The U.S. Supreme Court case Willcuts, Collector v. Milton Dairy Company in 1927 revolved around the issue of taxation on a corporation's income derived from its capital stock and surplus investments in tax-exempt federal securities. The Milton Dairy Company argued that it was unconstitutional for the government to impose taxes on this income as it indirectly taxed federal obligations which were exempted by law from taxation. However, the court ruled against them stating that while direct taxation on such securities was prohibited, indirect effects resulting from legitimate governmental action did not infrally upon their tax exemption status. Therefore, corporations could be taxed based on their total net income even if part of said income came indirectly through investment in these tax-exempt securities.

In the dissenting opinion for Willcuts v. Milton Dairy Company, Justice Holmes argued that the tax in question should not be considered a direct tax on property but rather an excise tax on the privilege of doing business as a corporation. He contended that this interpretation was consistent with previous court rulings and legal precedent. Furthermore, he disagreed with the majority's view that dividends received by shareholders were essentially income derived from property; instead, he saw them as profits earned through corporate activities or operations. Therefore, according to his perspective, taxing such dividends did not amount to directly taxing property without apportionment among states - which would have been unconstitutional under Article I Section 9 of U.S Constitution - but rather represented an entirely permissible form of taxation within Congress' power under Sixteenth Amendment.