Amicus Curiae Brief — Alabama Department of Revenue, et al., Petitioners v. CSX Transportation, Inc.

Nos. 18-447 and 18-612

In the Supreme Court of the United States

ALABAMA DEPARTMENT OF REVENUE, ET AL., PETITIONERS

v.

CSX TRANSPORTATION, INC.

CSX TRANSPORTATION, INC.,

CONDITIONAL CROSS-PETITIONER

v.

ALABAMA DEPARTMENT OF REVENUE, ET AL.

ON PETITION AND CONDITIONAL CROSS-PETITION

FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

NOEL J. FRANCISCO

Solicitor General

Counsel of Record

JOSEPH H. HUNT

Assistant Attorney

General

MALCOLM L. STEWART

Deputy Solicitor General

ANTHONY A. YANG

Assistant to the Solicitor

General

DANIEL TENNY

SUSHMA SONI

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTIONS PRESENTED

A provision of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat.

31, prohibits States and subdivisions thereof from

“[i]mpos[ing] [a] tax that discriminates against a rail

carrier providing transportation subject to the jurisdiction of the [Surface Transportation] Board.” 49 U.S.C.

11501(b)(4).

The question presented by the petition for a writ of

certiorari is as follows:

Whether Alabama has proffered a sufficient justification for imposing its sales and use tax on diesel fuel

used by rail carriers, while exempting water carriers

from the same tax.

The question presented by the conditional crosspetition for a writ of certiorari is as follows:

Whether Alabama’s sales and use tax imposed on diesel fuel used by rail carriers is a “tax that discriminates

against a rail carrier,” 49 U.S.C. 11501(b)(4), when the

State exempts from that tax diesel motor fuel used by

motor carriers but imposes a different excise tax on the

motor fuel that is “roughly equivalent” to the tax paid

by rail carriers, and the State expends revenue collected from the motor-fuel tax on public road infrastructure.

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 2

Discussion:

A. Alabama’s water-carrier contentions do not

warrant review ............................................................... 10

1. Alabama provides insufficient justifications for

taxing rail-carrier diesel while exempting from

tax the same diesel when used by water

carriers ..................................................................... 11

2. Alabama’s certiorari petition should be denied ... 18

B. CSX’s cross-petition should be denied even if this

Court grants Alabama’s petition .................................. 19

1. Section 11501(b)(4) does not restrict a State’s

ability to decide how to spend state revenue........ 19

2. Even if the Court grants Alabama’s certiorari

petition, the conditional cross-petition should

be denied .................................................................. 21

Conclusion ................................................................................... 23

TABLE OF AUTHORITIES

Cases:

Alabama Dep’t of Revenue v. CSX Transp., Inc.,

135 S. Ct. 1136 (2015) ................................................ passim

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

338 N.W.2d 338 (Iowa 1983), cert. denied,

465 U.S. 1071 (1984)...................................................... 21, 22

BNSF Ry. Co. v. Tennessee Dep’t of Revenue,

800 F.3d 262 (6th Cir. 2015) ......................................... 18, 21

Burlington N. R.R. v. Oklahoma Tax Comm’n,

481 U.S. 454 (1987).............................................................. 17

(III)

IV

Cases—Continued:

Page

CSX Transp., Inc. v. Alabama Dep’t of Revenue:

350 Fed. Appx. 318 (11th Cir. 2009) ............................ 5, 6

562 U.S. 277 (2011) ................................................. passim

892 F. Supp. 2d 1300 (N.D. Ala. 2012) ..................... 4, 6, 7

720 F.3d 863 (11th Cir. 2013)............................................ 7

797 F.3d 1293 (11th Cir. 2015).......................................... 8

CSX Transp., Inc. v. Georgia State Bd. of

Equalization, 552 U.S. 9 (2007) ...................................... 2, 3

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274

(1977) .................................................................................... 16

Helson v. Kentucky, 279 U.S. 245 (1929) ............................ 16

Illinois Cent. R.R. v. Tennessee Dep’t of Revenue,

748 Fed. Appx. 26 (6th Cir. 2018), petition for cert.

pending, No. 18-866 (filed Jan. 2, 2019) ............................ 21

Norfolk S. Ry. Co. v. Alabama Dep’t of Revenue,

550 F.3d 1306 (11th Cir. 2008) ............................................. 6

Oklahoma Tax Comm’n v. Jefferson Lines, Inc.,

514 U.S. 175 (1995).............................................................. 16

Union Pac. R.R. v. Minnesota Dep’t of Revenue,

507 F.3d 693 (8th Cir. 2007) ............................................... 19

Constitutions, statutes, and regulation:

U.S. Const. Art. I, § 8, Cl. 3 (Commerce Clause) ......... 16, 20

Ala. Const. Art. I, § 24........................................................... 16

Act of Mar. 2, 1819, ch. 47, § 6, 3 Stat. 492 .......................... 16

Internal Revenue Code (26 U.S.C.):

§ 4041(a)(1)(A) ............................................................. 3, 13

§ 4041(a)(1)(C)(i) .............................................................. 13

§ 4041(a)(1)(C)(ii) ............................................................. 13

§ 4041(a)(1)(C)(ii)(III) ....................................................... 4

§ 4041(d)(3) ....................................................................... 13

V

Statutes and regulation—Continued:

Page

§ 4042(a) (2012 & Supp. V 2017)..................................... 13

§ 4042(b)(2) (2012 & Supp. V 2017) ................................ 13

§ 4081(a)(2)(A) ................................................................... 3

§ 4081(a)(2)(A)(iii) ............................................................ 13

§ 4081(a)(2)(B) ................................................................. 13

§ 4082(a)(1)-(2) ................................................................... 3

