NO. 13-553
In the Supreme Court of the United States
ALABAMA DEPARTMENT OF REVENUE,
v.
ET AL.,
Petitioners,
CSX TRANSPORTATION, INC.,
Respondent.
On Writ of Certiorari to the United States
Court of Appeals for the Eleventh Circuit
BRIEF OF THE STATES OF TENNESSEE, ARIZONA, GEORGIA,
HAWAI‘I, IDAHO, INDIANA, IOWA, MINNESOTA, NEVADA,
NORTH DAKOTA, OREGON, SOUTH DAKOTA, UTAH,
WASHINGTON, and WYOMING AS AMICI CURIAE
IN SUPPORT OF PETITIONERS
Robert E. Cooper, Jr.
Attorney General
State of Tennessee
Joseph F. Whalen
Acting Solicitor General
Counsel of Record
Charles L. Lewis
Deputy Attorney General
Talmage M. Watts
Senior Counsel
Office of the Attorney General
425 Fifth Ave. North
Nashville Tennessee 37243
(615) 741-3499
September 16, 2014
[email protected]
Counsel for Amici Curiae States
(Additional counsel listed on inside pages)
Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001
Thomas C. Horne
Attorney General of Arizona
1275 West Washington Street
Phoenix, Arizona 85007-2926
Samuel S. Olens
Attorney General of Georgia
40 Capitol Sq.
Atlanta, Georgia 30334
David M. Louie
Attorney General of Hawai‘i
425 Queen Street
Honolulu, Hawai‘i 96813
Lawrence G. Wasden
Idaho Attorney General
P 0 Box 83720
Boise Idaho 83720-0010
Gregory F. Zoeller
Attorney General of Indiana
302 W. Washington Street
IGC-South, Fifth Floor
Indianapolis, Indiana 46204
Tom Miller
Attorney General of Iowa
Iowa Attorney General’s Office
1305 East Walnut Street
Des Moines, Iowa 50319
Lori Swanson
Attorney General of Minnesota
102 State Capitol
75 Rev. Dr. Martin Luther King Jr. Blvd.
St. Paul, Minnesota 55155-1609
Catherine Cortez Masto
Attorney General for the State of Nevada
Office of the Attorney General
100 North Carson Street
Carson City, Nevada 89701
Wayne Stenehjem
Attorney General of North Dakota
600 E. Boulevard Avenue
Bismarck, North Dakota 58505-0040
Ellen F. Rosenblum
Attorney General
State of Oregon
1162 Court St. N.E.
Salem, Oregon 97301
Marty J. Jackley
Attorney General
State of South Dakota
1302 E. Highway 14, Suite 1
Pierre, South Dakota 57501-8501
Sean D. Reyes
Attorney General of Utah
Office of the Attorney General
Utah State Capitol Complex
350 North State Street Suite 230
Salt Lake City, Utah 84114-2320
Robert W. Ferguson
Attorney General of Washington
1125 Washington Street SE
PO Box 40100
Olympia, Washington 98504-0100
Peter K. Michael
Wyoming Attorney General
123 Capitol Building
Cheyenne, Wyoming 82002
i
QUESTIONS PRESENTED
1. Whether a State “discriminates against a rail
carrier” in violation of 49 U.S.C. §11501(b)(4) when the
State generally requires commercial and industrial
businesses, including rail carriers, to pay a sales and
use tax but grants exemptions from the tax to the
railroads’ competitors.
2. Whether, in resolving a claim of unlawful tax
discrimination under 49 U.S.C. §11501(b)(4), a court
should consider other aspects of the State’s tax scheme
rather than focusing solely on the challenged tax
provision.
