In the case of Carpenter et al. v. Shaw, State Auditor of Oklahoma (1929), the U.S Supreme Court ruled that a state cannot tax income derived from restricted Indian lands. The plaintiffs were members of the Choctaw and Chickasaw tribes who had received allotments under treaties with the United States government which exempted them from taxation until Congress decided otherwise. Despite this, Oklahoma's auditor imposed an income tax on their earnings from oil leases on these lands. The court held that such taxation was not within a state’s power as it interfered with federal policy regarding Native American affairs and violated treaty rights between tribal nations and the U.S government.

In the dissenting opinion for Carpenter et al. v. Shaw, Justice Butler argued that the majority's decision was inconsistent with previous rulings and violated principles of sovereignty. He contended that Congress did not have authority to impose a tax on tribal members' income derived from restricted lands because these tribes were sovereign entities under federal protection. Furthermore, he believed this taxation infringed upon their rights as U.S citizens since they had no representation in Oklahoma's government due to being non-residents of the state where they earned their income. Therefore, according to Justice Butler, such taxation constituted an unlawful act against both individual and tribal rights protected by law.