GFOA Files Supreme Court Amicus Brief in Railroad Tax Preemption Case

Wednesday, September 24, 2014

The GFOA joined its partner national associations on an amicus, or friend of the court, brief filed by the State and Local Legal Center before the Supreme Court in the case of Alabama Department of Revenue v. CSX Transportation. In this case, the Court is asked to decide whether Alabama’s requirement that railroads pay a 4% sales tax on diesel fuel, while trucks pay a 19% per gallon excise tax, and water carriers pay no tax, violates the Railroad Revitalization and Regulatory Reform Act (the 4-R Act), which prohibits states from taxing railroads in a discriminatory manner. The Eleventh Circuit Court of Appeals held that Alabama’s sales tax did, in fact, violate the 4-R Act. On appeal, the Supreme Court is asked to examine the appropriate tax comparison for railroads – competitors only (such as trucks and water carriers), or other commercial and industrial taxpayers broadly – to make a determination of discrimination. The court will also decide whether it should consider amounts paid by the different carriers (for example, the fact that trucks pay roughly the same in excise taxes as railroads pay in sales taxes) when determining whether Alabama’s sales tax discriminates against railroads.

This case has significant implications around the country. At least 10 other states, as well as some local governments within those states, charge railroads a sales tax on diesel fuel. These tax schemes could potentially be found to violate the 4-R Act if the Supreme Court rules against Alabama. Moreover, many other interest groups (e.g., the telecommunications industry) advocate for tax preemptions like the one found in the 4-R Act. The Supreme Court must interpret “discriminatory taxation” very narrowly to preserve state and local taxing authority, and in its brief, the State and Local Legal Center sets forth legal and policy arguments for a narrow reading of the 4-R Act. In particular, the brief points out that “ruling in favor of CSX would threaten states’ ability to take in tax revenue, an ability already impeded by current economic conditions. This court must not allow 4-R to shield CSX – a $12 billion nationwide corporation – and other rail carriers from paying millions of dollars in taxes that fund vital public services. Congress did not intend for 4-R to enrich large corporations by impoverishing the states.”