Providence Bank v. Billings

Supreme Court of the United States · Property

PropertyContracts ClauseTaxationCorporate CharterContracts Clausetaxationcorporate charterimplied exemption

Facts

In 1791, Rhode Island granted a charter incorporating the Providence Bank with the ordinary powers of a banking corporation. In 1822, the state enacted a law requiring each bank in the state, except the Bank of the United States, to pay a tax based on its paid-in capital stock, and that tax was later increased. After officers issued and executed a warrant of distress against the bank's property to collect the tax, the bank sued in trespass. The bank argued that the tax was unconstitutional because its charter was a contract and the tax impaired that contract.

Issue

Does a state law taxing a bank chartered by the state impair the obligation of the charter contract when the charter contains no express exemption from taxation? More generally, does a corporate charter impliedly restrain the state's power to tax the corporation?

Rule

A corporate charter is a contract, but it is not impaired by a later state tax unless the charter contains an express stipulation exempting the corporation from taxation. The state's power of taxation is vital, presumed to remain intact, and will not be treated as surrendered by implication.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In 1805, Ohio chartered Riverbend Milling Company in Cleveland, giving it the usual corporate powers to own facilities, contract, and manufacture flour. The charter said nothing about taxes. In 1840, Ohio imposed a tax on all flour manufacturers, incorporated and unincorporated alike, measured by annual output.

Riverbend argues the tax impairs the obligation of its charter because the charter granted it the right to conduct milling for profit and the tax reduces those profits. Which is the best answer?

Explanation. A corporate charter is a contract, but a later state tax does not impair that contract unless the charter contains an express stipulation exempting the corporation from taxation. The majority rejected the argument that a tax is unconstitutional merely because it may reduce or even destroy profitability. Exemptions from burdens common to others do not arise necessarily from incorporation and will not be implied from a silent charter. (Derived from Providence Bank v. Billings (n.d.).)