ii
TABLE OF CONTENTS
QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . i
TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . iv
INTEREST OF THE AMICI CURIAE . . . . . . . . . . . 1
SUMMARY OF THE ARGUMENT . . . . . . . . . . . . . 2
ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
I. IN AN EXEMPTION-BASED CHALLENGE
UNDER SUBSECTION (b)(4) OF THE 4-R ACT,
COURTS MUST BE ALLOWED TO CONSIDER
OTHER ASPECTS OF A STATE’S TAX
SCHEME AND NOT FOCUS SOLELY ON THE
CHALLENGED TAX PROVISION . . . . . . . . . . . 6
A. The Mere Existence of an Exemption for a
Railroad’s Competitors Cannot Constitute
Tax Discrimination Under Subsection (b)(4)
of the 4-R Act . . . . . . . . . . . . . . . . . . . . . . . . . 7
B. There Is No Tax Discrimination When a
Reasonably Equivalent Tax Burden Is
Imposed on the Same Activity . . . . . . . . . . . . 9
C. An Evaluation of the Aggregate Fairness of
Overall Tax Regimes as Applied to Different
Industries Is Neither Necessary Nor
Appropriate in an Exemption-Based 4-R Act
Challenge . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D. An Inquiry into the Allocation of Tax
Proceeds Has No Place in 4-R Act TaxDiscrimination Analysis and Is Contrary to
Congressional Intent . . . . . . . . . . . . . . . . . . 12
iii
II. T H E
TENNESSEE
EXPERIENCE
ILLUSTRATES THE DIFFICULTY STATES
ENCOUNTER IN ATTEMPTING TO
EQUALIZE THE TAX BURDENS ON
RAILROADS AND MOTOR CARRIERS . . . . . 14
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
iv
TABLE OF AUTHORITIES
CASES
Atchison, Topeka & Santa Fe Railway Co. v.
Arizona,
78 F.3d 438 (9th Cir. 1996) . . . . . . . . . . . . . . . . 13
Burlington Northern Railroad Co. v. City of
Superior,
932 F.2d 1185 (7th Cir. 1991) . . . . . . . . . . . . . . 12
CSX Transportation, Inc. v. Alabama Department of
Revenue,
131 S.Ct. 1101 (2011) . . . . . . . . . . . . . . . . . passim
Illinois Central Railroad Co. v. Tennessee
Department of Revenue,
969 F. Supp. 2d 892 (M.D. Tenn. 2013) . . . . 4, 14
Kansas City Southern Railway Co. v. Koeller,
653 F.3d 496 (7th Cir. 2011) . . . . . . . . . . . . . . . 12
Kansas City Southern Railway Co. v. McNamara,
817 F.2d 368 (5th Cir. 1987) . . . . . . . . . . . . . . . 12
Trailer Train Co. v. Missouri State Tax Commission,
929 F.2d 1300 (8th Cir. 1991) . . . . . . . . . . . . . . 12
Union Pacific Railroad Co. v. Minnesota
Department of Revenue,
507 F.3d 693 (8th Cir. 2007) . . . . . . . . . . . . . . . . 8
STATUTES
42 U.S.C. § 11501(b)(1), (3) . . . . . . . . . . . . . . . . . 7, 10
49 U.S.C. §11501(b)(4) . . . . . . . . . . . . . . . . . . passim
49 U.S.C. § 31701 to -31707 . . . . . . . . . . . . . . . . . . 10
v
49 U.S.C. § 31701(2) . . . . . . . . . . . . . . . . . . . . . . . . 10
49 U.S.C. § 31705 . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tenn. Code Ann. §§ 67-3-1401 to -1407
(2014 Supp.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
OTHER AUTHORITIES
Black’s Law Dictionary 534 (9th ed. 2009) . . . . . . . 9
John F. Due & John L. Mikesell, Sales Taxation:
State and Local Structure and Administration
85 (Urban Inst. Press 2d ed. 1994) . . . . . . . . . . . 2
Federation of Tax Administrators, State Motor
Fuels Tax Rates, available at http://www.taxadmin.
org/fta/rate/mf.pdf . . . . . . . . . . . . . . . . . . . . . . . . 2
Federation of Tax Administrators, State Sales Tax
Rates, available at http://www.taxadmin.org/fta
/rate/sales.pdf . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1
INTEREST OF THE AMICI CURIAE
The Amici States have a vital interest in how this
Court resolves the two questions presented. Railroads
carry on extensive operations and maintain a
significant presence in these states in terms of
personnel and property. State and local governments
are thus obliged to provide essential services. Salesand-use taxes1 are important revenue sources in most
states, especially in those that have no general
personal income tax.
