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

• Decision Date: 23 March 2018
• Docket Number: No. 17-11705,17-11705
• Parties: CSX TRANSPORTATION, INC., Plaintiff-Appellant, v. ALABAMA DEPARTMENT OF REVENUE, Tim Russell, Commissioner of the Alabama Department of Revenue, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

886 F.3d 974

CSX TRANSPORTATION, INC., Plaintiff-Appellant,

v.ALABAMA DEPARTMENT OF REVENUE, Tim Russell, Commissioner of the Alabama Department of Revenue, Defendants-Appellees.

No. 17-11705

United States Court of Appeals, Eleventh Circuit.

March 23, 2018

Stephen Dorr Goodwin, Baker Donelson Bearman Caldwell & Berkowitz, PC, MEMPHIS, TN, J. Forrest Hinton, Jr., James H. White, Baker Donelson Berman Caldwell & Berkowitz, PC, BIRMINGHAM, AL, Misty Smith Kelley, Baker Donelson Bearman Caldwell & Berkowitz, PC, CHATTANOOGA, TN, James Wiley McBride, Baker Donelson Bearman Caldwell & Berkowitz, PC, WASHINGTON, DC, for Plaintiff-Appellant.

Laura E. Howell, Attorney General's Office, William Keith Maddox, Margaret Johnson McNeill, Glenmore Patrick Powers, II, State of Alabama, Department of Revenue, Legal Division, Corey Landon Maze, Winfield J. Sinclair, Alabama Attorney General's Office, for Defendants-Appellees ALABAMA DEPARTMENT OF REVENUE and TIM RUSSELL, Commissioner of the Alabama Department of Revenue.

Laura E. Howell, Attorney General's Office, Corey Landon Maze, Winfield J. Sinclair, Alabama Attorney General's Office, for Defendant-Appellee JULIE MAGEE, Commissioner of the Alabama Department of Revenue.

Walter Hellerstein, University of Georgia School of Law, ATHENS, GA, Maria Todorova, Eric S. Tresh, Eversheds Sutherland (US) LLP, ATLANTA, GA, for THE TAX FOUNDATION Amicus Curiae.

Betty Jo Christian, Shannen Wayne Coffin, Nina Shishir Thanawala, Timothy Mason Walsh, Steptoe & Johnson LLP, WAHSINGTON, DC, for ASSOCIATION OF AMERICAN RAILROADS Amicus Curiae.

Gregory Matson, Multistate Tax Commission, WASHINGTON, DC, MULTISTATE TAX COMMISSION Amicus Curiae.

Richard Pianka, American Trucking Association, ARLINGTON, VA, for AMERICAN TRUCKING ASSOCIATIONS, INC. Amicus Curiae.

Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY,^* District Judge.

ED CARNES, Chief Judge:

The Railroad Revitalization and Regulatory Reform Act prohibits states from imposing a tax "that discriminates against a rail carrier." 49 U.S.C. § 11501(b)(4). The question before us is whether Alabama’s tax scheme, which imposes either a sales or use tax on rail carriers when they buy or consume diesel fuel but exempts competing motor and water carriers from those taxes, violates the Act. Our answer is "no" as to motor carriers, "yes" as to water carriers.

I. BACKGROUND

A. Facts

CSX Transportation, Inc. is an interstate rail carrier that does business and pays taxes in a number of states including Alabama. In the shipment of freight interstate it and other rail carriers compete against trucking transport companies (motor carriers) and commercial ships, vessels, and barges (water carriers). Yet Alabama taxes each type of carrier differently on the purchase or use of diesel fuel inside the state. Rail carriers pay a 4% sales and use tax on diesel fuel,¹ while motor carriers and water carriers are exempt from that tax, see Ala. Code §§ 40-17-325(b) (motor carriers), 40-23-4(a)(10) (water carriers). Motor carriers do pay a Motor Fuels Excise Tax of $0.19 per gallon of diesel.² Id. § 40-17-325(a). But water carriers pay no tax of any kind to Alabama for diesel fuel they purchase or use in Alabama. Id. §§ 40-23-4(a)(10) (sales tax exemption), 40-23-62(12) (use tax exemption).

The State deposits revenue from the sales and use tax that rail carriers pay into the general fund and earmarks it for education purposes. Id. § 40-23-35(f). Of the $0.19 per gallon excise tax that motor carriers pay, $0.13 goes to the Alabama Department of Transportation for the construction and maintenance of roads and bridges and for the payment of highway bonds. Id. § 40-17-361(a). The remaining $0.06 per gallon goes to counties, towns, and cities for the construction and maintenance of roads and bridges. Id. § 40-17-361(b).

In 2008 CSX sued the Alabama Department of Revenue, seeking to enjoin the Department from collecting the sales and use tax on the railroad’s purchase or consumption of diesel fuel in the state. It also sought a declaratory judgment that the imposition of that tax violates the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. § 11501, often called "the 4-R Act."

