In the case of Seaboard Air Line Railway v. State of North Carolina, 1917, the U.S Supreme Court was tasked with deciding whether a state could impose taxes on an interstate railway company for property located outside its jurisdiction. The Seaboard Air Line Railway Company argued that it was unconstitutional for North Carolina to tax them based on their entire capital stock when only part of their railroad system and operations were within the state's borders. However, the court ruled in favor of North Carolina stating that as long as there is substantial nexus between a taxpayer and a state, then it can levy taxes even if some portion of business activity occurs beyond its borders. This decision set precedent regarding taxation rights over interstate businesses by individual states.

In the dissenting opinion for Seaboard Air Line Railway v. State of North Carolina, Justice Holmes disagreed with the majority's ruling that a state could not impose taxes on an interstate railway company based solely on its mileage within the state. He argued that such taxation did not interfere with interstate commerce and was therefore permissible under federal law. Holmes contended that states should have the right to tax businesses operating within their borders as long as they do so in a fair and equitable manner, without discriminating against out-of-state companies or unduly burdening interstate commerce. He believed this principle applied even when those businesses were engaged in activities protected by federal law, like interstate rail transport. In his view, allowing states to levy these types of taxes would promote fairness by ensuring all entities contributing to wear and tear on local infrastructure paid their share for its upkeep.