In the 1898 case of Third National Bank of Louisville v. Stone, Auditor, the U.S. Supreme Court ruled on a dispute between a national bank and state tax authorities in Kentucky. The bank argued that under federal law it was exempt from paying taxes on its shares to the state because they were already taxed at the federal level. However, Kentucky's auditor disagreed and demanded payment for back taxes owed by shareholders who had not paid their share of state taxes over several years. The court sided with the bank, ruling that states could not impose additional taxation on federally chartered banks beyond what was allowed by Congress in order to protect these institutions from potentially crippling levels of taxation imposed by individual states where they operated. This decision reinforced previous rulings which held that national banks are instrumentalities of Federal Government and thus protected against discriminatory or destructive State action.

The dissenting opinion in the case of Third National Bank of Louisville v. Stone, Auditor, argued that the majority's decision was inconsistent with previous rulings and violated principles of federalism. The dissent emphasized that states have a right to tax national banks as long as they do so fairly and without discrimination. They contended that Kentucky's taxation scheme did not discriminate against national banks because it taxed all shares equally, regardless if they were owned by residents or non-residents. Furthermore, the dissent pointed out that there was no evidence showing any intent on part of Kentucky to unfairly burden national banks through its taxation policy. Therefore, according to them, this state law should be upheld under principles of federalism which respect state sovereignty over their own fiscal affairs unless there is clear proof otherwise.