Petition for Writ of Certiorari — Alabama Department of Revenue, et al., Petitioners v. CSX Transportation, Inc.
Supreme Court briefOct 5, 2018
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No. _________
In the
Supreme Court of the United States
─────────────♦─────────────
ALABAMA DEPARTMENT OF REVENUE AND
VERNON BARNETT, COMMISSIONER, DEPARTMENT OF
REVENUE, IN HIS OFFICIAL CAPACITY,
Petitioners,
v.
CSX TRANSPORTATION, INC.,
Respondent.
─────────────♦─────────────
On Petition for Writ of Certiorari to the
United States Court of Appeals for the Eleventh Circuit
─────────────♦─────────────
PETITION FOR A WRIT OF CERTIORARI
─────────────♦─────────────
Mark Griffin
Chief Legal Counsel
Margaret Johnson
McNeill
Keith Maddox
Ass’t Attorneys General
Steve Marshall*
Attorney General
Andrew L. Brasher
Solicitor General
Corey L. Maze
Special Deputy Atty Gen’l
*Counsel of Record
STATE OF ALABAMA
DEP’T OF REVENUE
P.O. Box 32001
Montgomery, AL 36132
(334) 242-9690
OFFICE OF THE ALABAMA
ATTORNEY GENERAL
501 Washington Avenue
Montgomery, AL 36130
(334) 242-7300
smarshall@ago.state.al.us
October 5, 2018
Counsel for Petitioners
i
QUESTION PRESENTED
The Court has heard this case twice before. In its
first opinion, the Court held that CSX Transportation
could challenge Alabama’s sales-and-use tax as “another tax that discriminates against a rail carrier” in
violation of 49 U.S.C. § 11501(b) because Alabama exempts trucks and water carriers—but not rail carriers—from paying the tax when purchasing diesel fuel
to transport goods interstate. See CSX Transp., Inc.
v. Ala. Dep’t of Revenue, 562 U.S. 277 (2010). In its
second opinion, the Court held that the lower courts
must look outside the challenged sales-and-use tax to
determine whether Alabama could justify the exemptions. See Alabama Dep’t of Revenue v. CSX Transp.,
Inc., 135 S.Ct. 1136 (2015).
On remand, the district court held a 4-day trial and
found that Alabama justified both exemptions. The
Eleventh Circuit agreed that Alabama justified the
truck exemption but held that Alabama had not justified the water carrier exemption. It therefore ordered
the district court to enjoin the tax.
Rail carriers and States have fought over water
carrier exemptions for more than 20 years. The issue
is presently pending in multiple actions that lower
courts have stayed pending resolution of this case.
The question left open by the Court in CSX II and
presented here is
Under 49 U.S.C. § 11501(b)(4), when can a
State justifiably maintain a sales-and-use
tax exemption for fuel used by vessels to
transport goods interstate without extending
the same exemption to rail carriers?
ii
PARTIES TO THE PROCEEDINGS
The caption identifies all parties to this proceeding.
iii
TABLE OF CONTENTS
QUESTION PRESENTED .................................................. i
PARTIES TO THE PROCEEDINGS .................................... ii
APPENDIX TABLE OF CONTENTS ...................................iv
TABLE OF AUTHORITIES ................................................v
PETITION FOR A WRIT OF CERTIORARI ...........................1
OPINIONS BELOW ..........................................................1
STATEMENT REGARDING JURISDICTION ........................1
STATUTORY PROVISION INVOLVED ................................2
INTRODUCTION ..............................................................3
STATEMENT OF THE CASE .............................................5
A. The tax ...............................................................5
B. The 4-R Act ........................................................7
C. The Railroads’ Litigation..................................7
1. CSX I .............................................................8
2. CSX II............................................................9
3. CSX III ........................................................10
REASONS THE COURT SHOULD GRANT
CERTIORARI ................................................................14
I. The question presented has recurred for
more than 20 years and threatens millions
of public dollars .................................................14
A. Lower courts have stayed cases with
the same question to watch this case ......16
iv
B. Millions of public dollars are at
stake...........................................................17
II. The case is an ideal vehicle for resolving the
question presented ...........................................18
A. The case turns entirely on the question
presented ...................................................19
B. The case is clean........................................20
C. The record is fully-developed....................20
III. The Eleventh Circuit’s decision is wrong .....21
A. Alabama passed the water carrier
exemption to comply with state and
federal law .................................................22
B. Alabama may choose not to repeal the
water carrier exemption for reasons that
have nothing to do with railroads.............23
CONCLUSION ...............................................................29
APPENDIX TABLE OF CONTENTS
Opinion, CSX Trans, Inc. v. Ala. Dept. of
Revenue, et al., No. 17-11705 (CA11 2018) ........ 1a
Opinion, CSX Trans, Inc. v. Ala. Dept. of
Revenue, et al., No. 2:08-CV-00655-AKK
(N.D. AL., Mar. 29, 2017) .................................47a
List of Related Cases ..............................................77a
v
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) ..........................5
Burlington Northern, Santa Fe Ry. Co. v.
Lohman, 193 F.3d 984 (CA8 1999) .......................15
CSX Transp., Inc. v. Alabama Dep’t of
Revenue, 720 F.3d 863 (CA11 2013)......................10
CSX Transp., Inc. v. Alabama Dep’t of
Revenue, 797 F.3d 1293 (CA11 2015)..............11, 20
CSX Transp., Inc. v. Alabama Dep’t of
Revenue, 892 F. Supp. 2d 1300
(N.D. Ala. 2012). ......................................................9
CSX Transp., Inc. v. Alabama Dep't of
Revenue, 888 F.3d 1163 (CA11 2018)......................1
CSX Transp., Inc. v. Alabama Dep’t of
Revenue, 562 U.S. 277 (2010) ........................ passim
CSX Transp., Inc. v. Alabama Dep't of
Revenue, 247 F. Supp. 3d 1240
(N.D. Ala. 2017) .......................................................1
Helson & Randolph v. Kentucky,
279 U.S. 245 (1929)............................................5, 22
Kansas City Southern Ry. Co. v. Bridges,
No. 04-2547, 2007 WL 977552 (W.D. La.
