In the case McLeod, Commissioner of Revenues v. J.E. Dilworth Co., et al., 1943, the U.S Supreme Court ruled on a dispute involving state taxation and interstate commerce. The Arkansas Revenue Department imposed a use tax on goods purchased from out-of-state suppliers by in-state businesses for their own use within Arkansas. J.E Dilworth Company, based in Tennessee but with operations also in Arkansas, challenged this tax arguing that it violated the Commerce Clause of the Constitution which prohibits states from interfering with interstate commerce. The court held that while states have broad powers to levy taxes for revenue purposes, they cannot do so if it interferes with or discriminates against interstate commerce as per Article I Section 8 of US constitution (the Commerce Clause). In this case, since goods were ordered and paid for in Tennessee before being shipped to Arkansas where they were used solely by Dilworth's business operations there without any further transaction taking place; hence no taxable event occurred within Arkansas' jurisdiction under its Use Tax Act. Therefore,the Supreme Court sided with J.E Dilworth Co., ruling that imposing such a tax was unconstitutional because it placed an undue burden on interstate trade.

In the dissenting opinion for McLeod v. J.E. Dilworth Co., Justice Frank Murphy argued that the majority's decision undermined state sovereignty by limiting a state's power to tax its own residents' income, even when it was derived from out-of-state sources. He contended that this ruling could potentially lead to double taxation and other complications, as states may struggle to determine which incomes they can legally tax under these new restrictions. Furthermore, he expressed concern over how this decision might affect interstate commerce and economic relations between states in general. In his view, each state should have full authority over taxing all income earned within its borders without interference from other jurisdictions or federal law.