In the 1898 case of Bellingham Bay & British Columbia Railroad Company v. New Whatcom, the U.S. Supreme Court was asked to determine whether a city in Washington state had the right to tax railroad property that was granted by Congress and used for railway purposes. The City of New Whatcom levied taxes on land owned by Bellingham Bay & British Columbia Railroad Company, arguing that it could do so because the company's charter allowed taxation if it did not interfere with its operations or profitability. However, the railroad company argued this violated their federal rights as they were exempt from local and state taxation due to an Act of Congress which provided them with these lands specifically for railway use. The court ruled in favor of New Whatcom, stating that while there are certain exemptions from local taxation given under acts granting subsidies in lands to railroads companies; such exemption does not extend beyond what is necessary for achieving objectives related directly towards construction and maintenance of railways. Therefore, any surplus land held by a railroad corporation can be subjected to state or municipal taxation without infringing upon any federal authority.

In the dissenting opinion for Bellingham Bay & British Columbia Railroad Company v. New Whatcom, it was argued that the majority's decision to uphold a tax imposed on railroad property by local authorities in Washington state was incorrect. The dissenting justices believed that this ruling violated federal law, which exempted federally granted lands from taxation until they were sold or occupied. They contended that since the land in question had been given to the railroad company by Congress and remained unsold and unoccupied, it should not be subject to local taxes. Furthermore, they expressed concern about potential negative impacts of such taxation on future federal land grants for public purposes like railroads or highways.