March 30, 2007) .....................................................15
vi
Norfolk Southern Ry. Co. v. Alabama Dep’t
of Revenue, 550 F.3d. 1306 (CA 11 2008)..........8, 27
Okla. Tax Comm’n v. Jefferson Lines, Inc.,
514 U.S. 175 (1995)................................................25
Oregon Dep’t of Revenue v. ACF Industries,
510 U.S. 332 (1994)..................................................8
Oregon Waste Systems, Inc. v. Oregon
Dep’t of Environmental Quality,
511 U.S. 93 (1994)..................................................24
Shaw v. Hunt, 517 U.S. 899 (1996) ..........................27
Statutes
26 U.S.C. § 4042 ..........................................................6
28 U.S.C. § 4081 ..........................................................6
33 U.S.C. § 5 .................................................. 12, 25-28
49 U.S.C. §11501 ................................................. 1-3, 7
Ala. Code § 40-17-325..................................................6
Ala. Code § 40-23-2.................................................. 5-6
Ala. Code § 40-23-4......................................................6
Ala. Code § 40-23-35..................................................17
Ala. Code § 40-23-61................................................ 5-6
Ala. Code § 40-23-62....................................................6
N.Y. Tax Law §1115(8)..............................................16
Va. Code Ann. § 58.1-609.3(4)...................................16
vii
Other Authorities
Ala. Act 1939-127 (Gen. Laws, p. 170) .......................5
Ala. Act 1939-18 (Gen. Laws, p. 16) ...........................5
Ala. Act 1939-590 (Gen. Laws, p. 958) .......................6
Ala. Act 1950-902, §2 (Ala. Laws, p. 1539).................6
Ala. Const. Art. I, § 24 (1901) ...............................5, 22
Eugene Gressman & Kenneth Geller,
Supreme Court Practice, 480 (9th ed.
2007).......................................................................18
George D. Brabson, Analysis of Sales and
Use Tax Exemptions—with Comment as
to More Uniform Applications, 9 Vand.
L. Rev. 294, 300 (1956) ..........................................16
Res. of Mar. 2, 1819, 15th Cong. (1819),
3 Stat. 489, 492 ............................................5, 22, 25
S. Rep. No. 92-1085, at 7-8 (1972) ..............................4
1
PETITION FOR A WRIT OF CERTIORARI
The Alabama Department of Revenue and its Commissioner, Vernon Barnett, respectfully petition this
Court for a writ of certiorari to the United States
Court of Appeals for the Eleventh Circuit.
OPINIONS BELOW
The Eleventh Circuit opinion is reported as CSX
Transportation, Inc. v. Alabama Department of Revenue, 888 F.3d 1163 (CA11 2018), and reproduced at
App. 1a-46a. The District Court’s opinion is reported
as CSX Transportation, Inc. v. Alabama Department
of Revenue, 247 F. Supp. 3d 1240 (N.D. Ala. 2017), and
reproduced at App. 47a-76a.
STATEMENT REGARDING JURISDICTION
CSX filed this action against the Department and
Commissioner under the 4-R Act, which gives district
courts subject-matter jurisdiction over these kinds of
cases. See 49 U.S.C. §11501(c). The district court entered final judgment in the Department and Commissioner’s favor. See App. 75-76a. CSX took a timely appeal, and the Eleventh Circuit had jurisdiction under
28 U.S.C. §1292(a)(1). The Eleventh Circuit entered
final judgment reversing the district court on June 8,
2018. See App. 45-46a.
This Court has certiorari jurisdiction under 28
U.S.C. §1254(1). Supreme Court Rule 13 made this petition due on September 6, 2018, but Justice Thomas
granted the State’s request to extend the time to file
until October 8, 2018. See Order of September 7, 2018,
Case No. 18A235. This petition is filed on October 5th.
2
STATUTORY PROVISION INVOLVED
The Railroad Revitalization and Regulatory Reform Act of 1976 provides in relevant part:
49 U.S.C. §11501. Tax discrimination
against rail transportation property.
...
(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:
(1) Assess rail transportation property at a
value that has a higher ratio to the true
market value of the rail transportation
property than the ratio that the assessed
value of other commercial and industrial
property in the same assessment jurisdiction has to the true market value of the
other commercial and industrial property.
(2) Levy or collect a tax on an assessment
that may not be made under paragraph (1)
of this subsection.
(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.
(4) Impose another tax that discriminates
against a rail carrier providing transportation subject to the jurisdiction of the Board
under this part.
3
INTRODUCTION
The Court has heard this case twice.
The Court has reversed the court of appeals twice.
If the Court doesn’t grant review and reverse a
third time, this decade-old case (and many just like it)
will drag on for years to come. This petition provides
the Court with a clean vehicle to finish what it started
in 2010—i.e. resolving a 20+ year, multi-million-dollar
dispute between States and rail carriers.
—
Rail carrier CSX Transportation claims that Alabama discriminates against it by requiring CSX to pay
the State’s generally-applicable 4% sales and use tax
on its purchases of diesel fuel, while exempting trucks
and interstate water carriers from paying the same
4% tax on their fuel purchases. See 49 U.S.C.
§11501(b)(4) (forbidding a state tax that “discriminates against a rail carrier”). This Court concluded
its second opinion by instructing the Eleventh Circuit
to determine whether the State could justify the truck
and water carrier exemptions. See Alabama Dep’t of
Revenue v. CSX Transp., Inc., 135 S.Ct. 1136, 1144
(2015) (“CSX II”). The Eleventh Circuit remanded to
the district court for a trial on the justification issues.
After a 4-day trial, the district court found that
the State justified both exemptions. The Eleventh Circuit agreed with the district court that trucks’ payment of the State’s 19¢ per gallon fuel excise tax justified exempting trucks from paying the 4% sales tax.
But it held that the State could not justify the water
carrier exemption and thus ordered the district court
to enjoin Alabama from collecting sales tax from CSX.