The States seek to have the 4-R Act applied as
Congress intended, namely, as a shield against
predatory state taxation of out-of-state interests where
such interests have little or no political clout. Congress
never intended the 4-R Act to provide railroads with a
weapon for attaining “most-favored-taxpayer” status.
As Alabama correctly argues, the best protection
against discriminatory tax treatment of railroads is for
their fate to be tied to that of a large and local class of
taxpayers that have both the incentive and the political
clout to keep the tax burden as low as possible. The
States thus support Alabama in urging the adoption of
a comparison class of general commercial and
industrial taxpayers.
But the Amici States’ focus here is on the second
question presented. Allowing courts to consider other
aspects of a State’s tax scheme, which tax the same
activity, accomplishes these same goals, even if a
1
Sales tax and use tax are actually separate complementary taxes.
Use tax applies only when or to the extent that a sales tax has not
been imposed at the point of sale. For convenience they are
referred to collectively here as “sales-and-use” taxes.
2
comparison class of direct competitors is used. States
often tax railroads under one provision and motor
carriers under another provision to meet the
administrative requirements of the International Fuel
Tax Agreement (“IFTA”). Indeed, all 50 states and the
District of Columbia impose an on-road motor-fuel
excise tax as distinct from a sales tax.2 Forty-five of
the 50 states and the District of Columbia impose a
general sales tax on the purchase or use of tangible
personal property.3 Purchases of fuel for highway use,
however, are exempt from the general sales-and-use
tax in 42 of these 45 states. John F. Due & John L.
Mikesell, Sales Taxation: State and Local Structure
and Administration 85 (Urban Inst. Press 2d ed. 1994).
Under current law, the ability of any of these 42 states
to impose a generally applicable sales-and-use tax on
fuel used by railroads is impeded by the potential
exposure to 4-R Act challenges. The Amici States
therefore have a substantial interest in the outcome of
this case.
SUMMARY OF THE ARGUMENT
The Eleventh Circuit was wrong not to consider
Alabama’s motor-fuel excise tax on motor carriers as
justification for its exemption of motor carriers (and
water carriers) from the sales-and-use tax imposed on
fuel purchases by railroads. In a challenge under the
4-R Act to a state tax exemption, where the state
2
See Federation of Tax Administrators, State Motor Fuels Tax
Rates, available at http://www.taxadmin.org/fta/rate/mf.pdf.
3
See Federation of Tax Administrators, State Sales Tax Rates,
available at http://www.taxadmin.org/fta/rate/sales.pdf.
3
merely exempts one competitor from a generally
applicable sales-and-use tax but imposes a different tax
on exactly the same activity, courts should make a sideby-side comparison of the respective tax burdens on the
same activity. These tax burdens can be easily and
empirically quantified, and a comparison of the two is
neither massive in scope nor difficult to undertake. If
the respective burdens are reasonably equivalent, or if
the burden on the railroads is lighter, there can be no
tax discrimination. This Court implicitly endorsed
such an approach in CSX Transportation, Inc. v.
Alabama Department of Revenue, 131 S.Ct. 1101 (2011)
(CSX I), and it should expressly adopt it here.
A court’s consideration of different taxes on the
same activity serves the 4-R Act objective of ensuring
non-discriminatory tax burdens while accommodating
needed flexibility in State taxation.
Granting
exemptions from generally applicable taxes is a
traditional tool, and it allows States to respond to
administrative necessity. The fuel purchased or used
by motor carriers cannot be subjected to a percentagebased sales-and-use tax because IFTA requires fuel
taxes on trucks to be measured by consumption. It is
therefore nearly impossible for a State to tax railroads
and trucks in exactly the same way, because there is no
system for railroads equivalent to IFTA.
In cases where 4-R Act challenges have been made
to taxes that actually targeted railroads or were
imposed on activities in which only railroads engage,
courts have rightly declined to evaluate the overall
fairness under a State’s entire tax scheme of the
burdens imposed on the various activities engaged in
by two transportation modalities with different
4
business models. Such an evaluation would be massive
and difficult, and it would be inappropriate; such taxes
are almost per se discriminatory under subsection (b)(4)
of the 4-R Act. But exemptions are not per se
discriminatory, and there is no reason to apply this
rule to an exemption-based challenge where the
respective tax burdens on a specific activity can be
empirically quantified.
