State and Local Legal Center Files Amicus Brief in Railroad Tax Case

The State and Local Legal Center has filed an amicus brief in Alabama Department of Revenue v. CSX Transportation, a case that questions whether a state discriminates against rail carriers, or railroads, in violation of federal law even when rail carriers pay less in total state taxes than motor carriers, or trucks. Forty-two states exempt motor carriers from sales tax on diesel fuel.

At issue in the case is whether states can require commercial and industrial businesses—including railroads—to pay sales and use taxes when a railroad’s competitor is granted exemptions. Railroads in Alabama pay a 4 percent sales tax on diesel fuel. Trucks pay an excise tax of 19 cents per gallon and no sales tax. 

The Railroad Revitalization and Regulatory Reform Act—known as 4-R—prohibits state and local governments from imposing taxes that discriminate against railroads. Since CSX filed its complaint, railroads paid less in sales tax than trucks paid in excise tax. But the 11th Circuit refused to compare the total taxation of railroads and trucks to avoid the “Sisyphean burden of evaluating the fairness of the State’s overall tax structure.” Instead, the court concluded Alabama’s sales tax on railroads violates 4-R because motor carriers don’t pay it.

The SLLC brief argues that given state’s traditional power to tax, the court should interpret 4-R narrowly. The brief suggests the court could take three approaches to rule in favor of Alabama.

  • First, it could compare the tax treatment of rail carriers to all commercial and industrial taxpayers in the state—who all pay sales tax—instead of only railroad competitors. 
  • Second, the court could ignore the labels of sales and excise tax and compare the amount railroads and their competitors pay in total taxes. 
  • Third, the court could note the relevant differences between railroads and their competitors. For example, water carriers traditionally have been exempt from all taxes on diesel fuel because of constitutional concerns about taxing vessels in navigable waters.

Finally, the SLLC brief points out that “(r)uling in favor of CSX would threaten states’ ability to take in tax revenue, an ability already impeded by current economic conditions. This court must not allow 4-R to shield CSX—a $12 billion nationwide corporation—and other rail carriers from paying millions of dollars in taxes that fund vital public services. Congress did not intend for 4-R to enrich large corporations by impoverishing the States.”

All members of the Big Seven joined the SLLC brief, along with SLLC associate members, the International Municipal Lawyers Association and the Government Finance Officers Association. Sarah Shalf of the Emory Law School Supreme Court Advocacy Project wrote the SLLC brief.