In the United States v. Scharton case of 1931, the Supreme Court examined whether a federal tax on tobacco products was applicable to sales made by an Indian trader to tribal members living on a reservation. The defendant, Scharton, argued that as an officially licensed Indian trader selling goods exclusively within the boundaries of an Indian reservation and only to tribal members, he should be exempt from such taxes under existing treaties between Native American tribes and the U.S government. However, in its decision for this case, the Supreme Court ruled against Scharton's argument stating that Congress has plenary power over Native American affairs including taxation rights unless explicitly stated otherwise in specific treaties or laws. Therefore it held that even though Mr. Scharton was operating within a reservation and dealing solely with tribe members his business transactions were still subject to federal excise taxes.

In the dissenting opinion for United States v. Scharton, Justice Stone argued that the majority's decision to uphold a tax on illegal income was inconsistent with previous rulings and principles of law. He contended that such an interpretation would lead to absurd results, as it would mean that individuals could be taxed for stolen property or other illicit gains. Furthermore, he pointed out that this ruling contradicted earlier decisions where the Court had held that taxes could not be levied on unlawful activities because they were outside of legitimate commerce. In his view, this inconsistency undermined legal certainty and predictability. Moreover, Justice Stone expressed concern about potential abuses of power by government authorities who might use taxation as a means to punish criminal behavior instead of relying on proper judicial procedures.