Supreme Court Ruling in Railroad 4-R Act Case Mixed for State and Local Government By Lisa Soronen, State & Local Legal Center In Alabama Department of Revenue v. CSX Transportation the Supreme Court held 7-2 that railroads can be compared to their competitors when determining whether a tax is discriminatory in violation of the Railroad Revitalization and Regulatory Reform Act (4-R Act). Different taxes paid by railroads and their competitors must be compared with determining whether a tax railroads pay is discriminatory. The State and Local Legal Center (SLLC) filed an amicus brief in this case disagreeing with the Court’s first holding and agreeing with its second holding. The 4-R Act prohibits state and local governments from imposing taxes that discriminate against rail carriers (railroads). Railroads in Alabama pay a four percent sales tax on diesel fuel as do other commercial and industrial purchasers. Motor carriers (trucks) pay an excise tax of 19cents per gallon and no sales tax. Water carriers pay no sales or excise tax on diesel fuel.
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CSX sued Alabama alleging that it violated the 4-R Act by requiring railroads to pay a sales tax on diesel fuel and exempting its competitors. Since CSX filed its complaint, railroads paid less in sales tax than trucks paid in excise tax. The lower court ruled in favor CSX comparing railroads to their competitors only and refusing to consider the excise tax paid by trucks. According to the Court, the comparison class depends on the theory of discrimination alleged. Here, CSX argued that a tax disadvantaged it compared to its competitors so competitors are the comparison class. But the comparison class also must be “similar situated” to the railroad. Competitors could be a “similarly situated” class “since discrimination in favor of that class most obviously frustrates the purpose of the 4-R Act,” including restoring financial stability to railroads and fostering competition between railroads and other modes of transportation. The Court also concluded “[t]here is simply no discrimination when there are roughly comparable taxes.” So the lower court must compare the sales tax railroads pay and the
SOUTH DAKOTA MUNICIPALITIES
