In Dodge v. Brady, Collector of Internal Revenue (1915), the U.S. Supreme Court ruled on a dispute regarding taxation and stock dividends. The plaintiffs, Marcellus Hartley Dodge and Geraldine Rockefeller Dodge, were shareholders in the Seneca Copper Corporation who received a dividend from their shares in 1909 which they did not include as income for tax purposes. However, the Commissioner of Internal Revenue determined that these dividends constituted taxable income under federal law at that time. The Dodges challenged this decision arguing that such dividends should be considered capital gains rather than ordinary income because they represented an increase in value of their original investment rather than profit earned by the corporation itself. However, the court disagreed with them stating that since these dividends were paid out from profits accumulated by Seneca Copper Corporation after March 1st 1909 - when new tax laws came into effect - they indeed constituted taxable income under those laws regardless whether or not it was distributed to shareholders as cash or additional stocks. Therefore, according to this ruling any distribution made by corporations to its shareholders out of earnings or profits is subject to taxation as gross income unless specifically exempted by law.

In the dissenting opinion for Dodge v. Brady, it was argued that the tax imposed on stock dividends should be considered as income and thus subject to taxation under the 16th Amendment of the U.S. Constitution. The dissenting justices contended that a dividend is essentially an extraction from capital assets which results in individual profit or gain, hence qualifying as taxable income. They further asserted that exempting such dividends from taxation would create an unjust system where only wages and salaries are taxed while profits derived from investments remain untaxed - a situation they deemed unfair and contrary to principles of equity in taxation policy.