BNSF Ry. Co. v. Cnty. of Alameda
| Decision Date | 05 August 2021 |
| Docket Number | No. 20-15897,No. 20-15896,20-15896 |
| Citation | 7 F.4th 874 |
| Parties | BNSF RAILWAY COMPANY, Plaintiff-Appellee, v. COUNTY OF ALAMEDA ; County of Contra Costa; County of Fresno; County of Kern; County of Madera; County of Merced ; County of Orange; County of Plumas; County of Riverside ; County of San Bernardino ; County of San Joaquin; County of Stanislaus ; County of Tulare, Defendants-Appellants, and County of San Diego, Defendant. BNSF Railway Company, Plaintiff-Appellee, v. County of San Diego, Defendant-Appellant, and County of Alameda ; County of Contra Costa; County of Fresno; County of Kern; County of Madera; County of Merced ; County of Orange; County of Plumas; County of Riverside ; County of San Bernardino ; County of San Joaquin; County of Stanislaus ; County of Tulare, Defendants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Margaret R. Prinzing (argued), Robin B. Johansen, and Omar El-Qoulaq, Olson Remcho LLP, Oakland, California, for Defendants-Appellants County of Alameda, County of Contra Costa, County of Fresno, County of Kern, County of Madera, County of Merced, County of Orange, County of Plumas, County of Riverside, County of San Bernardino, County of San Joaquin, County of Stanislaus, and County of Tulare.
Laura E. Blome (argued), Senior Deputy; Thomas E. Montgomery, County Counsel; Office of County Counsel, San Diego, California; for Defendant-Appellant County of San Diego.
Benjamin J. Horwich (argued), Munger Tolles & Olson LLP, San Francisco, California; Jessica Reich Baril, Munger Tolles & Olson LLP, Los Angeles, California; Misty Smith Kelley and John M. Phillips, Baker Donelson Bearman Caldwell & Berkowitz PC, Chattanooga, Tennessee; for Plaintiff-Appellee.
Before: Sidney R. Thomas, Chief Judge, and Daniel A. Bress and Patrick J. Bumatay, Circuit Judges.
This appeal requires us to consider whether California's taxation of railroad property complies with the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, § 306, 90 Stat. 31, 54–55 (1976) ("the 4-R Act"). BNSF Railway Company ("BNSF") owns property in various California Counties ("the Counties"). BNSF alleges that the Counties are taxing its property at a higher rate than the rate applicable to commercial and industrial property in the same assessment jurisdiction, in violation of the 4-R Act. 49 U.S.C. § 11501(b)(3).
The district court determined that the proper preliminary injunction standard under the 4-R Act asks whether BNSF had shown a "reasonable cause to believe" that the 4-R Act was being violated, and that the proper comparison class was the average countywide tax rate for each County. The district court issued a preliminary injunction, concluding BNSF had shown that the Counties were violating the 4-R Act because BNSF's tax rate was higher than the average countywide tax rates for each County.
The district court had jurisdiction under 49 U.S.C. § 11501(c). We have jurisdiction under 28 U.S.C. § 1292(a). We review for abuse of discretion a district court's decision regarding preliminary injunctive relief.
Puente Ariz. v. Arpaio , 821 F.3d 1098, 1103 (9th Cir. 2016). We review findings of fact for clear error and conclusions of law de novo. Indep. Living Ctr. of S. Cal., Inc. v. Shewry , 543 F.3d 1050, 1055 (9th Cir. 2008). However, where a district court's ruling rests solely on a premise of law and the facts are either established or undisputed, review is de novo. See Harris v. Bd. of Supervisors, L.A. Cnty. , 366 F.3d 754, 760 (9th Cir. 2004). We affirm.
Congress passed the 4-R Act out of concern for the financial stability of the nation's railway system. Burlington N. R.R. Co. v. Okla. Tax Comm'n , 481 U.S. 454, 457, 107 S.Ct. 1855, 95 L.Ed.2d 404 (1987) (quoting 4-R Act § 101(a) ). Recognizing that "railroads 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 and citation omitted), Congress instituted "a prohibition on discriminatory state taxation of railroad property," Okla. Tax Comm'n , 481 U.S. at 457, 107 S.Ct. 1855.
