The Southern Railway Company v. Kentucky case in 1926 revolved around the issue of whether a state could impose taxes on interstate commerce, specifically railroads, without violating the Commerce Clause of the U.S. Constitution which gives Congress exclusive power over such matters. The State of Kentucky had imposed a tax on Southern Railway Company's gross receipts from its intrastate business operations and also included receipts from interstate freight and passenger traffic that originated or ended within its borders. The railway company argued this was unconstitutional as it interfered with interstate commerce. However, the Supreme Court ruled in favor of Kentucky stating that while states cannot directly regulate or burden interstate commerce, they can indirectly affect it through legitimate exercises of their taxing powers so long as these do not create direct burdens on such commerce or discriminate against it. In this case, since the tax applied to both intra- and inter-state businesses equally without any discrimination towards out-of-state entities involved in similar activities within its jurisdiction, it did not violate constitutional provisions.

In the dissenting opinion for Southern Railway Company v. Kentucky, Justice Oliver Wendell Holmes Jr., joined by Justices Louis Brandeis and Harlan Fiske Stone, argued that the majority's decision to strike down a Kentucky tax on freight transported across state lines was incorrect. They contended that this tax did not interfere with interstate commerce as it was levied equally on both in-state and out-of-state businesses. The dissenters believed that states should have the power to impose such taxes as long as they do not discriminate against or unduly burden interstate commerce. In their view, allowing states to levy these types of taxes could help them raise necessary revenue without violating federal law or infringing upon Congress' authority over interstate commerce.