The Supreme Court case Regal Drug Corporation v. Wardell, United States Collector of Internal Revenue of the First District of California in 1922 revolved around a dispute over tax liability. The Regal Drug Corporation argued that they were not liable for certain taxes because their products - medicinal alcohol and toilet preparations - should be classified as non-beverage items under the Prohibition Act, thus exempting them from beverage-related taxes. However, the court ruled against this argument stating that these products fell within the definition of "liquor" or "spirituous liquor" according to federal law at that time and hence were subject to taxation regardless if they are used for beverages or not. Therefore, even though these substances were being sold with a legitimate non-beverage purpose (medicinal use), they still fell under taxable categories due to their alcoholic content.

In the dissenting opinion for Regal Drug Corporation v. Wardell, it was argued that the tax imposed on opium and coca leaves used in manufacturing medicinal preparations should not be considered as a penalty but rather as an excise tax. The dissenting justices believed that Congress had clear authority to impose such taxes under its broad power of taxation granted by the Constitution. They disagreed with the majority's interpretation of this tax as a penalty designed to regulate or suppress traffic in narcotics, arguing instead that it was simply an exercise of Congress' taxing power aimed at raising revenue from a legitimate source. Furthermore, they contended that even if there were regulatory aspects involved, these did not invalidate the tax because many valid taxes have regulatory effects or purposes associated with them.