In the case of Chicago, Milwaukee and St. Paul Railway Company v. State of Iowa in 1913, the U.S Supreme Court ruled that states have the authority to regulate railroad rates within their borders as long as they do not interfere with interstate commerce or violate federal laws. The railway company had challenged an order by the Iowa Railroad Commission reducing freight rates on intrastate shipments arguing it was confiscatory and violated its rights under both state law and Fourteenth Amendment's due process clause. However, Justice Oliver Wendell Holmes Jr., writing for a unanimous court, rejected these arguments stating that railroads are public utilities subject to regulation in public interest; hence rate-setting did not constitute taking property without due process of law.

In the dissenting opinion for the case of Chicago, Milwaukee and St. Paul Railway Company v. State of Iowa, it was argued that the state's regulation over railway rates violated the Commerce Clause by interfering with interstate commerce. The dissenting justices believed that states should not have authority to regulate rates on railroads because they are instruments of interstate commerce and therefore fall under federal jurisdiction according to Article I, Section 8 of Constitution which gives Congress power “to regulate Commerce with foreign Nations, and among several States.” They contended that allowing each state to set its own railroad rates could lead to a chaotic system where different states impose conflicting regulations on railroads operating across multiple jurisdictions. This would disrupt smooth operation of national transportation network necessary for economic development in United States as well as undermine uniformity in regulatory standards essential for fair competition among businesses involved in interstate trade.