunction with the Supremacy Clause of Article VI) to displace contrary state legislation.” On the other hand, the principal restraints on congressional exercise of the commerce power are to be found not in the Tenth Amendment, in the Commerce Clause itself, or in “judicially created limitations on federal power,” but in the structure of the Federal Government and in the political processes. “[T]he fundamental limitation that the constitutional scheme imposes on the Commerce Clause to protect the ‘States as States’ is one of process rather than one of result.” While continuing to recognize that “Congress’s authority under the Commerce Clause must reflect [the] position . . . that the States occupy a special and specific position in our constitutional system,” the Court held that application of Fair Labor Standards Act minimum wage and overtime provisions to state employment does not require identification of these “affirmative limits.” Thus, arguably, the Court has not totally abandoned the National League of Cities premise that there are limits on the extent to which federal regulation may burden states as states. Rather, it has stipulated that any such limits on exercise of federal power must be premised on a failure of the political processes to protect state interests, and “must be tailored to compensate for [such] failings . . . rather than to dictate a ‘sacred province of state autonomy.’”
Further indication of what must be alleged in order to establish affirmative limits to commerce power regulation was provided in South Carolina v. Baker. The Court expansively interpreted Garcia as meaning that there must be an allegation of “some extraordinary defects in the national political process” before the Court will intervene. A claim that Congress acted on incomplete information will not suffice, the Court noting that South Carolina had “not even alleged that it was deprived of any right to participate in the national political process or that it was singled out in a way that left it politically isolated and powerless.” Thus, the general rule is that “limits on Congress’s authority to regulate state activities . . . are structural, not substantive—i. e., that States must find their protection from congressional regulation through the national political process, not through judicially defined spheres of unregulable state activity.”
Dissenting in Garcia, Justice Rehnquist predicted that the doctrine propounded by the dissenters and by those Justices in National League of Cities “will . . . in time again command the support of a majority of the Court.” As the membership of the Court changed, it appeared that the prediction was proving true. Confronted with the opportunity in New York v. United States, to reexamine Garcia, the Court instead distinguished it, striking down a federal law on the basis that Congress could not “commandeer” the legislative and administrative processes of state government to compel the administration of federal programs. The line of analysis pursued by the Court makes clear, however, what the result will be when a Garcia kind of federal law is reviewed.
That is, because the dispute involved the division of authority between federal and state governments, Justice O’Connor wrote for the Court in New York, one could inquire whether Congress acted under a delegated power or one could ask whether Congress had invaded a state province protected by the Tenth Amendment. But, the Justice wrote, “the two inquiries are mirror images of each other. If a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States; if a power is an attribute of state sovereignty reserved by the Tenth Amendment, it is necessarily a power the Constitution has not conferred on Congress.”
Powers delegated to the Nation, therefore, are subject to limitations that reserve power to the states. This limitation is not found in the text of the Tenth Amendment, which is, the Court stated, “but a truism,” but is a direct constraint on Article I powers when an incident of state sovereignty is invaded. The “take title” provision was such an invasion. Both the Federal Government and the states owe political accountability to the people. When Congress encourages states to adopt and administer a federally prescribed program, both governments maintain their accountability for their decisions. When Congress compels the states to act, state officials will bear the brunt of accountability that properly belongs at the national level. The “take title” provision, because it presented the states with “an unavoidable command”, transformed state governments into “regional offices” or “administrative agencies” of the Federal Government, impermissibly undermined the accountability owing the people and was void. Whether viewed as lying outside Congress’s enumerated powers or as infringing the core of state sovereignty reserved by the Tenth Amendment, “the provision is inconsistent with the federal structure of our Government established by the Constitution.”
Federal laws of general applicability, therefore, are surely subject to examination under the New York test rather than under the Garcia structural standard.
