NEW JERSEY v. WILSON 7 Cranch 164 (1812)

This case was the vehicle by which the Supreme Court made a breathtaking expansion of the contract clause. In the colonial period New Jersey had granted certain lands to an Indian tribe in exchange for a waiver by the Indians of their claim to any other lands. The grant provided that the new lands would be exempt from taxation in perpetuity. In 1801, over forty years later, the Indians left the state after selling their lands with state permission. The legislation repealed the tax exemption statute and assessed the new owners, who challenged the constitutionality of the repeal act.

A unanimous Supreme Court, overruling the state court, held that the grant of a tax immunity was a contract protected by the contract clause. By some species of metaphysics the Court reasoned that the tax immunity attached to the land, not to the Indians, and therefore the new holders of the land were tax exempt. Chief Justice john marshall's opinion, voiding the state tax, gave a retroactive operation to the contract clause; the grant of tax immunity predated the clause by many years. More important, Marshall ignored the implications of his doctrine that such a grant was a contract. According to this decision, a state, by an act of its legislature, may contract away its sovereign power of taxation and prevent a successive legislature from asserting that power. The doctrine of vested rights, here converted into a doctrine of tax immunity, handicapped the revenue capabilities of the states, raising grave questions about the policy of the opinion. As a matter of political or constitutional theory, the Court's assumption that an attribute of sovereignty can be surrendered by a legislative grant to private parties or to their property was, at the least, dubious. Although Marshall restricted the states, he allowed them to cede tax powers by contract rather than thwart the exercise of those powers on rights vested by contract.

The growth of corporations revealed the significance of the new doctrine of tax immunity. States and municipalities, eager to promote the establishment of banks, factories, turnpikes, railroads, and utilities, often granted corporations tax immunity or other tax advantages as an inducement to engage in such enterprises, and the corporations often secured their special privileges by corrupt methods. This case permitted the granting of tax preferences and constitutionally sanctioned political corruption and the reckless development of economic resources. But permission is not compulsion; the legislatures, not the judiciary, granted the contracts. The Court simply extended the contract clause beyond the intentions of its framers to protect vested rights and promote business needs.

Leonard W. Levy
(1986)