Osborn v. Bank of the United States
Osborn v. The United States was a legal case heard by the United State Supreme Court that affirmed the McCulloch v Maryland decision and prohibited states from taxing instruments of the federal government.
In 1819, the United States economy was in a serious economic downturn. This event was known as the Panic of 1819. It partially resulted from the Bank of the United States, as well as state and local banks, extending credit to too many people. These people primarily used the loans to purchase federal land in the American West. As the economic downturn worsened, the Bank of the United States continued to demand repayment for loans. The various banks' actions resulted in the Banking Crisis of 1819.
As a result of the Bank of the United States' actions, money became scarce, making it even more difficult for people to pay their debts. Several states, including Maryland and Ohio, implemented taxes on the National Bank of the United States. These states hoped that, by taxing the banks, money would then enter the grasp of state governments. The state governments could then make loans to their citizens, thus relieving the money shortage. In 1819, the case of McCulloch v. Maryland reached the United States Supreme Court. Maryland had created a tax on the National Bank's branch in Baltimore, Maryland. Although the federal government had the power to tax state and private banks, the federal government contended that states could not tax the Bank of the United States. The Supreme Court agreed with the federal government's position, contending that the federal government and its institutions were superior to the state governments. Chief Justice John Marshall believed that "The power to tax is the power to destroy." In other words, if the states could tax the federal government, the states had the power to destroy the federal government.
Ohio implemented its own tax against the Bank of the United States in 1819. In 1819, there were two branches of the National Bank in Ohio -- one at Cincinnati and the other at Chillicothe. The tax law authorized the State of Ohio to seize fifty thousand dollars from each branch. On September 17, 1819, the Ohio Auditor, Ralph Osborn, authorized the seizure of 100,000 dollars from the Chillicothe branch. The tax agents actually seized 120,000 dollars from the bank. Osborn promptly returned the extra twenty thousand dollars.
The Bank of the United States sued Osborn for the return of the additional 100,000 dollars. The federal government contended that Osborn violated a court order prohibiting him from taxing the Bank of the United States. Osborn claimed that he was not properly served with the court order. The federal circuit court ruled in favor of the National Bank, and federal marshals immediately seized 98,000 dollars from the Ohio treasury. Osborn had paid his tax agents two thousand dollars for collecting the tax, and this money still remained in dispute. In 1824, the case reached the United States Supreme Court. In Osborn v. Bank of the United States, the Supreme Court ruled in favor of the National Bank. Ohio returned the two thousand dollars still in dispute.