Rail Stumbles in Tax|Fight With Alabama


     WASHINGTON (CN) – Alabama persuaded the U.S. Supreme Court to give it another shot Wednesday at defending a 4 percent sales tax that a rail carrier calls discriminatory.
     CSX Transportation had filed a federal complaint over the tax it pays as an interstate rail carrier whenever it buys diesel fuel in Alabama.
     That tax does not apply, however, to water carriers and motor carriers, both of which compete with CSX to ship freight in interstate commerce.
     While Alabama does not impose any tax on the diesel fuel purchases of water carriers, it requires motor carriers to pay an excise tax of 19 cents per gallon.
     For every gallon of fuel sold, Alabama distributes 13 cents collected from the fuel excise tax to its Transportation Department for the construction, repair, maintenance, and operation of public roads and bridges, and the payment of principal and interest on highway bonds. The remaining 6 cents from every gallon go to cities and counties for the construction and maintenance of roads and bridges, and to the Department of Transportation for general highway purposes.
     Sales tax revenue meanwhile feeds a general revenue fund.
     CSX’s case has been a circuitous one, having already been reinstated with a Supreme Court reversal in 2011. Though a federal judge again rejected CSX’s claim after a bench trial, the 11th Circuit reversed in its next look at the case.
     “We conclude that the sales tax is indeed discriminatory and that the state has not offered a ‘sufficient justification’ for exempting CSX’s competitors,” that July 2013 decision states.
     The Supreme Court took up the case again last year and reversed again Wednesday.
     Though the court agreed that a state tax may discriminate against a rail carrier when similar purchases made by a rail carrier’s competitors are exempted, a seven-justice majority said the lower court erred in refusing to consider Alabama’s alternative tax justifications.
     “We think Alabama can justify its decision to exempt motor carriers from its sales and use tax through its decision to subject motor carriers to a fuel-excise tax,” Justice Antonin Scalia wrote for the court.
     It is possible that “an alternative, roughly equivalent tax … renders a tax disparity nondiscriminatory,” the majority added.
     “If the task of determining when that is so is ‘Sisyphean,’ as the Eleventh Circuit called it, it is a Sisyphean task that the statute imposes,” Scalia wrote. “We therefore cannot approve of the Eleventh Circuit’s refusal to consider Alabama’s tax-based justification, and remand for that court to consider whether Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption.”
     Since the allegedly comparable tax applies to motor carriers only – water carriers pay neither tax – the high court considered Alabama’s claim that federal law compels that water-carrier exemption.
     “The Eleventh Circuit failed to examine these justifications, asserting that the water carriers were the beneficiaries of a discriminatory tax regime,” Scalia wrote. “We do not consider whether Alabama’s alternative rationales justify its exemption, but leave that question for the Eleventh Circuit on remand.”
     Justice Ruth Bader Ginsburg joined a dissent by Justice Clarence Thomas that slams the majority for prolonging “a baseless claim of discrimination that should have been dismissed long ago.”
     CSX simply failed to show that Alabama’s tax-exemption scheme singles out railroads, according to the 11-page opinion.
     Emphasizing that Alabama’s is “a generally applicable sales tax,” Thomas noted that “the only relevant good exempted from the tax is diesel on which the motor fuel tax has been paid, and no provision of law prevents rail carriers from buying such diesel.”
     “Water carriers, it is true, enjoy a special carve-out from this sales tax, but that exemption singles out water carriers, not rail carriers,” the dissent continues.
     “Even if this constellation of exemptions to Alabama’s sales tax could be said to single out rail carriers from the general class of their interstate competitors, the tax surely does not single out rail carriers as compared to commercial and industrial taxpayers,” Thomas added. “Those taxpayers are subject to exactly the same generally applicable sales and use tax regime as are rail carriers.”

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