In the case of Indiana Department of State Revenue, Gross Income Tax Division v. Nebeker (1954), the U.S. Supreme Court ruled in favor of Nebeker, a resident and citizen of Utah who was also an officer and director for two corporations incorporated under Indiana law. The court held that income derived from dividends paid by these companies could not be taxed by Indiana as it violated the Due Process Clause because Nebeker had no property or business activities within the state's borders. Therefore, his dividend income did not have a sufficient connection with or benefit from protections provided by Indiana to justify its taxation. This ruling reinforced constitutional limitations on states' power to tax nonresidents' incomes.

In the dissenting opinion for Indiana Department of State Revenue, Gross Income Tax Division v. Nebeker, Justice Robert H. Jackson argued that the majority's decision was inconsistent with previous rulings on tax law and could lead to unfair taxation practices. He contended that by allowing states to tax federal employees' retirement benefits while exempting those of state and local government workers from such taxes, the court was violating principles of intergovernmental tax immunity. This principle prevents one level of government from taxing another in order to maintain a balance between them and prevent undue influence or control over each other’s functions or operations through taxation policies. Furthermore, he expressed concern about potential discrimination against federal retirees who might be singled out for unfavorable treatment under this ruling.