§ 4082(b)(2) ......................................................................... 3

§ 9503(a) ............................................................................. 3

§ 9503(b)(1)(A) (2012 & Supp. V 2017) ............................ 3

§ 9503(b)(1)(D) (2012 & Supp. V 2017) ............................ 3

Railroad Revitalization and Regulatory Reform Act

of 1976, Pub. L. No. 94-210, 90 Stat. 31 .............................. 2

§ 101(a), 90 Stat. 33 (45 U.S.C. 801(a)) ............................ 2

§ 306, 90 Stat. 54 .......................................................... 2, 17

Tax Injunction Act, 28 U.S.C. 1341........................................ 2

45 U.S.C. 801(a) ................................................................. 2, 13

45 U.S.C. 801(b)(2) ................................................................. 13

49 U.S.C. 11501 ........................................................................ 2

49 U.S.C. 11501(b) ......................................................... 2, 3, 20

49 U.S.C. 11501(b)(1) ............................................................. 17

49 U.S.C. 11501(b)(1)-(3) ......................................................... 3

49 U.S.C. 11501(b)(4) .................................................... passim

49 U.S.C. 11501(c) .................................................................... 2

Ala. Code:

§ 11-3-11(a)(2) (2008) ......................................................... 5

§ 11-3-11.2 (2008) ............................................................... 5

§ 11-51-200 (2008) .............................................................. 5

§ 40-17-325(a)(2) (Supp. 2018) .......................................... 4

§ 40-17-325(b) (Supp. 2018) .............................................. 5

§ 40-17-329(a)(3) (Supp. 2018) .......................................... 5

§ 40-23-2(1) (Supp. 2018)................................................... 4

VI

Statutes and regulation—Continued:

Page

§ 40-23-4(a)(10) (Supp. 2018) ............................................ 4

§ 40-23-61(a) (2011) ........................................................... 4

§ 40-23-62(1) (Supp. 2018) ................................................. 4

§ 40-23-62(3) (Supp. 2018) ................................................. 4

26 C.F.R. 48.4082-1.................................................................. 4

Miscellaneous:

H.R. Rep. No. 725, 94th Cong., 1st Sess. (1975) ................. 17

In the Supreme Court of the United States

No. 18-447

ALABAMA DEPARTMENT OF REVENUE, ET AL., PETITIONERS

v.

CSX TRANSPORTATION, INC.

No. 18-612

CSX TRANSPORTATION, INC.,

CONDITIONAL CROSS-PETITIONER

v.

ALABAMA DEPARTMENT OF REVENUE, ET AL.

ON PETITION AND CONDITIONAL CROSS-PETITION

FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the petition and conditional cross-petition for a writ of

certiorari should be denied.

(1)

2

STATEMENT

This case presents the question whether the State of

Alabama’s taxation of diesel fuel used by CSX Transportation, Inc. (CSX) and other rail carriers impermissibly discriminates against rail carriers in violation of

49 U.S.C. 11501(b)(4). Section 11501(b)(4) originated in

Congress’s 1976 enactment of legislation addressing the

physical and economic decline of the domestic rail industry.

1. Congress enacted the Railroad Revitalization and

Regulatory Reform Act of 1976 (4-R Act), Pub. L. No.

94-210, 90 Stat. 31, to “provide the means to rehabilitate

and maintain the physical facilities, improve the operations and structure, and restore the financial stability of

the [Nation’s] railway system,” so that railroad transportation would “remain viable in the private sector of

the economy.” § 101(a), 90 Stat. 33 (45 U.S.C. 801(a));

see CSX Transp., Inc. v. Alabama Dep’t of Revenue,

562 U.S. 277, 280 (2011) (CSX I). As relevant here, Section 306 of the 4-R Act—which Congress has recodified

and rephrased without substantive change at 49 U.S.C.

11501, see CSX I, 562 U.S. at 280 & n.1—targets discriminatory state taxation as a particular cause of railindustry decline. See § 306, 90 Stat. 54; CSX Transp.,

Inc. v. Georgia State Bd. of Equalization, 552 U.S. 9, 12

(2007). To protect those important channels of interstate

commerce, Section 11501 authorizes federal courts to enjoin certain prohibited forms of state taxation. 49 U.S.C.

11501(c) (establishing exception to the Tax Injunction

Act, 28 U.S.C. 1341); see CSX I, 562 U.S. at 280-281.

Section 11501(b) identifies four types of prohibited

state taxation of rail carriers that “unreasonably burden

and discriminate against interstate commerce.” 49 U.S.C.

11501(b). Paragraphs (1)-(3) of subsection (b) prohibit

3

“a State, [or a] subdivision of a State,” from making disproportionately high assessments of, or imposing higher

ad valorem tax rates upon, “rail transportation property” relative to “other commercial and industrial property.” 49 U.S.C. 11501(b)(1)-(3); see Georgia State Bd.

of Equalization, 552 U.S. at 16, 18.

This case concerns Section 11501(b)’s fourth paragraph, which prohibits “a State, [or a] subdivision of a

State,” from imposing “another tax that discriminates

against a rail carrier providing transportation subject

to the jurisdiction of the [Surface Transportation] Board”

(STB). 49 U.S.C. 11501(b)(4). That provision imposes a

“broad ban on tax discrimination” against rail carriers,

and it regulates “any form” of non-property tax that “a

State might impose[] on any asset or transaction.” CSX

I, 562 U.S. at 284 n.6, 285, 292; see id. at 290-291.