Expanding upon its anti-commandeering rule, the Court in Printz v. United States established “categorically” the rule that “[t]he Federal Government may not compel the States to enact or administer a federal regulatory program.” At issue in Printz was a provision of the Brady Handgun Violence Prevention Act that required, pending the development by the Attorney General of a national system by which criminal background checks on prospective firearms purchasers could be conducted, the chief law enforcement officers of state and local governments to conduct background checks to ascertain whether applicants were ineligible to purchase handguns. Confronting the absence of any textual basis for a “categorical” rule, the Court looked to history, which in its view demonstrated a paucity of congressional efforts to impose affirmative duties upon the states. More important, the Court relied on the “structural Constitution” to demonstrate that the Constitution of 1787 had not taken from the states “a residuary and inviolable sovereignty,” that it had, in fact and theory, retained a system of “dual sovereignty” reflected in many things but most notably in the constitutional conferral “upon Congress of not all governmental powers, but only discrete, enumerated ones,” which was expressed in the Tenth Amendment. Thus, although it had earlier rejected the commandeering of legislative assistance, the Court now made clear that administrative officers and resources were also fenced off from federal power.
The scope of the rule thus expounded was unclear. Particularly, Justice O’Connor in concurrence observed that Congress retained the power to enlist the states through contractual arrangements and on a voluntary basis. More pointedly, she stated that “the Court appropriately refrains from deciding whether other purely ministerial reporting requirements imposed by Congress on state and local authorities pursuant to its Commerce Clause powers are similarly invalid.”
A partial answer was provided in Reno v. Condon, in which the Court upheld the Driver’s Privacy Protection Act of 1994 against a charge that it offended the anti-commandeering rule of New York and Printz. The Act in general limits disclosure and resale without a driver’s consent of personal information contained in the records of state motor vehicle departments, and requires disclosure of that information for specified government record-keeping purposes. While conceding that the Act “will require time and effort on the part of state employees,” the Court found this imposition permissible because the Act regulates state activities directly rather than requiring states to regulate private activities.
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Clause 2. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Annotations
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 National Bank v. Commonwealth. “[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 unconstitutional.” In Davis v. Elmira Savings Bank, 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.”
Similarly, a state law, insofar as it forbids national banks to use the word “saving” or “savings” in their business and advertising, is void because it conflicts with the Federal Reserve Act’s authorizing such banks to receive savings deposits. However, federal incorporation of a railroad company of itself does not operate to exempt it from control by a state as to business consummated wholly within the state. Also, Treasury Department regulations, designed to implement the federal borrowing power (Art. I, § 8, cl. 2) by making United States Savings Bonds attractive to investors and conferring exclusive title thereto upon a surviving joint owner, override contrary state community property laws whereunder a one-half interest in such property remains part of the estate of a decedent co-owner. Similarly, the Patent Office’s having been granted by Congress an unqualified authorization to license and regulate the conduct throughout the United States of nonlawyers as patent agents, a state, under the guise of prohibiting unauthorized practice of law, is preempted from enjoining such activities of a licensed agent as entail the rendering of legal opinions as to patent-ability or infringement of patent rights and the preparation and prosecution of application for patents.
The extent to which states may regulate contractors who furnish goods or services to the Federal Government is not as clearly established as is the states’ 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 minimum established by the Commission. The majority was unable to find in congressional legislation, or in the Constitution, 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. On the other hand, by virtue of its conflict with standards set forth in the Armed Services Procurement Act, 41 U. S. C. § 152, for determining the letting of contracts to responsible bidders, a state law licensing contractors cannot be enforced against one selected by federal authorities for work on an Air Force base.
Most recently, the Court has done little to clarify the doctrinal difficulties. The Court looked to a “functional” analysis of state regulations, much like the rule covering state taxation. “A state regulation is invalid only if it regulates the United States directly or discriminates against the Federal Government or those with whom it deals.” In determining whether a regulation discriminates against the Federal Government, “the entire regulatory system should be analyzed.”
