Piqua Branch of the State Bank of Ohio v. Knoop 16 Howard 369 (1854)
PIQUA BRANCH OF THE STATE BANK OF OHIO v. KNOOP 16 Howard 369 (1854)
in new jersey v. wilson (1812) the Supreme Court had held that a state grant of a tax immunity was a contract within the protection of the contract clause. In this case Ohio chartered a bank with the proviso that six percent of its net profits would be taxed in lieu of other taxation. The states competed with each other to entice private business to settle within their borders on the supposition that the more banks, railroads, and factories a state had, the greater would be its prosperity. Special privileges to corporations were common, and they often wrote their own charters. Ohio, gripped by an anticorporate movement, reneged by passing an act to tax banks at the same rate as other properties. The bank refused to pay the new tax on the ground that its charter was a contract the obligation of which had been impaired by the tax. (See obligation of contracts.) By a vote of 6–3 the Supreme Court invalidated the tax. To the contention that the power to tax was an inalienable attribute of sovereignty, which could not be contracted away, the Court replied that the making of a public contract is an exercise of sovereignty. To the argument that one legislature, by granting a charter of tax immunity, could not bind its successors, the Court replied that the contract clause made the charter binding. In effect the Court cautioned the states to govern wisely, because the Court would not shield them from their imprudence if it took the form of contracts. Corporations throughout the country profited enormously.
Leonard W. Levy