In the case of Northern Pacific Railway Company v. Solum (1917), the US Supreme Court ruled in favor of Northern Pacific Railway Company, reversing a decision by the North Dakota Supreme Court. The dispute arose when Solum, who owned land adjacent to tracks owned by Northern Pacific Railway, claimed that sparks from passing trains set his property on fire and caused damage. He sued for compensation under a state law which held railway companies liable for damages caused by fires originating from their locomotives unless they could prove negligence was not involved. However, the US Supreme Court found this law conflicted with federal laws regulating interstate commerce as it placed an unfair burden on railroad companies engaged in such commerce. Therefore, it was deemed unconstitutional and unenforceable against railroads participating in interstate business.

In the dissenting opinion for Northern Pacific Railway Company v. Solum, Justice Holmes disagreed with the majority's ruling that a railroad company could not claim an exemption from state taxation on land granted by Congress if it had sold or leased part of that land to others. He argued that such transactions did not change the fact that these lands were still being used for public purposes as intended by Congress when they were originally granted to the railway company. Therefore, according to him, they should remain exempt from state taxation regardless of whether they are directly owned and operated by the railway company or indirectly through third parties. This interpretation would better serve both Congressional intent and public interest in promoting transportation infrastructure development.