In the case of Smith, Receiver v. Jennings, Treasurer of the State of South Carolina in 1906, the U.S. Supreme Court was tasked with determining whether a state could tax an interstate railroad company that had been placed into receivership by a federal court. The receiver for this insolvent railroad company argued that such taxation would interfere with its operation and rehabilitation under federal control. However, the Supreme Court ruled against him and upheld South Carolina's right to impose taxes on property within its jurisdiction even if it is being administered by a federally appointed receiver. The decision affirmed states' rights to levy taxes without interference from federal courts or administrators acting under their authority.

In the dissenting opinion for Smith v. Jennings, it was argued that the majority's decision to uphold South Carolina's tax on out-of-state corporations doing business within its borders violated the Commerce Clause of the U.S. Constitution. The dissenting justices believed that this tax constituted a direct burden on interstate commerce and thus fell outside of state jurisdiction. They contended that only Congress has authority over such matters under Article I, Section 8 of the Constitution which grants it power "to regulate Commerce with foreign Nations, and among several States." By allowing states to impose taxes on out-of-state businesses operating within their boundaries, they feared it would lead to protectionist measures by individual states against each other’s goods and services – an outcome contrary to one of main purposes behind establishing a federal government: ensuring free trade between states.