Petition for Writ of Certiorari — CSX Transportation, Inc., Petitioner v. Alabama Department of Revenue, et al.

Supreme Court briefNov 9, 2018

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No. 18IN THE

Supreme Court of the United States

___________

CSX TRANSPORTATION, INC.,

Cross-Petitioner,

ALABAMA DEPARTMENT OF REVENUE,

AND VERNON BARNETT, COMMISSIONER,

DEPARTMENT OF REVENUE, IN HIS OFFICIAL CAPACITY,

Cross-Respondents.

___________

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Eleventh Circuit

___________

CONDITIONAL CROSS-PETITION

FOR A WRIT OF CERTIORARI

___________

NATHAN D. GOLDMAN

JOEL W. PANGBORN

CSX CORPORATION

500 Water Street

Jacksonville, FL 32202

(904) 359-3200

CARTER G. PHILLIPS*

JACQUELINE G. COOPER

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

cphillips@sidley.com

Counsel for Cross-Petitioner

November 9, 2018

* Counsel of Record

[Additional counsel listed on inside cover]

JAMES W. MCBRIDE

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

901 K Street, N.W.

Suite 900

Washington, DC 20001

(202) 508-3467

PETER J. SHUDTZ

CSX CORPORATION

1331 Pennsylvania Ave.,

N.W.

Washington, DC 20004

(202) 783-8124

STEPHEN D. GOODWIN

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

First Tennessee Building

165 Madison Ave.

Suite 2000

Memphis, TN 38103

(901) 577-2141

MISTY SMITH KELLEY

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

633 Chestnut Street

Suite 1900

Chattanooga, TN 37450

(423) 209-4148

QUESTION PRESENTED

Whether, as the Eleventh Circuit held, Alabama’s

imposition of a motor fuels tax on the fuel used by interstate motor carriers sufficiently justifies Alabama’s imposition of a facially discriminatory sales

and use tax on railroad diesel fuel, notwithstanding

decisions of this Court and at least one state supreme

court.

(i)

PARTIES TO THE PROCEEDING AND RULE

29.6 STATEMENT

There are no parties to this proceeding other than

the named parties, i.e., the Alabama Department of

Revenue, its Commissioner, and CSX Transportation,

Inc.

CSX Corporation is the parent company of CrossPetitioner CSX Transportation, Inc. No other publicly held corporation has a 10% or greater ownership

interest in Cross-Petitioner.

TABLE OF CONTENTS

Page

QUESTION PRESENTED ...................................

PARTIES TO THE PROCEEDING AND RULE

29.6 STATEMENT ............................................

TABLE OF AUTHORITIES .................................

CONDITIONAL CROSS-PETITION FOR A

WRIT OF CERTIORARI ...................................

OPINIONS BELOW .............................................

JURISDICTION....................................................

STATUTORY PROVISION INVOLVED .............

STATEMENT OF THE CASE..............................

A. INTRODUCTION ........................................

B. STATEMENT OF FACTS ...........................

1. The Parties ...............................................

2. The Sales And Use Tax Imposed Under

Chapter 23 Of The Alabama Revenue

Code ..........................................................

3. The Separate Motor Fuel Excise Tax

Imposed Under Chapter 17 of the Alabama Revenue Code .................................

C. THE 4-R ACT ..............................................

D. THE HISTORY OF THIS LITIGATION ....

1. CSX I.........................................................

2. CSX II .......................................................

3. CSX III ......................................................

REASONS THE COURT SHOULD GRANT

THE CROSS-PETITION ...................................

(iii)

TABLE OF CONTENTS—continued

A. THE ELEVENTH CIRCUIT’S HOLDING

CONFLICTS WITH THIS COURT’S DECISIONS IN CSX I AND CSX II AND

THIS COURT’S OPINIONS ON HOW TO

EXAMINE A FACIALLY DISCRIMINITORY TAX ...................................................

Page

B. THE ELEVENTH CIRCUIT’S HOLDING

CONFLICTS WITH THIS COURT’S RULINGS ON THE RELEVANCE FO THE

USE OF TAX PROCEEDS ..........................

CONCLUSION .....................................................

APPENDICES

APPENDIX A: Railroad Revitalization and

Regulatory Reform Act of 1976, Pub. L. No.

94-210, 90 Stat. 54 (Feb. 5, 1976), section 306,

codified at 49 U.S.C. § 11501 ............................

