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Opinion recap in CSX v. Alabama Dep’t of Revenue

On Tuesday, the Court handed down its decision in CSX Transporation v. Alabama Department of Revenue, No. 09-520, ruling in a railroad company’s favor in a dispute over fuel taxes in Alabama.

Alabama imposes a tax on diesel fuel.  Railroads must pay the tax, but state law exempts railroads’ most direct competitors (commercial trucking and water carriers) from the tax.  CSX challenged the tax as a violation of the Railroad Revitalization and Regulatory Reform Act of 1967.  That statute prohibits a state from imposing a “tax that discriminates against a rail carrier.”  The question before the Supreme Court was whether providing exemptions to a generally applicable tax, without extending the exemption to a railroad carrier, can render the tax discriminatory.

In a narrow opinion written by Justice Kagan, the Court ruled seven-to-two that exemptions can render a tax discriminatory within the meaning of the Act.  The Court first rejected Alabama’s argument that the statute applies only to so-called “gross receipt” taxes that are similar to the property taxes addressed elsewhere in the statute.  Instead, the Act prohibits discrimination against railroads with respect to any form of taxation.  The real question, Justice Kagan explained, was whether an exemption could render a tax “discriminatory.”  The Court held that it could.  If it is discriminatory to charge one group of taxpayers 2% and another 4%, the Court reasoned, it is just as discriminatory to reduce (through exemptions) the rate to 0% for the favored taxpayer.

The Court took care, however, to make clear that this did not mean that railroads are entitled to any exemption anyone else receives, giving them what amounts to “most favored taxpayer” status.  Instead, the statute prohibits withholding an exemption from a railroad only if “no reasonable distinction can be found between those favored and those not favored.”  In other words, the railroad would be required to show that it was similarly situated to those given the exemption and that there was no sufficient justification for the exclusion.

Justice Kagan recognized that applying this test could be difficult in practice.  But there was no avoiding it under the statute Congress wrote.  The Court therefore remanded the case to the lower courts to allow CSX to attempt to prove that the tax was discriminatory.

Justice Thomas dissented, joined by Justice Ginsburg.  The dissent agreed with the majority’s broad conception of the kinds of “tax” covered by the statute, and with its holding that an exemption could violate the statute.  But the dissent would have gone further and held that this particular exemption was not discriminatory.  The question should be, the dissent argued, whether railroads are treated less favorably than other commercial and industrial taxpayers as a group, not whether they are treated less favorably than their immediate competitors (i.e., motor and water carriers).  And because other commercial companies in Alabama must pay the fuel tax, the dissent would have upheld the dismissal of CSX’s claim.

Recommended Citation: Kevin Russell, Opinion recap in CSX v. Alabama Dep’t of Revenue, SCOTUSblog (Feb. 23, 2011, 12:12 PM),