The 4-R Act establishes that "[t]he following acts unreasonably burden and discriminate against interstate commerce, and a State [or locality] may not do any of them:"
49 U.S.C. § 11501(b).1
As the district court stated, California's system of property taxation "is, in a word, complicated." California employs an ad valorem (or value-based) property tax system. Cal. Const. art. XIII, § 1. Taxation follows a three-step process: (1) the value of taxable property is assessed, (2) the tax rate is computed, and (3) the tax is levied from the taxpayer. For most property, its value is assessed (and its rate is calculated) at the local level. See Cal. Rev. & Tax. Code § 404. But for a subset of property delineated in the California Constitution, including railroad property, the State assesses the value and calculates the applicable rate. Cal. Const. art. XIII, § 19.2
An understanding of California's system of taxation of locally assessed property is important for resolution of this case. Most property in California is locally assessed. County-level assessors determine the value of this property for tax purposes. See Cal. Rev. & Tax. Code § 404.3 This property is classified into one of two rolls: the secured roll or the unsecured roll. The secured roll contains "property the taxes on which are a lien on real property sufficient ... to secure payment of the taxes." Id. § 109. In practice, this is most real property. The unsecured roll contains all other property. Id. § 109; 1 Sean Flavin, Taxing California Property §§ 12:3–12:4 (4th ed. 2020). There is no further subdivision based on use; for example, both the secured and unsecured roll contain both residential property and commercial and industrial property.
After determining the appropriate roll, Counties next assign locally assessed property to a particular tax rate area ("TRA") based on the property's location, and that TRA's tax rate is applied to the property. A TRA is a small geographical area serviced by the same combination of local government entities, including the county, city, special district, and school districts. Cal. Rev. & Tax. Code § 95(g). A county may have hundreds or thousands of TRAs—for example, San Diego County has over five thousand TRAs.4
The tax rate for property on the secured roll is taxed at a rate calculated under a formula found in § 93 of the California Revenue and Taxation Code ("the Code"), and it is specific to a particular TRA. The § 93 formula contains two components: the first component is a general tax levy, calculated at 1%. Cal. Const. art. XIIIA, § 1 (a); Cal. Rev. & Tax. Code § 93. The second component, referred to as the "debt service component," is the amount needed as a percentage of property values to produce enough revenue to make payments for the interest and principal on all voter-approved bonded indebtedness issued by any of the various local entities, Cal. Rev. & Tax. Code § 93 ; see also Cal. Gov. Code § 29100, such as a voter-approved bond that funds school construction in the elementary school district serving that TRA. For locally assessed property on the unsecured roll, the rate is the § 93 rate for the previous year for that TRA. Cal. Const. art. XIII, § 12 ; Cal. Rev. & Tax. Code § 2905. This formula ensures that each TRA will have enough revenue to make payments for the interest and principal on its bonded indebtedness. The rate is then applied to the assessed value of the property on the assessment rolls, see Cal. Rev. & Tax. Code § 2152, and collected. Id. § 2602. As a result, each County, with its hundreds or thousands of TRAs, likewise has hundreds or thousands of different tax rates applied to property in that County, and these rates apply to all property in that TRA, without regard to use, i.e., whether commercial and industrial or residential or otherwise.
Other property, including railroad property, is State-assessed. See Cal. Const. art. XIII, § 19. State-assessed property is also classified onto either the secured or unsecured roll. However, for this property, the State assesses its value for tax purposes, as opposed to the counties, Cal. Const. art. XIII, § 19, and applies a different formula to calculate the tax rate. See Cal. Rev. & Tax. Code § 100.
The assessment process for some of this property, including BNSF's property, is different from standard local assessment. For this subset of State-assessed property, known as "unitary property," the value is calculated under the unit valuation method. Id. §§ 723, 723.1. Under this method, the State Board of Equalization ("the State Board") first calculates the value of a taxpayer's entire system, i.e., BNSF's railroad property nationwide. Then, the State Board allocates a portion of that value to California, and further allocates that value among the various counties in which the taxpayer's property is located. The unit...
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Property Tax Rate Dispute Merits California Supreme Court Review
...burden grew countywide. 17. The formula was succinctly described recently by the Ninth Circuit in BNSF Railway Co. v. County of Alameda, 7 F.4th 874, 881-882 (9th Cir. Like section 93, section 100's first component is effectively a 1 percent general tax levy. Id. section 100(b)(1). Section ......