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Tuesday, June 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

High Court Revives Suit Alleging Unfair Rail Tax

(CN) - A railroad can sue the Alabama government for discriminating against rail carriers by imposing a diesel fuel tax on certain companies while exempting their competitors, the U.S. Supreme Court ruled 7-2 on Tuesday.

Justice Elena Kagan, writing for the majority, found that such excise taxes are barred by the Railroad Revitalization and Regulatory Reform Act of 1976.

CSX Transportation, which operates and pays taxes in Alabama, faces sales and use taxes of 4 percent each for diesel fuel in the state, while truckers and water carriers are exempt. The District Court dismissed the suit, and the 11th Circuit affirmed, citing a similar case it heard over a railroad's challenge to an allegedly discriminatory property tax.

The 11th Circuit had relied on a 1994 decision from the Supreme Court, Department of Revenue of Oregon v. ACF Industries. In reversing the lower court's decision, Kagan wrote that excise tax exemptions do not merit the same analysis and that a ruling to the contrary would not create "inconsistent or anomalous results."

"We stand foursquare behind our decision in ACF Industries, but we will not extend it in the way the state wishes," Kagan wrote, adding that the 11th Circuit may have "misread that decision."

Although the distinction on exemptions for property and other taxes may not make "a whit of sense," the majority said it must uphold that "sharp line" drawn by Congress.

"Neither CSX nor the United States as amicus curiae has offered a satisfying reason for why Congress drew this line," Kagan noted. "Even if Congress had a good reason for distinguishing between property and non-property tax exemptions, we acknowledge that it eludes us."

The court disagreed with Alabama's argument that it should adopt a similar approach to excise taxes as property taxes.

"Alabama's preference for symmetry cannot trump an asymmetrical statute," Kagan wrote. "And its preference for the greatest possible latitude to levy taxes cannot trump Congress's decision to restrict discriminatory taxation of rail carriers."

In oral arguments, Justice Antonin Scalia cautioned that a broad interpretation of discrimination could find unfair treatment if the state gave widows older than 85 an exemption not available to railroads.

Justice Clarence Thomas, joined by Justice Ruth Bader Ginsberg, dissented from the majority. The opinion states that while the Alabama sales and use taxes could violate the act, "a tax exemption scheme must target or single out railroads by comparison to general commercial and industrial taxpayers."

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