Atchison, Topeka & Santa Fe Railway Co. v. Bair

McCORMICK, Justice

(dissenting).

For me the determinative question is whether the challenged tax imposes a burden on railroads that is not uniformly placed on similarly situated commercial and industrial enterprises in Iowa. Before the tax can be held to violate 49 U.S.C. 11503(b)(4), plaintiffs must prove it is discriminatory on this basis. Because I believe they did not prove discrimination and have failed to establish any other ground for invalidating the tax, I would affirm the trial court.

Discrimination does not occur unless equals are treated unequally. One problem the railroads therefore have is in showing who their equals are in the business community for purposes of the federal statute. Congress defined the comparison group for determining whether a property tax violates the statute but did not identify the comparison group for evaluating other taxes. The comparison group for property taxes is “commercial and industrial property,” defined in section 11503(a)(4) as “property, other than transportation property and land used primarily for agricultural purposes or timber growing, devoted to a commercial or industrial use and subject to a property tax levy.” Property taxes on railroads thus must be nondiscriminatory when compared with property taxes on the businesses in the defined group. See generally Arizona v. Atchison, Topeka & Santa Fe R.R., 656 F.2d 398 , 403-06 (9th Cir.1981).

Before a comparison group for the present tax can be defined, it is necessary to decide what is to be compared. This inquiry is not answered solely by identifying the taxable event. The precise taxable event here is the consumption of diesel fuel within Iowa for the propulsion of a railway vehicle. If the inquiry stopped there, the only comparison group would seem to be businesses other than railroads that operate railway vehicles. Certainly no discrimination has been shown on that basis. It is doubtful that Congress would have intended the comparison group to be so limited. I believe the separate treatment of property taxes under 11503(b) proves that the character of the tax provides the basis upon which the comparison group is to be identified. The state has labeled the tax a privilege tax. See Iowa Code § 324A.3 (1981). Privilege taxes are therefore the taxes that are to be compared. Privilege taxes are explained and distinguished from other taxes in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 , 97 S.Ct. 1076 , 51 L.Ed.2d 326 (1977).

The federal statute, by its terms, delineates acts that Congress has determined will “unreasonably burden and discriminate against interstate commerce .... ” § 11503(b). A violation of the statute thus turns on the character of the tax as burdensome and discriminatory upon interstate commerce. It is the impact of the tax upon the taxpayer’s relative position in interstate commerce that is significant. In subsections (1), (2), and (3), Congress has effectively decided the issue by requiring absolute parity in property tax rates. In subsection (4), however, the statute bars “another tax that discriminates against a rail carrier .... ” The test under subsection (4) is therefore not one of parity but of discriminatory impact. See Alabama Great *350 Southern R.R. Co. v. Eagerton, 663 F.2d 1036, 1040 (11th Cir.1981). Consequently I believe that to show a violation of section 11503(b)(4), the railroads must prove that the tax, regardless of the exact taxable event on which it is based, results in a disproportionate economic burden on railroads when compared to privilege taxes on other businesses engaged in interstate commerce.

I would therefore examine the relative burden of privilege taxes on similarly situated businesses rather than “competitive disadvantage” resulting from the tax. The approach I advocate is consistent with Arizona Public Service Co. v. Snead, 441 U.S. 141 , 99 S.Ct. 1629 , 60 L.Ed.2d 106 (1979), because it involves consideration only of the burden from the type of tax involved rather than the impact upon a particular business of the state’s entire tax structure. Competitive disadvantage cannot be determined through the requisite limited inquiry.

Furthermore, in attempting to identify similarly situated businesses, it is logical to look at transportation modes because they are most likely to have similar characteristics. In doing so, however, differences in the nexus between the state and particular business must be taken into account. This is a factor the court’s opinion wholly omits from consideration. Discrimination cannot be shown unless the privilege tax burden on businesses similarly situated is unequal when allowances are made for differences in the activities of the businesses within the state. This is because the state is entitled to measure the tax in accordance with the extent of the taxpayer’s activities in the state. See Commonwealth Edison Co. v. Montana, 453 U.S. 609, 627 , 101 S.Ct. 2946, 2958 , 69 L.Ed.2d 884, 900 (1981).

The only transportation mode that has activities in Iowa comparable, to those of railroads is the trucking industry. As the court acknowledges, airplanes are not major competitors of trains. In addition, the extent of their activities within the state is limited. Barge routes are unique, and I question whether barges constitute competition as much as a complementary system of transportation. In any event, the extent of barge contact with the state is minimal. Trucks do have activities in the state similar to those of trains. They also pay a substantially higher tax on fuel consumption than do railroads. See Iowa Code § 324.34 (1983). Therefore I would not find that the tax on diesel fuel consumption is discriminatory when railroads are compared to the trucking industry.

Moreover, I do not think the disposition of the revenues is relevant. The railroad tax is earmarked for use by the Railway Finance Authority, and the trucking fuel tax is earmarked under Iowa Const. art. VII, § 8 for highway purposes. Although the “competitive disadvantage” may vary, the burden on the industry is not different merely because of earmarking of the revenues. In each instance the tax is a general revenue measure. In one instance the legislature has dictated a particular use for the money, and in the other the people have dictated a particular use. The earmarked funds, however, might as well have come from general revenues. This is consistent with the approach set out for property taxes under 11503(b), which includes no consideration of benefits received.

If benefits to the taxpayer were relevant, the relative value of other government services such as police and fire protection should be considered. If benefits that are paid for by the tax are relevant, so are benefits that are not paid for by it. In addition, a determination should be made of the actual share of highway costs paid by the truck tax, other privilege taxes such as license fees paid by trucks should be considered, and a calculation should be made of any economic benefit to railroads as a group from projects to be funded by the Railway Finance Authority. Therefore, even if benefits to the railroads were relevant, the record is wholly inadequate to prove discrimination on that basis. I do not believe, however, that benefits are relevant.

The issue is the relative burden of the tax. This is the test that was applied in Alabama Great Southern R.R. Co. v. Eagerton, 541 F.Supp. 1084 (M.D.Ala.1982). In *351 that case a railroad license tax was compared to other business license taxes. It was computed on a percentage of gross receipts while other businesses except utilities were taxed at a flat rate. The resulting burden on a rail carrier was 350 times the license tax on any Alabama commercial or industrial taxpayer other than utilities. After comparing the relative burden, and relying on expert testimony concerning the issue, the court held that the tax was discriminatory.

In the present case, no evidence of disproportionate burden appears. If anything, the trucking industry carries a heavier burden, perhaps for good reason. Air and barge modes of transportation have substantially less nexus with the state. When the differences in the extent of their contacts with the state and those of railroads are taken into account, it cannot fairly be said that the tax on railroad fuels results in a greater relative burden. Therefore I would hold that the railroad tax has not been shown to be discriminatory.

Because I would also hold that the railroad’s constitutional arguments are without merit, I would affirm the trial court.

HARRIS, LARSON and WOLLE, JJ., join this dissent.