Under Section 11501(b)(4), a tax is impermissibly

discriminatory “when it treats ‘groups that are similarly

situated’ differently without sufficient ‘justification for

the difference in treatment.’ ” Alabama Dep’t of Revenue v. CSX Transp., Inc., 135 S. Ct. 1136, 1141 (2015)

(CSX II) (brackets and citation omitted). A State’s imposition of a tax on a rail carrier is sufficiently justified

if that tax “is the rough equivalent” of a separate tax

imposed on a similarly situated entity, because “no discrimination [exists] when” a State imposes such distinct

but “roughly comparable taxes.” Id. at 1144.

2. a. The federal government generally taxes diesel

fuel used in highway motor vehicles, 26 U.S.C.

4041(a)(1)(A), 4081(a)(2)(A), and deposits the corresponding revenue into the federal Highway Trust Fund,

26 U.S.C. 9503(a), (b)(1)(A) and (D) (2012 & Supp. V 2017).

Diesel fuel destined for nontaxable uses—including use

in a train—is “indelibly dyed,” 26 U.S.C. 4082(a)(1)-(2)

4

and (b)(2); see 26 U.S.C. 4041(a)(1)(C)(ii)(III); 26 C.F.R.

48.4082-1, which distinguishes it from federally taxed

(clear) diesel used by motor vehicles in order to prevent

circumvention of that tax. Diesel locomotives can operate on clear diesel, but rail carriers “buy dyed diesel to

avoid paying federal and state motor fuels taxes at the

pump.” Pet. App. 11a n.3.

Alabama imposes a four-percent sales tax on the retail sale in the State of tangible personal property, including diesel fuel. Ala. Code § 40-23-2(1). 1 If that sales

tax is not paid, Alabama law imposes an equivalent use

tax on the storage, use, or consumption of such property

in the State. §§ 40-23-61(a), 40-23-62(1). CSX contends

that Alabama’s four-percent sales and use tax unlawfully discriminates against rail carriers because that tax

applies to dyed diesel purchased and used by rail carriers but does not apply to the diesel fuel used by interstate water carriers and motor carriers. See Pet. App.

3a & n.1.

Water carriers involved in “solely intrastate transportation are subject to the same sales and use tax as

rail carriers.” CSX Transp., Inc. v. Alabama Dep’t of

Revenue, 892 F. Supp. 2d 1300, 1316 (N.D. Ala. 2012).

But Alabama fully exempts from that tax water carriers

“engaged in foreign or international commerce or in interstate commerce.” Ala. Code §§ 40-23-4(a)(10), 40-23-62(3).

Thus, unlike interstate rail carriers, water carriers engaged in interstate transportation pay no state tax on

(dyed) diesel. Pet. App. 3a.

Alabama separately imposes a primary excise tax and

an additional excise tax totaling 19¢/gallon on motor fuel,

including (clear) diesel fuel. Ala. Code § 40-17-325(a)(2);

All citations to the Alabama Code in this brief are to that code

as revised through the 2018 supplement thereto.

1

5

see § 40-17-329(a)(3) (exempting sales of dyed diesel from

these taxes); Pet. App. 3a n.2. Such fuel is exempt from

the State’s four-percent sales and use tax. § 40-17-325(b).

Motor carriers therefore generally pay a state tax of

19¢/gallon for (clear) diesel fuel. Pet. App. 3a.

Alabama also authorizes certain subdivisions of the

State to levy and collect taxes. See, e.g., Ala. Code

§§ 11-3-11(a)(2), 11-3-11.2, 11-51-200. Local governments

in Alabama accordingly may “levy sales and use taxes

and motor fuels taxes at varying rates.” Pet. 6.

b. During the 2007-2016 period relevant to this case,

rail carriers paid on average about 9.85¢/gallon of (dyed)

diesel for Alabama’s four-percent sale and use tax,

which was significantly less than the 19¢/gallon that motor carriers paid for Alabama excise taxes on (clear) diesel. Pet. App. 55a. When additional taxes from local

Alabama jurisdictions are included, rail and motor carriers paid on average a total of about 23.48¢ and 20¢-23¢,

respectively, for state and local tax per gallon of diesel.

Ibid.; see id. at 65a-66a & n.15. As previously noted,

interstate water carriers paid no state tax for their purchase and use of dyed diesel in Alabama. Id. at 56a.

3. In 2008, respondent/cross-petitioner CSX, a rail

carrier subject to the jurisdiction of the STB, sued

petitioners/cross-respondents (collectively, Alabama) in

district court. CSX alleged that Alabama had violated

49 U.S.C. 11501(b)(4) by requiring rail carriers to pay

sales and use taxes for diesel while exempting motor

carriers and interstate water carriers. Pet. App. 4a, 48a.

a. The district court dismissed respondent’s suit, and

the court of appeals affirmed. 350 Fed. Appx. 318 (11th

Cir. 2009). Both courts held that Section 11501(b)(4)

does not prohibit a State from applying a generally ap-

6

plicable tax to a rail carrier, even though that State exempts other entities from the tax. Id. at 319-320 (following Norfolk S. Ry. Co. v. Alabama Dep’t of Revenue,

550 F.3d 1306, 1316 (11th Cir. 2008)).

This Court reversed. CSX I, 562 U.S. 277. The Court

held that Section 11501(b)(4)’s prohibition against discriminatory taxes applies to a state tax that treats

“groups [that] are similarly situated” differently without sufficient “justification for the difference in treatment.” Id. at 287. The Court accordingly held that “a

state excise tax that applies to railroads but exempts

their interstate competitors is subject to challenge under subsection (b)(4) as a ‘tax that discriminates against

a rail carrier,’ ” and that the railroad bringing that challenge will prevail if the State cannot “offer[] a sufficient

justification for declining to provide the exemption at

issue to rail carriers.” Id. at 288 & n.8.

b. On remand, the parties stipulated that motor and

water carriers are “[t]he principal competitors to rail

carriers in the transportation of property in interstate

commerce in the State of Alabama.” Agreed Facts ¶ 10

(July 11, 2016); see Pet. App. 28a. After a bench trial,

and using motor and water carriers as the appropriate

comparison class, the district court again held that Alabama’s sales and use tax did not discriminate against

CSX. 892 F. Supp. 2d at 1308, 1312-1317.

