In the case of New York v. Irving Trust Co., Trustee in Bankruptcy, 1932, the Supreme Court was tasked with determining whether or not a state could impose a tax on the transfer of stock owned by non-residents where only an evidentiary act (the recording of the transfer) occurred within that state. The court ruled in favor of New York State, stating that it had jurisdiction to levy such taxes as long as there was some form of transactional activity occurring within its borders. This decision upheld states' rights to tax transactions involving out-of-state entities if those transactions have sufficient connection to their jurisdictions.

In the dissenting opinion for New York v. Irving Trust Co., it was argued that the state of New York should have been allowed to collect taxes from a bankrupt corporation before other creditors were paid. The dissenting justices believed that, under federal bankruptcy law, states had a right to enforce their tax claims against insolvent corporations in preference to unsecured creditors. They contended that this interpretation was consistent with both the language and intent of Congress when it enacted the Bankruptcy Act. Furthermore, they disagreed with majority's view on constitutional grounds as well; arguing there is no constitutional barrier preventing states from collecting taxes out of assets in hands of bankruptcy trustee before distribution among general creditors takes place.