In the case of International Paper Company v. United States in 1930, the Supreme Court ruled that a corporation could not deduct from its income taxes payments made to another company for water rights used in manufacturing processes. The International Paper Company had been paying an annual fee for these rights and claimed it as a business expense on their tax returns. However, the government argued that this was actually part of capital investment rather than an ordinary business expense because it contributed to long-term profitability and productivity improvements. The court agreed with the government's argument, stating that such expenses should be considered capital investments since they provide enduring benefits to businesses over time. This ruling established important precedent regarding what can be classified as deductible business expenses under U.S tax law.

In the dissenting opinion for International Paper Company v. United States, it was argued that the majority's decision to uphold a tax on water power used in manufacturing processes was incorrect. The dissenters believed that this tax constituted an unlawful direct tax under the U.S Constitution and should have been apportioned among states according to their population, as required by Article I, Section 9 of the Constitution. They further contended that water power is not a commodity or product but rather a force of nature which cannot be owned or sold separately from land rights; thus it should not be subject to taxation at all. Additionally, they pointed out inconsistencies in previous court rulings regarding similar issues and criticized these decisions for failing to provide clear guidance on what constitutes direct versus indirect taxes.