In the case of Nebraska Department of Revenue v. John Loewenstein, 1994, the U.S Supreme Court was tasked with determining whether a state could tax income earned by a non-resident from an S corporation operating within its borders. The petitioner, Nebraska Department of Revenue argued that it had the right to tax all income generated within its jurisdiction while respondent John Loewenstein contended that as he lived and worked in Missouri and only held passive investments in Nebraska-based corporations, his earnings should not be subject to taxation by Nebraska. The court ruled in favor of Loewenstein stating that under Public Law 86-272 (a federal law which limits states' ability to impose net income taxes on interstate commerce), a state cannot impose an income tax on out-of-state residents whose only connection with the taxing state is through their ownership interest in an S Corporation doing business there.

In the dissenting opinion for Nebraska Department of Revenue v. John Loewenstein, it was argued that the majority's decision to uphold a tax on intangible personal property unfairly targeted non-residents and violated their constitutional rights under both the Commerce Clause and Due Process Clause. The dissent pointed out that while states have broad powers to levy taxes, they cannot do so in a way that discriminates against interstate commerce or deprives individuals of due process. In this case, by imposing a tax solely on non-residents who own intangible personal property within its borders, Nebraska effectively penalized those engaged in interstate commerce and deprived them of fair treatment under law. Furthermore, the dissent noted that there was no rational basis for such discrimination since all residents benefit from state services regardless of where their property is located. Therefore, it concluded that Nebraska’s taxation scheme should be struck down as unconstitutional.