JURIST - Paper Chase: Supreme Court upholds railroad challenge to discriminatory taxation

[JURIST] The US Supreme Court [official website; JURIST news archive] on Tuesday ruled [opinion, PDF] 7-2 in CSX Transportation, Inc. v. Alabama Department of Revenue [Cornell LII backgrounder] that a railroad may challenge sales and use taxes that apply to rail carriers but exempt their competitors in the transportation industry. Railroads pay a 4 percent sales tax and a 4 percent use tax to the state of Alabama when they purchase or consume diesel fuel. Interstate motor and water carriers—the primary competitors of railroad carriers—are exempt from paying these taxes.The petitioners, CSX Transportation, argued that the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) [text] restricts the ability of state and local governments to levy discriminatory taxes on rail carriers. The respondents argued that the court's decision in Department of Revenue of Ore. v. ACF Industries, Inc. [materials] to uphold a property tax exemption, as well as principles of federalism, should lead the court to find in the respondents' favor. In an opinion authored by Justice Elena Kagan, the court disagreed, holding that tax exemptions are often discriminatory:

[T]ax exemptions are an obvious form of tax discrimination. ... It is hardly self-evident why Congress would prohibit a State from charging a railroad a 4% tax and a competitor a 2% tax, but allow the State to charge the railroad a 4% tax and the competitor nothing. The latter situation would frustrate the purposes of the Act even more than the former.

Justice Clarence Thomas filed a dissent, joined by Justice Ruth Bader Ginsburg, arguing that CSX Transportation would not be able to prove that the tax exemption discriminates against railroad carriers. The court reversed and remanded the case for further proceedings to determine whether the taxes in fact discriminate against railroad carriers.

At oral argument [JURIST report], the justices attempted to determine when a tax exemption amounts to "discrimination" within the meaning of the 4-R Act. Counsel for the petitioner argued that the narrow question of whether a tax exemption could ever amount to discrimination does not require a discussion of formulating some basis for determining whether the particular tax exemption is in fact discriminatory.