Midwest Railcar Repair Inc. v. South Dakota Dep't of Revenue, 10–2630.

• Decision Date: 14 October 2011
• Docket Number: No. 10–2630.,10–2630.
• Citation: 659 F.3d 664
• Parties: MIDWEST RAILCAR REPAIR, INC., Appellant,v.SOUTH DAKOTA DEPARTMENT OF REVENUE AND REGULATION, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

659 F.3d 664

MIDWEST RAILCAR REPAIR, INC., Appellant,

v.SOUTH DAKOTA DEPARTMENT OF REVENUE AND REGULATION, Appellee.

No. 10–2630.

United States Court of Appeals, Eighth Circuit.

Submitted: Feb. 16, 2011.Filed: Oct. 14, 2011.

Shane E. Eden and Cheryle Wiedmeier Gering, argued, Sioux Falls, SD, for appellant.John T. Richter, argued, Meghan Jo Sonstegard, AAG, on the brief, Pierre, SD, for appellee.Before RILEY, Chief Judge, WOLLMAN, and BYE, Circuit Judges.WOLLMAN, Circuit Judge.

This action by Midwest Railcar Repair, Inc. (Midwest) against the South Dakota Department of Revenue and Regulation (the Department), seeks a declaration that South Dakota has a taxation scheme that violates a provision of the federal Railroad Revitalization and Regulatory Reform Act (4–R Act), namely, 49 U.S.C. § 11501(b)(4). The complaint alleges in part that “[t]he 4–R Act's bar on discriminatory taxes against rail carriers extends to Midwest Railcar Repair.” Following discovery, both Midwest and the Department moved for summary judgment. The district court denied Midwest's motion and granted the Department's, concluding that our cases “do no support extending the protections of the 4–R Act to Midwest,” D. Ct. Order of June 23, 2010, at 6, a “privately owned compan[y] ... that service[s] railroad carriers,” id., at 4. Midwest appeals.

The history of the 4–R Act has been well summarized by the United States Supreme Court: “[R]ailroads are easy prey for State and local tax assessors in that they are nonvoting, often nonresident, targets for local taxation, who cannot easily remove themselves from the locality.” Dep't of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 336, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994) (internal quotation marks omitted). So to remove the “temptation to excessively tax” railroads “to subsidize general welfare spending,” W. Air Lines, Inc. v. Bd. of Equalization of S.D., 480 U.S. 123, 131, 107 S.Ct. 1038, 94 L.Ed.2d 112 (1987), Congress enacted the 4–R Act to restore the financial stability of the nation's railway system, one of the means of achieving that goal being the 4–R Act's prohibition of certain “state and local taxation schemes that discriminate against rail carriers.” CSX Transp., Inc. v. Ala. Dep't of Revenue, ––– U.S. ––––, 131 S.Ct. 1101, 1105, 179 L.Ed.2d 37 (2011).

I.

A. The Taxation Scheme

Repair services in South Dakota—including those provided by Midwest—are subject to a sales and complementary use tax. See S.D. Codified Laws §§ 10–45–4, 10–46–2.1.¹ Similarly, the parts and other “tangible personal property” used in those repairs are subject to a sales and complementary use tax. See id. §§ 10–45–2, 10–46–2.

There is no use tax, however, on the “tangible personal property that is used or consumed or stored for use and consumption in the service, repair, or maintenance of” aircraft “used in air commerce.” See id. §§ 10–29–1(4), 10–29–18. Rather, those aircraft are taxed, as a general matter, on their total value. See id. § 10–29–14.² Midwest's complaint is that South Dakota's imposition of a use tax on the “tangible personal property” Midwest uses to repair railcars, while exempting “tangible personal property” used to repair aircraft, violates the 4–R Act because it is tantamount to imposing “another tax that discriminates against a rail carrier.” 49 U.S.C. § 11501(b)(4).

B. Midwest

Midwest is a South Dakota corporation “in the business of repairing and refurbishing railcars for rail carriers.” Compl. ¶ 2. Its current owner and president, Greg Carmon, has worked for the company since 1979, at which time it was called the North American Car Corporation. Carmon Dep. at 5:22–6:16. In 1984, General Electric bought the company, and in 1988, Carmon bought it from General Electric. Id.

According to Carmon, Midwest repairs “about 200 [rail]cars a month,” and its facilities can “hold about 650 cars” at any one time. Id. at 11:22–25. It works on railcars of “[a]ll types with the exception of locomotives, cabooses, [and] auto racks.” Id. at 12:9–11. Most of the railcars Midwest repairs are “own[ed], purchase[d] and/or lease[d]” by rail carriers. Midwest's Answers to Department's Interrogs., at 3. Recently, its largest customer has been the Burlington Northern Santa Fe railroad. Carmon Dep. at 11:7–11. But neither Burlington Northern Santa Fe nor “any other of [Midwest's] customers have any control over [Midwest's] operation.” Id. at 12:1–5.