The district court rejected CSX’s discrimination

claim vis-à-vis motor carriers because Alabama’s overall state and local tax rates for motor-carrier diesel

were “substantially similar” to that for the dyed diesel

used by rail carriers. 892 F. Supp. 2d at 1313-1314. The

court declined to consider how Alabama spends revenue

from such taxes, explaining that Section 11501(b)(4) re-

7

stricts discriminatory taxes, not state spending decisions. Id. at 1314. The court also rejected respondent’s

discrimination claim vis-à-vis interstate water carriers.

Id. at 1315-1317. The court held that respondent had

offered no evidence of discriminatory effect and had

failed to show that “rail carriers and interstate/foreign

water carriers are similarly situated.” Id. at 1316-1317.

A divided panel of the court of appeals reversed and

remanded. 720 F.3d 863 (2013). The court held that respondent had established a prima face case of discrimination because rail carriers pay a sales and use tax on

diesel while “motor and water carriers do not.” Id. at

871; see id. at 869-871. The court declined to consider

the state fuel excise taxes that motor carriers pay, concluding that the pertinent inquiry “ ‘look[s] only at the

sales and use tax [paid by rail carriers] with respect to

fuel to see if discrimination has occurred.’ ” Id. at 869,

871 (citation omitted).

This Court again reversed and remanded. CSX II,

135 S. Ct. 1136. In light of respondent’s claim and the

parties’ stipulation, the Court held that “a comparison

class of competitors consisting of motor carriers and

water carriers was appropriate, and differential treatment vis-à-vis that class would constitute discrimination” absent a sufficient justification. Id. at 1143; see

id. at 1141-1143. The Court then rejected the court of

appeals’ narrow focus on only the tax paid by rail carriers. Id. at 1143-1144. The Court concluded that “[n]o

discrimination [exists] when there are roughly comparable taxes,” and that “Alabama can [therefore] justify

its decision to exempt motor carriers from [the] sales

and use tax” paid by rail carriers by showing that it has

imposed on motor carriers “an alternative, roughly equivalent tax.” Ibid.

8

This Court remanded for a determination “whether

Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore

justifies the motor carrier sales-tax exemption,” and for

an evaluation of Alabama’s “other justifications for the

water carrier exemption,” including “that such an exemption is compelled by federal law.” CSX II, 135 S. Ct.

at 1144.

c. The court of appeals remanded to the district

court, 797 F.3d 1293, 1294 (11th Cir. 2015) (per curiam),

which held a second bench trial. Pet. App. 50a. The

district court again held that Alabama’s tax scheme did

not violate Section 11501(b)(4). Id. at 47a-76a.

The district court found no discrimination vis-à-vis

motor carriers because, as relevant here, “the fuel excise tax motor carriers pay is ‘roughly equivalent’ to the

sales tax CSX pays.” Pet. App. 66a; see id. at 59a-66a.

The court also found no discrimination vis-à-vis interstate water carriers. Id. at 67a-75a. While rejecting

several of the State’s arguments, id. at 70a-74a, the

court held that the water-carrier exemption was justified because repealing it would “expose” the State “to

liability under the negative Commerce Clause,” id. at

70a; see id. at 68a-70a.

4. The court of appeals reversed and remanded,

later issuing a substitute opinion (Pet. App. 1a-46a) in

response to Alabama’s and CSX’s separate requests for

clarification. Id. at 2a; see 891 F.3d 927, 928 (11th Cir.

2018) (adding paragraph reproduced at Pet. App. 45a).

a. As relevant here, the court of appeals agreed with

the district court that Alabama’s sales and use tax on

dyed diesel did not discriminate against rail carriers visà-vis motor carriers because the tax is “roughly equivalent” to the State’s excise tax on clear diesel, Pet. App.

9

26a-27a. See id. at 16a-27a. The court explained that,

when “only state taxes” are considered, rail carriers paid

about 9.85¢/gallon while motor carriers paid 19¢/gallon.

Id. at 27a. Even when local taxes are added, the court

continued, the taxes “approximate[d] one another”:

Rail carriers on average paid 23.48¢/gallon while motor

carriers paid between 20¢ and 23¢/gallon. Ibid.

CSX argued that “the excise tax is not roughly equivalent to the sales and use tax” because the State uses

revenues from the excise tax to fund public highways,

which effectively subsidizes infrastructure used by motor carriers. Pet. App. 17a. The court of appeals rejected that contention, stating that Section 11501(b)(4)

prohibits the discriminatory “imposition of a tax,” id. at

19a, not state spending decisions that allocate tax revenues. Id. at 17a-21a.

b. The court of appeals held, however, that Alabama

had violated Section 11501(b)(4) by taxing rail-carrier

diesel while exempting diesel used by interstate water

carriers. Pet. App. 27a-44a. As relevant here, the court

determined that Alabama could not justify the disparate taxation “merely because” eliminating its watercarrier exemption “might ‘expose’ the State to a lawsuit

under federal law.” Id. at 31a, 44a. The court recognized that the disparate taxation would be sufficiently

justified if the water-carrier exemption was “compelled

by federal law.” Id. at 31a (citation omitted). The court

found that no such compulsion existed, however, because Alabama could apply its sales and use tax to diesel

used by interstate water carriers without “violat[ing]

federal law.” Id. at 44a; see id. at 31a-39a. The court

also held that the federal tax on water-carrier diesel and

the low costs to the State associated with water carriers

10

did not justify the challenged tax on rail carriers. Id. at

39a-44a.

