In the 1921 case of Kern River Company et al. v. United States, the Supreme Court dealt with a dispute over water rights in California. The Kern River Company and other plaintiffs were irrigation companies that had constructed canals to divert water from the Kern River for agricultural use, while defendant Southern Pacific Railroad claimed it held prior rights to this water under an 1866 Act of Congress granting lands and waters to railroad companies for construction purposes. The court ruled in favor of the United States government, which was acting on behalf of public land settlers who also sought access to these waters for irrigation purposes. It found that although Southern Pacific did have some right to use river waters under its congressional grant, this right was not absolute and could be superseded by subsequent appropriations made under state law or federal reclamation acts intended for public benefit.

The dissenting opinion in the case of Kern River Company et al. v. United States argued that the majority's decision was a departure from established legal principles regarding property rights and taxation. The dissent contended that the government, as a sovereign entity, has an inherent right to tax all properties within its jurisdiction unless explicitly exempted by law or constitution. They disagreed with the majority’s view that only those properties which are beneficially owned by private entities can be taxed while those held for public use cannot be subjected to taxation even if they generate income for private corporations like Kern River Company. This interpretation, according to them, would create a dangerous precedent where companies could avoid taxes simply by claiming their assets were being used for public purposes despite deriving substantial profits from such usage.