Article VI, Clause 2:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Federal instrumentalities and agencies have never enjoyed the same degree of immunity from state police regulation as from state taxation. The Court has looked to the nature of each regulation to determine whether it is compatible with the functions committed by Congress to the federal agency. This problem has arisen most often with reference to the applicability of state laws to the operation of national banks. Two correlative propositions have governed the decisions in these cases. The first was stated by Justice Miller in National Bank v. Commonwealth. 1
[National banks] are subject to the laws of the State, and are governed in their daily course of business far more by the laws of the State than of the nation. All their contracts are governed and construed by State laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on State law. It is only when the State law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional. 2 In Davis v. Elmira Savings Bank, 3 the Court stated the second proposition thus:
National banks are instrumentalities of the Federal government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt, by a State, to define their duties or control the conduct of their affairs is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the Federal government to discharge the duties, for the performance of which they were created. 4
Similarly, a state law, insofar as it forbids national banks to use the word
savings in their business and advertising, is void because it conflicts with the Federal Reserve Act's authorizing such banks to receive savings deposits. 5 However, federal incorporation of a railroad company of itself does not operate to exempt it from control by a state as to business consummated wholly within the state. 6 Also, Treasury Department regulations, designed to implement the federal borrowing power (Art. I, § 8, cl. 2) by making United States Savings Bonds attractive to investors and conferring exclusive title thereto upon a surviving joint owner, override contrary state community property laws whereunder a one-half interest in such property remains part of the estate of a decedent co-owner. 7 Similarly, the Patent Office's having been granted by Congress an unqualified authorization to license and regulate the conduct throughout the United States of nonlawyers as patent agents, a state, under the guise of prohibiting unauthorized practice of law, is preempted from enjoining such activities of a licensed agent as entail the rendering of legal opinions as to patentability or infringement of patent rights and the preparation and prosecution of application for patents. 8
The extent to which states may regulate contractors who furnish goods or services to the Federal Government is not as clearly established as is the states’ right to tax such dealers. In 1943, a closely divided Court sustained the refusal of the Pennsylvania Milk Control Commission to renew the license of a milk dealer who, in violation of state law, had sold milk to the United States for consumption by troops at an army camp located on land belonging to the state, at prices below the minimum established by the Commission. 9 The majority was unable to find in congressional legislation, or in the Constitution, unaided by congressional enactment, any immunity from such price fixing regulations. On the same day, a different majority held that California could not penalize a milk dealer for selling milk to the War Department at less than the minimum price fixed by state law where the sales and deliveries were made in a territory which had been ceded to the Federal Government by the state and were subject to the exclusive jurisdiction of the former. 10 On the other hand, by virtue of its conflict with standards set forth in the Armed Services Procurement Act, 41 U.S.C. § 152, for determining the letting of contracts to responsible bidders, a state law licensing contractors cannot be enforced against one selected by federal authorities for work on an Air Force base. 11
Most recently, the Court has done little to clarify the doctrinal difficulties. 12 The Court looked to a
functional analysis of state regulations, much like the rule covering state taxation.
A state regulation is invalid only if it regulates the United States directly or discriminates against the Federal Government or those with whom it deals. 13 In determining whether a regulation discriminates against the Federal Government,
the entire regulatory system should be analyzed. 14