The Supreme Lodge Knights of Pythias v. Smyth case in 1917 revolved around the issue of whether a fraternal benefit society, incorporated under the laws of Washington D.C., could be subjected to taxation by the state of California. The Supreme Lodge Knights argued that they were exempt from such taxes due to their status as a non-profit organization providing life insurance benefits for its members and not operating as an ordinary commercial enterprise. However, the State Board of Control disagreed and imposed tax on them based on their income derived from membership dues and fees. The U.S Supreme Court ruled in favor of California stating that despite being chartered by Congress, it did not grant immunity from state taxation where business was conducted since there is no constitutional provision prohibiting states from taxing federal corporations unless explicitly stated by Congress.

In the dissenting opinion for the Supreme Court case of Supreme Lodge Knights of Pythias v. Smyth, Justice Holmes disagreed with the majority's decision to uphold a state law that required fraternal benefit societies to maintain certain reserve funds. He argued that such laws were an unconstitutional interference in private contracts and violated due process rights under the Fourteenth Amendment. Holmes contended that states should not be able to dictate how these organizations manage their finances or set aside reserves, as long as they are fulfilling their contractual obligations to members. In his view, this was a matter best left up to individual societies and their members rather than government regulation.