In the 1920 case Underwood Typewriter Company v. Chamberlain, Treasurer of the State of Connecticut, the U.S. Supreme Court was tasked with determining whether a state could tax an out-of-state corporation based on its worldwide income rather than just its in-state income. The Underwood Typewriter Company, incorporated in Delaware but operating globally, challenged a Connecticut law that taxed corporations based on their global net income even if only part of it was earned within the state's borders. The company argued this violated both due process and equal protection clauses under Fourteenth Amendment to Constitution as well as Commerce Clause. The court ruled against Underwood Typewriter Co., upholding Connecticut’s right to levy taxes on all corporate profits regardless of where they were generated from provided there is sufficient business activity conducted within the state for it to be considered 'doing business'. This decision established precedent for states' ability to tax corporations based not solely upon physical presence or property ownership but also upon economic nexus - i.e., significant economic activities or connections with a taxing jurisdiction.

In the dissenting opinion for Underwood Typewriter Company v. Chamberlain, Justice Holmes disagreed with the majority's decision that Connecticut's tax on intangible property held by corporations was unconstitutional. He argued that a state has the right to impose taxes on its residents and businesses based on their total wealth, regardless of where that wealth is located or generated. According to him, if a corporation chooses to incorporate in a particular state and benefit from its laws and protections, it should also be prepared to pay taxes there based on all its assets - tangible or intangible. Holmes believed this principle applied even when those assets were used in business operations outside of the state. The justice contended that such taxation did not interfere with interstate commerce nor violate due process rights as claimed by Underwood Typewriter Company.