Federal appeals court: Alabama discriminates against railroads in payment of state fuel tax
The U.S. 11th Court of Criminal Appeals issued its opinion in CSX Transportation, Inc.’s appeal in its 2008 lawsuit against the Alabama Department of Revenue.
CSX pays a 4 percent sales tax whenever it purchases diesel fuel in the state, according to the appeals court opinion. “CSX’s main competitors in the state–interstate motor and water carriers–do not,” according to the opinion.
“We conclude that the sales tax is indeed discriminatory and that the State has not offered a “sufficient justification” for exempting CSX’s competitors,” according to the opinion.
Initially, after a district court dismissed the complaint, the 11th Circuit affirmed the dismissal based on the court’s previous ruling in Norfolk Southern Railroad Co. v. Alabama Department of Revenue. That ruling “established the rule that a railroad could not challenge its competitors’ exemptions from a sales tax as discriminatory,” according to the opinion.
CSX appealed and the Supreme Court overruled the 11th Circuit’s decision in Norfolk, and held that CSX could challenge the state’s sales and use taxes as discriminatory.
The 11th Circuit then sent the case back to the district court, which conducted a trial and issued an order holding that the State’s sales tax did not discriminate against CSX, according to the opinion. “The district court reasoned that because the State’s motor carriers paid a roughly equivalent amount in taxes pursuant to the State’s fuel excise tax, the motor carriers’ exemption from the sales tax was not discriminatory. The district court had found that “the tax rate imposed per gallon of diesel fuel for rail carriers and motor carriers is essentially the same”
As for water carriers, the district court ruled that CSX had offered “no evidence regarding the purported discriminatory effect as it relates to water carriers.”
CSX appealed, leading to today’s 11th Circuit opinion.
“In short, after establishing a comparison class of competitors and showing that its competitors did not pay the sales tax on diesel fuel purchases, CSX made a prima facie showing of discrimination under (the Railroad Revitalization and Regulation Reform Act of 1976),” the appeals court ruled.
“The burden shifted to the state to provide a ‘sufficient justification’ for the exemptions. It did not. We reverse the district court, hold that the State’s sales tax violates the 4-R Act (Railroad Revitalization and Regulation Reform Act), and remand to the district court with instructions to enter declaratory and injunctive relief in favor of CSX consistent with this opinion.”