In the 1912 case of Sweeney v. Erving, the United States Supreme Court ruled on a dispute regarding stock dividends and their tax implications. The plaintiff, Sweeney, had received stocks as dividends from a corporation in which he was a shareholder. He then sold these shares and claimed that the profit should not be taxed because it was derived from property (the original shares) that had already been taxed once when they were issued to him as dividends. However, defendant Erving argued that this income should indeed be taxable under federal law. The court sided with Erving's argument by interpreting relevant laws to mean that any gain or profit realized through selling dividend-issued stocks is subject to taxation just like any other form of income would be. This decision set an important precedent for how such transactions are treated within U.S tax law.

In the dissenting opinion for Sweeney v. Erving, Justice Holmes disagreed with the majority's decision to uphold a Massachusetts law that required stockholders of corporations doing business in other states to pay taxes on their shares. He argued that this was an unconstitutional interference with interstate commerce and violated the Due Process Clause of the Fourteenth Amendment. Holmes believed it was unfair for shareholders who lived outside of Massachusetts but owned stocks in companies operating within its borders to be taxed by both their home state and Massachusetts. He also pointed out inconsistencies in how different types of property were being taxed under this law, which he felt further demonstrated its unconstitutionality.