DISCUSSION

Alabama contends (Pet. 21-28) that the court of appeals erred by rejecting the State’s proffered justifications for taxing diesel used by rail carriers while exempting from that tax the same fuel used by railroads’ watercarrier competitors. CSX argues in its conditional crosspetition (at 16-24) that, if the Court grants Alabama’s

certiorari petition, it should also review the court of appeals’ conclusion that the manner in which a State

spends tax revenue is irrelevant to the discrimination

inquiry under Section 11501(b)(4). The court of appeals

correctly resolved both questions, and its decision does

not conflict with any decision of this Court or another

court of appeals. Further review is not warranted.

A. Alabama’s Water-Carrier Contentions Do Not Warrant

Review

The court of appeals correctly held that Alabama had

violated Section 11501(b)(4) by taxing the diesel used by

rail carriers while exempting interstate water carriers’

purchases and use of the same diesel. Pet. App. 31a44a. Alabama argues (Pet. 21; Reply Br. 6) that a State

can justify such disparate treatment simply by identifying “some reason having nothing to do with railroads,”

so long as the State’s differential tax treatment reflects

a “ ‘reasonable distinction,’ ” CSX Transp., Inc. v. Alabama Dep’t of Revenue, 562 U.S. 277, 286, 289 n.8 (2011).

See Pet. 21, 23, 25 (repeating six times Alabama’s

reason-having-nothing-to-do-with-railroads formulation).

From that premise, Alabama contends (Pet. 21) that it

did not violate Section 11501(b)(4) because it has “multiple reasons” for initially “exempt[ing] water carriers

11

in 1939” (Pet. 22-23) and for “not repeal[ing] the exemption in 2018” (Pet. 23-28).

To prevail in this case, CSX need not show that Alabama acted unreasonably either by taxing railroad diesel or by exempting water-carrier diesel. Each of those

state policy choices, standing alone, was undoubtedly a

permissible exercise of Alabama’s broad discretion in

the taxing sphere. Under Section 11501(b)(4), however,

the crucial question is whether the State has established a sufficient justification for the disparate treatment. In this case, Alabama’s proffered reasons do not

justify imposing the State’s sales and use tax on diesel

used by rail carriers while exempting interstate water

carriers’ purchases and use of the same diesel. In the

absence of a division of authority, the State’s arguments

do not warrant review.

1. Alabama provides insufficient justifications for taxing

rail-carrier diesel while exempting from tax the same

diesel when used by water carriers

The court of appeals correctly recognized that, if Alabama’s water-carrier exemption were “compelled by

federal law,” Alabama Dep’t of Revenue v. CSX Transp.,

Inc., 135 S. Ct. 1136, 1144 (2015), Alabama would not

have violated Section 11501(b)(4) by applying its sales

and use tax to rail-carrier diesel while exempting diesel

used by interstate water carriers. See Pet. App. 31a.

Alabama does not dispute the court of appeals’ conclusion (id. at 31a-39a) that federal law does not actually

compel such an exemption. The State instead argues

(Pet. 21; Reply Br. 6) that this disparate treatment does

not violate Section 11501(b)(4) so long as it reflects a

“ ‘reasonable distinction,’ ” CSX I, 562 U.S. at 286 (citation omitted), based on “some reason having nothing to

do with railroads,” id. at 289 n.8. The State provides no

12

sound justification for its disparate taxation of railroad

and water-carrier diesel.

a. A tax “discriminates” in violation of Section

11501(b)(4) if it produces disparate tax treatment disfavoring a rail carrier and “ ‘no reasonable distinction can

be found between those favored and those not favored.’ ”

CSX I, 562 U.S. at 286 (citation omitted). A State may

justify such disparate treatment by showing that the entities in question are not similarly situated for purposes of

appropriate tax treatment. But where the tax “treats

‘groups that are similarly situated’ differently,” the tax

will discriminate in violation of Section 11501(b)(4) if the

State does not offer a “sufficient ‘justification for the

difference in treatment.’ ” CSX II, 135 S. Ct. at 1141

(brackets and citation omitted); see CSX I, 562 U.S. at

288 n.8.

Two aspects of the 4-R Act are particularly salient in

determining what qualifies as a sufficient justification

here. First, Congress simply prohibited “a State, [or]

subdivision of a State,” 49 U.S.C. 11501(b), from imposing a tax that discriminates against a rail carrier.

Congress did not restrict the federal government’s ability to imposes taxes (or adopt non-tax policies) that favor or disfavor rail carriers vis-à-vis other entities.

Federal law therefore should be taken as given in determining whether a particular state tax violates Section 11501(b)(4).

Thus, if federal law requires that a category of entities be exempt from relevant state taxation, a State may

implement that exemption while applying the relevant

tax to rail carriers without violating Section 11501(b)(4).

See CSX II, 135 S. Ct. at 1144 (indicating that Alabama

might justify its differential taxing scheme if its watercarrier exemption is “compelled by federal law”). But if

13

rail-carrier competitors are subject to a federal tax that

is not imposed on rail carriers themselves, a State cannot invoke that federal disparate treatment as a justification for taxing railroads more heavily than their competitors. Although such disparate treatment under

state law might equalize the overall (i.e., state plus federal) tax burdens imposed on the two classes, it would

effectively countermand the relevant federal policy concerning the appropriate competitive balance between

rail carriers and their marketplace competitors. 2

Second, the 4–R Act’s stated purpose is to “restore

the financial stability of the railway system of the United

States,” while “foster[ing] competition among all carriers

by railroad and other modes of transportation.” 45 U.S.C.

