In the United States v. Garbutt Oil Co., the U.S Supreme Court dealt with a case involving an oil company's refusal to pay excise taxes on petroleum products it sold to municipalities for public use, arguing that such sales were exempt from taxation under federal law. The court ruled against Garbutt Oil Co., stating that there was no statutory exemption in place for these types of transactions and therefore, they were subject to tax. Furthermore, the court held that even if there had been a common-law tradition of tax exemptions for municipal purchases (which it did not find), Congress would have needed to explicitly include such an exemption in its legislation. As this was not done, the court concluded that Garbutt Oil Co.'s sales were taxable.

In the dissenting opinion for United States v. Garbutt Oil Co., it was argued that the majority's decision to uphold a tax on petroleum produced in Michigan and transported across state lines constituted an infringement of states' rights, as outlined by the Constitution. The dissenters believed that this interpretation expanded federal power beyond its intended scope, undermining principles of federalism and potentially leading to excessive centralization of authority at the expense of individual states. They also expressed concern about potential economic implications, arguing that such taxes could disrupt interstate commerce by creating barriers or disincentives for businesses seeking to operate across state lines.