Congress enacted the 4-R Act to "restore the financial stability of the railway system of the United States" and to "foster competition among all carriers by railroad and other modes of transportation." 45 U.S.C. § 801(a), (b)(2). The 4-R Act forbids states from discriminating against rail carriers in assessing property or imposing taxes. 49 U.S.C. § 11501(b). It specifies that states and their subdivisions may not:

(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.

Id. The first three paragraphs address property taxes, not sales and use taxes, and are not at issue here. The fourth paragraph is a catchall that applies to taxes generally and provides the basis for CSX’s claim about the sales and use tax imposed on it but not on the other types of carriers.

B. Procedural History

Over the past decade, this case has made two trips to the Supreme Court, stopping along the way three times at the district court and five times here. Because it is all pretty much relevant, we will set out that procedural history in some detail.

In doing so, we will begin with a discussion of the first district court order, which dismissed CSX’s complaint, and from there we will recount our decision on appeal and the Supreme Court’s first decision. We will then discuss the district court’s second opinion, our second decision on appeal, and the Supreme Court’s second decision. Finally, we will discuss the third leg of the journey to date, starting with our second remand order and ending with the district court judgment from which CSX now appeals.

1. First Round of Proceedings

In round one of this case, the district court dismissed CSX’s complaint and we affirmed. CSX Transp., Inc. v. Ala. Dep’t of Revenue, 350 Fed.Appx. 318 (11th Cir. 2009), rev’d, 562 U.S. 277, 131 S.Ct. 1101, 179 L.Ed.2d 37 (2011), vacated, 639 F.3d 1040 (11th Cir. 2011). In doing so, we relied on one of our earlier decisions involving a nearly identical challenge to Alabama’s tax scheme. See Norfolk S. Ry. v. Ala. Dep’t of Revenue, 550 F.3d 1306 (11th Cir. 2008), abrogated by 562 U.S. 277, 131 S.Ct. 1101, 179 L.Ed.2d 37 (2011). Based on Norfolk we held that discrimination in the granting of tax exemptions does not amount to tax discrimination for purposes of the 4-R Act. See 350 Fed.Appx. at 319.

The Supreme Court reversed our decision and held that denying rail carriers exemptions provided to other carriers can be a form of discrimination under the 4-R Act. CSX Transp., Inc. v. Ala. Dep’t of Revenue ("CSX I"), 562 U.S. 277, 280, 131 S.Ct. 1101, 1105, 179 L.Ed.2d 37 (2011). The Court explained that a tax discriminates when it treats "groups [that] are similarly situated" differently without "justification for the difference in treatment." Id. at 287, 131 S.Ct. at 1109. As a result, "a state excise tax that applies to railroads but exempts their interstate competitors is subject to challenge under subsection (b)(4) as a ‘tax that discriminates against a rail carrier.’ " Id. at 288, 131 S.Ct. at 1109. The Court did not decide whether the different tax treatment violated the 4-R Act, but it did decide that the outcome "depends on whether the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers." Id. at 288 n.8, 131 S.Ct. at 1109 n.8.

2. Second Round of Proceedings

On remand, after holding a bench trial the district court ruled that Alabama’s sales and use tax scheme does not discriminate against CSX. CSX Transp., Inc. v. Ala. Dep’t of Revenue, 892 F.Supp.2d 1300 (N.D. Ala. 2012), rev’d and remanded, 720 F.3d 863 (11th Cir. 2013), rev’d and remanded, 575 U.S. ––––, 135 S.Ct. 1136, 191 L.Ed.2d 113 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). The district court concluded that the motor carrier exemption to the sales and use tax is justified because motor carriers pay a "substantially similar" amount under the excise tax that applies to them. Id. at 1313. As to water carriers, which pay neither tax, the district court concluded that international commerce clause concerns do provide a rational basis for exempting them and also that CSX had failed to show that it had suffered a discriminatory effect. Id. at 1316–17.

We reversed.

CSX Transp., Inc. v. Ala. Dep’t of Revenue, 720 F.3d 863, 865 (11th Cir. 2013), rev’d and remanded, 575 U.S. ––––, 135 S.Ct. 1136, 191 L.Ed.2d 113 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). We first decided whether to apply the "functional approach" or the "competitive approach" to identify a comparison class of taxpayers for 4-R Act claims. Id. at 867–69. The functional approach compares rail carriers to all other "commercial and industrial" taxpayers, thereby importing into § 11501(b)(4) the "commercial and industrial" limitation from the three preceding paragraphs. Id. at 867 (citing Kansas City S. Ry. v. Koeller, 653 F.3d 496, 508 (7th Cir. 2011) ). The competitive approach, by contrast, compares rail carriers only to their competitors. Id. at 867–68.

We chose the competitive approach, reasoning that the functional approach disadvantages rail carriers by applying too broad a comparison class and that the...