In the Southern Railway Co. v. Kentucky case of 1931, the Supreme Court ruled in favor of Southern Railway Company, declaring that a tax imposed by the state of Kentucky was unconstitutional as it violated both due process and equal protection clauses under the Fourteenth Amendment. The state had levied a franchise tax on all railway companies operating within its borders based on their gross earnings from interstate commerce operations. However, this taxation method did not apply to other types of corporations or businesses involved in interstate commerce within Kentucky's jurisdiction. The court found this selective application discriminatory and unfair towards railway companies like Southern Railway Co., thereby ruling it unconstitutional.

In the dissenting opinion for Southern Railway Co. v. Kentucky, Justice Stone argued that the majority's decision was inconsistent with previous rulings of the Court and violated principles of federalism. He contended that states should have authority to regulate commerce within their borders, including interstate railroad traffic, as long as they do not discriminate against or place undue burdens on interstate commerce. In this case, he believed Kentucky’s tax did not violate these conditions because it applied equally to all carriers operating in the state regardless of whether they were engaged in intrastate or interstate commerce. Therefore, he disagreed with the majority's view that Kentucky’s tax constituted an unconstitutional interference with interstate commerce.