Union Carbide Corp. v. Board of Tax Com'rs of State of Ind., 95-2396

• Decision Date: 16 November 1995
• Docket Number: No. 95-2396,95-2396
• Citation: 69 F.3d 1356
• Parties: UNION CARBIDE CORP., et al., Plaintiffs-Appellants, v. BOARD OF TAX COMMISSIONERS OF the STATE OF INDIANA, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1356

69 F.3d 1356

UNION CARBIDE CORP., et al., Plaintiffs-Appellants, v. BOARD OF TAX COMMISSIONERS OF the STATE OF INDIANA, et al Defendants-Appellees.

No. 95-2396.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 25, 1995.

Decided Nov. 16, 1995.

Terrence J. Benshoof (argued), Kanter & Mattenson, Chicago, IL, G. Terrence Corident, Lawson, Pushor, Mote, Coriden & Gamso, Columbus, IN, for plaintiffs.

Marilyn S. Meighen (argued), Office of the Attorney General, Tax Division, Indianapolis, IN, for defendants.

Before BAUER, EASTERBROOK, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

A provision of the Railroad Revitalization and Regulatory Reform Act of 1976 forbids discrimination against railroads in the assessment and collection of state taxes. 49 U.S.C. Sec. 11503. The plaintiffs, which call themselves "carlines," own railroad cars that they use in their own business or lease to others. They believe that Indiana violates Sec. 11503 in two ways: (i) by collecting the property tax on rail assets at the state level, while allowing cities and counties to collect the tax on other property; and (ii) by estimating the value of rolling stock in the state on the assessment date. The district court granted Indiana's motion for summary judgment. It concluded that the carlines' decision not to offer proof of discriminatory effective tax rates spoils their first theory of liability, and that Sec. 11503 does not regulate the way in which states determine the amount of property subject to taxation, scuttling the second theory.

Indiana's Board of Tax Commissioners assesses the property of railroads, airlines, and other transportation firms, along with public utilities. The assessment for each industry is supposed to be one-third of market value. I.C. 6-1.1-1-3. The carlines do not argue that Indiana has departed from this norm in practice. They complain instead that Indiana taxes rail property directly, while allocating the assessed valuation of other industries among cities and counties, which collect taxes at rates determined locally. Such a scheme readily could entail discriminatory taxation: for example, counties could collect taxes at 3% of assessed valuation, while the state itself taxed rail property at 5% of assessed valuation. But the carlines do not argue that Indiana's rate for rail property is higher than the effective rate for other property taxed by local units of government. Instead they argue that the difference in taxing authority is unlawful per se under Sec. 11503(b)(3):

(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:

* * * * * *

(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.

According to the carlines, the state is the "assessment jurisdiction" for rail property. Indiana collects a property tax at a positive rate for rail property; its rate for airline and public utility property is 0%; and as any positive number exceeds zero, the tax violates Sec. 11503(b)(3).

Under Sec. 11503(a)(2) an "assessment jurisdiction" is "a geographical area in a State used in determining the assessed value of property for ad valorem taxation". The State of Indiana is the "assessment jurisdiction" under this definition for railroad, airline, truck, and utility property. As the carlines see things, the conclusion that Indiana is the "assessment jurisdiction" ends matters, because the state does not collect any ad valorem property tax from non-railroad businesses. But this is not what Sec. 11503(b)(3) says. The question under that subsection is whether the state's rate of tax on railroads "exceeds the tax rate applicable to commercial and industrial property in the same assessment jurisdiction" (emphasis added). Indiana's counties and other local taxing bodies are located "in" Indiana and therefore are "in" the "same assessment jurisdiction" as the one that taxes rail property.

Confining attention to the state's own collections would not aid the carlines. Indiana taxes rail property and exempts other property. Oregon Department of Revenue v. ACF Industries, Inc., --- U.S. ----, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994), holds that an exemption from tax differs from a tax rate of zero for purposes of Sec. 11503. Although ACF Industries reserved the possibility that an exemption of all property other than railroad property would amount to forbidden discrimination, Indiana's simultaneous allocation of non-rail property to local jurisdictions makes it hard to say that Indiana has "singled out railroad property for discriminatory treatment." --- U.S. at ----, 114 S.Ct. at 851.

Although it would be possible to read "same assessment jurisdiction" as meaning that the same bureaucracy must collect taxes from both railroads and other property (after which, one supposes, the state could engage in revenue sharing with counties), the federal government usually treats states as units. How they allocate their powers--whether among departments at the state level, or between state and local authorities--is none of the national government's concern. See Whalen v. United States, 445 U.S. 684, 689 n. 4, 100 S.Ct. 1432, 1436 n. 4, 63 L.Ed.2d 715 (1979); Mayor of Philadelphia v. Educational Equality League, 415 U.S. 605, 615 n. 13, 94 S.Ct. 1323, 1331 n. 13, 39 L.Ed.2d 630 (1974); Highland Farms Dairy, Inc. v. Agnew, 300 U.S. 608, 612, 57 S.Ct. 549, 551, 81 L.Ed. 835 (1937); Prentis v. Atlantic Coast Line Co., 211 U.S. 210, 225, 29 S.Ct. 67, 68, 53 L.Ed. 150 (1908); Dreyer v. Illinois, 187 U.S. 71, 84, 23 S.Ct. 28, 32, 47 L.Ed. 79 (1902); Chicago Observer, Inc. v. Chicago, 929 F.2d 325, 328 (7th Cir.1991). The extent to which Congress can override that principle, given the tenth amendment and considerations of inter-jurisdictional comity, is a nice question. Compare New York v. United States, 505 U.S. 144, 112 S.Ct. 2408, 120 L.Ed.2d 120 (1992), with Association of Community Organizations for Reform Now v. Edgar, 56 F.3d 791, 794 (7th Cir.1995). Section 11503 does not evince a clear decision to allocate taxing powers among units of state government; we therefore need not decide whether the national government has the power to tell states which units of government may or may not collect taxes. Section 11503 is designed to prevent discrimination against railroads. The carlines do not contend that the allocation of taxing authority in Indiana leads to a heavier effective tax rate for their property than for other transportation or utility property, and that, we conclude, is dispositive.

We recognize that General American Transportation Corp. v. Kentucky, 791 F.2d 38 (6th Cir.1986), says that if state taxes discriminate against railroads, the fact that local units of government practice offsetting discrimination against non-railroad property does not matter. Kentucky levied taxes at different rates on all business property, with the railroad tax, at $1 per $100 of assessed valuation, by far the highest. The sixth circuit held that this explicit differential violated the statute even though local governments were not allowed to tax railroad property. Accord, Kansas City Southern Ry. v. McNamara, 817 F.2d 368 (5th Cir.1987) (rejecting an attempt to justify a discriminatory state property tax on railroads by pointing to their exclusion from local sales taxes), cited with approval in Burlington Northern R.R. v. Superior, 932 F.2d 1185, 1186-87 (7th Cir.1991). Formal discrimination by the state cannot be rescued by additional discrimination elsewhere in the system. Cf. Connecticut v. Teal, 457 U.S. 440, 102 S.Ct. 2525, 73 L.Ed.2d 130 (1982) (rejecting a "bottom line" defense in civil rights cases). But Indiana does not discriminate in making assessments, which it requires local governments to use. All that remains is the allocation of collections on this assessed valuation, which is nothing but a system of exemptions (rail property exempt at the local level, nonrail property at the state level)...