BNSF Ry. Co. v. Or. Dep't of Revenue

• Decision Date: 08 July 2020
• Docket Number: No. 19-35184,19-35184
• Citation: 965 F.3d 681
• Parties: BNSF RAILWAY COMPANY, a Delaware corporation, Plaintiff-Appellee, v. OREGON DEPARTMENT OF REVENUE; Satish Upadhyay, in his official capacity as Acting Director of the Oregon Department of Revenue, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

965 F.3d 681

BNSF RAILWAY COMPANY, a Delaware corporation, Plaintiff-Appellee,

v.OREGON DEPARTMENT OF REVENUE; Satish Upadhyay, in his official capacity as Acting Director of the Oregon Department of Revenue, Defendants-Appellants.

No. 19-35184

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 15, 2020 Portland, Oregon

Filed July 8, 2020

OPINION

VANDYKE, Circuit Judge:

Oregon law generally taxes real and tangible personal property situated within its borders. But certain commercial and industrial entities, including railroads and other interstate concerns, must also pay taxes on their intangible personal property. For the first time in 2017, Oregon's Department of Revenue began including BNSF Railway Company's (BNSF) intangible personal property in the railway's property value assessments, which resulted in a tax liability thirty percent higher than the previous year. BNSF filed suit under the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, § 306, 90 Stat. 31 ("4-R Act"), alleging the tax on its intangible personal property is "another tax that discriminates against a rail carrier." 49 U.S.C. § 11501(b)(4).

The district court ruled that BNSF could challenge the property tax under 49 U.S.C. § 11501(b)(4), that the proper comparison class for BNSF was Oregon's commercial and industrial taxpayers, and that the intangible personal property tax assessment discriminated against BNSF in violation of the 4-R Act. For the reasons below, we affirm.

I.

A.

Congress adopted the 4-R Act to restore railroads’ financial stability, harmed at least in part by states’ and localities’ abusive tax practices. 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). Railroads have long been "attractive targets for state and local taxing authorities ... [because] it is very difficult for railroads to escape ... political[ly] exploit[ive]" tax schemes that capitalize upon their nonvoting, nonresident, immobile presence in their jurisdictions. Burlington N. R.R. Co. v. City of Superior , 932 F.2d 1185, 1186 (7th Cir. 1991). The 4-R Act was "an effort to lift from their backs some of the heavy hand of state and local taxation." Id . Under the Act, States may not "unreasonably burden and discriminate against interstate commerce" by doing any of the following things:

(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 on an assessment that may not be made under paragraph (1) of this subsection.

(3) Levy or collect an ad valorem property tax on rail transportation property 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.

49 U.S.C. § 11501(b). BNSF brings this challenge under § 11501(b)(4).

B.

All real and tangible personal property—but not intangible personal property—situated within Oregon is subject to assessment and taxation by county assessors. Or. Rev. Stat. §§ 307.030 & 308.210(1). The property of railroads and thirteen other industries, however, is centrally taxed by the Oregon Department of Revenue (Department). Id . § 308.515(1)(a).¹ Unlike all other commercial and industrial Oregon taxpayers, these industries pay taxes on their intangible personal property in addition to their tangible property. Id . § 308.505(14)(a). To "arriv[e] at the assessed value of the [centrally assessed] property," the Department "value[s] the entire property, both within and without the State of Oregon, as a unit." Id . § 308.555. The Department uses two different methods to valuate property: Real Market Value (RMV) and Maximum Assessed Value (MAV), which is limited to 100 percent of the previous year's MAV or 103 percent of the property's assessed value from the previous year. Id . § 308.146(1). The assessed value of the property and the basis for the taxpayers’ liability is the lesser of the RMV and MAV. Id . § 308.146(2). The Department then evaluates several factors to determine what percentage of the total valuated property is taxable in Oregon. Id . § 308.555; Or. Admin. R. 150-308-0670. Finally, the Department apportions that taxable value to the pertinent Oregon counties, which collect the tax payments. Or. Admin. R. 150-308-0670.

C.

Intangible personal property includes accounting goodwill, See Or. Admin. R. 150-307-0020, and in 2010, BNSF acquired a lot of it—about $14.8 billion—when Berkshire Hathaway overpaid for all of BNSF's remaining shares. From 2011 to 2016, the Department did not include the accounting goodwill in its calculation of BNSF's MAV. But in 2017, the Department included the $14.8 billion goodwill, as well as $637 million of other intangible personal property, in its calculation of BNSF's RMV and MAV, which increased BNSF's assessed value and tax liability by approximately 30 percent.

