The Southern Pacific Co. v. Gallagher et al., 1938, was a case that revolved around the issue of taxation and interstate commerce. The Supreme Court ruled in favor of Southern Pacific Company, holding that California's method of taxing railway companies based on their total mileage within the state violated the Commerce Clause by discriminating against interstate businesses. The court found that this tax system placed an unfair burden on out-of-state corporations because it taxed them at a higher rate than local businesses for property located outside California but used in operations within the state. This decision reinforced previous rulings which established that states cannot use their taxing power to unfairly disadvantage or discriminate against interstate commerce.

In the dissenting opinion for Southern Pacific Co. v. Gallagher et al., Justice Butler argued that the California Fuel Oil Tax, which was being challenged by Southern Pacific Company, did not violate the Commerce Clause of the U.S. Constitution as it applied to all consumers of fuel oil within California equally and without discrimination against interstate commerce or non-residents. He contended that while a state cannot impose taxes on goods in transit through its territory from one state to another, once those goods have reached their destination and are no longer in transit they become subject to local taxation just like any other property within the state's jurisdiction. Therefore, he believed that since Southern Pacific Company had purchased and used fuel oil within California for its locomotives operating entirely within said State, these transactions were intrastate rather than interstate commerce and thus could be taxed under existing laws without violating constitutional principles.