4
Enjoining the State from collecting any tax on
CSX’s fuel purchases would make CSX the State’s
most-favored taxpayer by a wide margin:
State tax
(per gallon)
State + Local + Federal
(per gallon)
Trucks
19.00¢
47.40¢
Barges
0¢
29.1¢
CSX Trains 0¢
0¢
This is precisely the outcome that the Court assured
Alabama and dissenting Justices Thomas and Ginsburg would not happen when the Court allowed CSX
to proceed with its claim in 2010: “This conclusion
does not, as Alabama and the dissent contend, turn
railroads into ‘most-favored-taxpayers,’ entitled to
any exemption (or other tax break) that a State gives
to another entity.” CSX Transp., Inc. v. Ala. Dep’t of
Revenue, 562 U.S. 277, 288 n.8 (2010) (“CSX I”). It is
also the outcome Congress expressly rejected when it
passed the 4-R Act: “the measure grants no favored
status to transportation property nor any windfall to
carriers. It merely provides for equal treatment.” S.
Rep. No. 92-1085, at 7-8 (1972).
Granting CSX most-favored status among carriers
punishes both the State and CSX’s competitors—not
because the State played favorites, but because the
State passed a tax exemption 79 years ago to comply
with state and federal law. The question presented is
whether Congress mandated that States repeal such
historic exemptions to comply with the 4-R Act.
5
STATEMENT OF THE CASE
A. The tax
Alabama has a typical sales-and-use tax. Like
many States, Alabama taxes goods that businesses
and people purchase or use in the State. See Ala. Code
§§ 40-23-2(1) & -61(a). Diesel fuel is one such good; its
purchase or use is taxed at the generally-applicable
4% rate unless otherwise exempted.
1. The interstate water carriers’ exemption
Alabama enacted its sales tax in February 1939.
See Ala. Act 1939-18 (Gen. Laws, p. 16). Just one
month later, the State Legislature exempted from the
tax fuel used by ships to transport goods between Alabama ports and ports in another State or country.
See Ala. Act 1939-127 (Gen. Laws, p. 170).
Alabama did not publish legislative history in
1939, so we cannot say with 100% certainty why the
legislature added this exemption. But two reasons are
most plausible. First, the Congressional Act that admitted Alabama to the Union prohibited taxation of
Alabama’s rivers, see Res. of Mar. 2, 1819, 15th Cong.
(1819), 3 Stat. 489, 492, a prohibition that was carried
over into the State’s Constitution. See Ala. Const. Art.
I, § 24 (1901). Second, the State had to comply with
this Court’s holding in Helson & Randolph v. Kentucky, 279 U.S. 245 (1929), that States could not tax
fuel used by a ferryboat to transport persons across
state lines. See Atchison, Topeka & Santa Fe Ry. Co.
v. Bair, 338 N.W.2d 338, 347 (Iowa 1983) (citing Helson for the proposition that “[a]t one time barges in
navigable waters were considered immune from state
taxation of fuel by virtue of the Commerce Clause”).
6
Alabama has maintained the interstate exemption
ever since. See Ala. Code §§40-23-4(a)(10) & -62(12).
Alabama taxes fuel used for intrastate shipments.1
2. The motor fuels exemption
Alabama enacted a motor fuels excise tax during
the same session it enacted the sales-and-use tax. See
Ala. Act 1939-590 (Gen. Laws, p. 958). The excise tax
did not—and still does not—apply to fuel used for purposes other than “the operation of motor vehicles on
the highways of this State.” Id. §10. In 1951, the legislature added a provision stating that any fuel subject to the excise tax would not be subject to any other
state tax. See Ala. Act 1950-902, §2 (Ala. Laws, p.
1539). Alabama has maintained that exemption ever
since. See Ala. Code §40-17-325(a).
3. The carriers’ respective tax liabilities
Today, the state sales tax rate is 4%, Ala. Code §§
40-23-2(1) (sales tax), 40-23-61(a) (use tax), and the
state fuel excise tax is 19¢ per gallon. See Ala. Code
§40-17-325(b). Local governments may also levy sales
and use taxes and motor fuels taxes at varying rates.2
The Federal Government levies a 29.1¢ per gallon
excise tax on fuel used by water carriers, 26 U.S.C. §
4042(b), and a 24.3¢ per gallon excise tax on fuel used
on highways. 28 U.S.C. § 4081(a)(2)(A). Trains do not
pay a federal tax on their fuel purchases.
1 From here forward, the monikers “water carriers” and “water
carrier exemption” refer only to interstate shipments.
2 The district court’s pre-trial order contains all relevant local
tax rates. See 2016 pre-trial order 9, 11 (stipulations 16, 21).
7
Applying these rates to fuel prices from 2007-2016,
the carriers pay the following tax per gallon:
State
State + Local + Federal
Trucks
19.00¢
47.40¢
Barges
0¢
29.1¢
Trains
9.85¢
23.48¢
See App. 55-56a (district court’s factual finding).
B. The 4-R Act
Congress enacted the Railroad Revitalization and
Regulatory Reform Act (“4-R Act”) in 1976. See 49
U.S.C. § 11501, et. seq. The 4-R Act prohibits four
state tax practices. The first three regard property
taxes. See 49 U.S.C. § 11501(b)(1-3). The fourth is a
residual clause that proclaims a State may not:
Impose another tax that discriminates
against a rail carrier providing transportation
subject to the jurisdiction of the Board under
this part.
49 U.S.C. § 11501(b)(4).
C. The Railroads’ Litigation
Rail carriers began citing the residual clause to
challenge state taxes on diesel fuel in the 1990’s. See
infra at 14-15 (discussing the early cases). The claim
reached Alabama in 2008, when seven rail carriers
filed four lawsuits claiming that imposition of Alabama’s sales-and-use tax on rail carrier’s purchases of
diesel fuel violates the residual clause because
8
Alabama historically exempts trucks and water carriers from paying the sales-and-use tax on their purchases of diesel fuel.3
The first ruling of consequence was the district
court’s denial of Norfolk Southern’s application for a
preliminary injunction of the sales-and-use tax. See
Norfolk Southern Ry. Co. v. Alabama Dep’t of Revenue,
550 F.3d. 1306, 1307 (CA 11 2008), reversed by CSX I,
supra. The Eleventh Circuit affirmed, holding that
this Court’s decision in Oregon Dep’t of Revenue v.
ACF Industries, 510 U.S. 332 (1994), that rail carriers
could not challenge property tax exemptions under
the 4-R Act’s residual clause foreclosed the rail carriers’ attempt to challenge sales tax exemptions under
the same residual clause. 550 F.3d. at 1313-19.
