In the case of New Orleans v. Texas and Pacific Railway Company, the city of New Orleans filed a lawsuit against the railway company for not paying taxes on certain properties it owned within city limits. The railway company argued that they were exempt from these taxes due to an 1871 agreement with Louisiana's state legislature which granted them immunity from any taxation by local governments in exchange for building their rail line through the state. However, this was contested by New Orleans who claimed that such an arrangement violated its rights under the Fourteenth Amendment. The Supreme Court ruled in favor of Texas and Pacific Railway Company, stating that while cities do have some inherent powers as municipal corporations, these are subject to control by their respective states. Therefore, if a state chooses to grant tax exemptions or other privileges to certain entities (in this case a railroad), it is within its power to do so even if it may affect revenues collected by municipalities like New Orleans. This ruling affirmed states' authority over local governments and clarified how far-reaching agreements made between private companies and states can be when involving matters like taxation.

The dissenting opinion in the case of New Orleans v. Texas and Pacific Railway Company argued that the city of New Orleans had a valid claim to tax property owned by the railway company within its jurisdiction, despite federal legislation granting certain exemptions to the company. The dissent maintained that while Congress has broad powers over interstate commerce, it does not have unlimited authority to interfere with state taxation rights or municipal affairs without explicit constitutional provision. It was contended that if such interference were allowed, it could lead to an imbalance between federal and state powers as well as potential abuses by corporations seeking similar privileges from Congress. Furthermore, they asserted that local governments should retain their right to levy taxes on properties within their boundaries for public services provided therein regardless of any special status granted at a national level.