In the case of United States v. Whitridge, Receiver of the Third Avenue Railroad Company (1913), the U.S. Supreme Court ruled on a dispute involving tax assessments for street railway franchises in New York City. The Third Avenue Railroad Company had been assessed taxes based on its franchise rights to operate railways along certain streets, but it argued that these were not taxable as property under federal law because they did not constitute "real estate". The court disagreed and upheld the tax assessment, ruling that such franchises were indeed real estate within the meaning of state law and thus subject to taxation by local authorities. This decision affirmed an important principle: while federal courts have jurisdiction over bankruptcy proceedings, they must respect state laws regarding what constitutes taxable property.

In the dissenting opinion for United States v. Whitridge, it was argued that the Third Avenue Railroad Company should not be held liable for paying taxes on its stock dividends because these were derived from tax-exempt municipal bonds. The dissenting justices contended that this interpretation of the law would lead to double taxation and discourage investment in such bonds, which are vital sources of funding for local governments. They also pointed out inconsistencies in how different types of income were being taxed under federal law, arguing that a more uniform approach was needed to ensure fairness and avoid confusion among taxpayers. Furthermore, they disagreed with the majority's view that Congress had intended to tax all forms of corporate income regardless of their source or nature.