801(a) and (b)(2). “[D]iscrimination in favor of [competitors to rail carriers] most obviously frustrates th[at]

purpose.” CSX II, 135 S. Ct. at 1142. Thus, where (as

here) a state tax favors an entity that both competes

with and is similarly situated to the disfavored rail carrier, the tax presumptively falls within the core of Section 11501(b)(4)’s prohibition. Such taxes require a

more substantial justification to withstand scrutiny.

Alabama suggests (Pet. 21, 23, 25; Reply Br. 6) that,

under CSX I, a State can justify differential tax treatment of railroads and their competitors simply by articulating some rationale that is unrelated to railroads.

That is incorrect. The Court in CSX I “presume[d]”

Congress has incrementally reduced the federal tax on diesel

used by rail carriers to 0.1¢/gallon, 26 U.S.C. 4041(a)(1)(C)(ii) and

(d)(3), while imposing a 24.4¢/gallon tax on motor-carrier diesel,

26 U.S.C. 4041(a)(1)(A) and (C)(i), 4081(a)(2)(A)(iii) and (B), and an

increasing tax (now 29.1¢/gallon) on water-carrier diesel, 26 U.S.C.

4042(a) and (b)(2) (2012 & Supp. V 2017).

2

14

that a suit under Section 11501(b)(4) would be “promptly dismissed” if a railroad challenged a tax regime in

which “ ‘every person and business in the State of Alabama paid a $1 annual tax, and one person was exempt’

for some reason having nothing to do with railroads.”

562 U.S. at 289 n.8 (citation omitted). But nothing in

that statement suggests a generally applicable somereason-having-nothing-to-do-with-railroads standard. In

noting that an exemption for a single non-railroad taxpayer would not violate Section 11501(b)(4), the Court

did not condone a tax exemption for an entire category

of businesses (interstate water carriers) that are principal competitors of rail carriers, with respect to an item

(diesel fuel) that is central to railroad operations.

b. Alabama principally contends (Pet. 25) that its

disparate tax treatment of railroad and water-carrier

diesel is justified because the State could legitimately

choose to avoid the “cost and risk of litigation” that might

result from repealing its water-carrier exemption, even

though “the State believes it should prevail” in such litigation. That is not a sufficient basis for the State’s differential tax treatment of rail and water carriers.

To be sure, “avoiding litigation risk” generally constitutes a “valid government interest,” Pet. 27, that

would justify a State’s decision to forbear from imposing taxes or regulatory obligations. That is so even if

the State views the likelihood of an adverse judgment

as remote and simply seeks to avoid nuisance suits. Under the 4-R Act, however, a State must satisfy a standard higher than minimum rationality in order to justify

its imposition on railroads of a tax from which their direct competitors are exempt. Thus, when a rail carrier

challenges a tax under Section 11501(b)(4) as impermissibly discriminatory “on the basis of the tax scheme’s

15

exemptions” for other entities, the State must “offer[] a

sufficient justification for declining to provide the exemption at issue to rail carriers.” CSX I, 562 U.S. at 288

n.8. Here, Alabama’s desire to avoid the potential cost

and risk of litigating what the State itself views as meritless claims, Pet. 25, does not justify its differential tax

treatment of rail and water carriers.

Alabama’s asserted interest in avoiding the burdens

of litigation seems particularly inapposite here, since its

decision to exempt water carriers from a tax imposed on

railroads has led to this prolonged 4-R Act lawsuit.

More generally, the very existence of the 4-R Act belies

any suggestion that state taxation of water carriers is

subject to greater federal-law constraints than state

taxation of railroads. And if the possibility of litigation

on claims by rail-carrier competitors were sufficient to

justify a State’s disfavored tax treatment of railroads,

without regard to the actual merit of the competitors’

potential claims, Congress’s prohibition against state

taxes that “discriminate[] against a rail carrier” would

be largely negated, since a State could almost always

hypothesize some legal challenge that the competitor

might bring.

c. Most of Alabama’s remaining contentions are

premised on the State’s litigation-cost-and-risk justification. Alabama argues (Pet. 25-28) that repealing the

water-carrier exemption would “expose” it to litigation

on potential claims by water carriers. Pet. 25. But Alabama “believes that it should prevail” on all such

claims, ibid., and the court below concluded that the

State would not violate federal law if it imposed its sales

and use tax on diesel used by interstate water carriers.

Indeed, Alabama makes no meaningful effort to show

16

that the water-carrier challenges it hypothesizes would

even present close or fairly debatable questions.

Although Alabama states (Pet. 22) that it “had to”

enact its tax exemption for water carriers “in March

1939” in order to “compl[y] with state and federal law”

at that time, it does not argue that the exemption is currently required. For instance, Alabama invokes (ibid.)

the Commerce Clause as interpreted in Helson v. Kentucky, 279 U.S. 245 (1929). But Alabama recognizes that

this Court’s Commerce Clause jurisprudence has evolved

since that time, see Pet. 25 (citing Oklahoma Tax Comm’n

v. Jefferson Lines, Inc., 514 U.S. 175, 183 (1995)); see

also Complete Auto Transit, Inc. v. Brady, 430 U.S. 274

(1977), and it identifies no substantial ground for doubting that a state tax on water-carrier diesel would comply with more recent precedents. See Pet. App. 31a-37a

(applying test articulated in Complete Auto Transit and

concluding that state tax on water-carrier fuel is permissible).

