In the case of Oklahoma Tax Commission v. Graham et al., 1988, the U.S. Supreme Court ruled that a state cannot tax income earned on federal lands by non-resident members of Native American tribes who live and work there. The court held that such taxation would infringe upon tribal self-governance and violate federal law which prohibits states from taxing income derived from any reservation source by enrolled tribal members residing on their own reservations. In this case, two Chickasaw Nation members were living on federally granted land in Oklahoma but outside the boundaries of their tribe's formal reservation; they argued successfully that these lands should be considered "Indian country," exempting them from state taxes under existing laws.

In the dissenting opinion for Oklahoma Tax Commission v. Graham et al., Justice Stevens argued that the majority's decision was inconsistent with previous rulings and failed to adequately respect tribal sovereignty. He contended that the Court had previously held in McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164 (1973), that a state could not tax income earned by tribal members on their reservations unless Congress explicitly authorized it to do so; yet, in this case, they allowed taxation without such authorization from Congress. Furthermore, he criticized the majority's reliance on Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973) as misplaced because it involved off-reservation activities of a tribe rather than individual reservation residents' incomes like this case did. Justice Stevens also disagreed with how the court interpreted Public Law No:99-514 which amended Internal Revenue Code Section 7871(a)(2)(A). According to him, while this law allows states to tax certain types of income derived from Indian lands or sources within them if federal government can too under section IRC §61; it does not authorize states generally to impose taxes upon all forms of personal property owned by Indians living within their boundaries. Finally, he expressed concern about potential negative impacts on tribes’ economic development efforts due to increased state taxation powers over reservation residents' incomes resulting from this ruling.