In the case of California v. Thompson in 1940, the U.S Supreme Court ruled on a dispute involving state taxation and interstate commerce. The respondent, Thompson Company, was an Iowa corporation that sold nursery stock in several states including California. The company argued that it was not liable for paying taxes to the State of California because its activities were part of interstate commerce and thus exempt from state taxation under federal law. However, the court disagreed with this argument stating that while some aspects of their business could be considered as part of interstate commerce (such as transportation), other parts such as local solicitation and delivery were intrastate activities subject to state regulation and taxation. Therefore, it upheld a decision by lower courts requiring Thompson Company to pay back taxes owed to the State of California.

In the dissenting opinion for California v. Thompson, it was argued that the majority's decision to uphold a state law requiring union membership as a condition of employment violated workers' rights to freedom of association and due process under the Fourteenth Amendment. The dissenting justices believed that such laws unfairly coerced individuals into joining unions against their will, infringing upon their personal liberties. They also contended that these laws were not necessary for maintaining labor peace or preventing free-riding by non-union members, as claimed by supporters of such legislation. Instead, they saw them as an unwarranted intrusion on individual rights and freedoms protected by the Constitution.