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Clause 2. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Annotations
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. 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 asserted in the act of incorporation; and not being expressed, ought not to be implied by the Court.” To which Marshall replied: “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.” Secondly, the appellants relied “greatly on the distinction between the bank and the public institutions, 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.” Marshall accepted this analogy but not to the advantage of the appellants. He simply indicated that all contractors who dealt with the government were entitled to immunity from taxation upon such transactions. 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.
—The first significant extension of the doctrine of the immunity of federal instrumentalities from state taxation came in Weston v. Charleston, 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. A modified version of this section remains on the statute books today. The right of Congress to exempt legal tender notes to the same extent as bonds was sustained in Bank v. Supervisors, over the objection that such notes circulate 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 way affect the credit of the National Government. Similarly, the assessment for an ad valorem property tax of an open account for money due under a federal contract, and the inclusion of the value of United States bonds owed by a decedent, in measuring an inheritance tax, were held valid, since neither tax would substantially embarrass the power of the United States to secure credit. A state property tax levied on mutual savings banks and federal savings and loan associations and measured by the amount of their capital, surplus, or reserve and undivided profits, but without deduction of the value of their United States securities, was voided as a tax on obligations of the Federal Government. Apart from the fact that the ownership interest of depositors in such institutions was different from that of corporate stockholders, the tax was imposed on the banks which were solely liable for payment thereof.
Income from federal securities is also beyond the reach of the state taxing power as the cases now stand. 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 assessed, i. e., income from tax exempt bonds. A state may constitutionally levy an excise tax on corporations for the privilege of doing business, and measure the tax by the property of net income of the corporation, including tax exempt United States securities or the income derived therefrom. The designation of a tax is not controlling. 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 unconstitutional tax on the bonds themselves.
—In the course of his opinion in Osborn v. Bank of the United States, 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.”
Today, the question insofar as taxation is concerned is answered in the affirmative. Although the early cases looked toward immunity, in James v. Dravo Contracting Co., by a 5-to-4 vote, the Court established the modern doctrine. Upholding a state tax on the gross receipts of a contractor providing services to the Federal Government, the Court said that “‘[I]t is not necessary to cripple [the state’s power to tax] by extending the constitutional exemption from taxation to those subjects which fall within the general application of non-discriminatory laws, and where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of the functions of government.’” A state-imposed sales tax upon the purchase of goods by a private firm having a cost-plus contract with the Federal Government was sustained, it not being critical to the tax’s validity that it would be passed on to the government. 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 and an excise tax on gasoline sold to a contractor with the government and used to operate machinery in the construction of levees on the Mississippi River. Although the decisions have not set an unwavering line, the Court has hewed to a very restrictive doctrine of immunity. “[T]ax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned.” Thus, New Mexico sustained a state gross receipts tax and a use tax imposed upon contractors with the Federal Government which operated on “advanced funding,” drawing on federal deposits so that only federal funds were expended by the contractors to meet their obligations. Of course, Congress may statutorily provide for immunity from taxation of federal contractors generally or in particular programs.
—Of a piece with James v. Dravo Contracting Co. was Graves v. New York ex rel. O’Keefe, 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. “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 Constitution 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 Constitution has expressly granted to one and has confirmed to the other. The immunity is not one to be implied from the Constitution, because if allowed it would impose to an inadmissible extent a restriction on the taxing power which the Constitution has reserved to the state governments.” 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.”
That question is academic, Congress’s having consented to state taxation of its employees’ compensation as long as the taxation “does not discriminate against the . . . employee, because of the source of the . . . compensation.” This principle, the Court has held, “is coextensive with the prohibition against discriminatory taxes embodied in the modern constitutional doctrine of intergovernmental tax immunity.”
