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California HazMat Tax on Railroads Blocked

A federal judge has blocked a California law that would tax trains — but not trucks — that carry hazardous materials, to pay for training and emergency responses to accidents involving the dangerous substances.

U.S. District Judge Richard Seeborg on Friday granted BNSF and Union Pacific Railways' request for a preliminary injunction, finding the railroads likely to succeed on the merits of some of their arguments.

"The public interest does not weigh against such relief," Seeborg wrote.

BNSF and Union Pacific sued the state in August, claiming Senate Bill 84 of 2015 unfairly forces railroads and their clients pay for emergency response and preparedness even though truck accidents are more frequent. The law required the railroads to be ready to collect the fees as of Oct. 1 this year.

Railroads were to charge $45 for each railcar carrying hazardous materials, such as ethanol and crude oil, loaded in or coming into California.

The railroads said the fee would drive away their business to truckers, and that only the federal government can regulate interstate railroads.

"California's scheme will disserve the public interest, either by encouraging shippers to switch to riskier modes of transportation, or by simply discouraging interstate commerce in hazardous materials that are vital to the nation's industrial and agricultural economy," the railroads said in their lawsuit.

Seeborg found that California failed to show that charging railroads but not other forms of transportation complies with the Hazardous Materials Transportation Act. He noted that the fees could be used to pay for emergency responses to trucking accidents.

Seeborg agreed that the fee acts as a tax, supporting the railroads' claim that the law is unfair under the Hazardous Materials Transportation Act.

"As the railroads point out, merely requiring reimbursement of equipment operating expenses does not excuse saddling the rail industry with the cost of acquiring equipment that very well could be used by the trucking industry as much or more than by the rail industry," Seeborg wrote.

The railroads said the California Legislature rejected a similar law that would have charged rail and trucking companies a hazardous materials fee.

The state argued in opposition that a train can carry more hazardous material than a truck, making a train accident much more harmful. California also claimed that its emergency response system for trucking accidents with hazardous materials is adequate, but its emergency response system for rail accidents is not.

"The public's interest in assessing a minimal fee designed to protect the shippers of hazardous materials by mitigating the damage caused by a spill clearly outweighs the potential harm caused by having to collect the fee," the state said in its argument against the injunction.

But Seeborg found that the railroads showed that their business will take a hit if they're required to collect the fees while the litigation continues.

"If the fees take effect and the law is later ruled invalid, the railroads have established that the fees will drive at least some business to trucking — damages that they will not be able to recover against the state," Seeborg wrote.

BNSF is represented by Benjamin Horwich with Munger, Tolles and Olson; Union Pacific by Carol Thompson with Sidley Austin, both of San Francisco.

BNSF could not be reached for comment Friday evening.

A Union Pacific spokesman said the railroad had no comment.

The state of California also declined to comment.

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