1. CSX I
Following the Eleventh Circuit’s ruling against
Norfolk Southern, the district court in this case dissolved its preliminary injunction in favor of CSX.4
CSX appealed. The Eleventh Circuit affirmed the decision in an unpublished per curiam opinion that its
prior opinion in Norfolk Southern was binding.
3 Alabama has been sued by CSX Transportation; Norfolk South-
ern Railway Company, see Case No. 2:13-cv-1305 (N.D. Ala.);
BNSF Railway Company, see Case No. 2:11-cv-1047 (N.D. Ala.);
and Alabama Southern Railroad LLC, Alabama Warrior Railway
LLC, Autauga Northern Railroad LLC, and Birmingham Terminal Railway LLC. See Case No. 2:14-cv-283 (N.D. Ala.).
4 The four lawsuits filed by the rail carriers are assigned to four
different district court judges, thus explaining the conflicting rulings on preliminary injunctions in 2008. The non-CSX district
courts have since stayed their proceedings pending the outcome
of the CSX litigation.
9
After issuing a CVSG, this Court granted cert and
reversed. While agreeing with Alabama that it “makes
not a whit of sense” why Congress would allow rail
carriers to challenge sales-and-use tax exemptions
but not property tax exemptions, CSX I, 562 U.S. at
295, the Court held that result was dictated by the residual clause’s plain language. Id at 296-97.
Justices Thomas and Ginsburg dissented. They
reasoned that the residual clause applied only if the
State “targets or singles out railroads as compared to
other commercial and industrial taxpayers,” id. at 298
(Thomas, J. dissenting). To instead allow rail carriers
to hand-pick individual taxpayers as comparators
would grant “a surprising windfall: most-favored taxpayer status.” Id. at 305 (Thomas, J. dissenting).
2. CSX II
The district court held a trial in 2012, at which the
parties introduced evidence regarding the alleged discrimination vis-à-vis trucks, but not water carriers.
The district court held that trucks and water carriers
could be an appropriate comparison class (as opposed
to the general mass of taxpayers) but rejected CSX’s
arguments for discrimination. CSX Transp. v. Alabama Dep’t of Revenue, 892 F. Supp. 2d 1300 (N.D.
Ala. 2012). The district court held that the State justifiably exempted trucks from paying the sales tax because the fuel excise tax rate was “substantially similar.” Id. at 1313-14. Regarding water carriers, the
district court found that (a) CSX failed to offer any evidence of discriminatory effects and (b) the State could
justifiably decide not to revoke the interstate water
carrier exemption to avoid potential commerce clause
litigation. Id. at 1315-17.
10
The Eleventh Circuit reversed. It agreed that CSX
could choose individual competitors as comparators.
CSX Transp. v. Ala. Dep’t of Revenue, 720 F.3d 863,
867-69 (CA11 2013). But it held that the State could
not cite the trucks’ payment of the 19¢ fuel excise tax
as a justification for their sales tax exemption, id. at
869-71, and thus the State was discriminating in the
trucks’ favor. Id.
After issuing a CVSG, this Court again granted
cert and reversed. The Court agreed that CSX could
pick individual competitors as comparators. CSX II,
135 S.Ct. at 1141-43. But the Court held that trucks’
payment of fuel excise tax could justify their exemption from paying the sales-and-use tax, if the excise
and sales taxes were “roughly equivalent.” Id. at 114344. Accordingly, the Court remanded the case to determine whether the alternative taxes were “roughly
equivalent.” Id. The Court then noted that the Eleventh Circuit “failed to examine” the State’s justifications for the water carriers’ exemption and ordered
the court to do that as well. Id. at 1144.
Justices Thomas and Ginsburg again dissented.
As they did in CSX I, the Justices noted that allowing
rail carriers to hand-pick individual taxpayers as comparators likely granted CSX “most-favored taxpayer
status” and “could result in tax schemes that impede
competition between interstate carriers rather than
promote it.” Id. at 1148 (Thomas, J. dissenting).
3. CSX III
The Eleventh Circuit granted the State’s request
to remand the case back to the district court to take
evidence and make factual findings regarding the
11
water carriers’ exemption. CSX Transp. v. Alabama
Dep’t of Revenue, 797 F.3d 1293 (CA11 2015).
The district court conducted a 4-day trial, during
which the parties introduced evidence regarding the
trucks’ and water carriers’ exemptions. The court rejected CSX’s arguments regarding trucks for two reasons. First, the court determined that the trucks payment of the 19¢ per gallon fuel excise tax justified
their exemption from paying the 4% sales-and-use
tax, which averaged out to just 9.85¢ per gallon since
2007. App. 54a. Second, the court held that CSX
could not claim “discrimination” when it could choose
to pay the same fuel excise tax as trucks but chooses
instead to pay the cheaper sales-and-use tax. App.
58a.
The district court rejected CSX’s arguments regarding water carriers for two reasons. First, the
court held that the threat of Commerce Clause litigation justified the State’s refusal to revoke the interstate water carriers’ exemption. App. 67-70a. Second,
the court found that the exemption does not injure
CSX because enjoining CSX’s payment of the salesand-use tax would not affect “the level of competition
between CSX and water carriers.” App. 74-75a. The
district court rejected the States’ third argument that
the federal government’s exclusive jurisdiction over
federal waters, and the federal government’s assumption of the financial burden caused by vessels on those
waters, justified allowing water carriers to pay only
the 29.1¢ federal excise tax.
The Eleventh Circuit affirmed the district court’s
holding that the trucks’ payment of a “roughly equivalent” motor fuels excise tax justified the trucks’
12
exemption from paying sales-and-use tax.5 App. 1427a. But it reversed on the water carrier issue. The
court of appeals held that the district court’s lack of
injury ruling was foreclosed by this Court’s reliance
on the parties’ stipulation from the 2012 trial that interstate water carriers were a “principal competitor”
of CSX. App. 28-30a (citing CSX II, 135 S.Ct. at 1143).
As for the State’s justifications—the only issue
presented by this petition—the Eleventh Circuit rejected each of them. First, the court stated that “exposure to a lawsuit alone” is not sufficient justification
under the 4-R Act; the State must instead show that
the refusal to revoke the water carriers’ exemption is
literally “compelled by federal law.” App. 31a, 38a.
