State of Tenn. v. Louisville & NR Co.

• Citation: 478 F. Supp. 199
• Decision Date: 15 August 1979
• Docket Number: No. 79-3025.,79-3025.
• Parties: The STATE OF TENNESSEE et al. v. LOUISVILLE & NASHVILLE RAILROAD COMPANY et al.
• Court: U.S. District Court — Middle District of Tennessee

478 F. Supp. 199

The STATE OF TENNESSEE et al. v. LOUISVILLE & NASHVILLE RAILROAD COMPANY et al.

No. 79-3025.

United States District Court, M. D. Tennessee, Nashville Division.

August 15, 1979.

Everett H. Falk, Deputy Atty. Gen., Eugene W. Ward, John P. Long, Nashville, Tenn., for plaintiffs.

Harlan Dodson, Jr., Tyree B. Harris, III, Nashville, Tenn., Mary A. McReynolds, Washington, D. C., Robert C. Moore, Louisville, Ky., James W. McBride, William C. Antoine, Washington, D. C., Everett B. Gibson, Gregory G. Fletcher, Memphis, Tenn., for defendants.

MEMORANDUM

WISEMAN, District Judge.

Plaintiffs, the State of Tennessee, the Public Service Commission of Tennessee and three individual members thereof, the State Board of Equalization of Tennessee and seven individual members thereof, and the Metropolitan Government of Nashville and Davidson County, Tennessee (hereinafter referred to collectively as the "State"), filed their complaint in this Court seeking a declaratory judgment, pursuant to 28 U.S.C. §§ 2201 and 2202, that section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (4R Act), 49 U.S.C. § 11503,¹ (hereinafter referred to as "section 306") is compatible with Tennessee's property tax classification system as set out in T.C.A. § 67-601.² In the alternative, the State seeks a declaratory judgment that section 306 is unconstitutional on the grounds that Congress exceeded its power under the Commerce Clause, art. 1, § 8, cl. 3, as limited by the Tenth Amendment to the United States Constitution or because Congress lacked a rational basis for enacting section 306 and failed to select a reasonable and appropriate means of implementing the goals of the 4R Act.

The defendants, Louisville & Nashville Railroad Company and sixteen other railroad companies (hereinafter referred to collectively as "Railroads")³ and the United States counterclaim seeking a declaratory judgment that Tennessee's property tax classification system violates the provisions of section 306, that section 306 is a valid and constitutional act of Congress, and that section 306 is in full force and effect from and after February 5, 1979, and is, therefore, applicable to Tennessee's assessment of transportation property for the 1979 Tennessee tax year.

Both the defendant Railroads and the defendant United States have filed motions for summary judgment. Oral arguments were heard on these motions on June 25, 1979.

TENNESSEE'S CONTENTION THAT SECTION 306 IS COMPATIBLE WITH THE STATE'S PROPERTY TAX CLASSIFICATION SYSTEM AND DOES NOT ABROGATE T.C.A. § 67-601.

The State maintains that basic principles of statutory construction mandate that section 306 of the 4R Act does not abrogate Tennessee's property tax classification system. In support of this contention the State relies upon a comparison of the definition of commercial and industrial property as defined in section 306 as opposed to T.C.A. § 67-601(8).⁴ This comparison reveals that section 306's definition of commercial and industrial property encompasses commercial transportation property which is included under Tennessee's public utility property classification.⁵ On the basis of section 306's more inclusive definition of commercial and industrial property and that section's definition of assessment meaning "valuation for purposes of a property tax levied by any taxing district," the State contends that subsection (1)(a) of section 306 merely prohibits states from discriminating against railroad property in terms of valuation for property tax purposes as opposed to all other property devoted to commercial or industrial use. Thus, because Tennessee's public utility property classification includes railroad property in addition to other property defined as commercial and industrial property under section 306, all of which are taxed at a higher tax ratio, Tennessee is not singling out railroad property for discriminatory tax treatment.

