South Carolina v. United States, 199 U.S. 437; 26 S. Ct. 110; 50 L. Ed. 261 (1905)

South Carolina v. United States, 199 U.S. 437; 26 S. Ct. 110; 50 L. Ed. 261 (1905)

Facts—South Carolina was the sole dispenser of wholesale and retail liquor within the state. All profits went to the state treasury. Prior to 1901, the state paid the U.S. tax, but on April 14, 1901 the state authorities refused further payments.

Question—Should this state agency be granted immunity from taxation by the federal government because it was exercising the sovereign power of a state?


ReasonsJ. Brewer (6–3). “The necessity of regulation may induce the states to the possession of other fields such as tobacco and other objects of internal revenue tax. But “if one state finds it thus profitable, other states may follow, and the whole body of internal revenue tax be thus stricken down.” The national government would be crippled. If all the states exercised such power, the efficiency of the national government could be destroyed. The ex- emption of state agencies and instrumentalities from national taxation is limited to those which are strictly governmental in character and does not extend to those which are used by the state in the carrying on of ordinary business. Thus “whenever a state engages in business which is of a private nature, that business is not withdrawn from the taxing power of the nation.”

J. White, dissenting, argued that the doctrine advanced in this case would allow both state and federal governments to destroy one another.

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