In Southern Pacific Company v. Lowe, the U.S. Supreme Court ruled in favor of Southern Pacific Company, a railroad corporation that had been taxed on its income from both operations and investments during 1913-1916 under the Revenue Act of 1913. The company argued that it should not be taxed on dividends received from stock owned in other domestic corporations since these were already subject to taxation at source as corporate income under the same act. The court agreed with this argument, stating that double taxation was not intended by Congress when they passed the law and therefore such dividends are exempted from tax liability for recipient corporations like Southern Pacific Company.

The dissenting opinion in the Southern Pacific Company v. Lowe case, delivered by Justice McReynolds, disagreed with the majority's interpretation of tax law and its application to railroad companies. He argued that a corporation should not be allowed to deduct interest on bonds issued for construction purposes from their gross income before calculating federal taxes. According to him, this practice would essentially allow corporations like Southern Pacific Company to avoid paying taxes on profits made through capital investments funded by these bonds. This was contrary to his understanding of the intent behind corporate taxation laws which he believed were designed to tax all profit-making activities of a corporation equally without allowing such deductions or exemptions.