Does Congress have the constitutional authority to create a national bank, and if so, can individual states tax that federally chartered institution?

In 1816, the Second Bank of the United States was chartered by Congress. Maryland subsequently passed a law imposing a tax on all banks operating within the state that were not chartered by the state legislature, which included the Baltimore branch of the Second Bank. James McCulloch, the cashier of this branch, refused to pay the tax. The state of Maryland then sued McCulloch for non-payment.

The case was initially heard in Baltimore County Court, where Maryland prevailed. McCulloch appealed to the Maryland Court of Appeals, which upheld the lower court's decision. Following this, McCulloch escalated the case to the U.S. Supreme Court, challenging the state's authority to tax a federally chartered institution.

McCulloch (defendant) was initially found against in the Baltimore County Court, where Maryland (plaintiff) prevailed. McCulloch then appealed this decision to the Maryland Court of Appeals. The appellate court affirmed the lower court's ruling. Following this affirmation, McCulloch pursued a further appeal, elevating the case to the U.S. Supreme Court for review.

(Marshall, J.)

Yes. Congress has the constitutional authority to create a national bank, and individual states cannot tax that federally chartered institution. The power to incorporate a bank falls within Congress's authority under the Necessary and Proper Clause of the Constitution. This clause grants Congress the ability to enact laws that are appropriate and legitimate for executing its enumerated powers, not just those that are absolutely essential. The federal government's powers, while limited, are supreme within their sphere of operation. The creation of a national bank is a legitimate means to carry out Congress's constitutional powers related to fiscal and monetary policy. Furthermore, states are prohibited from taxing instruments of the federal government employed in the execution of constitutional powers. This prohibition stems from the Supremacy Clause, which establishes federal law as the supreme law of the land. Allowing states to tax federal institutions would grant them the power to impede or potentially destroy the operations of the federal government, directly contradicting the principle of federal supremacy. Such taxation would undermine the effectiveness of federal institutions and interfere with the execution of constitutionally granted powers. The ability of the federal government to operate without interference from state taxation is crucial for maintaining the balance of power in the federal system and ensuring the efficient execution of national policies.