In the 1919 case of Cincinnati, Covington & Erlanger Railway Company v. Commonwealth of Kentucky, the U.S. Supreme Court ruled in favor of the state of Kentucky. The railway company had challenged a tax imposed by Kentucky on all freight carried into or out of the state via its railways, arguing that it violated both their due process rights and constituted an undue burden on interstate commerce under federal law. However, Justice Mahlon Pitney delivered a unanimous opinion rejecting these arguments and upholding the tax as constitutional. The court found that states have broad powers to levy taxes for public purposes and this did not infringe upon federal authority over interstate commerce nor violate any fundamental fairness principles inherent in due process protections.

In the dissenting opinion for Cincinnati, Covington & Erlanger Railway Company v. Commonwealth of Kentucky, Justice Holmes argued that the state's power to regulate rates should not be unlimited and must respect constitutional protections against confiscation. He disagreed with the majority's view that a company could still make reasonable profits even if individual parts of its operations were unprofitable due to rate regulation. Instead, he believed this approach violated the Fourteenth Amendment by depriving companies of their property without just compensation. Furthermore, he contended that courts should have more authority in determining whether regulated rates are fair and reasonable rather than deferring entirely to legislative judgment as long as it is not manifestly unjust or unreasonable.