Tennessee’s experience with exemption-based
challenges under the 4-R Act demonstrates that the tax
burden on railroads cannot be adjusted to the railroads’
satisfaction. The legislature’s attempt to respond to a
district-court ruling that Tennessee’s sales-and-use tax
exemption was discriminatory under the 4-R Act, by
extending the exemption to railroads, has been met
with litigation challenging the new law. This response
by the railroads serves to emphasize that courts must
consider other aspects of a State’s taxing scheme when
offered as sufficient justification for a State tax
exemption.
ARGUMENT
Recent litigation in Tennessee (discussed more fully
in § II, infra) starkly illustrates the nature of CSX’s
claim. In 2013, a federal district court held that
Tennessee was violating the 4-R Act in the way it taxed
diesel-fuel consumption.4 At the relevant time,
railroads and water carriers paid a 7% sales or use tax
on diesel fuel, which in 2010 amounted to 16.69¢ per
4
Illinois Central R.R. Co. v. Tennessee Dep’t of Revenue, 969
F.Supp.2d 892 (M.D. Tenn. 2013), appeal pending, No. 13-6348
(6th Cir.).
5
gallon. Motor carriers were exempt from that tax but
separately paid a 17¢ per gallon motor fuel tax.5 So,
although the railroads paid the same tax as water
carriers and less than motor carriers, the railroads
successfully claimed that they were being
discriminated against in violation of the 4-R Act
because motor carriers were exempted from the
particular tax imposed on the railroads.
The following year, the Tennessee Legislature
appeared to give the railroads what they wanted,
exempting fuel purchases by railroads from the salesand-use tax, and instead imposing on them the same
per-gallon fuel tax imposed on motor carriers. But that
did not satisfy the railroads, four of which—including
CSX—filed suit alleging that the new tax scheme
violates the 4-R Act.
In short, then, CSX and its fellow railroads claim
that railroads are being discriminated against if they
are subject to Tax A and their competitors are subject
to Tax B, and that they are also being discriminated
against if they are subject to the same Tax B as their
competitors. But both propositions cannot be true, and
here neither is true. If one is “discriminated” against
when one is treated worse than another, one cannot be
discriminated against when one is treated the same as
or better than another.
The railroads claim that they are by arguing not
about their actual tax burdens (for the purchase of
5
The litigation covered the taxing years 2006-2010. The motor fuel
tax was 17¢ that entire time. The sales tax on railroads per gallon
in those years equates to 15.14¢, 15.66¢, 22.22¢, 12.77¢, and
16.69¢, respectively.
6
diesel fuel) but about the structure of the state tax
code. Such an argument, though, exalts form over
substance. The 4-R Act prohibits actual discrimination
against railroads—not mere different treatment within
the structure of a tax code.6
I. IN AN EXEMPTION-BASED CHALLENGE
UNDER SUBSECTION (b)(4) OF THE 4-R ACT,
COURTS MUST BE ALLOWED TO CONSIDER
OTHER ASPECTS OF A STATE’S TAX
SCHEME AND NOT FOCUS SOLELY ON THE
CHALLENGED TAX PROVISION.
CSX I did not hold that a state discriminates
against a railroad in violation of subsection (b)(4) of the
4-R Act whenever it applies a tax to railroads but
exempts a competitor. To the contrary, the decision
indicated that such an exemption does not violate the
4-R Act if the State “offers a sufficient justification.”
One “sufficient justification” is when the State exempts
the railroad’s competitors because those competitors
are subject to a different tax on the very same activity.
And the exemption is all the more justified when the
state tax regime—taxing railroads in provision A and
motor carriers (for example) in provision B—allows the
States to meet the administrative requirements of
IFTA.7
6
For this reason, while equivalent burdens certainly do constitute
sufficient justification for an exemption, equivalence is not
required. And Alabama has offered extensive justifications for its
water-carrier exemption. See Br. Pet. at 8-10, 20, and 37.
7
As discussed in the Interest of the Amici Curiae section, this
discussion assumes that the Court holds that the relevant
comparison class is the railroads’ direct commercial competitors.
7
A. The Mere Existence of an Exemption for a
Railroad’s Competitors Cannot Constitute
Tax Discrimination Under Subsection
(b)(4) of the 4-R Act.
