In the 1903 case of Pacific Electric Railway Company v. Los Angeles, the U.S. Supreme Court ruled in favor of the city of Los Angeles, upholding its right to regulate and control street railway franchises within its jurisdiction. The Pacific Electric Railway Company had challenged a local ordinance that required it to pave and maintain a portion of roadway adjacent to their tracks on Main Street in downtown LA. They argued this was an unreasonable exercise of police power by the city government and amounted to taking private property for public use without just compensation, which would be unconstitutional under both state law and federal Fifth Amendment protections against such takings. However, Justice Edward Douglass White wrote for a unanimous court that cities have broad powers over their streets as part of their responsibility for public welfare; these include requiring utilities like railways operating thereon to bear some costs associated with maintaining those streets in good condition. He also noted that when companies accept franchise rights from municipalities they implicitly agree to abide by reasonable regulations imposed upon them related thereto - including potential future ones not specified at time grant was made if they're necessary for common good or safety.

In the dissenting opinion for Pacific Electric Railway Company v. Los Angeles, it was argued that the city of Los Angeles did not have the right to demand a franchise tax from Pacific Electric Railway Company. The justice contended that such a tax would be an infringement on interstate commerce and thus unconstitutional under federal law. He further asserted that even if such a tax were permissible, it should be levied by state authorities rather than municipal ones as per California's constitution. Additionally, he disagreed with the majority's interpretation of "gross receipts," arguing instead for an understanding based on net profits after operating expenses had been deducted. This perspective held that only then could there be fair taxation without undue burden or interference in business operations.