Alabama’s reliance (Pet. 22) on the 1819 Act admitting it to the Union, and on a corresponding provision in

the State’s constitution, is misplaced for similar reasons. The 1819 Act requires that “all navigable waters

within [Alabama] shall for ever remain public highways,

free to the citizens of said state and of the United

States, without any tax, duty, impost, or toll, therefor.”

Act of Mar. 2, 1819, ch. 47, § 6, 3 Stat. 492; see Ala.

Const. Art. I, § 24 (“[A]ll navigable waters shall remain

forever public highways, free to the citizens of the state

and the United States, without tax, impost, or toll.”).

The district court held that the 1819 Act (which the

State’s constitution merely follows) would not prohibit

the State from applying a generally applicable tax to

fuel used by water carriers, Pet. App. 72a-73a, and

17

Alabama agrees (Pet. 25) that “it should prevail” against

a water-carrier challenge based on those provisions.

To the extent Alabama contends that its exemption

for water carriers is still justified because the State in

1939 reasonably would have believed that the law required it, see Pet. 22, that too is incorrect. Congress

enacted the 1976 prohibition against tax discrimination

now codified at Section 11501(b)(4) in order to preempt

then-existing state provisions that ran afoul of the

4-R Act’s prohibitions. CSX I, 562 U.S. at 293. Congress

delayed the effective date of that provision for “3 years

after [its] date of enactment,” 4-R Act § 306, 90 Stat. 54,

to provide affected States sufficient time “to change

their practices.” H.R. Rep. No. 725, 94th Cong., 1st

Sess. 76 (1975). Whatever Alabama’s reasons for exempting water carriers in 1939, those reasons do not

justify its present imposition of a tax that discriminates

against rail carriers and is not presently required by

federal law. Cf. Burlington N. R.R. v. Oklahoma Tax

Comm’n, 481 U.S. 454, 461 (1987) (holding that plaintiff

suing under Section 11501(b)(1) need not establish “intentional discrimination”).

d. Finally, Alabama argues (Pet. 23-24; Reply Br. 6)

that water carriers have a “unique relationship with the

federal government,” and that a State may “defer [its

own] taxation” of diesel used by water carriers in light

of the 29.1¢ federal tax thereon and the limited nature

of the financial burdens that water-carrier operations

impose on the State. That is incorrect.

First, that rationale does not explain why the State

“declin[es] to provide the exemption at issue to rail carriers.” CSX I, 562 U.S. at 288 n.8; see p. 15, supra. Second, neither Section 11501(b)(4) nor any other 4-R Act

provision suggests that a State can justify its own tax

18

discrimination against railroads by pointing to ways in

which federal law treats railroads more favorably than

their competitors. See pp. 12-13, supra. Alabama acknowledges, moreover, that its “4% sales-and-use tax ‘is

not calibrated to account for varying burdens’ ” imposed

on the State by different taxpayers, Pet. 24 (quoting

Pet. App. 43a), and it ignores the various services it makes

available to everyone in the State, water carriers included. In sum, Alabama identifies no sufficient justification for its disparate taxation of rail carriers vis-à-vis

the interstate water carriers with which they compete.

2. Alabama’s certiorari petition should be denied

The court of appeals’ decision rejecting Alabama’s

“exposure to [litigation] risk” (Pet. App. 31a, 44a) and

federal-relationship (id. at 40a-44a) arguments does not

conflict with any decision of this Court or another court

of appeals. Further review is not warranted.

The $28 million in tax refunds apparently at issue,

Pet. 17, does not change that result. A court in a future

refund suit can determine the appropriateness of retrospective tax refunds, and that remedial issue is distinct

from Section 11501(b)(4)’s substantive prohibition on

discrimination against rail carriers. Alabama’s suggestion (Pet. 16-17) that other States could be affected likewise does not provide a persuasive ground for this Court

to grant review. No other State has filed an amicus brief

supporting Alabama’s certiorari petition in this case,

and the idiosyncratic justifications proffered by Alabama

here do not appear to reflect central arguments made

by other States in similar Section 11501(b)(4) actions. 3

See, e.g., BNSF Ry. Co. v. Tennessee Dep’t of Revenue, 800 F.3d

262, 273-275 (6th Cir. 2015) (upholding denial of preliminary injunc3

19

B. CSX’s Cross-Petition Should Be Denied Even If This

Court Grants Alabama’s Petition

CSX agrees (Cross-Pet. 4) that this Court should

deny certiorari. CSX contends (Cross-Pet. 16-24), however, that if the Court grants Alabama’s petition, it

should also review the court of appeals’ holding that Alabama’s taxing scheme does not discriminate in favor of

motor carriers. CSX’s challenge to that holding lacks

merit and does not warrant this Court’s review.

1. Section 11501(b)(4) does not restrict a State’s ability

to decide how to spend state revenue

CSX does not challenge the court of appeals’ holding

that Alabama imposes “roughly equivalent” diesel taxes

on rail and motor carriers. Pet. App. 16a-17a. CSX instead argues (Cross-Pet. 16-24) that the inquiry under

Section 11501(b)(4) must take account of the State’s use

of the revenue generated by such taxes, and that Alabama impermissibly favors motor carriers by allocating

tion because state tax on consumption of diesel applied to commercial carriers generally; remanding for consideration of water-carrier

exemption); Br. for Defs.-Appellees, at 15-16, 29-32, BNSF Ry. Co.,

supra (No. 14-6401) (justifying water-carrier exemption on grounds

that water carriers pay a separate sales and use tax on their fuel;

that competition between water and rail carriers “is insignificant”;

that water and rail carriers are distinct in numerous other ways; and

that it would be difficult to apply the State’s diesel tax to water carriers because they travel waterways like the Mississippi River located between States, making it difficult to determine where they

consume the fuel); see also, e.g., Union Pac. R.R. v. Minnesota Dep’t

of Revenue, 507 F.3d 693, 694-695 (8th Cir. 2007) (addressing sales

and use tax imposed equally on fuel used by rail and water carriers;

rejecting State’s defense that its exemption for competing motor

and air carriers was justified by distinct fuel excise taxes imposed

on those carriers), abrogated in part by CSX II, 135 S. Ct. at 11431144 (approving of such a defense).

