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Veazie Bank v. Fenno

Supreme Court of the United States · Constitutional Law

Constitutional LawTaxing PowerDirect TaxesNational CurrencyState Banksdirect taxuniformityapportionment

Facts

Congress, during and after the rebellion, adopted legislation to create and regulate a national currency consisting of coin, United States notes, and notes of national banking associations. After first imposing lighter taxes on circulation, Congress enacted a statute providing that every national banking association, State bank, or State banking association must pay a tax of ten percent on the amount of notes of any person, State bank, or State banking association used for circulation and paid out after August 1, 1866. The Veazie Bank challenged the constitutionality of that tax. The challenge argued that the tax was an unapportioned direct tax and that it impermissibly impaired a franchise granted by the State.

Issue

Whether the federal tax of ten percent on notes of persons or State banks used for circulation and paid out by banks is unconstitutional because it is a direct tax not apportioned among the States, or because it unlawfully impairs a franchise granted by a State.

Rule

Congress's taxing power extends to every object of taxation except exports, subject to constitutional rules governing mode: direct taxes must be apportioned, while duties, imposts, and excises must be uniform. In the practical and constitutional sense, direct taxes are limited to capitation taxes and taxes on land, and perhaps taxes on personal property by general valuation and assessment; a tax on bank circulation is not a direct tax. Franchises granted by a State are not necessarily exempt from federal taxation, and Congress may tax property or contracts created under such a franchise, especially where doing so is appropriate to secure a national currency Congress is constitutionally empowered to provide.

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

Congress enacts a federal levy requiring every bank in the United States to pay 8% of the amount of privately issued paper notes it pays out for everyday circulation. Cedar Valley Bank, a state-chartered bank in Des Moines, argues the tax is unconstitutional because Congress did not apportion it among the states by population.

How should a court rule on Cedar Valley Bank's apportionment argument?

Explanation. The majority treated direct taxes, in the constitutional sense, as limited to capitation taxes and taxes on land, and perhaps taxes on personal property by general valuation and assessment. A tax on bank circulation is instead a non-direct tax and does not require apportionment; it must comply with the rule of uniformity. That is why the bank's challenge fails.