WASHINGTON (CN) – The Supreme Court on Wednesday considered whether a diesel fuel tax imposed on railroads but not their competitors violates a federal law against imposing taxes that discriminate against rail carriers.
CSX Transportation sued Alabama in federal court, seeking a preliminary injunction against a 4 percent sales and use tax for diesel fuel imposed on rail carriers, but not truckers and water carriers. CSX said the tax violates the Railroad Revitalization and Regulatory Reform Act.
The district court granted the preliminary injunction, but vacated CSX’s complaint when the 11th Circuit decided in a similar case that the so-called “4R” Act does not prevent the state from imposing taxes that exempt rail carrier’s competitors so long as railroads are not targeted.
CSX appealed to the Supreme Court.
Carter Phillips, arguing for CSX, said the tax discriminated against railroads, which Congress wanted to prohibit in the 4R Act.
Though Justice Antonin Scalia found Phillips’ argument “viscerally appealing,” he cautioned him against relying simply on the word “discriminates” to find unfair treatment. If that were the case, Scalia said, the state would be discriminating if it made an exemption for widows older than 85 and didn’t make the same exemption for railroads.
Phillips replied that Congress only intended to protect railroads against discrimination when local interests were involved, where railroads had no political sway, and when it involved railroads’ direct competitors.
“So 85-year-old widows would be covered?” Scalia asked, arguing that they were residents with local interests.
Phillips said no, Congress was only trying to protect railroads when states became “more innovative” in imposing taxes, and leave it to the courts to determine which taxes discriminated against railroads.
Assistant Solicitor General Melissa Sherry, arguing in support of CSX, said that if the diesel tax was a separate excise tax on diesel fuel for trains and not a generally applicable sales tax from which truckers and water carriers were exempt, Alabama would concede that the tax singled out railroads.
She said Alabama was basically inserting a tax that targeted railroads into a generally applicable sales tax.
But Scalia pointed out that Congress decided the argument didn’t make sense in the part of the statute that dealt with property taxes, and asked why would it make sense for the portion of the statute dealing with nonproperty taxes.
Sherry said the latter portion specifically mentioned discrimination against rail carriers.
Alabama Solicitor General Corey Maze, arguing for Alabama, said the diesel tax was a generally applicable tax, so railroads were not being targeted. He said Congress allowed the state to apply tax exemptions, and the exemptions could not be found to discriminate under the statute.
Justice Samuel Alito asked if the state imposed a 4 percent tax on a commodity only purchased by railroads and truckers, but truckers were exempt, if that could be considered discrimination against railroads. Maze said yes, that in that case the railroads were being singled out.
Alito said that “destroyed” Maze’s exemption argument, because the case involved an exemption. Maze argued that it was no longer an exemption, but a tax solely on railroads.
“Then you need to give us a test,” Justice Anthony Kennedy said, asking when a railroad is considered singled out.
Maze said the test would be if a generally applicable tax does not single out or target railroads, then it is not subject to challenge.