Ala. Dep't of Revenue v. CSX Transp., Inc.

• Decision Date: 04 March 2015
• Docket Number: No. 13–553.,13–553.
• Parties: ALABAMA DEPARTMENT OF REVENUE, et al., Petitioners v. CSX TRANSPORTATION, INC.
• Court: U.S. Supreme Court

575 U.S. 21

135 S.Ct. 1136

191 L.Ed.2d 113

ALABAMA DEPARTMENT OF REVENUE, et al., Petitioners

v.CSX TRANSPORTATION, INC.

No. 13–553.

Supreme Court of the United States

Argued Dec. 9, 2014.

Decided March 4, 2015.

Andrew L. Brasher, Solicitor General, for Petitioners.

Elaine J. Goldenberg, for the United States as amicus curiae, by special leave of the Court, supporting neither party.

Carter G. Phillips, Washington, DC, for Respondent.

Mark Griffin, Chief Legal Counsel, Margaret Johnson McNeill, Keith Maddox, Assistant Attys. General, Montgomery, AL, Luther Strange, Alabama Attorney General, Andrew L. Brasher, Solicitor General, Counsel of Record, Megan A. Kirkpatrick, Assistant Solicitor General, Montgomery, AL, for Petitioners.

Ellen M. Fitzsimmons, Jacksonville, FL, Joel W. Pangborn, Jacksonville, FL, Peter J. Shudtz, Washington, DC, Carter G. Phillips, Counsel of Record, Jacqueline G. Cooper, Paul J. Sampson, Sidley Austin LLP, Washington, DC, James W. McBride, Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC, Washington, DC, Stephen D. Goodwin, Baker, Donelson, Bearman, Caldwell, & Berkowitz, PC, Memphis, TN, for Respondent.

Justice SCALIA delivered the opinion of the Court.

Federal law prohibits States from imposing taxes that "discriminat[e] against a rail carrier." 49 U.S.C. § 11501(b)(4). We are asked to decide whether a State violates this prohibition by taxing diesel fuel purchases made by a rail carrier while exempting similar purchases made by its competitors; and if so, whether the violation is eliminated when other tax provisions offset the challenged treatment of railroads.

I

Alabama taxes businesses and individuals for the purchase or use of personal property. Ala.Code §§ 40–23–2(1), 40–23–61(a) (2011). Alabama law sets the general tax rate at 4% of the value of the property purchased or used. Ibid.

The State applies the tax, at the usual 4% rate, to railroads' purchase or use of diesel fuel for their rail operations. But it exempts from the tax purchases and uses of diesel fuel made by trucking transport companies (whom we will call motor carriers) and companies that transport goods interstate through navigable waters (water carriers). Motor carriers instead pay a 19–cent–per–gallon fuel-excise tax on diesel; water carriers pay neither the sales nor fuel-excise tax on their diesel. § 40–17–325(a)(2), and (b); § 40–23–4(a)(10) (2014 Cum. Supp.). The parties stipulate that rail carriers, motor carriers, and water carriers compete.

Respondent CSX Transportation, a rail carrier operating in Alabama and other States, believes this asymmetrical tax treatment "discriminates against a rail carrier" in violation of the alliterative Railroad Revitalization and Regulation Reform Act of 1976, or 4–R Act. 49 U.S.C. § 11501(b)(4). It sought to enjoin petitioners, the Alabama Department of Revenue and its Commissioner (Alabama or State), from collecting sales tax on its diesel fuel purchases.

At first, the District Court and Eleventh Circuit both rejected CSX's complaint. CSX Transp., Inc. v. Alabama Dept. of Revenue, 350 Fed.Appx. 318 (2009). On this lawsuit's first trip here, we reversed. We rejected the State's argument that sales-and-use tax exemptions cannot "discriminate" within the meaning of subsection (b)(4), and remanded the case for further proceedings. CSX Transp., Inc. v. Alabama Dept. of Revenue, 562 U.S. 277, 296–297, 131 S.Ct. 1101, 179 L.Ed.2d 37 (2011) (CSX I ).

On remand, the District Court rejected CSX's claim after a trial. 892 F.Supp.2d 1300 (N.D.Ala.2012). The Eleventh Circuit reversed. 720 F.3d 863 (2013). It held that, on CSX's challenge, CSX could establish discrimination by showing the State taxed rail carriers differently than their competitors—which, by stipulation, included motor carriers and water carriers. But it rejected Alabama's argument that the fuel-excise taxes offset the sales taxes—in other words, that because it imposed its fuel-excise tax on motor carriers, but not rail carriers, it was justified in imposing the sales tax on rail carriers, but not motor carriers. Ibid .

We granted certiorari to resolve whether the Eleventh Circuit properly regarded CSX's competitors as an appropriate comparison class for its subsection (b)(4) claim. 573 U.S. ––––, 134 S.Ct. 2900, 189 L.Ed.2d 854 (2014). We also directed the parties to address whether, when resolving a claim of unlawful tax discrimination, a court should consider aspects of a State's tax scheme apart from the challenged provision. Ibid.

