A substantial portion of the freight handled by the Canton Railroad involved goods that were either being imported or exported into the United States.

Canton Railroad for the tax year of 1946 claimed that $705,957.21 of its total receipts of $1,588,744.48 should be exempt from taxation because they were derived from operations in foreign commerce.

The opinion held that to import or export involve acts that begin and end at the water's edge (country's border), and that to use the railroad's argument that it was involved in exporting and importing would create a zone of tax immunity covering nearly every forest, mine, and factory in the country.

The dissent by Justice Jackson, styled as an opinion reserving judgment on the case, discussed the history of the Import-Export Clause as one of the fundamental policies imbedded in the Constitution.

The holding of Canton Railroad was reaffirmed when it was cited in both the majority and dissenting opinions in United States v. International Business Machines Corp., 517 U.S. 843 (1996), a case involving a federal tax on the insurance coverage of goods to be exported.