One of Chief Justice John Marshall's landmark decisions came in the Supreme Court case of McCulloch v. Maryland (1819). The case involved a dispute between a state bank and a federal bank. The origin of the dispute was in a disagreement over the Constitution's "Necessary and Proper" Clause and how it should be interpreted in practice. From Article I, Section 8: "The Congress shall have Power ... To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."

Alexander Hamilton and other Federalists supported a Bank of the United States, a federal organization that would assume all state debts from the Revolutionary War and would provide a national currency for the new young nation. Thomas Jefferson and other Democratic-Republicans thought that such a bank would be dominated by northern aristocrats and so opposed it. The dispute quieted down when the agreement was hammered out to move the nation's capital to a more southern location, what is now Washington, D.C., and the First Bank of the United States came into being. That bank had a limited tenure, and eventually Congress established the Second Bank of the United States, in 1816. This was too much for the Democratic-Republicans, who objected again.

Meanwhile, the Second Bank of the United States established a branch in Baltimore, the capital of the state of Maryland. Soon after, Maryland passed a law that imposed a tax on all banks that were operating within Maryland state borders without having a charter approved by the state government. In practice, this was only the Baltimore branch of the Second Bank of the United States. James McCulloch, the cashier of the federal bank Baltimore branch, issued federal bank notes without paying the Maryland state tax. The State of Maryland sued McCulloch for not paying the tax, and the state Court of Appeals ruled that McCulloch had broken Maryland state law. McCulloch appealed to the U.S. Supreme Court, which took the case.

The Supreme Court had, in 1816, in Martin v. Hunter's Lessee, ruled that the Court itself could, in essence, overrule the decisions of state courts. This was an extension of the principle of a pre-eminent federal government espoused by Marshall in Marbury v. Madison. (Justice Joseph Story wrote the Martin opinion, however, because Marshall had removed himself from considering the case because of a financial conflict of interest.)

The issues before the Supreme Court in McCulloch v. Maryland were these: Could a state government tax a federal entity, and did the Constitution grant the federal government the power to open a national bank?

Writing for the Court, Marshall answered no and yes, respectively, reiterating the Martin decision to deny the State of Maryland's tax on the federal bank and then, to answer the second question, finding within the Necessary and Proper Clause an "implied power" of the federal government to create a national bank. This doctrine of "implied powers" would come to be cited many times throughout the history of the Supreme Court. This was another victory at the Supreme Court for Daniel Webster.