In the 1896 case of Bank of Commerce v. Seattle, the U.S. Supreme Court ruled in favor of the city of Seattle, upholding its right to tax national banks based on their capital and surplus funds held within city limits. The Bank of Commerce had challenged this taxation as unconstitutional under federal law which exempted national banks from local taxes except for those levied upon real estate or personal property such as furniture and fixtures located within a state's jurisdiction. However, the court determined that while states could not impose taxes on these institutions directly due to their federal charter, they were allowed to do so indirectly by taxing shareholders' interests in proportion with bank-held assets situated locally - including capital stock and surplus funds.

In the dissenting opinion for Bank of Commerce v. Seattle, it was argued that the taxation imposed by the city of Seattle on banks should not be considered unconstitutional. The dissenting justices contended that there is no provision in either federal or state law which exempts national banks from local taxation. They further asserted that such taxes do not interfere with any functions performed by these institutions under federal laws and regulations, nor do they impede their operations or effectiveness in any way. Therefore, according to this viewpoint, municipalities like Seattle have every right to levy taxes on national banking associations operating within their jurisdictions as a means of generating revenue for public services and infrastructure improvements.