In the 1940 case of Superior Bath House Co. v. McCarroll, Commissioner of Revenues of Arkansas, the U.S Supreme Court was tasked with determining whether a state could impose a tax on federal property leased to private entities for commercial use. The Superior Bath House Company operated in federally owned buildings located within Hot Springs National Park in Arkansas and argued that they should not be subject to state taxes as their operations were on federal land. However, the State Revenue Commissioner disagreed and imposed taxes on them anyway. The court ruled in favor of the State Revenue Commissioner by upholding that states have power to tax businesses operating on federal lands if those businesses are engaged in non-governmental functions or activities. This decision established an important precedent regarding taxation powers between different levels of government.

In the dissenting opinion for Superior Bath House Co. v. McCarroll, Justice Black argued that Arkansas' tax on thermal water was unconstitutional as it violated the Commerce Clause of the U.S. Constitution by interfering with interstate commerce. He contended that since Congress had not authorized states to regulate or tax this natural resource, any state-imposed regulation or taxation would be an encroachment upon federal authority over interstate commerce and thus invalid under constitutional law. Furthermore, he asserted that if each state were allowed to impose its own regulations and taxes on these resources without congressional approval, it could lead to a chaotic situation where different states have conflicting laws regarding their use and distribution.