In the case of City of New York v. Saper, Trustee in Bankruptcy (1948), the U.S Supreme Court ruled that a bankruptcy trustee could not use federal law to avoid paying taxes owed by a bankrupt estate to a state or local government. The court held that while federal law allows trustees to void certain types of payments made by an insolvent debtor prior to declaring bankruptcy, this power does not extend to tax claims from states and municipalities. This decision was based on principles of federalism and respect for state sovereignty, with the court noting that allowing trustees such broad powers would interfere with states' abilities to manage their own finances and collect revenue. Therefore, even though other creditors might have their claims reduced or eliminated through bankruptcy proceedings, tax authorities retain their right to full payment.

In the dissenting opinion for the case City of New York v. Saper, Trustee in Bankruptcy, Justice Frankfurter argued that bankruptcy courts should not have jurisdiction over tax claims by states and municipalities. He believed that such matters were better left to state courts due to their expertise in local law and policy considerations. Furthermore, he contended that Congress did not intend for federal bankruptcy laws to interfere with a state's ability to collect its own taxes when it enacted these laws. Therefore, he disagreed with the majority's decision allowing a trustee in bankruptcy to challenge a city's tax claim on behalf of an insolvent debtor under federal law.