In the case of Underwood v. Dugan, 1890, the U.S Supreme Court was tasked with determining whether a federal tax on distilled spirits was applicable to alcohol that had been destroyed in a fire while stored in a bonded warehouse. The plaintiff, Underwood, argued that he should not be liable for taxes on goods which were no longer existent and could not be sold or used for profit. However, the defendant (the Internal Revenue Collector) insisted that since the spirits were technically still under government control when they perished - despite being physically located within Underwood's premises - they remained taxable property. The court ruled in favor of Dugan (the defendant), stating that although unfortunate circumstances led to their destruction before sale or use could occur; it did not exempt them from taxation as long as they existed at any point during the period covered by said tax law. This decision set an important precedent regarding liability for federal excise taxes regardless of unforeseen losses incurred by taxpayers.

In the dissenting opinion for Underwood v. Dugan, Justice Lamar disagreed with the majority's decision to uphold a tax on whiskey distilleries based on their production capacity rather than actual output. He argued that this approach was unconstitutional as it violated principles of equal protection and due process by unfairly burdening certain businesses over others. He contended that taxing potential instead of actual income could lead to situations where a business is taxed more heavily than its profits, potentially driving it into bankruptcy. Furthermore, he believed such taxation could discourage investment in larger facilities or improvements in efficiency because they would result in higher taxes regardless of whether they led to increased profits. Thus, he concluded that while Congress has broad powers to levy taxes, these should be exercised fairly and proportionately across different industries and businesses.