—Property owned by a federally chartered corporation engaged in private business is subject to state and local ad valorem taxes. This was conceded in Mc-Culloch v. Maryland and confirmed a half century later with respect to railroads incorporated by Congress. Similarly, a property tax may be levied against the lands under water that are owned by a person holding a license under the Federal Water Power Act. However, when privately owned property erected by lessees on tax-exempt state lands is taxed by a county at less than full value, and houses erected by contractors on land leased from a federal Air Force base are taxed at full value, the latter tax, solely because it discriminates against the United States and its lessees, is void. Likewise, when, under state laws, a school district does not tax private lessees of state and municipal realty, whose leases are subject to termination at the lessor’s option in the event of sale, but does levy a tax, measured by the entire value of the realty, on lessees of United States property used for private purposes and whose leases are terminable at the option of the United States in an emergency or upon sale, the discrimination voided the tax collected from the latter. “A state tax may not discriminate against the government or those with whom it deals” in the absence of significant differences justifying levy of higher taxes on lessees of federal property. 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 land for other purposes. Also, where equitable title has passed to the purchaser of land from the government, a state may tax the equitable owner on the full value thereof, despite retention of legal title; but, in the case of reclamation entries, the tax may not be collected until the equitable title passes. In the pioneer case of Van Brocklin v. Tennessee, 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. Similarly, a state cannot assess land in the hands of private owners for benefits from a road improvement completed while it was owned by the United States.
In 1944, with two dissents, the 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. Twelve years later, and with a like number of Justices dissenting, the Court upheld the following taxes imposed on federal contractors: (1) a municipal tax levied pursuant to a state law which stipulated that when tax exempt real property is used by a private firm for profit, the latter is subject to taxation to the same extent as if it owned the property, and based upon the value of real property, a factory, owned by the United States and made available under a lease permitting the contracting corporation to deduct such taxes from rentals paid by it; the tax was collectible only by direct action against the contractor for a debt owed, and was not applicable to federal properties on which payments in lieu of taxes are made; (2) a municipal tax, levied under the authority of the same state law, based on the value of the realty owned by the United States, and collected from a cost-plus-fixed-fee contractor, who paid no rent but agreed not to include any part of the cost of the facilities furnished by the government in the price of goods supplied under the contract; (3) another municipal tax levied in the same state against a federal subcontractor, and computed on the value of materials and work in process in his possession, notwithstanding that title thereto had passed to the United States following his receipt of installment payments.
In sustaining the first tax, the Court held that it was imposed, not on the government or on its property, but upon a private lessee, that it was computed by the value of the use to the contractor of the federally leased property, and that it was nondiscriminatory; that is, it was designed to equalize the tax burden carried by private business using exempt property with that of similar businesses using taxed property. Distinguishing Allegheny County, the Court maintained that in that older decision, the tax invalidated was imposed directly on federal property and that the question of the legality of a privilege on use and possession of such property had been expressly reserved. Also, insofar as the economic incidents of such tax on private use curtails the net rental accruing to the government, such burden was viewed as insufficient to vitiate the tax.
Deeming the second and third taxes similar to the first, the Court sustained them as taxes on the privilege of using federal property in the conduct of private business for profit. With reference to the second, the Court emphasized that the government had reserved no right of control over the contractor and, hence, the latter could not be viewed as an agent of the government entitled to the immunity derivable from that status. As to the third tax, the Court asserted that there was no difference between taxing a private party for the privilege of using property he possesses, and taxing him for possessing property which he uses; for, in both instances, the use was private profit. Moreover, the economic burden thrust upon the government was viewed as even more remote than in the administration of the first two taxes.
—Property owned by the United States is, of course, wholly immune from state taxation. 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. An early case, the authority of which is now uncertain, held invalid a flat rate tax on telegraphic messages, as applied to messages sent by public officers on official business.
—Fiscal institutions 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. 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, Congress enacted 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.” In Pittman v. Home Owners’ Corp., 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., 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 or mortgages.
The state’s principal 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 depositories and fiscal agents for the Federal Government and providing a market for government bonds; all other functions of the land banks are private; petitioner 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 petitioner’s lending functions.” The Court rejected this argument and invalidated the tax, writing: “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 constitutional exercise of its delegated powers is governmental. It also follows that, when Congress constitutionally creates a corporation through which the federal government lawfully acts, the activities of such corporation are governmental.”
