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McCulloch v. Maryland,, was a landmark decision by the Supreme Court of the United States. The state of Maryland had attempted to impede operation of a branch of the Second Bank of the United States by imposing a tax on all notes of banks not chartered in Maryland. Though the law, by its language, was generally applicable to all banks not chartered in Maryland, the Second Bank of the United States was the only out-of-state bank then existing in Maryland, and the law was recognized in the court's opinion as having specifically targeted the U.S. Bank. The Court invoked the Necessary and Proper Clause of the Constitution, which allowed the Federal government to pass laws not expressly provided for in the Constitution's list of express powers, provided those laws are in useful furtherance of the express powers of Congress under the Constitution.

This fundamental case established the following two principles:


 * 1) The Constitution grants to Congress implied powers for implementing the Constitution's express powers, in order to create a functional national government.
 * 2) State action may not impede valid constitutional exercises of power by the Federal government.

The opinion was written by Chief Justice John Marshall.

Background
On April 8, 1816, the Congress of the United States passed an act titled "An Act to Incorporate the Subscribers to the Bank of the United States" which provided for the incorporation of the Second Bank of the United States. The Bank first went into full operation in Philadelphia, Pennsylvania. In 1817, the Bank opened a branch in Baltimore, Maryland, and transacted and carried on business as a branch of the Bank of the United States by issuing bank notes, discounting promissory notes, and performing other operations usual and customary for banks to do and perform. Both sides of the litigation admitted that the President, directors, and company of the Bank had no authority to establish the Baltimore branch, or office of discount and deposit, other than the fact that Maryland had adopted the Constitution of the United States.

On February 11, 1818, the General Assembly of Maryland passed an act titled, "an act to impose a tax on all banks, or branches thereof, in the State of Maryland, not chartered by the legislature":

"Be it enacted by the General Assembly of Maryland that if any bank has established or shall, without authority from the State first had and obtained establish any branch, office of discount and deposit, or office of pay and receipt in any part of this State, it shall not be lawful for the said branch, office of discount and deposit, or office of pay and receipt to issue notes, in any manner, of any other denomination than five, ten, twenty, fifty, one hundred, five hundred and one thousand dollars, and no note shall be issued except upon stamped paper of the following denominations; that is to say, every five dollar note shall be upon a stamp of ten cents; every ten dollar note, upon a stamp of twenty cents; every twenty dollar note, upon a stamp of thirty cents; every fifty dollar note, upon a stamp of fifty cents; every one hundred dollar note, upon a stamp of one dollar; every five hundred dollar note, upon a stamp of ten dollars; and every thousand dollar note, upon a stamp of twenty dollars; which paper shall be furnished by the Treasurer of the Western Shore, under the direction of the Governor and Council, to be paid for upon delivery; provided always that any institution of the above description may relieve itself from the operation of the provisions aforesaid by paying annually, in advance, to the Treasurer of the Western Shore, for the use of State, the sum of $15,000."

"And be it enacted that the President, cashier, each of the directors and officers of every institution established or to be established as aforesaid, offending against the provisions aforesaid shall forfeit a sum of $500 for each and every offence, and every person having any agency in circulating any note aforesaid, not stamped as aforesaid directed, shall forfeit a sum not exceeding $100, every penalty aforesaid to be recovered by indictment or action of debt in the county court of the county where the offence shall be committed, one-half to the informer and the other half to the use of the State..."

James William McCulloch, head of the Baltimore Branch of the Second Bank of the United States, refused to pay the tax. The lawsuit was filed by John James, an informer who sought to collect one half of the fine as provided for by the statute. The case was appealed to the Maryland Court of Appeals where the state of Maryland argued that "the Constitution is silent on the subject of banks." It was Maryland's contention that because the Constitution did not specifically state that the federal government was authorized to charter a bank, the Bank of the United States was unconstitutional. The court upheld Maryland. The case was then appealed to the Supreme Court.

Supreme Court decision
The court determined that Congress did have the power to create the Bank. Chief Justice Marshall supported this conclusion with four main arguments. First, he argued that historical practice established Congress' power to create the Bank. Marshall invoked the first Bank of the United States history as authority for the constitutionality of the second bank. The first Congress enacted the bank after great debate and that it was approved by an executive "with as much persevering talent as any measure has ever experienced, and being supported by arguments which convinced minds as pure and as intelligent as this country can boast."

Second, Chief Justice Marshall refuted the argument that states retain ultimate sovereignty because they ratified the constitution. "The powers of the general government, it has been said, are delegated by the states, who alone are truly sovereign; and must be exercised in subordination to the states, who alone possess supreme dominion." Marshall contended that it was the people who ratified the Constitution and thus the people are sovereign, not the states.

Third, Marshall addressed the scope of congressional powers under Article I. The Court broadly described Congress' authority before addressing the necessary and proper clause. Marshall admitted that the Constitution does not enumerate a power to create a central Bank but said that this is not dispositive as to Congress's power to establish such an institution. Chief Justice Marshall wrote, "In considering this question, then, we must never forget, that it is a constitution we are expounding."

Fourth, Marshall supported the Court's opinion textually by invoking the Necessary and Proper Clause, which permits Congress to seek an objective that is within its enumerated powers so long as it is rationally related to the objective and not forbidden by the Constitution. In liberally interpreting the Necessary and Proper clause, the Court naturally rejected Maryland's narrow interpretation of the clause, which purported that the word "necessary" in the necessary and proper clause meant that Congress could only pass those laws which were absolutely essential in the execution of its enumerated powers. The Court rejected this argument, on the grounds that many of the enumerated powers of Congress under the Constitution would be useless if only those laws deemed essential to a power's execution could be passed. Marshall also noted that the Necessary and Proper Clause is listed within the powers of Congress, not the limitations.

The Court held that for these reasons, the word "necessary" in the Necessary and Proper Clause does not refer to the only way of doing something, but rather applies to various procedures for implementing all constitutionally established powers. "Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional."

This principle had been established many years earlier by Alexander Hamilton:

[A] criterion of what is constitutional, and of what is not so ... is the end, to which the measure relates as a mean. If the end be clearly comprehended within any of the specified powers, and if the measure have an obvious relation to that end, and is not forbidden by any particular provision of the Constitution, it may safely be deemed to come within the compass of the national authority. There is also this further criterion which may materially assist the decision: Does the proposed measure abridge a pre-existing right of any State, or of any individual? If it does not, there is a strong presumption in favour of its constitutionality....

Chief Justice Marshall also determined that Maryland may not tax the bank without violating the Constitution. The Court voided the tax on the grounds that it was unconstitutional. The opinion stated that Congress has implied powers that need to be related to the text of the Constitution, but need not be enumerated within the text. This case was a seminal moment in the formation of a balance between federalism, federal power, and states' powers. Chief Justice Marshall also explained in this case that the Necessary and Proper Clause does not require that all federal laws be necessary and proper and that federal laws that are enacted directly pursuant to one of the express, enumerated powers granted by the Constitution need not comply with the Necessary and Proper Clause, holding that the clause "purport[s] to enlarge, not to diminish the powers vested in the government. It purports to be an additional power, not a restriction on those already granted."

Later history
McCulloch v. Maryland was cited in the first substantial constitutional case presented before the High Court of Australia in D'Emden v Pedder (1904), which dealt with similar issues in the Australian Federation. While recognizing American law as not binding on them, the Australian Court nevertheless determined that the McCulloch decision provided the best guideline for the relationship between the Commonwealth federal government, and the Australian States, owing in large part to strong similarities between the American and Australian constitutions.