Smith v. Kansas City Title & Trust Co.
255 U.S. 180 · Supreme Court of the United States · 1921
Facts
A shareholder sought to enjoin the Kansas City Title & Trust Company from investing in farm loan bonds issued under the Federal Farm Loan Act, alleging the act was unconstitutional. The company intended to invest, relying on the act's provisions, including tax exemption for the bonds. The District Court dismissed the shareholder's bill.
Issue
Did Congress exceed its constitutional power by enacting the Federal Farm Loan Act, which created Federal Land Banks and Joint Stock Land Banks, and by declaring their issued farm loan bonds to be tax-exempt instrumentalities of the United States government?
Holding
The Supreme Court affirmed the District Court's dismissal, holding that the Federal Farm Loan Act was a constitutional exercise of Congress's power and that the farm loan bonds were legally exempt from taxation.
Rule
Congress has the implied power under the Necessary and Proper Clause to create corporations and instrumentalities, such as banks, to carry into execution its enumerated powers, even if they also serve private interests. This power includes the authority to exempt such instrumentalities and their securities from federal and state taxation, as the power to tax implies the power to destroy.
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