Similarly, the lease by a federal land bank of oil and gas in a mineral estate, which it had reserved in land originally acquired through foreclosure and thereafter had conveyed to a third party, was held immune from a state personal property tax levied on the lease and on the royalties accruing thereunder. The fact that at the time of the conveyance and lease, the bank had recouped its entire loss resulting from the foreclosure did not operate to convert the mineral estate and lease into a non-governmental activity no longer entitled to exemption. However, in the absence of federal legislation, a state law laying a percentage tax on the users of safety deposit services, measured by the bank’s charges therefore, was held valid as applied to national banks. The tax, being on the user, did not, the Court held, impose an intrinsically unconstitutional burden on a federal instrumentality.
—In 1928, the Court went so far as to hold that a state could not tax as income royalties for the use of a patent issued by the United States. This proposition was soon overruled in Fox Film Corp. v. Doyal, where a privilege tax based on gross income and applicable to royalties from copyrights was upheld. Likewise a state may lay a franchise tax on corporations, measured by the net income from all sources and applicable to income from copyright royalties.
—Another line of anomalous decisions conferring tax immunity upon lessees of restricted Indian lands was overruled in 1949. The first of these cases, Choctaw & Gulf R. R. v. Harrison, held that a gross production tax on oil, gas, and other minerals was an occupational tax, and, as applied to a lessee of restricted Indian lands, was an unconstitutional burden on such lessee, who was deemed to be an instrumentality of the United States. Next, the Court held the lease itself a federal instrumentality immune from taxation. A modified gross production tax imposed in lieu of all ad valorem taxes was invalidated in two per curiam decisions. In Gillespie v. Oklahoma, a tax upon net income of the lessee derived from sales of his share of oil produced from restricted lands also was condemned. Finally a petroleum excise tax upon every barrel of oil produced in the state was held inapplicable to oil produced on restricted Indian lands. In harmony with the trend to restricting immunity implied from the Constitution to activities of the government itself, the Court overruled all these decisions in Oklahoma Tax Comm’n v. Texas Co. and held that a lessee of mineral rights in restricted Indian lands was subject to nondiscriminatory gross production and excise taxes, so long as Congress did not affirmatively grant him immunity.
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Clause 2. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby; any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Annotations
subject expressions of a single thesis, the supremacy of the national government, their development after Marshall’s death has been sharply divergent. During the period when Gibbons v. Ogden was eclipsed by the theory of dual federalism, the doctrine of McCulloch v. Maryland was not merely followed but greatly extended as a restraint on state interference with federal instrumentalities. Conversely, the Court’s recent return to Marshall’s conception of the powers of Congress has coincided with a retreat from the more extreme positions taken in reliance upon McCulloch v. Maryland. Today, the application of the Supremacy Clause is becoming, to an ever increasing degree, a matter of statutory interpretation; a determination whether state regulations can be reconciled with the language and policy of federal enactments. In the field of taxation, the Court has all but wiped out the private immunities previously implied from the Constitution without explicit legislative command. Broadly speaking, the immunity which remains is limited to activities of the government itself, and to that which is explicitly created by statute, e. g., that granted to federal securities and to fiscal institutions chartered by Congress. But the term “activities” will be broadly construed.
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Justia › US Law › US Codes and Statutes › US Constitution Annotated › Article VI. Prior Debts, National Supremacy, Oaths of Office › Oath of Office
Clause 3. The Senators and Representatives before mentioned, and the Members of the several State Legislatures, and all executive and judicial Officers, both of the United States and of the several States, shall be bound by Oath or Affirmation, to support this Constitution; but no religious Test shall ever be required as a Qualification to any Office or public Trust under the United States.
Annotations
Power of Congress in Respect to OathsCongress may require no other oath of fidelity to the Constitution, but it may add to this oath such other oath of office as its wisdom may require. It may not, however, prescribe a test oath as a qualification for holding office, such an act being in effect an ex post facto law, and the same rule holds in the case of the states.