In CSX I, this Court held only that “a state excise
tax that applies to railroads but exempts their
interstate competitors is subject to challenge under
subsection (b)(4).” 131 S.Ct. at 1109. “[The Court did]
not address whether CSX should prevail in that
challenge—whether, that is, Alabama’s taxes in fact
discriminate against railroads by exempting interstate
motor and water carriers.” Id. at 1114; see id. at 1107
n.5. Indeed, the Court expressly disavowed any notion
that a tax on railroads was discriminatory merely
because a competitor was exempt from that tax.
This conclusion does not . . . turn railroads into
“most-favored-taxpayers,” entitled to any
exemption (or other tax break) that a State gives
to another entity.
We hold only that
§ 11501(b)(4) enables a railroad to challenge an
excise tax or other non-property tax as
discriminatory on the basis of the tax scheme’s
exemptions.
Id. at 1109 n.8. This language is irreconcilable with
the proposition that discrimination can be based on the
mere existence of an exemption. The lower court was
therefore wrong to “look only at the sales-and-use tax
with respect to fuel to see if discrimination has
We fully agree with Alabama, however, that the relevant
comparison class under subsection (b)(4) is the same as it is under
subsections (b)(1)-(3), namely, the general class of commercial and
industrial taxpayers.
8
occurred.” Pet. App. at 13a (quoting Union Pacific R.R.
Co. v. Minnesota Dep’t of Revenue, 507 F.3d 693, 695
(8th Cir. 2007)); see also Pet. App. at 22a-23a (Cox, C.J.
dissenting) (criticizing this approach as “simplistic”).
CSX I provides substantial guidance on the
discrimination determination under subsection (b)(4):
“Whether the railroad will prevail—that is, whether it
can prove the alleged discrimination—depends on
whether the State offers a sufficient justification for
declining to provide the exemption at issue to rail
carriers.” 131 S.Ct. at 1109 n.8. If the mere existence
of an exemption were determinative, no justification
could be sufficient. But this Court has made plain that
courts have a responsibility to evaluate the sufficiency
of the justification offered by defending states:
Discrimination cases sometimes do raise knotty
questions about whether and when dissimilar
treatment is adequately justified. . . . [D]ifficult
issues can emerge when, as here, States provide
certain entities with tax exemptions. . . .
Congress has directed the federal courts to
review a railroad’s challenge; and . . . we would
flout the congressional command were we to
declare the matter beyond us.
CSX I, 131 S.Ct. at 1114. The necessary implication is
that there can, in fact, be sufficient justification and
that lower courts must evaluate the justification
offered. And one perfectly reasonable justification for
exempting railroads’ competitors from a tax on fuel is
that those competitors pay the same (or more) in taxes
on fuel consumption under a different provision of the
tax code.
9
B. There Is No Tax Discrimination When a
Reasonably Equivalent Tax Burden Is
Imposed on the Same Activity.
Subsection (b)(4) of the 4-R Act asks whether a tax
“discriminates against a rail carrier.” As the Court
explained in CSX I, “[d]iscrimination is the ‘failure to
treat all persons equally when no reasonable
distinction can be found between those favored and
those not favored.’ Black’s Law Dictionary 534 (9th ed.
2009)[.]” 131 S. Ct. at 1108. Because the railroads claim
discriminatory tax treatment, the fundamental
question is: How much tax do railroads and motor
carriers, respectively, pay the state when they
purchase, use, or consume a gallon of diesel fuel? That
is the beginning and the end of the inquiry, for it tells
us whether railroads are treated less favorably. It is
also an inquiry that courts are perfectly capable of
making.
Here, the facts are as straightforward as they can
possibly be: two quantifiable taxes imposed by the
same taxing authority on exactly the same activity,
with neither competitor being subject to the tax paid by
the other. Which is higher: tax A or tax B? The
comparison that is called for is neither massive nor
difficult. Pet. App. at 24a (Cox, C.J. dissenting). The
answer to this question is easily, quickly,
inexpensively, empirically, and precisely calculated.
