In the 1937 case James, State Tax Commissioner v. Dravo Contracting Co., the U.S. Supreme Court ruled that a state could impose a tax on gross receipts from contracts for public works within its borders even if some of the work was performed outside of it. The court held that such taxation did not violate either the Due Process Clause or Commerce Clause of the Constitution. Dravo Contracting Company had argued against West Virginia's imposition of this tax, claiming it violated their constitutional rights as they were based in Pennsylvania and much of their work took place there despite being contracted by West Virginia entities. However, Justice Benjamin Cardozo writing for majority stated that since benefits were received by company from laws and government protection in West Virginia where contracts were made and partly performed, taxing them was justified.

In the dissenting opinion for James, State Tax Commissioner v. Dravo Contracting Co., Justice Benjamin Cardozo disagreed with the majority's decision that West Virginia could impose a tax on gross receipts from contracts performed both within and outside of its borders. He argued that this was an overreach of state power as it taxed activities occurring beyond its jurisdictional boundaries. According to him, such taxation violated due process rights by imposing burdens on interstate commerce which should be free from local restraints or contributions unless there is a clear justification for them in terms of benefits received by the taxpayer. He also pointed out inconsistencies in previous rulings regarding similar cases and warned against setting precedents that would allow states to levy taxes indiscriminately without regard for their impact on interstate commerce.