In the United States v. Constantine case of 1935, the Supreme Court ruled that a federal tax on individuals who dealt in illegal goods was unconstitutional because it infringed upon states' rights to regulate their own internal affairs. The defendant, Louis Constantine, owned a liquor store during Prohibition and was fined by the federal government for dealing in illegal alcohol sales. He argued that this fine constituted double jeopardy as he had already been penalized under state law for his actions. The court agreed with him, stating that while Congress has broad powers to levy taxes under the Constitution's Taxing Clause, they cannot use these powers to infringe upon areas reserved exclusively for state control - such as police power over local public safety issues like prohibition enforcement.

In the dissenting opinion for United States v. Constantine, Justice Stone argued that the tax imposed on individuals engaged in legal activities who had previously violated federal law was not a penalty but rather an excise tax within Congress's power to impose. He contended that it was irrelevant whether or not such a tax might also serve as a deterrent against future violations of law, as this did not change its character as an excise tax. Furthermore, he asserted that there is no constitutional prohibition against imposing heavier taxes on those with criminal records than those without them and therefore found no grounds for invalidating the statute under review.