Using this standard, the court rejected the State’s desire to avoid potential litigation against the water carriers under the Commerce Clause and the Maritime
Securities Act because such litigation “would not, in
our view, succeed.”6 App. 31-39a.
Second, the court rejected avoidance of double taxation—i.e. forcing the water carriers to pay both the
29.1¢ federal excise tax and the State’s 4% sales-anduse tax—as a justification for the exemption because
5 The circuit court held that the district court’s alternative ruling
that CSX was not being discriminated against vis-à-vis trucks
because CSX could choose to pay the same motor fuels excise tax
as trucks was outside the scope of this Court’s mandate. App.
14-16a.
6 The Maritime Securities Act provides that “[n]o taxes … shall
be levied upon or collected from any vessel or other water craft,
or from its passengers or crew, by any non-Federal interest, if the
vessel is operating on any navigable waters subject to the authority of the United States[.]” 33 U.S.C. § 5(b).
13
(a) the state and federal taxes “are of different types
and serve different purposes,” App. 40-41a and (b) the
State has not adopted “a policy of avoiding double taxation.” App. 41-42a.
Third, the court rejected the State’s argument that
it could justifiably decide to maintain the interstate
water carriers’ exemption because water carriers “impose virtually no financial burden on the State.” App.
42-44a. According to the Eleventh Circuit, “[b]ecause
the sales and use tax does not account for the relative
burdens imposed by taxpayers,” App. 43a, the fact
that water carriers impose virtually zero costs on the
State is irrelevant as a justification. App. 43-44a.
The court gave the State two options to remedy the
discrimination it found: (1) stop collecting sales-anduse tax from CSX or (2) revoke the water carriers’ exemption. App. 45a. Using the district court’s fact findings, see App. 55-56a, the following chart shows the
relative tax burdens for fuel used to transport goods
interstate under both options:
Alabama stops collecting sales tax from CSX
State tax
(per gallon)
State + Local + Federal
(per gallon)
Trucks
19.00¢
47.40¢
Barges
0¢
29.1¢
CSX Trains 0¢
0¢
Alabama revokes the water carriers’ exemption
14
State tax
(per gallon)
State + Local + Federal
(per gallon)
Barges
9.85¢
52.58¢
Trucks
19.00¢
47.40¢
CSX Trains 9.85¢
23.48¢
Under either option, CSX would be the most-favoredtaxpayer by a wide margin. But see CSX I, 562 U.S.
at 288 n.8 (“This conclusion does not, as Alabama and
the dissent contend, turn railroads into ‘most-favoredtaxpayers,’ entitled to any exemption (or other tax
break) that a State gives to another entity.”).
REASONS THE COURT SHOULD GRANT CERTIORARI
The Court should finish what it started in CSX I
by definitively answering whether and when salesand-use tax exemptions violate the 4-R Act. The question clearly has national importance; the Court has
heard this case twice and the United States appeared
at the petition and merits stages both times. More importantly, States have been waiting for an answer for
more than 20 years; years we have spent litigating
cases that have cost taxpayers millions of dollars.
I.
The question presented has recurred for
more than 20 years and threatens millions
of public dollars.
Alabama is just one stop on a long litigation track.
Rail carriers have been suing States on the theory
that generally applicable sales-and-use taxes with exemptions for trucks and water carriers violate the 4-R
15
Act’s residual clause since the 1990’s. See, e.g., Burlington Northern, Santa Fe Ry. Co. v. Lohman, 193
F.3d 984 (CA8 1999) (enjoining Missouri’s sales-anduse tax as applied to fuel); Kansas City Southern Ry.
Co. v. Bridges, No. 04-2547, 2007 WL 977552 (W.D.
La. March 30, 2007) (enjoining Louisiana’s sales-anduse tax as applied to fuel). The rail carriers won these
early cases, in part, because the lower courts failed to
judge—or even acknowledge—the State’s justification
for passing and/or maintaining the exemptions. The
courts simply said that differential treatment equaled
discrimination. See Lohman, 193 F.3d at 986 (limiting review to the challenged sales-and-use tax);
Bridges, 2007 WL 977552 at *8 (failing to
acknowledge justification as a defense).
The Court changed that in CSX I and II when it
said that States can prevail with proper justification.
See CSX I, 562 U.S. at 288 n.8 (“Whether the railroad
will prevail—that is, whether it can prove the alleged
discrimination—depends on whether the State offers
a sufficient justification for declining to provide the
exemption at issue to rail carriers.”); CSX II, 135 S.Ct.
at 1143 (“A State’s tax discriminates only where the
State cannot sufficiently justify differences in treatment between similarly situated taxpayers.”).
The Court acknowledged that “knotty questions”
would arise when judging “whether and when dissimilar treatment is adequately justified.” CSX I, 562
U.S. at 297. When it comes to the 4-R Act, however,
lower courts have oft avoided knotty questions, or gotten them wrong, hence our previous two trips to this
Court. They need guidance, and they are looking for
the Court to once again provide it in this case.
16
A. Lower courts have stayed cases with the
same question to watch this case.
Alabama is neither the first nor the last State that
rail carriers sued under the 4-R Act’s residual clause.
But Alabama is the case that this Court has heard
twice, making Alabama the de facto bellwether for
pending and future 4-R Act fuel tax cases.
To wit, state and federal courts in the Eleventh
Circuit have stayed more than 30 actions for refunds
and injunctions against Alabama, Georgia, and city
and county governments, pending resolution of this
case. See App. 77a-82a (listing the cases). Each of the
stayed actions features the question presented here.
The State does not know whether similar actions
are pending in other circuits. But we know that sales
tax exemptions for water carriers’ fuel purchases are
common. See, e.g., N.Y. Tax Law §1115(8); Va. Code
Ann. § 58.1-609.3(4); George D. Brabson, Analysis of
Sales and Use Tax Exemptions—with Comment as to
More Uniform Applications, 9 Vand. L. Rev. 294, 300
(1956) (stating that, in 1956, “the most prolific source
of exemptions from sales and use taxes” among all the
states was “in the field of interstate commerce . . . [due
to the constitutional limitations against burdening or
interfering with the flow of commerce between the
States.”). We also know that rail carriers have a 20+
year history of suing States that have them.
