In the case of Edwards, Former Collector v. Cuba Railroad Company (1924), the U.S. Supreme Court ruled in favor of the Cuba Railroad Company, stating that it was not liable for taxes imposed by a former collector under Section 2 of The War Revenue Act of June 13, 1898. This act required corporations and joint stock companies to pay an annual tax on their gross receipts over $250,000 but excluded those whose entire business was conducted outside the United States from this requirement. The court determined that although incorporated in Connecticut, since all operations and income sources were located within Cuba's jurisdiction - including tracks, equipment and personnel - its business activities were entirely foreign-based; thus exempting it from taxation under this law. Furthermore, they clarified that federal laws do not apply extraterritorially unless expressly stated or clearly implied.

The dissenting opinion in the Edwards v. Cuba Railroad Company case argued that the majority's decision was inconsistent with previous rulings and principles of international law. The dissent believed that a foreign corporation operating within U.S territory should not be exempt from paying taxes on income derived from sources outside of its home country, as this would create an unfair advantage over domestic corporations who are required to pay such taxes. They also contended that it is irrelevant whether or not the foreign government imposes similar tax obligations on their own companies; what matters is how U.S law treats these entities when they operate within its jurisdiction. Furthermore, they disagreed with the majority's interpretation of "source," arguing instead for a broader understanding which includes both physical location and economic activities generating income.