In the United States v. New Mexico et al., 1981, the U.S. Supreme Court ruled that federal agencies must pay state taxes on water they use from state-owned resources unless Congress has explicitly exempted them from doing so. The case arose when New Mexico imposed a tax on all users of its waters, including several federal agencies such as the Bureau of Reclamation and Forest Service which refused to pay arguing that their usage was immune under federal supremacy clause in Constitution. However, the court held that while states cannot interfere with federal operations through taxation or other means, this principle does not grant automatic immunity to all activities carried out by Federal Government within a State's borders; rather it depends upon whether there is an express congressional directive against such interference.

In the dissenting opinion for United States v. New Mexico et al., Justice Blackmun, joined by Justices Brennan and Marshall, argued that the majority's interpretation of federal law was too narrow. They contended that Congress intended to grant broad water rights to federal agencies managing reserved lands, not just those necessary for primary purposes like Indian reservations or national parks but also secondary uses such as recreation and wildlife conservation. The dissenters believed this broader interpretation better aligned with congressional intent and past court decisions recognizing implied water rights for various public land uses beyond mere survival of a reservation or park. They criticized the majority’s decision as potentially undermining effective management of these lands by limiting access to needed water resources.