In the case of Louisville & Nashville Railroad Company v. Maxwell in 1914, the U.S Supreme Court ruled that a state could not impose its own regulations on interstate commerce if those regulations conflicted with federal law. The dispute arose when Alabama imposed a tax on railroad freight coming into the state from other states. The Louisville & Nashville Railroad Company argued this was an unconstitutional interference with interstate commerce and sued for relief. In their decision, the court held that while states have power to regulate within their borders, they cannot interfere with or burden interstate commerce as it is under federal jurisdiction according to Commerce Clause of Constitution (Article I, Section 8). This ruling reinforced principles of federal supremacy and limited state authority over national economic matters.

In the dissenting opinion for Louisville & Nashville Railroad Company v. Maxwell, Justice Holmes argued that the state of Mississippi had a right to regulate commerce within its borders and impose taxes on out-of-state businesses operating in its jurisdiction. He contended that it was not an undue burden on interstate commerce for states to require foreign corporations doing business within their boundaries to pay a reasonable tax as compensation for the benefits they received from such operations. The majority's decision, he believed, undermined states' rights and gave unfair advantages to out-of-state companies at the expense of local ones. In his view, this case represented an overreach by federal authority into matters traditionally left up to individual states under principles of federalism.