CSX Transportation, Inc. v. Alabama Department of Revenue

PETITIONER: CSX Transportation, Inc.
RESPONDENT: Alabama Department of Revenue
LOCATION: Alabama Department of Revenue

DOCKET NO.: 09-520
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Eleventh Circuit

CITATION: 562 US 277 (2011)
GRANTED: Jun 14, 2010
ARGUED: Nov 10, 2010
DECIDED: Feb 22, 2011

ADVOCATES:
Corey L. Maze - Solicitor General of Alabama, for the respondents
Carter G. Phillips - for the petitioner
Melissa Arbus Sherry - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae supporting the petitioner
Melissa A. Sherry - on behalf of the united states as amicus curiae, supporting the petitioner

Facts of the case

CSX Transportation, Inc. ("CSX") brought suit against the Alabama Department of Revenue in an Alabama federal district court seeking an injunction to prevent the imposition of the state's sales and use tax on diesel fuel. CSX argued that the tax discriminates against railroad companies in violate of the Railroad Revitalization and Regulatory Reform Act of 1976 ("RRRR"). The district court had granted a preliminary injunction, but of its own accord, dissolved the preliminary injunction and dismissed the case.

On appeal, the U.S. Court of Appeals for the Eleventh Circuit affirmed, holding that the district court appropriately dismissed the action. The court reasoned that because it had already ruled in favor of the Alabama Department of Revenue on an identical challenge to the tax in Norfolk S. R. v. AL Dep't of Rev., the district court was correct in dismissing CSX's suit.

Question

Can the CSX Transportation railroad company challenge an Alabama state tax of its purchase of diesel fuel?

Media for CSX Transportation, Inc. v. Alabama Department of Revenue

Audio Transcription for Oral Argument - November 10, 2010 in CSX Transportation, Inc. v. Alabama Department of Revenue

Audio Transcription for Opinion Announcement - February 22, 2011 in CSX Transportation, Inc. v. Alabama Department of Revenue

Elena Kagan:

In 1976, Congress enacted the Railroad Revitalization and Regulatory Reform Act, sometimes called the “4R Act,” to restore the financial stability of railroads.

A provision of the Act prohibits state governments from discriminating against railroads through their tax systems.

The provision contains four separate prohibitions.

The first three are directed at discriminatory property taxes.

The fourth is the one at issue in this case.

It prohibits states from imposing “Another tax that discriminates against a rail carrier.”

This case involves a challenge that's brought by a railroad, CSX to an Alabama tax.

The tax is a 4% sales and use tax.

Railroads pay this tax whenever they purchase or consume diesel fuel, which of course they do a lot of.

But railroads' main competitors, motor carriers, trucks and water carriers, ships, those competitors are exempt from the tax.

What CSX said in this suit was that, Alabama sales and use tax was another tax that discriminated against railroads because railroads had to pay the tax, while these other entities, their competitors did not have to pay it.

But the Eleventh Circuit dismissed CSX's suit.

It said that the statute did not allow railroads to challenge the tax on the theory that the tax exempted other entities, and in reaching that decision, it relied on the prior decision of this Court called, ACF Industries.

We held in ACF that a railroad could not challenge a property tax based on the tax exemptions.

The Eleventh Circuit thought the same rule should apply to non-property taxes like the one in this case.

Today, we reversed the Eleventh Circuit.

We hold that a railroad can challenge a non-property tax like this one, on the ground that the tax contains exemptions.

We rely on the plain language of the prohibition, again, another tax that discriminates against a rail carrier.

First, a sales and use tax is another tax.

The meaning of that phrase is very broad.

There are lots of different kinds of taxes in the world as all of you taxpayers know, and this provision includes all of those taxes.

Second, a tax that contains exemptions can discriminate within the meaning of the statute.

Simply put, discrimination is the failure to treat people in the same way without a good reason.

So if one person has to pay a 4% tax and another identically situated person has to pay 2% tax, that's discrimination.

And the same is true if the first person has to pay a 4% tax and the second person pays 0%, nothing, which is of course what an exemption is.

That's also discrimination, it's even worse discrimination.

So with sales and use tax that contains exemptions can be challenged as discriminatory under the statute.

Now, all of this would be easy.

It would be obvious except for the case of the Eleventh Circuit relied on ACF Industries.

In that case, you'll recall, we held that a railroad could not challenge a property tax as discriminatory based on the tax exemptions.