And if the answer shows that the tax burden on
railroads is roughly the same or lower than the burden
on their competitors, there is no discrimination under
10
the 4-R Act.8 As a simple matter of common sense and
dictionary definitions, a state is not discriminating
against railroads if it taxes them at, say, 16¢ a gallon
for diesel fuel and taxes its competitors at, say, 20¢ a
gallon. Yet that is precisely what CSX is contending
and the Eleventh Circuit held.
A court cannot possibly determine whether a state
has “sufficient justification” for its tax exemption
without engaging in such an inquiry. Furthermore,
while state tax exemptions can be discriminatory, CSX
I, 131 S.Ct. at 1109, a court must be allowed to
consider whether a particular tax exemption actually
works merely to offset a tax burden placed elsewhere.
Matters of administrative necessity also support
consideration of equivalent taxes on identical activities.
All 48 contiguous states and bordering Canadian
provinces are parties to IFTA, the purpose of which is
to simplify the collection and reporting of taxes on
motor fuel used by motor carriers operating in more
than one jurisdiction. State participation in IFTA is
sanctioned by federal legislation. See 49 U.S.C.
§§ 31701 to 31707. IFTA requires that the fuel use tax
imposed by member jurisdictions be measured by the
consumption of fuel by a motor vehicle. See 49 U.S.C.
§§ 31701(2), 31705. Motor carriers register and file tax
8
Such a comparison of respective tax burdens is entirely consistent
with other parts of the 4-R Act, which prohibit both the assessment
of rail-transportation property at a higher ratio than that for
commercial and industrial property and the levy or collection of
property tax on rail-transportation property that exceeds the rate
for commercial and industrial property. 42 U.S.C. § 11501(b)(1),
(3). The very concept of whether one thing is “higher” than or
“exceeds” another is without meaning absent a quantitative
comparison.
11
returns in a single base jurisdiction, which, in turn, is
responsible for distributing the tax proceeds to other
jurisdictions in which the carrier operates. Motor
carriers receive in each jurisdiction a credit or refund
for taxes paid on fuel used outside the jurisdiction
where it was purchased. There is no similar multistate agreement with respect to fuel purchased, used,
or consumed by railroads.
It is thus virtually
impossible for states to tax railroads and trucks exactly
the same way on their respective purchases and uses of
fuel.9
C. An Evaluation of the Aggregate Fairness of
Overall Tax Regimes as Applied to
Different Industries Is Neither Necessary
Nor Appropriate in an Exemption-Based 4R Act Challenge.
Rather than follow this Court’s instructions in CSX
I, the Eleventh Circuit relied on circuit-court
precedents and declined to compare the respective tax
burdens. Pet. App. at 13a. But the comparison called
for here is unlike the one contemplated by these circuitcourt decisions, i.e., one that would require an
evaluation of the tax burdens of a state’s entire tax
scheme on the various activities engaged in by two
transportation modalities with different business
models. Courts have rightly declined to undertake that
kind of evaluation—but for reasons having no bearing
on whether Alabama’s motor-fuels tax can justify the
exemption of motor carriers from its sales-and-use tax.
9
See discussion at Section II, infra.
12
In the first instance, such an evaluation is fraught
with uncertainty and extremely burdensome, if not
impossible. More importantly, it is inappropriate; the
cases in which courts have declined that evaluation
involved taxes targeted at railroads or at activities in
which only railroads engage. See, e.g., Trailer Train
Co. v. Missouri State Tax Comm’n, 929 F.2d 1300,
1302-03 (8th Cir. 1991); Burlington Northern R.R. Co.
v. City of Superior, 932 F.2d 1185, 1186-88 (7th Cir.
1991); Kansas City Southern Ry. Co. v. McNamara,
817 F.2d 368, 375 (5th Cir. 1987). Such taxes are
almost per se discriminatory under subsection (b)(4).
See Kansas City Southern Ry. Co. v. Koeller, 653 F.3d
496, 510 (7th Cir. 2011); City of Superior, 932 F.2d at
1186-88. These taxes are targeted at railroads as
entities—at the activity of railroading. The source of
discrimination is the tax itself, and the level of the
burden it imposes is thus irrelevant.
But the tax at issue here does not target railroads,
and it is not imposed on activities in which only
railroads engage. Indeed, the challenge here is to a tax
exemption. There is simply no reason for the per se
rule to be applied in an exemption-based challenge
where one can empirically quantify the respective tax
burdens on a specific activity in which both modalities
engage.
