In the case of Graves v. Minnesota, 1926, the U.S Supreme Court was asked to determine whether a state law that taxed income from federal securities held by residents violated the Constitution's intergovernmental tax immunity doctrine. The appellant argued that such taxation infringed upon federal sovereignty and thus contravened this doctrine. However, in its decision, the court upheld Minnesota’s right to impose taxes on income derived from federal securities owned by its citizens. It ruled that there was no constitutional prohibition against such taxation as long as it did not discriminate against holders of these securities or interfere with any governmental function. This ruling effectively limited the scope of intergovernmental tax immunity and affirmed states' rights to levy taxes within their jurisdiction without infringing upon federal authority.

In the dissenting opinion for Graves v. Minnesota, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was a departure from established precedent and an overreach of judicial power. He contended that there was no constitutional basis to strike down a state tax on income derived from federal securities, as it did not infringe upon any specific provision in the Constitution nor interfere with federal operations or powers. Holmes asserted that this case should have been decided based on principles of intergovernmental tax immunity previously upheld by the Court; he believed states had inherent authority to levy taxes unless explicitly prohibited by law or constitutionally impermissible interference with federal functions occurred. The justice criticized his colleagues for creating new legal doctrine without sufficient justification and warned against unwarranted judicial activism undermining democratic processes and state sovereignty.