In the 1932 case Nashville, Chattanooga & St. Louis Railway Co. v. Wallace, Comptroller of the Treasury of Tennessee et al., the U.S Supreme Court ruled in favor of a railway company that challenged a state tax law on grounds it violated interstate commerce regulations and was discriminatory against out-of-state businesses. The State of Tennessee had imposed an excise tax on gross receipts from intrastate business operations but exempted companies whose primary business was conducted outside its borders while taxing those with significant in-state operations at higher rates based on their total revenue - both intra- and interstate combined. The court found this to be unconstitutional as it placed an undue burden upon interstate commerce by effectively penalizing companies for conducting substantial amounts of business across state lines.

In the dissenting opinion for Nashville, Chattanooga & St. Louis Railway Co. v. Wallace, Justice McReynolds argued that Tennessee's tax on freight carried within the state was not discriminatory and did not violate the Commerce Clause of the U.S Constitution as claimed by majority justices. He contended that this tax was a legitimate exercise of state power to raise revenue and should be upheld because it applied equally to all carriers operating in Tennessee regardless of whether they were engaged in interstate or intrastate commerce. Furthermore, he disagreed with the majority's view that this tax had an undue burden on interstate commerce since there was no evidence showing such impact presented during trial proceedings.