Granting review to answer the decades-old question thus provides the opportunity to resolve multiple
pending cases and prevent new ones.
17
B. Millions of public dollars are at stake.
Alabama dedicates most of its sales-and-use tax
revenues to fund public schools. Ala. Code § 40-2335(f). This case puts education dollars at risk in two
ways: (1) tax refunds and (2) lost future tax revenue.
1. Tax refunds: Eight rail carriers have sued Alabama in state court, seeking refunds of the following
payments of sales-and-use taxes, plus interest:
Rail Carrier
Refund (w/out interest)
CSX Transportation
$ 10,977,699.63
Norfolk Southern
$ 10,816,318.31
Alabama Gulf Coast
$ 1,529,118.74
Alabama Southern
$ 312,784.97
Birmingham Terminal
$ 272,016.13
Eastern Alabama
$ 195,488.93
Autauga Northern
$ 35,316.50
Alabama Warrior
$ 25,371.32
Total
$ 24,164,114.53
See App. 77a. (citations for each state case). Petitions
filed directly with the Department seek an additional
$4 million, plus interest. Should the rail carriers prevail, the refunds would be paid out of Alabama’s Education Trust Fund, which funds public schools.
Our Eleventh Circuit sister, Georgia, stands to lose
even more. CSX has filed three refund petitions that
seek a total of $34.47 million dollars, plus interest, for
taxes paid between October 2010 and December 2014.
See App. 78-79a (citing Georgia refund cases). Assuming other rail carriers have sued, or will sue, Georgia,
the value of this issue could push $75 to $100 million
in the Eleventh Circuit alone.
18
2. Lost tax revenue: The States also stand to lose
tax revenue in two ways. First, the rail carriers owe
several years’ worth of unpaid taxes. CSX, for example, stopped paying Alabama state tax on its fuel purchases in January 2011. See State’s Tr. Ex. 16. In
response to pre-trial discovery, CSX reported that it
withheld $11.5 million in taxes owed from January
2011 to January 2016. Id. Should the State prevail,
it would seek payment of all such withheld taxes, plus
interest. Second, States would lose millions in tax
revenues going forward, like the “roughly $5 million
per year in sales and use tax on diesel fuel” that CSX
pays to Alabama and its local governments. App. 13a.
***
“Decisions invalidating Acts of Congress, or state
statutes (particularly where the statutes are representative of those in other states), are ordinarily sufficiently important to warrant Supreme Court review
without regard to the existence of a conflict.” Eugene
Gressman & Kenneth Geller, Supreme Court Practice,
480 (9th ed. 2007). We have met that standard twice.
The present question meets it too, as it would resolve
a decades-old attack on state tax codes that has cost
States millions of dollars in tax revenues.
II.
This case is an ideal vehicle for resolving
the question presented.
The Court knows this case well, having heard it
twice before. The Court also knows the question presented well, having expressly left it open at the end of
CSX II. See CSX II, 135 S.Ct. at 1144. There is no better vehicle to answer the question.
19
A. The case turns entirely on the question
presented.
This case was always going to end here. The
Court stated in CSX I that the State’s justification(s) would ultimately resolve it: “Whether the
railroad will prevail—that is, whether it can prove
the alleged discrimination—depends on whether
the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers,” CSX I, 562 U.S. at 287, n.8. And the Court concluded CSX II by ordering the court of appeals to
judge the State’s justifications for exempting trucks
and water carriers. See CSX II, 135 S.Ct. at 1144.
The Court practically settled the truck issue in
CSX II when it held that Alabama justifiably exempts trucks from paying sales tax if the fuel excise
tax that trucks pay instead is “roughly equivalent.”
See CSX II, 135 S.Ct. at 1143-44. On remand, both
the district court and the court of appeals found as
a matter of fact that Alabama’s 19¢ fuel excise tax
was “roughly equivalent” to Alabama’s 4% salesand-use tax.7 App. 16-27a (CA11), 59-67a (district).
But this Court gave no such guidance on what
amounts to justification regarding water carriers:
The State, however, offers other justifications for the water carrier exemption—for
example, that such an exemption is compelled by federal law. The Eleventh Circuit
failed to examine these justifications,
7 The district court found that the average sales-and-use tax
on a gallon of diesel fuel from 2007 to 2016 was 9.85¢. App. 55a.
20
asserting that the water carriers were the
beneficiaries of a discriminatory tax regime. We do not consider whether Alabama’s alternative rationales justify its
exemption, but leave that question for the
Eleventh Circuit on remand.
CSX II, 135 S.Ct. at 1144. By failing to address justifications for water carrier exemptions in CSX II, the
Court made it the ultimate issue in this case.
B. The case is clean.
There are no disputed facts on appeal. And while
the State intends to raise them against other rail carriers should the Court deny review here, the State has
dropped all ancillary legal arguments—e.g., lack of
competitive injury and the failure to be “similarly situated” to the comparator. As a result, the only question raised by this petition is “whether Alabama’s alternative rationales justify its [water carrier] exemption,” id., the question this Court left open in CSX II.
C. The record is fully-developed.
This case has become the de facto bellwether for
4-R Act challenges to state fuel taxes. Realizing this,
the courts and parties below developed a record fit for
the case’s eventual return to this Court.
After seeking the parties’ opinion, the court of appeals granted the State’s request to remand the case
for a trial that would flesh out the factual basis for the
State’s arguments regarding water carriers. See CSX
II, 797 F.3d at 1293 (on return from remand). That
trial lasted four days and resulted in factual findings
not challenged on appeal. See App. 54-57a.
21
As a result, the Court needn’t speculate about
issues such as the effect of exclusive federal jurisdiction over the rivers; the record answers those questions. For example, the district court found that the
State “does not budget funds for commercial water
traffic regulation or enforcement,” App. 57a, because
the federal government pays for everything (e.g. “river
dredging,” “lock and dam maintenance projects,” and
the cost of responding to “accidents involving water
carriers”) and charges water carriers with a 29.1¢ per
gallon tax in return. Id. So, when the State argues
that it treats water carriers differently “for some reason having nothing to do with railroads,” CSX I, 562
U.S. at 288, n.8, the State can point to a factual record
to back up those reasons.