II

The 4–R Act provides:

"(b) The following acts unreasonably burden and discriminate against interstate commerce, and a State, subdivision of a State, or authority acting for a State or subdivision of a State may not do any of them:

"(1) Assess rail transportation property at a value that has a higher ratio to the true market value of the rail transportation property than the ratio that the assessed value of other commercial and industrial property in the same assessment jurisdiction has to the true market value of the other commercial and industrial property.

"(2) Levy or collect a tax that may not be made under paragraph (1) of this subsection.

"(3) Levy or collect an ad valorem property tax at a tax rate that exceeds the tax rate applicable to commercial and industrial property in the same assessment jurisdiction.

"(4) Impose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under this part." § 11501(b)(1)-(4).

In our last opinion in this case, we held that "discriminates" in subsection (b)(4) carries its ordinary meaning, and that a tax discriminates under subsection (b)(4) when it treats "groups [that] are similarly situated" differently without sufficient "justification for the difference in treatment." CSX I, supra, at 287, 131 S.Ct. 1101. Here, we address the meaning of these two quoted phrases.

A

The first question in this case is who is the "comparison class" for purposes of a subsection (b)(4) claim. Alabama argues that the only appropriate comparison class for a subsection (b)(4) claim is all general commercial and industrial taxpayers. We disagree. While all general and commercial taxpayers is an appropriate comparison class, it is not the only one.

Nothing in the ordinary meaning of the word "discrimination" suggests that it occurs only when the victim is singled out relative to the population at large. If, for example, a State offers free college education to all returning combat veterans, but arbitrarily excepts those who served in the Marines, we would say that Marines have experienced discrimination. That would remain the case even though the Marines are treated the same way as members of the general public, who have to pay for their education.

Context confirms that the comparison class for subsection (b)(4) is not limited as Alabama suggests. The 4–R Act is an "asymmetrical statute." Id., at 296, 131 S.Ct. 1101. Subsections (b)(1) to (b)(3) contain three specific prohibitions directed towards property taxes. Each requires comparison of railroad property to commercial and industrial property in the same assessment jurisdiction. The Act therefore limits the comparison class for challenges under those provisions. Even if the jurisdiction treats railroads less favorably than residential property, no violation of these subsections has occurred. Subsection (b)(4) contains no such limitation, leaving the comparison class to be determined as it is normally determined with respect to discrimination claims. And we think that depends on the theory of discrimination alleged in the claim. When a railroad alleges that a tax targets it for worse treatment than local businesses, all other commercial and industrial taxpayers are the comparison class. When a railroad alleges that a tax disadvantages it compared to its competitors in the transportation industry, the railroad's competitors in that jurisdiction are the comparison class.

So, picking a comparison class is extraordinarily easy. Unlike under subsections (b)(1)–(3), the railroad is not limited to all commercial and industrial taxpayers; all the world, or at least all the world within the taxing jurisdiction, is its comparison-class oyster. But that is not as generous a concession as might seem. What subsection (b)(4) requires, and subsections (b)(1)–(3) do not, is a showing of discrimination —of a failure to treat similarly situated persons alike. A comparison class will thus support a discrimination claim only if it consists of individuals similarly situated to the claimant.

That raises the question of when a proposed comparison class qualifies as similarly situated. In the Equal Protection Clause context, very few taxpayers are regarded as similarly situated and thus entitled to equal treatment. There, a State may tax different lines of businesses differently with near-impunity, even if they are apparently similar. We have upheld or approved of distinctions between utilities—including a railroad—and other corporations, New York Rapid Transit Corp. v. City of New York, 303 U.S. 573, 579, 58 S.Ct. 721, 82 L.Ed. 1024 (1938), between wholesalers and retailers in goods, Caskey Baking Co. v. Virginia, 313 U.S. 117, 120–121, 61 S.Ct. 881, 85 L.Ed. 1223 (1941), between chain retail stores and independent retail stores, State Bd. of Tax Comm'rs of Ind. v. Jackson, 283 U.S. 527, 535, 541–542, 51 S.Ct. 540, 75 L.Ed. 1248 (1931), between anthracite coal mines and bituminous coal mines, Heisler v. Thomas Colliery Co ., 260 U.S. 245, 254, 257, 43 S.Ct. 83, 67 L.Ed. 237 (1922), and between sellers of coal oil and sellers of coal, Southwestern Oil Co. v. Texas, 217 U.S. 114, 121, 30 S.Ct. 496, 54 L.Ed. 688 (1910). As one treatise has observed, we recognize a "wide latitude state legislatures enjoy in drawing tax classifications under the Equal Protection Clause." 1 J. Hellerstein & W. Hellerstein, State Taxation ¶ 3.03[1], p. 3–5 (3d ed. 2001–2005). This includes the power to impose ...