20

revenue from motor-fuel taxes to public roads. That argument lacks merit.

Section 11501(b)(4) simply prohibits a State from

“[i]mpos[ing] [a] tax” that discriminates against a rail

carrier. 49 U.S.C. 11501(b)(4). Nothing in that language, or in Section 11501(b) more generally, addresses

“revenue allocation or spending that discriminates

against rail carriers.” Pet. App. 21a; see id. at 18a-21a.

CSX contends (Cross-Pet. 16-19, 21-23) that Section

11501(b)(4) should be read to reflect Commerce Clause

precedents that have scrutinized state spending decisions when determining whether the State has impermissibly discriminated against forms of interstate commerce. But Section 11501(b)(4) identifies the imposition

of a discriminatory non-property tax as one “act[] [that]

unreasonably burden[s] and discriminate[s] against interstate commerce.” 49 U.S.C. 11501(b). That text does

not suggest that Section 11501(b)(4) prohibits all state

acts that so discriminate. To the contrary, Section

11501(b)’s identification of four discrete types of proscribed taxing practices belies any suggestion that the

4-R Act bars all state laws that discriminate against railroads. Thus, although Commerce Clause jurisprudence

can be instructive when construing Section 11501(b)(4),

the statute’s more modest textual scope focuses exclusively on the “impos[ition]” of state “taxes,” not on the

allocation of state revenues.

Respondent’s approach, moreover, would embroil

courts in an extraordinarily difficult task of comparing

relative benefits from different public expenditures. A

State’s use of revenues for public road infrastructure

benefits the entire body public, including motor carriers

and rail carriers that utilize motor vehicles. Attempting

to value the relative benefits of those expenditures to

21

different categories of users would be an analytical morass. If Congress had intended that courts engage in

such inquiries, it presumably would have expressed that

intent directly, by enacting a (more or less detailed)

prohibition on state spending policies that discriminate

against railroads. There is no sound basis for reading

such a prohibition into Section 11501(b)(4)’s ban on discriminatory state taxes.

2. Even if the Court grants Alabama’s certiorari petition,

the conditional cross-petition should be denied

The question presented in CSX’s conditional crosspetition does not warrant this Court’s review. Since this

Court issued its decisions in CSX I and CSX II, only one

other court of appeals has addressed a similar revenueuse challenge under Section 11501(b)(4). Like the court

below, that court held that “how Tennessee uses the

proceeds of its taxation of diesel fuel is irrelevant to the

question of whether the Railroads have been discriminated against within the meaning of the 4-R Act.”

BNSF Ry. Co. v. Tennessee Dep’t of Revenue, 800 F.3d

262, 274 (6th Cir. 2015); see Illinois Cent. R.R. v. Tennessee Dep’t of Revenue, 748 Fed. Appx. 26, 30 (6th Cir.

2018) (same), petition for cert. pending, No. 18-866

(filed Jan. 2, 2019).

CSX contends (Cross-Pet. 20-21) that Atchison, Topeka & Santa Fe Railway Co. v. Bair, 338 N.W.2d 338

(Iowa 1983) (en banc) (Atchison), cert. denied, 465 U.S.

1071 (1984), reflects a division of authority. That is

incorrect. The nine-justice court in Atchison did not

produce a majority opinion. Four justices dissented, id.

at 349-351 (dissenting opinion), and Justice Carter’s

special concurrence emphasized that he did “[]not accept [Justice Uhlenhopp’s] reasoning” for the four-justice

plurality. Id. at 348; see id. at 340 (headnotes reflecting

22

that only three justices concurred in Justice Uhlenhopp’s opinion).

Respondent relies (Pet. 20-21) on the Atchison plurality’s view that the tax scheme at issue there impermissibly gave “trucks a distinct competitive advantage”

over railroads because the revenue from fuel taxes paid

by trucks was used for road infrastructure. 338 N.W.2d

at 346-347. But a majority of the Atchison court rejected

that theory. The dissenting justices concluded that “the

disposition of the [tax] revenues is [not] relevant.” Id.

at 350. And Justice Carter concluded that the plurality’s

focus on “supposed competitive disadvantage” from state

spending was “not a practical standard,” adding that

“[t]oo many variables are involved to make such comparisons meaningful.” Id. at 348. He instead determined that the State’s “tailored tax” on railroad fuel use

was discriminatory because it applied only to railroads,

regardless of “other taxes levied incident to truck,

barge, and air transportation.” Id. at 348-349. 4 It is

therefore far from clear that the Iowa Supreme Court

would follow the Atchison plurality’s expenditurefocused approach in any future controversy.

Justice Carter suggested that a State could enact a “special tax”

on rail carriers, but that such a “tailored tax” would be lawful only

if rail carriers received from the resulting fund “benefits which are

proportionate to the tax imposed.” Atchison, 338 N.W.2d at 349.

4

23

CONCLUSION

The petition and the conditional cross-petition for a

writ of certiorari should be denied.

Respectfully submitted.

NOEL J. FRANCISCO

Solicitor General

JOSEPH H. HUNT

Assistant Attorney

General

MALCOLM L. STEWART

Deputy Solicitor General

ANTHONY A. YANG

Assistant to the Solicitor

General

DANIEL TENNY

SUSHMA SONI

Attorneys

MAY 2019