In addition to repairing railcars owned or leased by rail carriers, Midwest repairs railcars owned by Carmon's two other companies, CarMath and M & C Railcar (M & C). See id. at 10:16–19. These companies “own and lease railroad cars,” id. at 7:8–12, to “probably ... 50 different customers,” including “General Mills, Cargill, ADM, DM & E Railroad, [and] Burlington Northern,” id. at 10:16–11:6.

The relationship between Midwest, CarMath, and M & C is not clearly developed in the record. Although the Department describes CarMath and M & C as “subsidiary companies” of Midwest, Answer ¶ 3, Carmon describes CarMath and M & C as “other companies, entities [he] own[s],” Carmon Dep. at 7:11–12. The three companies apparently are sufficiently related to qualify for South Dakota's controlled-group tax exemption, see Palmer Dep. at 17:6–18:4, which, as a general matter, exempts one controlled-group member from the sales taxes it would otherwise be required to pay on the gross receipts from rendering services to another controlled-group member, see S.D. Codified Laws § 10–45–20.1. But, other than Carmon's sole ownership of all three companies, the record contains no evidence that Midwest, CarMath, and M & C share a common corporate structure or should otherwise be considered a single entity.

C. The Claims

Before we turn to the question whether the district court properly granted summary judgment, we must identify the claim or claims that Midwest has brought. The 4–R Act

bars States and localities from engaging in four forms of discriminatory taxation. Section 11501(b) describes the prohibited practices. It begins with three provisions addressed specifically to property taxes; it concludes with a catch-all provision concerning other taxes.

CSX Transp., Inc., 131 S.Ct. at 1105 (citation omitted).

Sections 11501(b)(1) through (3), addressing discriminatory property taxes, are not at issue here. Midwest's claim is that South Dakota's taxation scheme violates the catch-all provision, § 11501(b)(4), which prohibits states from “impos[ing] another tax that discriminates against a rail carrier providing transportation....”

Most of the challenges brought under § 11501(b)(4), like those brought under § 11501(b)(1) through (3), are brought by rail carriers directly. See, e.g., CSX Transp., Inc., 131 S.Ct. 1101; Burlington N. R.R. Co. v. City of Superior, Wis., 932 F.2d 1185 (7th Cir.1991). This is not surprising, since “[ ]other tax[es]” that explicitly single out rail carriers—the very entities Congress named in § 11501(b)(4)—are readily identifiable and “immediately suspect.” See Trailer Train Co. v. State Tax Comm'n, 929 F.2d 1300, 1305 (8th Cir.1991) (Gibson, J., dissenting); cf. CSX Transp., Inc., 131 S.Ct. at 1110–13 (reiterating that property-tax exemptions discriminatorily denied rail carriers are permitted by § 11501(b)(1) through (3) “and accordingly § 11501(b)(4)'s prohibition could not include them”). And, because we do not examine “a state's overall tax structure” to look for “actual fairness” in taxation, but instead look only at whether the specific taxes paid by the railroads are also paid by its competitors, see Burlington N., Santa Fe Ry. Co. v. Lohman, 193 F.3d 984, 986 (8th Cir.1999), taxes that explicitly single out rail carriers often will be found to “discriminate[ ] against a rail carrier.”

Sometimes, however, claims for violations of the Act are brought by entities other than rail carriers. See, e.g., Dep't of Revenue of Or., 510 U.S. 332, 114 S.Ct. 843; Trailer Train Co. v. State Bd. of Equalization, 710 F.2d 468 (8th Cir.1983). In Trailer Train Co., we considered a challenge to North Dakota's taxation scheme brought by two corporations, Trailer Train and Railbox (together, the Carlines), which were “in the business of providing standardized railroad flat cars to railroad companies.” Id. at 469. The Carlines had been “formed by thirty-two operating railroads, each of which became a shareholder ... and a guarantor of certain [Carline] debt obligations,” for the purpose of meeting “the demand for a nationwide fleet of flat cars.” Id. at 469.

The Carlines would

acquire railroad cars by lease or purchase and furnish them, pursuant to car-service contracts, to railroads operating throughout the United States. Under these car-service contracts, the Carlines provide[d] sufficient numbers of cars to meet the railroads' demands in exchange for the railroads' payment of a per diem charge (and for some cars, an additional per mile charge), for the use of each car furnished. The [Interstate Commerce Commission] regulations and the car-service contracts require[d] the Carlines to keep their rates for car service at the “lowest level possible.” The Carlines retain[ed] responsibility for the expenses and maintenance of all cars in their pool, including ad valorem taxes.

Id. at 469–70.

North Dakota had imposed an ad valorem property tax on the Carlines' personal property, i.e., the railcars they “furnished to operating railroads,” but had exempted from such taxation the personal property of effectively all other “commercial and industrial taxpayers['].” Id. at 470. The Carlines sued the North–Dakota governmental units responsible for assessing and collecting the tax, asserting that North Dakota's taxation scheme violated the catch-all provision of the 4–R Act. At that time, the provision prohibited the “impos [ition of] another tax that discriminates against a rail carrier providing transportation,” see 49 U.S.C. § 11503(b)(4) (Supp. III 1976), although we appli...