III. The Eleventh Circuit’s decision is wrong.
In CSX I, Justices Thomas and Ginsburg echoed
Alabama’s concern that allowing CSX to challenge a
single competitor’s exemption “would turn railroads
into ‘most-favored-taxpayers,’ entitled to any exemption (or other tax break) that a State gives to another
entity.” Id. (quoting CSX I, 562 U.S. at 305, Thomas
J, dissenting). The Court rebuffed the dissent and Alabama by stating that “we presume the suit would be
promptly dismissed” if a State granted the challenged
exemption to a single comparator “for some reason
having nothing to do with railroads.” Id.
The Court presumed wrongly. The Eleventh Circuit found discrimination even though Alabama cited
multiple reasons it exempted water carriers in 1939
and multiple reasons it does not repeal the exemption
in 2018, none of which have anything to do with railroads. Id.
22
A. Alabama passed the water carrier exemption to comply with state and federal law.
Alabama had three non-discriminatory reasons to
exempt water carriers when it did so in March 1939.
First, maintaining tax-free rivers was a condition of
Alabama joining the Union. See Res. of Mar. 2, 1819,
15th Cong. (1819), 3 Stat. 489, 492. Second, Alabama
included the same tax-free rivers provision in its constitution. See Ala. Const. Art. I, § 24 (1901). Third,
this Court had recently held that the Commerce
Clause prohibited States from taxing fuel used by vessels to transport persons across state lines. See Helson & Randolph v. Kentucky, 279 U.S. 245 (1929).
In other words, Alabama did not exempt water
carriers to disadvantage trains. We did it because we
had to. That should be enough, as the Chief Justice
suggested during the CSX II oral argument:
CHIEF JUSTICE ROBERTS: I might have
missed it, but why isn’t it a sufficient justification for different treatment of the water carriers that the statute admitting Alabama to the
union said they couldn’t tax traffic on the river?
MR. PHILLIPS: Well, I think because the – the
chain – because the Constitution has changed.
CHIEF JUSTICE ROBERTS: The Constitution
might have changed, but the statute didn’t.
Transcript of Oral Argument at 50-51, CSX II. The
Chief Justice was right; neither the Congressional Act
that admitted Alabama to the Union nor Alabama’s
Constitutional provision have changed since 1939.
Using the standard the Court articulated in CSX I,
compliance with state and federal law is a justifiable
23
“reason having nothing to do with railroads.” CSX I,
562 U.S. at 288, n.8.
B. Alabama may choose not to repeal the
water carrier exemption for reasons that
have nothing to do with railroads.
Even if Alabama’s original justifications were insufficient, Alabama’s Legislature has other legitimate
reasons not to repeal the historic water carrier exemption that “hav[e] nothing to do with railroads.” Id. We
briefly discuss two below.
1. Federal relationship: Rivers are different. Unlike the land upon which train tracks lay, the federal
government has exclusive jurisdiction over the navigable waters that vessels use to transport goods interstate. Thus, water carriers engaged in interstate commerce have a unique relationship with the federal
government that trains do not share. For example:
• Federal officials alone police commercial
traffic on rivers, see State’s Tr. Ex. 25 (Memorandum of Agreement between the U.S.
Coast Guard and Alabama regarding the policing of vessels); state and local officials police the lands used by trains;8
• Federal agencies alone conduct and pay for
river dredging and lock and dam maintenance projects, see App. 56a; the State
8 Over a 10-year span, state and local officials responded to 703
“train-involved” automobile accidents that resulted in 92 deaths
and 316 casualties. App. 56a. During the same period, zero interstate water carriers collided with an Alabama citizen on an
Alabama river. Id.
24
spends millions of dollars on projects at or
near railroad crossings;9 and,
• Water carriers pay a 29.1¢ per gallon federal
excise tax on fuel to pay for these federal
projects; rail carriers pay no federal tax on
their fuel purchases. App. 56a.
If the federal government shoulders the burden created by water carriers, and taxes their fuel at 29.1¢
per gallon to help alleviate that burden, then States
should be allowed to defer taxation of the water carriers’ fuel to the federal government, if States so choose.
The Eleventh Circuit’s contrary ruling conflicts in
principle with this Court’s statement in Oregon Waste
Systems, Inc. v. Oregon Dep’t of Environmental Quality, 511 U.S. 93 (1994) that one justification for imposing a higher state tax is that the Plaintiff taxpayer
“imposes higher costs” on the State than its comparison class. Id. at 101, n.5. We agree with the Eleventh
Circuit that Alabama’s 4% sales-and-use tax “is not
calibrated to account for varying burdens,” App. 43a,
because it would be impossible to tailor sales tax rates
to each individual taxpayer’s level of enjoyment of
state services. But that misses the point. If one taxpayer gets its services from the federal government,
and it pays a federal excise tax on fuel to pay for those
services, then the State has a legitimate reason to single out that taxpayer as one who will pay only federal
taxes on its fuel purchases. And, back to the primary
point, recognizing the water carriers’ unique
9 For example, in a 3-year span, Alabama spent approximately
$200 million on highway maintenance projects at railroad crossings. See 2016 Trial Transcript 94.
25
relationship with the federal government has “nothing to do with railroads.” CSX I, 562 U.S. at 288, n.8.
2. Risk of litigation: Repealing the exemption for
water carriers engaged in interstate commerce could
expose Alabama to another round of federal litigation
based on multiple theories:
• Maritime Securities Act: Water carriers
may argue that a tax on their fuel purchases
is an unlawful “tax … levied upon or collected from any vessel or other water craft,
or from its passengers or crew by any nonFederal interest[.]” 33 U.S.C. § 5(b).
• Commerce Clause: Water carriers may argue that a tax on fuel used to traverse federal waters is not “fairly related to the services provided by the State.” Okla. Tax
Comm’n v. Jefferson Lines, Inc., 514 U.S.
175, 183 (1995) (discussing the fourth element of the Complete Auto test).
• Congressional Enabling Act: Water carriers
may argue that a tax on their fuel purchases
is an unlawful “impos[ition]” of “any tax” on
the “navigable waters within said state.”
Res. of Mar. 2, 1819, 15th Cong. (1819), 3
Stat. 489, 492.