This construction of section 306, the State argues, is also consistent with the congressional intent underlying the federal statute as evidenced by the 1961 Report of the Senate Committee on Interstate and Foreign Commerce on National Transportation Policy, S.Rep.No.445, 87th Cong., 1st Sess. (hereinafter referred to as the "Doyle Report"), a study which focused on the problems of transportation on a national scale with particular emphasis on railroad transportation. The Doyle Report proposed an antidiscrimination tax bill which would protect all common carriers engaged in interstate commerce by insuring that "such carriers would receive equal treatment with other taxpayers subject to the same tax rates in accordance with applicable State law" (emphasis in original). Doyle Report at 466. This Court believes, however, that whatever support Tennessee's arguments afford in determining the effect of section 306 upon Tennessee's tax classification system is invalidated by the congressional statements made during the debates preceding the passage of section 306 in which both Senator Howard Baker and Representative Robin Beard of Tennessee attempted to amend the 4R Act in order to exempt from the Act's coverage states having a reasonable classification of property for state purposes. When the 4R Act came before the Senate for a final vote, Senator Baker stated in opposition to section 306, "By failing to include my amendment, therefore, the bill's section on state taxation of transportation property will require the State of Tennessee to reduce the level of assessments of railroads and other interstate carriers from 55 percent to 40 percent." 121 Cong.Rec.S-23043 (daily ed. Dec. 19, 1975). The subsequent enactment of the bill without the requested amendment leaves no doubt but that the federal law would serve to abrogate Tennessee's classification scheme.

TENNESSEE'S CONTENTION THAT SECTION 306 OF THE RAIL REVITALIZATION REGULATORY REFORM ACT REPRESENTS AN IMPERMISSIBLE EXERCISE BY CONGRESS OF ITS POWER UNDER THE COMMERCE CLAUSE.

The State asserts in the alternative that, should this Court construe the enactment of section 306 as an abrogation of Tennessee's property tax classification system thereby requiring the State to reduce the level of assessment and taxation of railroad property to that of its commercial and industrial classification, such abrogation must be deemed an impermissible exercise by Congress under the Commerce Clause. In maintaining this argument, however, the State has taken cognizance of the plenary power of Congress to control state laws for the regulation of interstate commerce as established in the leading case of Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23 (1824). The State also recognizes that the broad power of Congress to regulate commerce extends to private activities to the exclusion and preemption of state law regulating the same conduct. Heart of Atlanta Motel v. United States, 379 U.S. 241, 85 S.Ct. 348, 13 L.Ed.2d 258 (1964); Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942). The plaintiff in Heart of Atlanta Motel, a motel owner, refused to rent rooms to Negroes in violation of Title II of the Civil Rights Act of 1964, 42 U.S.C. § 2000a. The plaintiff challenged the constitutionality of the Civil Rights Act arguing that Congress had exceeded its authority to regulate commerce under the Commerce Clause. The Supreme Court, however, refuted this contention stating that,

The power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce. One need only examine the evidence which we have discussed above to see that Congress may—as it has—prohibit racial discrimination by motels serving travelers, however `local' their operations may appear.

379 U.S. at 258, 85 S.Ct. at 358, 13 L.Ed.2d at 269.

Prior to the Heart of Atlanta Motel decision, the plenary power of Congress to regulate commerce had been more dramatically established in Wickard v. Filburn, supra, in which a federal prohibition against the unlicensed growing of wheat was held valid as applied to a small Ohio farmer who produced 239 bushels for on-farm consumption without federal authorization. The Court's holding in Wickard was based on the conclusion that even local activity may be regulated by Congress should such activity exert a substantial economic effect on interstate commerce whether direct or indirect. 317 U.S. at 125, 63 S.Ct. at 89, 87 L.Ed. at 135.

While recognizing that the power of Congress to regulate interstate commerce is plenary under the Commerce Clause, the State is also aware that the Commerce Clause itself imposes certain restrictions on the states in the area of taxation. These restrictions are enunciated in Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959), wherein the Supreme Court held that a state cannot impose taxes on itinerants and a state cannot tax the privilege of engaging in interstate commerce either by providing a direct commercial advantage to local business or by subjecting interstate commerce to the burden of "multiple taxation." The Court explained that such impositions by the states under the Commerce Clause are not allowed because they interfere directly with the free flow of commerce.

Additionally, the Railroads have cited four cases in support of the proposition that the power of Congress under the Commerce Clause includes the power to control state taxation affecting interstate commerce. These cases were relied upon in the recent decision of Arizona v. Atchison, Topeka & Santa Fe R. R. Co., No. 78-655 (D.Ariz. Jan. 26, 1979), in which the Arizona district court addressed the issue of whether section 306 was constitutional in light of the Tenth Amendment's reservation of certain powers to the states and the broad powers given Congress...