Railroaded by this unforeseen tax liability, BNSF filed suit on October 27, 2017. It sought a declaratory judgment that Oregon's property tax on its intangible personal property violated 49 U.S.C. § 11501(b)(4) and injunctive relief barring the Department from assessing and collecting taxes on BNSF's intangible personal property.

The case was assigned to a magistrate judge, and the parties stipulated to the facts, agreeing that no material facts remained in dispute. They then filed cross motions for summary judgment. After a hearing, the magistrate issued Findings and Recommendations that the Department's summary judgment motion should be granted and BNSF's denied. Reversing course, the district court declined to adopt the magistrate's Findings and Recommendations, instead granting BNSF's motion and denying the Department's.

The district court held that "[b]ecause the Oregon tax statute here ... singles out railroads as part of a small group for different and unfavorable tax treatments compared to all other commercial and industrial taxpayers, ... [t]his constitutes discrimination against railroads that is prohibited by the 4-R Act." Specifically, the district court found "there is no generally applicable intangible property tax in Oregon." On that basis, it concluded that BNSF's challenge to the Oregon tax scheme under 49 U.S.C. § 11501(b)(4) was not barred by ACF . See ACF , 510 U.S. at 335, 114 S.Ct. 843 (holding railroads could not challenge as discriminatory a generally applicable property tax to which some non-railroad property, but not railroad property, was exempted). In so doing, the district court rejected an argument peddled by the Department for nearly three decades—that railroads may not challenge property taxes under § 11501(b)(4). See id . at 339, 114 S.Ct. 843. Finally, the district court rejected an argument the Department raised for the first time at oral argument: that BNSF failed to establish Oregon's centrally assessed taxpayers are isolated and targeted enough to show discrimination. Essentially, the Department was requesting further factual development after both parties had repeatedly averred to the absence of disputed material facts. The district court found that the argument was waived and lacked merit. On February 12, 2019, the district court entered judgment granting BNSF's requested declaratory and injunctive relief but stayed the judgment pending appeal pursuant to the parties’ stipulation. The Department timely appealed.

II.

The district court had jurisdiction pursuant to 49 U.S.C. § 11501(c), and this Court has jurisdiction under 28 U.S.C. § 1291. We review de novo "the district court's decision on cross-motions for summary judgment," U.S. Sec. & Exch. Comm'n v. Hui Feng , 935 F.3d 721, 728 (9th Cir. 2019), as well as its interpretation of a statute. PhotoMedex, Inc. v. Irwin , 601 F.3d 919, 923 (9th Cir. 2010). Here, the parties agree no material facts are disputed, so we "ask only whether the district court correctly applied the relevant substantive law." CHoPP Comput. Corp. v. U.S. , 5 F.3d 1344, 1346 (9th Cir. 1993).

III.

On appeal, the Department levies three principal arguments: first, that Supreme Court precedent forecloses railroads’ ability to challenge any property tax scheme under 49 U.S.C. § 11501(b)(4) ; second, that this dispute is similar to and resolved by ACF because Oregon's tax on BNSF's intangible personal property is, in reality, a generally applicable tax on intangible personal property from which all but centrally assessed taxpayers are exempted; and third, that BNSF has not otherwise proven discrimination. We consider each of these arguments in turn.

A.

We begin by examining ACF , for, as the district court noted, each party attempts to ride that case to its desired terminus. In ACF , a group of railway car leasing companies sued under 49 U.S.C. § 11501(b)(4) to challenge Oregon's assessment of taxes upon their railroad cars, considered tangible personal property in Oregon. 510 U.S. at 335–36, 114 S.Ct. 843. The ACF plaintiffs complained the tax was discriminatory "because it exempts certain classes of commercial and industrial property while taxing railroad cars in full." Id . at 337, 114 S.Ct. 843. Essentially, the ACF plaintiffs believed anything less than most-favored taxpayer status amounted to unlawful discrimination under § 11501(b)(4). Id . at 338–39, 114 S.Ct. 843. The Department—then as now—argued the structure of § 11501(b) eliminated the ability to challenge any property tax under § 11501(b)(4). Id . at 339, 114 S.Ct. 843. Because subsections (b)(1)–(3) prohibit certain types of discriminatory property tax practices, the Department reasoned that Congress must have intended sub...