In the Clayton Chemical & Packaging Co. v. United States case of 1965, the Supreme Court ruled in favor of the U.S government regarding a tax dispute with Clayton Chemical & Packaging Company. The company had claimed deductions for federal income tax purposes based on payments it made to its president and majority shareholder, arguing that these were ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 1954. However, both lower courts and ultimately the Supreme Court disagreed with this interpretation. The court found that these payments were not deductible as they constituted dividends rather than salary or compensation for services rendered by an employee to his employer corporation. This was due to their disproportionate size relative to services provided by him and because they depended upon earnings instead of being fixed amounts irrespective of profits earned by the corporation. This decision underscored that while corporations can deduct reasonable allowances for salaries or other compensation paid out as part of conducting business from their taxable income, such deductions cannot be used as a means to distribute corporate profits without subjecting them to taxation.

In the dissenting opinion for Clayton Chemical & Packaging Co. v. United States, it was argued that the majority's decision to uphold a tax assessment against Clayton Chemical was incorrect because it failed to consider important aspects of the case. The dissenting justices believed that there were significant factual disputes about whether or not certain transactions constituted "sales" under Section 3443(a)(2) of the Internal Revenue Code and therefore should be subject to excise taxes. They also disagreed with how the majority interpreted this section, arguing that their interpretation expanded its scope beyond what Congress intended when they enacted it into law. Furthermore, they contended that even if these transactions did constitute sales as defined by this section, they would still be exempt from taxation under another provision in the code which exempts sales made for exportation from excise taxes.