D. An Inquiry into the Allocation of Tax
Proceeds Has No Place in 4-R Act TaxDiscrimination Analysis and Is Contrary to
Congressional Intent.
Respondent has previously argued that the salesand-use tax on railroads cannot be equated with the
fuel-excise tax on motor carriers because proceeds from
13
the latter are devoted to highway construction and
maintenance, whereas (in some states) proceeds from
sales taxes paid by railroads are not allocated to
railroads, which must bear the expenses of maintaining
their own private rights-of-way. But this argument
does not address relative tax burdens, and what the 4R Act forbids are discriminatory tax burdens. The Act
says nothing about a state’s allocation of tax proceeds,
and there is no suggestion in the 4-R Act that a
determination of tax discrimination can or should be
made by reference to the manner in which a state
chooses to allocate its tax proceeds. See Atchison,
Topeka & Santa Fe Ry. Co. v. Arizona, 78 F.3d 438, 443
(9th Cir. 1996) (“The 4-R Act reaches only tax burdens
and not tax benefits.”), abrogated on other grounds by
CSX I, 131 S.Ct. 1101.
The best evidence of congressional intent is the
language of the 4-R Act, specifically the first three
subsections, which deal with property taxes. These
subsections define tax discrimination in terms of
assessment ratios and tax rates. They say nothing
about tax benefits or the allocation of proceeds. Indeed,
under subsections (b)(1), (b)(2), and (b)(3), a railroad
cannot state a claim by alleging that every penny of
property-tax proceeds derived from railroads is
allocated to highway maintenance and construction.
This is because if property-tax rates are not
discriminatory, then there is no violation regardless of
how the proceeds, as a matter of policy, are spent.
There is no authority for the notion that Congress
intended for tax discrimination under subsection (b)(4)
to be determined any differently. Pet. App. at 27a n.5
(Cox, C. J., dissenting) (explaining that the burden of
maintaining private rights-of-way is not a tax burden
14
and that Congress did not intend the 4-R Act to
eliminate a fundamental competitive disadvantage).
The 4-R Act was never intended to be a tool for
micromanaging state legislatures’ expenditures of their
tax dollars, and this Court should decline to apply it in
that manner.
Respondent’s argument confuses the issue of tax
discrimination with fundamental differences in
business models and the expenses inherent in
operating a transportation system on private rights-ofway. Public roads and railroads are not analogous.
Public roads are public commodities on which all
persons depend for many things, including general
commerce and the mere ability to move from one place
to another without trespassing on private property.
States thus have a vital interest in maintaining a
system of public ways conducive to economic activity
and for the general benefit of all persons, including
railroads. The obligation of the States to maintain
these public ways was never intended by Congress to
be an Achilles heel by which railroads, acting under the
4-R Act, could elevate themselves to the status of
“most-favored taxpayers.”
II. T H E
TENNESSEE
EXPERIENCE
ILLUSTRATES THE DIFFICULTY STATES
ENCOUNTER IN ATTEMPTING TO
EQUALIZE THE TAX BURDENS ON
RAILROADS AND MOTOR CARRIERS.
In Illinois Central Railroad Co. v. Tennessee
Department of Revenue, 969 F.Supp.2d 892 (M.D. Tenn.
2013), appeal pending, No. 13-6348 (6th Cir.), the
district court held that Tennessee’s imposition of salesand-use tax on the railroad’s purchase and use of diesel
15
fuel was discriminatory because motor carriers were
exempted—even though motor carriers paid even
higher taxes on diesel fuel under the state’s motor-fuel
excise tax. The district court reached this conclusion
despite undisputed evidence that motor carriers had
been subject to a separate fuel excise tax since 1941, six
years before the enactment of the sales-and-use tax;
that motor carriers, from 1941 through 2010, had paid
more tax per gallon of fuel than railroads had paid in
every year except one; and that Tennessee’s obligations
under IFTA, which is essentially mandated by federal
law, made it virtually impossible for fuel purchases by
the two transportation modes to be taxed exactly the
same way.
