In McClanahan v. Arizona State Tax Commission, the U.S. Supreme Court ruled in 1972 that the state of Arizona could not impose a tax on the income of Navajo Indians residing on a reservation and earning their income solely from reservation sources. The court held that such taxation infringed upon tribal self-government and was therefore pre-empted by federal law under principles of Indian sovereignty and federal supremacy over Indian affairs. The decision relied heavily on an interpretation of treaties between the United States government and Native American tribes, as well as statutes regulating relations with Native Americans, to conclude that states have no jurisdiction over tribal lands unless expressly granted by Congress.

In the dissenting opinion for McClanahan v. Arizona State Tax Commission, Justice Blackmun argued that the majority's decision to exempt Native Americans living on reservations from state taxation was overly simplistic and failed to consider the complex relationship between tribal, state, and federal jurisdictions. He pointed out that many tribes have significant economic interactions with states and benefit from state services; thus it is not unreasonable for them to contribute through taxes. Furthermore, he contended that this ruling could lead to confusion in other areas of jurisdictional overlap such as criminal law enforcement or environmental regulation. Ultimately, Justice Blackmun believed a more nuanced approach was needed rather than an absolute rule against state taxation of reservation Indians.