In the case of Bank of Kentucky v. Commonwealth of Kentucky in 1907, the Supreme Court ruled on a dispute involving taxation. The Bank of Kentucky had been chartered by an act that exempted it from any taxes other than those specifically mentioned in its charter. However, when the state imposed additional taxes on all banks operating within its borders, including the Bank of Kentucky, this led to a legal challenge. The bank argued that these new taxes violated their charter and were therefore unconstitutional under contract clause protections against laws impairing contractual obligations. The Supreme Court disagreed with this argument and upheld the validity of these additional taxations by ruling in favor of Commonwealth (State) Of Kentucky. It held that states have broad powers to regulate businesses such as banks for public welfare purposes even if they are incorporated entities with certain privileges granted through charters or contracts with government bodies. This decision affirmed states' rights to impose regulations and levies on corporations despite existing agreements or exemptions unless explicitly prohibited by federal law or constitutionally protected rights.

In the dissenting opinion for Bank of Kentucky v. Commonwealth of Kentucky, Justice Harlan argued that the majority's decision was a departure from established principles governing relations between states and corporations. He contended that a state has no power to tax property located outside its jurisdiction or to regulate transactions occurring beyond its borders. The justice further asserted that it is not within a state's authority to impose taxes on shares held by non-residents in national banks situated outside their territory. In his view, such an act would be tantamount to extraterritorial taxation which is fundamentally inconsistent with the federal structure of government under the Constitution. Therefore, he disagreed with the majority’s ruling upholding Kentucky’s right to tax shares owned by Kentuckians in out-of-state banks.