The Supreme Court has repeatedly held, that the National Government “cannot exercise its power of taxation so as to destroy the state governments or embarrass their lawful action."[1] In the case of California vs.  Central Pacific R.R.  Co.[2] the question was whether franchises granted to the Central Pacific Railroad Company by the United States were legitimate subjects of taxation by the State of California.  The Supreme Court, in language frequently quoted in subsequent cases, discusses the nature and origin of franchises, concluding that a franchise is “a right, privilege, or power of public concern” existing and exercised by legislative authority.  After enumerating various kinds of franchises, the Court remarks:  “No persons can make themselves a body corporate and politic without legislative authority.  Corporate capacity is a franchise.”  The Court continues: 

In view of this description of the nature of a franchise, how can it be possible that a franchise granted by Congress can be subject to taxation by a state without the consent of Congress?  Taxation is a burden and may be laid so heavily as to destroy the thing taxed or render it valueless.  As Chief Justice Marshall said in McCulloch v.  Maryland, “The power to tax involves the power to destroy."...  It seems to us almost absurd to contend that a power given to a person or corporation by the United States may be subjected to taxation by a state.  The power conferred emanates from and is a portion of the power of the government that confers it.  To tax it is not only derogatory to the dignity but subversive of the powers of the government, and repugnant to its paramount sovereignty.

[Footnote 1:  Railroad Company v.  Peniston, 18 Wall., 5, 30.]

[Footnote 2:  127 U.S., 1.]

It is true that the Court was here discussing the right of a state to tax franchises granted by the United States, and not the converse of that question.  The reasoning of the Court would seem, however, to apply with equal force to the right of the United States to tax a franchise granted by a state acting within the scope of its sovereign authority.

Patent rights and copyrights are special privileges or franchises granted by the sovereign or government, and under the United States Constitution the right to grant patents and copyrights is expressly conferred on Congress.  It has been held repeatedly that patent rights and copyrights are not taxable by the states[1].  As said by the New York Court of Appeals in a case involving the power of the state to tax copyrights:[2]

To concede a right to tax them would be to concede a power to impede or burden the operation of the laws enacted by Congress to carry into execution a power vested in the National Government by the Constitution.

[Footnote 1:  People ex rel.  Edison, &c., Co., v.  Assessors, 156 N.Y., 417; People ex rel. v.  Roberts, 159 N.Y., 70; In Re Sheffield, 64 Fed.  Rep., 833; Commonwealth v.  Westinghouse, &c., Co., 151 Pa., 265.]