In the case of Lone Star Gas Co. v. Texas et al., 1937, the U.S Supreme Court ruled on a dispute between Lone Star Gas Company and the state of Texas regarding taxation. The gas company argued that it was unconstitutional for Texas to impose an occupation tax on natural gas companies operating within its borders while exempting city-owned utilities from this same tax. The court found in favor of Texas, ruling that states have broad powers to levy taxes as they see fit and there is no constitutional requirement for all businesses within a certain category to be taxed equally or at all. Therefore, it was not discriminatory or unfair for cities owning their own utilities to be exempted from such taxes because these entities serve public rather than private interests.

In the dissenting opinion for Lone Star Gas Co. v. Texas et al., Justice McReynolds expressed concern that the majority's decision would lead to an overreach of state power at the expense of private businesses and property rights. He argued that Lone Star Gas Company, a Delaware corporation, was being unfairly targeted by Texas' regulatory laws simply because it operated pipelines in multiple states. According to him, this constituted discrimination against interstate commerce which is protected under federal law from undue burdens imposed by individual states. Furthermore, he disagreed with the majority's interpretation of "public utility," arguing that not all corporations providing public services should be subject to such stringent regulations as those applied to monopolies or entities holding exclusive franchises granted by a state government.