In the 1920 case of Galveston, Harrisburg & San Antonio Railway Company v. Woodbury et al., the U.S Supreme Court was tasked with determining whether a state could impose taxes on railroad companies for land they leased from the federal government. The railway company argued that since it had leased this land from the federal government, Texas did not have jurisdiction to tax it. However, Texas countered that as long as the property was within its borders and used for private commercial purposes by a corporation doing business in Texas, it had every right to levy taxes on such property regardless of who owned it. The court sided with Texas stating that while states cannot interfere with federal operations or properties used for governmental purposes, they can tax corporations using federally-owned lands for their own private gain.

In the dissenting opinion for Galveston, Harrisburg & San Antonio Railway Company v. Woodbury et al., Justice Holmes argued that the majority's decision was inconsistent with previous rulings of the Court and violated principles of federalism. He contended that Texas law should govern in this case because it involved a dispute over land within its borders. According to him, there was no compelling reason for federal common law to supersede state law in such matters. Furthermore, he disagreed with the majority's interpretation of an 1873 Act of Congress as granting rights-of-way through public lands not only for railroad tracks but also telegraph lines; instead, he believed these were separate issues requiring distinct legislative authorization. In his view, by extending federal authority beyond its proper scope and disregarding local laws without sufficient justification, the Court undermined states' sovereignty and upset constitutional balance between national and state powers.