In the United States v. Alabama Great Southern Railroad Company case of 1891, the Supreme Court was tasked with determining whether a federal tax on state bonds violated constitutional principles. The State of Alabama had issued bonds to aid in constructing railroads and subsequently sold them to private parties, including the Alabama Great Southern Railroad Company. However, when these bonds were taxed by federal authorities under an act passed by Congress in 1866 that imposed taxes on all interest-bearing obligations not explicitly exempted from taxation, both the railroad company and state objected. The main argument against this action was that it infringed upon states' rights as outlined in the Constitution's Tenth Amendment. However, after careful consideration of precedents set by previous cases such as Weston v. Charleston (1829) and McCulloch v Maryland (1819), which established that states cannot tax instruments employed by government bodies within their jurisdiction unless expressly permitted to do so; and Pollock v Farmers’ Loan & Trust Co., where income taxes levied without regard for population distribution were deemed unconstitutional -the court ruled unanimously against Alabama. They concluded that while states have certain immunities from federal control due to their sovereignty status under our system of dual sovereignty; they are still subject to national law when engaging in commercial activities like issuing securities or operating businesses.

In the dissenting opinion for United States v. Alabama Great Southern Railroad Company, Justice Lamar disagreed with the majority's interpretation of the statute in question. He argued that it was not intended to apply to railroads and other corporations but only to individuals who were directly involved in fraudulent activities against the government. According to him, extending this law beyond its original intent would lead to an unjust result where innocent parties could be held liable for actions they did not commit or even know about. Furthermore, he contended that such a broad application of liability would discourage investment and hinder economic growth by creating undue risk for businesses and investors alike.