In the 1982 case of Rice, Director, Department of Alcoholic Beverage Control of California v. Rehner, the U.S Supreme Court ruled that states have authority to regulate liquor sales on Indian reservations. The court held that while tribes possess inherent sovereignty rights as domestic dependent nations within their territories, these rights are subject to overriding interests by federal and state governments in certain areas such as alcohol regulation. In this particular case, a Pala Band tribal member named Rehner was denied a license from California's Department of Alcoholic Beverage Control (ABC) for selling liquor on her reservation without state approval. She argued that she had an inherent right under tribal sovereignty to sell alcohol without interference from the state government but lost at both district and appellate levels before appealing to the Supreme Court which affirmed lower courts' decisions.

In the dissenting opinion for Rice v. Rehner, Justice Thurgood Marshall argued that the majority's decision failed to adequately respect tribal sovereignty and self-governance. He contended that federal law did not grant states authority over liquor sales on Indian reservations unless explicitly provided by Congress or a treaty. The majority's reliance on "silent features" of federal policy was seen as problematic by Marshall, who believed it undermined established principles of Indian law and intruded upon tribal autonomy without clear congressional intent. Furthermore, he disagreed with the assertion that public interest justified state control over reservation liquor transactions, arguing instead that such matters should be left to tribes themselves under their inherent sovereign powers.