In the case of McClanahan v. State of Arizona, the central issue was whether the state could impose taxes on Native Americans living on tribal land. The case arose when McClanahan, a member of the Navajo Nation, challenged the state's authority to tax her income earned on the reservation. The court ultimately ruled in favor of McClanahan, stating that the state did not have jurisdiction to tax income generated on tribal land. This decision reinforced the principle of tribal sovereignty and clarified the limits of state power over Native American affairs.