In the 1982 case Memphis Bank & Trust Co. v. Garner, Shelby County Trustee, et al., the U.S Supreme Court ruled that a Tennessee law imposing a tax on interest earned from federal obligations was unconstitutional as it violated the Supremacy Clause of the Constitution. The bank had purchased Federal National Mortgage Association (FNMA) bonds and claimed an exemption from state taxation under federal law for any income derived from these bonds. However, this claim was denied by local authorities who argued that FNMA is not a direct obligation of the United States government and therefore not exempted from state taxes according to Tennessee's Revenue Act of 1971 which imposed taxes on all financial institutions based on their net earnings including interests received or credited to accounts in such banks or associations. The court held that although FNMA is privately owned, its obligations are federally backed thus making them "federal obligations" within meaning of statute exempting income derived therefrom from state taxation.

In the dissenting opinion for Memphis Bank & Trust Co. v. Garner, Justice Blackmun argued that the majority's decision was inconsistent with previous rulings regarding tax exemptions and their application to federal instrumentalities. He contended that a state cannot impose a non-discriminatory ad valorem property tax on obligations of the United States or its instrumentalities unless Congress has explicitly consented to such taxation. In this case, he believed there was no clear congressional intent allowing states to levy taxes on Federal Reserve Bank stock owned by member banks. Therefore, in his view, Tennessee’s imposition of an ad valorem property tax on shares held by Memphis Bank & Trust Company in the Federal Reserve Banks should have been deemed unconstitutional under Supreme Court precedent.