In the case of Davis, Director General of Railroads, et al. v. Wallace et al., 1921, the U.S Supreme Court was tasked with determining whether a state could impose taxes on federally controlled railroad properties during World War I. The federal government had taken control over railroads for wartime purposes under President Woodrow Wilson's administration and argued that these properties should be exempt from state taxation due to their federal status. However, Alabama officials disagreed and sought to tax them as they would any other property within the state’s jurisdiction. The court ruled in favor of Alabama by upholding its right to levy taxes on these properties despite their temporary federal control. It reasoned that while the Federal Government was operating the railroads at this time period, it did not own them; hence they were still subject to local taxation laws just like any privately-owned property would be. This decision affirmed states' rights in matters concerning taxation and set an important precedent regarding how far-reaching federal powers can extend into areas traditionally governed by individual states.

In the dissenting opinion for Davis, Director General of Railroads v. Wallace et al., Justice McReynolds argued that the majority's decision was a misinterpretation of the Federal Control Act. He believed that Congress did not intend to give railroad companies immunity from state laws when it passed this act during World War I. Instead, he suggested that Congress only wanted to ensure these companies could continue operating efficiently during wartime without being hindered by conflicting state regulations or litigation. Therefore, in his view, states should still have been able to enforce their own laws regarding issues like taxation and workers' compensation against federally controlled railroads unless those laws directly conflicted with federal control measures or objectives.