In the 1991 case Kraft General Foods, Inc. v. Iowa Department of Revenue and Finance, the U.S. Supreme Court ruled that an Iowa law violated the Commerce Clause by taxing a multinational corporation's domestic income more heavily than its foreign income. The state of Iowa had imposed a tax on Kraft’s worldwide net income but allowed deductions for dividends received from U.S.-based subsidiaries while denying such deductions for dividends received from foreign-based subsidiaries. This resulted in higher taxes on domestically-sourced dividend income compared to foreign-sourced dividend income which was deemed unconstitutional by the court as it discriminated against interstate commerce and favored foreign commerce over domestic commerce.

In the dissenting opinion for Kraft General Foods, Inc. v. Iowa Department of Revenue and Finance, Justice Scalia argued that the majority's decision was inconsistent with previous rulings on state taxation of foreign income. He contended that states should have the right to tax all income of their domestic corporations, including income from foreign subsidiaries. According to him, this is not a violation of the Foreign Commerce Clause as long as it does not result in multiple taxation or impede federal uniformity in international trade policy. The majority’s ruling would create an incentive for companies to invest overseas rather than domestically because they could avoid state taxes by doing so; he saw this as detrimental to U.S economy and unfair competition against local businesses which are subject to these taxes.