Does Congress have the constitutional power to incorporate a national bank, and, if so, may a state impose a tax on the operations of a branch of that bank located within its borders?

In 1816, Congress passed an act incorporating the Second Bank of the United States, which established a branch in Baltimore, Maryland. In 1818, the Maryland legislature enacted a law imposing a tax on all banks or branches not chartered by the state. The law required such banks to issue notes only on stamped paper of specified denominations, or alternatively to pay an annual flat sum of $15,000 to the state treasurer. Officers who violated the law were subject to a $500 penalty per offense. The Baltimore branch had been established under the federal charter, without any authorization from Maryland. James W. McCulloch, the branch cashier, issued bank notes to a customer on unstamped paper and the branch did not pay the annual sum. John James, suing for himself and the state of Maryland, brought an action of debt to recover the statutory penalties. The parties stipulated to the facts and agreed that the sole question was whether the Maryland statute was repugnant to the Constitution or to the act of Congress incorporating the bank.

John James, suing on behalf of himself and the state of Maryland, brought an action of debt in the Baltimore County Court against McCulloch to recover penalties under the Maryland tax statute. The parties submitted an agreed statement of facts, and the county court rendered judgment against McCulloch. The Maryland Court of Appeals, the state's highest court, affirmed. McCulloch brought a writ of error to the United States Supreme Court, which heard argument over several days in February and March 1819.

(Marshall, C.J.)

Yes as to the first question; no as to the second. Congress has the power to incorporate the national bank, and Maryland may not tax the bank's operations.

The Constitution is the act of the people, not of the state governments. It was ratified by popular conventions in each state, so the federal government derives its authority directly from the people and is supreme within its sphere. The Supremacy Clause makes the Constitution and laws made in pursuance of it the supreme law of the land.

The federal government is one of enumerated powers, but the Constitution contains no word like 'expressly' limiting it to powers explicitly listed, and the Tenth Amendment omits that word. A constitution cannot enumerate every means of executing its powers; only its great outlines can be marked, and the nature of the instrument requires that incidental powers be deduced from its objects. Congress holds the powers to tax, borrow, regulate commerce, wage war, and raise armies. A government entrusted with such powers must be allowed ample means to execute them. Creating a corporation is not a substantive end of government but a means of accomplishing other ends, so it may be implied as incidental to enumerated powers.

The Necessary and Proper Clause confirms this. 'Necessary' does not mean 'absolutely indispensable'; it means conducive or appropriate to the end. The Constitution itself shows the distinction, since Article I, Section 10 uses 'absolutely necessary' when a strict meaning is intended. The clause appears among the grants of power, not the limitations, and enlarges rather than restricts congressional discretion. The governing standard: let the end be legitimate and within the scope of the Constitution, and all means that are appropriate, plainly adapted to that end, and not prohibited, but consistent with the letter and spirit of the Constitution, are constitutional. A national bank is an appropriate means of carrying out the government's fiscal operations. The degree of necessity is a legislative question, not a judicial one, and the existence of state banks is irrelevant to Congress's choice of means. The branches, proceeding from the same stock, are equally constitutional.

As to taxation, the power to tax involves the power to destroy, and the power to destroy could defeat the power to create and preserve. The states have no power to retard, impede, burden, or control the operations of constitutional federal laws. A state's taxing power rests on the sovereignty of its own people, but the means the federal government employs are created by the people of all the states and fall outside any single state's sovereignty. Confidence that states would not abuse the power is not an adequate safeguard, because the people of one state cannot be trusted with control over instruments serving the whole nation, and federal taxation of state banks differs because all states are represented in Congress. The Maryland tax is therefore unconstitutional. The ruling does not bar states from taxing the bank's real property or the interest citizens hold in the bank on the same terms as other property.