In the 1941 case of Butler Brothers v. McColgan, Franchise Tax Commissioner of California, the U.S. Supreme Court was tasked with determining whether a state could impose an income tax on an out-of-state corporation for sales made within that state by independent contractors. The court ruled in favor of California's right to do so. Butler Brothers, a mail-order company based in Illinois and Minnesota, argued that it did not have sufficient presence or "nexus" in California to warrant taxation there despite having salespeople operating independently within the state who took orders from customers and sent them directly to Butler Brothers for fulfillment. However, the Supreme Court held that these activities constituted enough business activity within California to justify its imposition of taxes on profits derived from those activities under both Due Process Clause and Commerce Clause principles.

In the dissenting opinion for Butler Brothers v. McColgan, Justice Frank Murphy argued that California's imposition of a franchise tax on an Illinois-based corporation with business operations in California was unconstitutional. He contended that the state had overstepped its jurisdiction by taxing income derived from interstate commerce and property located outside its borders. According to him, this violated both the Due Process Clause and Commerce Clause of the U.S Constitution as it subjected businesses to multiple taxation risks and created barriers to free trade among states. Furthermore, he believed that such practices could lead to economic retaliation between states which would undermine national unity.