In response to that ruling, the Tennessee General
Assembly enacted the Transportation Fuel Tax Equity
Act, effective July 1, 2014. See 2014 Tenn. Pub. Acts,
ch. 908 (codified at Tenn. Code Ann. §§ 67-3-1401 to
-1407 (2014 Supp.)). The Act exempts fuel purchases
by railroads from sales-and-use tax and imposes on
them the same per-gallon fuel tax imposed on motor
carriers.
Under the new law, the amount of tax owed to
Tennessee is determined by multiplying the per-gallon
tax rate by the number of gallons consumed in
Tennessee. This scheme does not change the taxation
of motor carriers, or the amount of revenue received
from them, because under IFTA motor carriers are
taxed in each state on all gallons consumed in that
state. The amount of revenue received from railroads,
however, is impacted because the Commerce Clause
prohibits states from taxing fuel consumed in a state
when sales taxes have been paid on its purchase in
16
another state. Railroads in Tennessee are thus allowed
a credit for the amount of sales taxes paid elsewhere on
fuel ultimately consumed in Tennessee.10 The net
effect of the new law, designed to remove the
discrimination identified by the district court, is that
railroads are treated preferentially to motor carriers,
which must pay the diesel tax on all gallons of fuel
consumed in Tennessee regardless of where it is
purchased. This loss in revenues will impact the shortline railroads and the communities those railroads
serve in Tennessee because tax revenues collected from
railroads’ fuel purchases are used to fund the State’s
short-line railroad track and bridge rehabilitation
program.
Nevertheless, on June 30, 2014, CSX
Transportation Co., Illinois Central Railroad Co., and
BNSF Railway Co. all filed 4-R Act actions in federal
district court challenging the Act on grounds that
water carriers, which continue to pay sales tax on fuel
purchases, are exempt from the Act and alleging that
the Act targets railroads. Norfolk Southern Railway
Co. filed a substantially similar action shortly
thereafter.11
10
Illinois, Oklahoma, and Arizona, all of which are within a
locomotive’s range of Tennessee without the need to refuel, impose
sales taxes on fuel purchases by railroads.
11
These new cases are CSX Transortation Co. v. Tennessee
Department of Revenue (No. 3:14-cv-01400) (M.D.Tenn.); Illinois
Central Railroad Co. v. Tennessee Department of Revenue (No.
3:14-cv-01401) (M.D.Tenn.); BNSF Railway Co. v. Tennesee
Department of Revenue (3:14-cv-01399) (M.D.Tenn.); and Norfolk
Southern Railway Co. v. Tennessee Department of Revenue (No.
3:14-cv- 01472) (M.D.Tenn.).
17
This experience demonstrates that the tax burden
on railroads cannot be adjusted to the railroads’
satisfaction, even if they receive preferential
treatment. It also demonstrates the true nature of
the so-called “discrimination” to which the railroads
claim to be subjected. They are not claiming that, in
any substantive way, they are being treated worse than
their competitors with respect to taxation on diesel
fuels. Their complaint, in the end, is that the state is
imposing these respective taxes in two separate
provisions of its tax code.
But the 4-R Act addresses genuine discrimination—
treating one group worse than another group. Section
(b) begins by listing “acts [that] unreasonably burden
and discriminate against interstate commerce.” And
subsection (b)(4) proscribes the imposition of “another
tax that discriminates against a rail carrier.” The Act
does not purport to address, much less mandate, how
states should go about structuring their tax code and
imposing tax obligations in the first place. So when the
railroads claim “discrimination” on the basis of a tax
exemption afforded to their competitors, and a State
offers an equivalent tax on the same activity as
justification for declining to provide that exemption to
rail carriers, courts must be allowed to look beyond the
exemption and to consider those different taxes placed
on railroads and their competitors.
18
CONCLUSION
The judgment of the United States Court of Appeals
for the Eleventh Circuit should be reversed.
Respectfully submitted,
Robert E. Cooper, Jr.
Attorney General
State of Tennessee
Joseph F. Whalen
Acting Solicitor General
Counsel of Record
Charles L. Lewis
Deputy Attorney General
Talmage M. Watts
Senior Counsel
Office of the Attorney General
425 Fifth Ave. North
Nashville Tennessee 37243
(615) 741-3499
[email protected]
Counsel for Amici Curiae States