While the State believes that it should prevail against
these claims, the cost and risk of litigation are legitimate reasons not to pick the fight.
Take the potential Maritime Securities Act claim,
for example. The statute provides that:
26
No taxes, tolls, operating charges, fees, or any
other impositions whatever shall be levied upon
or collected from any vessel or other water craft,
or from its passengers or crew, by any non-Federal interest, if the vessel or water craft is operating on any navigable waters subject to the authority of the United States, or under the right
to freedom of navigation on those waters[.]
33 U.S.C. § 5(b).10 Taxing fuel used to transport cargo
interstate arguably violates the statute’s plain text:
Alabama would be a “non-Federal interest” that “collect[s]” “taxes” from the “crew” of vessels “operating on
any navigable waters subject to the authority of the
United States” when shipping cargo interstate. Id. At
the very least, the plain text creates a plausible argument that Alabama may justifiably choose to avoid.
The Eleventh Circuit, however, held that avoidance of the cost and risk of litigation is not enough;
Alabama must show a court-compelled “legal obligation.” See App. 31a (“for 4-R Act purposes exposure to
a risk is not compulsion, compulsion requires legal obligation”); App. 38a (“But, as we have already explained, exposure to a lawsuit alone is not compulsion
under CSX II.”). The Eleventh Circuit’s obligation
standard is wrong for two reasons.
First, the Eleventh Circuit read too much into the
Court’s use of the word “compelled” in the following
10 The Act contains three exceptions to the prohibition on state
taxes and fees, none of which applies here: (1) port or harbor fees
or tonnage duties dedicated to pay the State’s share of harbor
maintenance projects, (2) fees “used solely to pay the cost of a
service to the vessel or water craft,” and (3) property taxes. 33
U.S.C. §§ 5, 2236.
27
statement from CSX II: “The State, however, offers
other justifications for the water carrier exemption—
for example, that such an exemption is compelled by
federal law.” CSX II, 135 S.Ct. at 1144. As it does
here, the State argued in CSX II that taxing water
carriers raised federal law “concerns,” Blue Br. 57,
CSX II, and “questions,” Reply Br. 10-11, CSX II, that
do not exist with taxing trains. That’s the justification
argument that “the Eleventh Circuit failed to examine” in CSX II, 135 S.Ct. at 1144, and thus the question this Court remanded to be considered in CSX III.
Id. Requiring Alabama to show compulsion—rather
than an articulable risk of litigation—conflicts not
only with the argument this Court remanded in CSX
II, but also in principle with instances where this
Court and the United States have treated avoiding litigation risk as a valid government interest. See, e.g.,
Shaw v. Hunt, 517 U.S. 899 (1996) (assuming arguendo “avoidance of § 2 liability to be a compelling
state interest” when judging North Carolina’s redistricting plan); Petition for a Writ of Certiorari before
Judgment at 24-30, United States Dep’t of Homeland
Security v. Regents of the University of California, Supreme Court Case No. 17-1003 (United States defending wind-down of DACA policy due to “litigation risk”).
Second, the Eleventh Circuit’s dismissal of Alabama’s concern about litigating the Maritime Security
Act’s plain text because “any such lawsuit would not,
in our view, succeed,” App. 38a, ignores the lesson of
this case. Ten years ago, the Eleventh Circuit held
that rail carriers could not raise a 4-R Act claim
against state sales-and-use tax exemptions. See Norfolk Southern Ry. Co. v. Alabama Dep’t of Revenue,
550 F.3d 1306 (CA11 2008) rev’d by CSX I, 562 U.S.
28
277. Yet, ten years, two trials, and countless public
dollars later, Alabama stands on the brink of losing
tens of millions of public dollars based on a plain reading of the 4-R Act that this Court admitted “makes not
a whit of sense” considering the statute’s treatment of
property tax exemptions. CSX I, 562 U.S. at 277.
So, respectfully, Alabama takes with a grain of
salt the Eleventh Circuit’s assurance that Alabama
would win Maritime Securities Act litigation because
“the Act forbids taxes imposed on the vessel itself, or
on its crew members themselves, or on the passengers
themselves—not taxes imposed on property purchased for use on or by a vessel, or by its crew, or by
its passengers.” App. 39a. We agree that the Act’s prohibition should be limited to state taxes “imposed on”
the vessel or its crew. Id. But that’s not what the statute says; the statute speaks in the disjunctive: “No
taxes … shall be levied upon or collected from any vessel or other water craft, or from its passengers or
crew.” 33 U.S.C. §5(b) (emphasis added).
If any State can justifiably choose to avoid a fight
over the plain text of a federal statute that prohibits
state taxation of a common carrier, it’s Alabama.
We have been through it once—10 years and counting.
We shouldn’t be required to go through it again.11
11 To be clear, if the Court denies review and Alabama repeals
the water carrier exemption to comply with the ruling below,
Alabama will argue the Eleventh Circuit correctly read the MSA.
See App. 45a (noting one permissible remedy is that “the State
could repeal the water carrier exemption”). The point is that the
4-R Act should not be read to force States into making Hobson’s
Choice: Do we prefer being sued by rail or water carriers?
29
***
Rail carriers have been suing States over fuel tax
exemptions for more than 20 years. Alabama has suffered through 10 of them. The Court can resolve this
issue, once and for all, by granting cert to finish what
it started in CSX I. As the court of appeals put it: “It’s
time to put this one in the shed.” App. 45a n.13.
CONCLUSION
The Court should grant the petition for certiorari
review.
Respectfully submitted,
Mark Griffin
Chief Legal Counsel
Margaret McNeill
Keith Maddox
Ass’t Ala. Attorneys
Gen’l
STATE OF ALABAMA
DEP’T OF REVENUE
P.O. Box 32001
Montgomery, AL 36132
(334) 242-9690
October 5, 2018
Steve Marshall*
Alabama Attorney General
Andrew L. Brasher
Alabama Solicitor General
Corey L. Maze
Special Deputy Attorney
General
*Counsel of Record
OFFICE OF THE ALABAMA
ATTORNEY GENERAL
501 Washington Avenue
Montgomery, AL 36130
(334) 242-7300
smarshall@ago.state.al.us
Counsel for Petitioners
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.