February 22, 2011

Supreme Court Decides CSX Transportation, Inc. v. Alabama Department of Revenue

On February 22, 2011, the U.S. Supreme Court decided CSX Transportation, Inc. v. Alabama Department of Revenue, No. 09-520, holding that interstate rail carriers may challenge state sales and use taxes on railroads as discriminatory under the "catch-all" provision of the Railroad Revitalization and Regulatory Reform Act of 1976 (49 U.S.C. § 11501(b)).

Railroads have to pay sales and use taxes to Alabama when they purchase or consume diesel fuel.  But their main competitors—interstate motor and water carriers—are generally exempt from such taxes on their fuel.  CSX Transportation, an interstate rail carrier, argued that Alabama's taxes discriminate against railroads in violation of 49 U.S.C. § 11501(b)(4), which is part of the Railroad Revitalization and Regulatory Reform Act of 1976 (sometimes known as the "4-R Act").  The first three subdivisions of 49 U.S.C. § 11501(b) prohibit discriminatory property taxes; the fourth subdivision prohibits the imposition of "another tax that discriminates against a rail carrier."  CSX alleged that Alabama's sales and use taxes violated the fourth subdivision of the 4-R Act as "another tax that discriminates against a rail carrier" and favored motor and water carriers. 

The district court dismissed CSX's lawsuit on the ground that Section 11501(b) applies only to property taxes and not to sales and use taxes, from which a railroad's competitors are exempt.  The Eleventh Circuit affirmed the dismissal.

The Supreme Court reversed, holding that Alabama's sales and use taxes both constitute "another tax" under Section 11501(b)(4), because the normal meaning of the phrase "another tax" in that section includes "any form of tax a State might impose, on any asset or transaction, except the taxes on property previously addressed in subsections (b)(1)—(3)."  The Court rejected the state's argument that the tax itself is not discriminatory, and only the exemptions are.  The Court stated that imposing a tax on one business while exempting a similarly-situated business from the tax "discriminates" under the conventional meaning of that term.  The Court also rejected the state's argument that Section 11501(b) is limited to state taxes that discriminate in favor of local entities and against interstate entities.  The Court also distinguished its decision in the present case from that  in Department of Revenue of Ore. v. ACF Industries, Inc., 510 U.S. 332 (1994), in which it held that a railroad could not rely on Section 11501(b)(4) to challenge a generally-applicable state property tax on the ground that certain non-railroad property was exempt from the tax.  The Court explained that ACF held that the first three subdivisions of Section 11501(b) expressly allow certain types of discrimination in property taxation, so it would be illogical to hold that subdivision (b)(4) completely bars discrimination in property taxation.  This case, by contrast, involves discrimination in non-property taxes, which is not authorized by Section 11501(b).

Justice Kagan delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, Breyer, Alito, and Sotomayor joined.  Justice Thomas filed a dissenting opinion, in which Justice Ginsburg joined. 

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