The case of United States v. California and California State Board of Equalization in 1992 revolved around the issue of whether or not a state could impose sales tax on purchases made by federal employees at military base exchanges, which are essentially retail stores located within military bases. The U.S. government argued that such taxation was unconstitutional as it violated principles of intergovernmental tax immunity, asserting that these taxes indirectly burdened the federal government because they increased operating costs for these exchanges and reduced their profitability. On the other hand, California contended that this was a permissible form of taxation since it did not discriminate against the Federal Government or those with whom it deals. The Supreme Court ruled in favor of California stating that there is no constitutional prohibition against nondiscriminatory state taxation resulting in an indirect economic effect on the United States; hence states can levy sales taxes on purchases made by federal employees at military base exchanges without violating any constitutional provisions.

In the dissenting opinion for United States v. California and California State Board of Equalization, Justice Blackmun argued that the majority's decision was a departure from established precedent regarding state taxation of federal contractors. He contended that the Court had previously held that states could tax government contractors as long as they did not discriminate against them or burden the Federal Government with more than its fair share of taxes. In this case, he believed there was no evidence to suggest either discrimination or undue burden on part of California’s taxation scheme. The justice also pointed out inconsistencies in how different types of federal contracts were treated under this ruling, which he felt undermined its logic and fairness. Furthermore, he expressed concern about potential negative impacts on cooperative federalism by limiting states' ability to raise revenue through taxing such contracts.