" Farmers Mechanics Bank v. Minnesota (1914), 232 U.S. 516, held that a State cannot tax bonds issued by a territory of the United States; that a tax upon the bonds is a tax on the government issuing them; that such a tax, if allowed at all, may be carried to an extent that will entirely arrest governmental operations. The Court rested that decision upon M'Culloch v. Maryland, saying (p. 521): "The principle has never since been departed from, and has often been reasserted and applied."Choctaw, O. G.R. Co. v. Harrison (1914), 235 U.S. 292, held that, where by agreement with an Indian tribe the United States assumed a duty in regard to operation of coal mines, the lessees of the mines were instrumentalities of the government and could not be subjected to a state occupation or privilege tax.Indian Territory Oil Co. v. Oklahoma (1916), 240 U.S. 522, held that oil leases in Oklahoma made by the Osage tribe were under the protection of the Federal Government; that the corporation owning the leases was a federal instrumentality and that therefore

The effect of § 245(a)(2) is to tax the income from tax-free securities. Northwestern Mutual Life Ins. Co. v. Wisconsin, 275 U.S. 136; Evans v. Gore, 253 U.S. 245; Farmers Bank v. Minnesota, 232 U.S. 516; Miller v. Milwaukee, 272 U.S. 713. A chronological review of authorities condemns the plan embraced in § 245(a)(2).

"With regard to taxation, no matter how reasonable, or how universal and undiscriminating, the State's inability to interfere has been regarded as established since McCulloch v. Maryland, 4 Wheat. 316. The decision in that case was not put upon any consideration of degree but upon the entire absence of power on the part of the States to touch, in that way at least, the instrumentalities of the United States; 4 Wheat. 429, 430; and that is the law today. Farmers Mechanics Savings Bank v. Minnesota, 232 U.S. 516, 525, 526."

The judgment contravenes § 8 of Art. I of the Federal Constitution because it inevitably results in denying the exemption of the bonds. Farmers Bank v. Minnesota, 232 U.S. 516; Northwestern Mut. Life Ins. Co. v. Wisconsin, 275 U.S. 136; Miller v. Milwaukee, 272 U.S. 713; National Life Ins. Co. v. United States, 277 U.S. 508; Waco v. Amicable Life Ins. Co., 230 S.W. 698, 248 S.W. 332. One of the necessary results of the method of calculating the net taxable assets is in effect to tax a portion of the deductible legal reserve. It subjected the relator's property to greater burdens because it owned some that was free from taxation.

By far the greater number of cases dealing with the implied prohibition of the exercise of the States' taxing power with respect to federal instrumentalities have dealt with the taxation by the State of property interests in active use in accomplishing a decided federal purpose. McCulloch v. Maryland, 4 Wheat. 316; Home Savings Bank v. Des Moines, 205 U.S. 503; Farmers Bank v. Minnesota, 232 U.S. 516; Smith v. Kansas City Title Trust Co. 255 U.S. 180; Clallam County v. United States, 263 U.S. 341; First Nat. Bank v. Anderson, 269 U.S. 341; Northwestern Mut. Life Ins. Co. v. Wisconsin, 275 U.S. 136. It can hardly be said that the patentee is in any sense an agent of the Federal Government, yet even if he were such an agent, he could be taxed with respect to the property employed by him as such an agent so long as no governmental function performed by him was taxed.

Beginning with McCulloch v. Maryland, 4 Wheat. 316, it has been consistently held that a State could not tax the instrumentalities of the United States, whatever their character. Allen v. The Assessors, 3 Wall. 573; Farmers' c. Bank v. Minnesota, 232 U.S. 516; Smith v. Kansas City Title Trust Co., 255 U.S. 180; Federal Land Bank v. Crosland, 261 U.S. 374. A tax on persons passing through a State cannot be imposed on officers of the United States in the performance of their duties, Crandall v. Nevada, 6 Wall. 40; and a tax on persons engaged in sending telegraph messages which makes no exemption in favor of official messages of the United States is unconstitutional. Williams v. Talladega, 226 U.S. 404. A State cannot tax the franchise of a transcontinental railroad company chartered by Congress, California v. Central Pacific R.R., 127 U.S. 1; nor lands in possession of an Indian tribe, New York Indians, 5 Wall. 761; Choate v. Trapp, 224 U.S. 665; nor the income derived from such lands by a lessee, Gillespie v. Oklahoma, 257 U.S. 501. Both the United States and the States are free to select such instrumentalities as they see fit. McCulloch v. Maryland, 4 Wheat. 316; South Carolina v. United States, 199 U.S. 437; Osborn v. United States Bank

In many cases corporations have been held to be instrumentalities of the Federal Government and, as such, exempt from even the great reserved powers of the States. Farmers' Mechanics' National Bank v. Dearing, 91 U.S. 29, 33, 34; Easton v. Iowa, 188 U.S. 220, 230, 237; Farmers Mechanics Savings Bank v. Minnesota, 232 U.S. 516, 524, 525; Choctaw, Oklahoma Gulf R.R. Co. v. Harrison, 235 U.S. 292, 298; Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U.S. 522, 530; Bank of California v. Richardson, 248 U.S. 476, 483; Smith v. Kansas City Title Trust Co., 255 U.S. 180. In none of them did the relation of the instrumentality to the execution of federal powers begin to approach in directness or in exclusiveness of purpose the immediate relation of the Fleet Corporation to the exercise of Congress's power to declare war and regulate commerce.

If the taxing power of the State may not be exerted over federal operations and instrumentalities because of the supremacy of the Federal Government in the field of its constitutional authority, then obviously and for the same reason is the State forbidden to exert any regulative control. Ohio v. Thomas, 173 U.S. 276, 283; Flaherty v. Hanson, 215 U.S. 515; In re Neagle, 135 U.S. 1; Pembina Mining Co. v. Pennsylvania, 125 U.S. 181, 186; In re Waite, 81 F. 359; Farmers Mechanics Savings Bank v. Minnesota, 232 U.S. 516, 526; Boske v. Comingore, 177 U.S. 459; Williams v. Talladega, 226 U.S. 404; United States v. Ansonia Co., 218 U.S. 452; Holmes v. Jennison, 14 Pet. 540; In re Loney, 134 U.S. 372; Western Union Telegraph Co. v. Brown, 234 U.S. 542. If the State possesses power to determine qualifications of plaintiff in error, then it likewise possesses power to levy a tax upon him for revenue or other purposes.

Decided November 30, 1914. A Federal instrumentality acting under Congressional authority cannot be subjected to an occupation or privilege tax by a State. Farmers' Bank v. Minnesota, 232 U.S. 516. Where the agreement between the Government and an Indian tribe imposes upon the Government a definite duty in regard to operation of coal mines, as is the case with the Choctaw and Chickasaw agreement of April 23, 1897, lessees of the mines are the instrumentalities through which the obligation of the United States is carried into effect, and they cannot be subjected to an occupation or privilege tax by the State in which the mines are located. Neither state courts nor legislatures, by giving a tax a particular name, can take from this court its duty to consider its real nature and effect.

In the absence of such an exclusion, such a tax is regarded in effect as being a tax on the federal securities. Missouri, ex rel. Missouri Ins. Co. v. Gehner, Assessor, supra; Farmers and Mechanics Savings Bank of Minneapolis v. Minnesota, 232 U.S. 516, 58 L. Ed., 706, 34 S. Ct., 354; and New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, 338 U.S. 665, 94 L. Ed., 439, 70 S. Ct., 413. 3.