CASES

TABLE OF AUTHORITIES

Page

Alabama Dept. of Revenue v. CSX

Transportation, Inc., 135 S. Ct. 1136

(2015) (CSX II) ....................................... passim

Atchison, Topeka & Santa Fe Railway Co.

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

denied, 465 U.S. 1071 (1984) .................... 20, 21

BNSF Railway Co. v. Tennessee Dept. of

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

Comptroller of Treas. of Maryland v.

Wynne, 135 S. Ct. 1787 (2015) ...................

CSX Transportation, Inc. v. Alabama Department of Revenue, 247 F. Supp. 3d

1240 (N.D. Ala. 2017) ................................. 2, 15

CSX Transportation, Inc. v. Alabama Department of Revenue, 888 F.3d 1163 (11th

Cir. 2018), modified on partial denial of

rehearing at 891 F.3d 927 .......................... 1, 15

CSX Transportation, Inc. v. Alabama Dept.

of Revenue, 562 U.S. 277 (2011)

(CSX I) .................................................... passim

CSX Transportation, Inc. v. Alabama Dept.

of Revenue, 720 F.3d 863 (11th Cir.

2013) ...........................................................

CSX Transportation, Inc. v. Alabama Dept.

of Revenue, 892 F. Supp. 2d 1300 (N.D.

Ala. 2012) ...................................................

CSX v. Alabama Dept. of Revenue, 350 Fed.

App’x 318 (11th Cir. 2009) .........................

Fulton Corporation v. Faulkner, 516 U.S.

325 (1996) ...................................................

Georgia Motor Trucking Assoc. v. Georgia

Dept. of Rev., 801 S.E.2d 9 (Ga. 2017) .......

Gregg Dyeing Co. v. Query, 286 U.S. 472

(1932) .................................................. 14, 15, 17

TABLE OF AUTHORITIES—continued

Page

Illinois Central Railroad v. Tennessee, 2018

WL 4183464 (6th Cir. Aug. 31, 2018) ........

Norfolk Southern Railway Company v. Alabama Department of Revenue, 550 F.3d

1306 (11th Cir. 2008) .................................

Oregon Waste v. Dept. of Envtl. Quality, 511

U.S. 93 (1994) .............................................

South Dakota v. Wayfair, Inc., 138 S. Ct.

2080 (2018) .................................................

W. Air Lines, Inc. v. Bd. of Equalization,

480 U.S. 123 (1987) ....................................

West Lynn Creamery, Inc. v. Healy, 512

U.S. 186 (1994) .............................. 20, 21, 22, 23

CONSTITUTION AND STATUTES

28 U.S.C. § 1254(1) ........................................

28 U.S.C. § 1291 ............................................

28 U.S.C. § 1341 ............................................

49 U.S.C. § 11501 ...................................... passim

Ala. Code § 40-17-325....................................

Ala. Code § 40-23-26(c)..................................

Ala. Code § 40-23-35......................................

Ala. Code § 40-23-4(a)(10) .............................

Ala. Code § 40-23-60 et seq............................

Ala. Code § 40-23-62(3) .................................

Ala. Code § 40-23-85......................................

Amend. 93, Ala. Const. V, § 111.06 ..............

LEGISLATIVE HISTORY

H.R. Rep. No. 94-725 (1975) .........................

S. Rep. No. 91-630 (1969) ..............................

TABLE OF AUTHORITIES—continued

Page

S. Rep. No. 87-445 (1961) (“Doyle Report”),

available online at https://babel.hathi

trust.org/cgi/pt?id=mdp.39015023117982;

view=1up;seq=9 ..................................... 9, 11, 20

OTHER AUTHORITIES

GAO, October 2006 Report Freight

Railroads Industry Health, available

online at http://www.gao.gov/new.items/

d0794.pdf .................................................... 9, 20

vii

CONDITIONAL CROSS-PETITION FOR A WRIT

OF CERTIORARI

The State’s petition should be denied. The petition

asks this Court to review the Eleventh Circuit’s holding that Alabama’s sales and use tax on railroad diesel fuel discriminates against railroads in violation of

49 U.S.C. § 11501(b)(4), by exempting interstate water carriers, a principal railroad competitor. The

Eleventh Circuit’s opinion regarding water carriers is

not worthy of this Court’s review. The water carrier

ruling does not conflict with a decision of any other

circuit or state supreme court and is not contrary to

any decision of this Court. CSX will file an opposition

to Alabama’s petition in due course.

But if this Court were to grant the State’s petition,

the Court should likewise grant CSX’s conditional

cross-petition to review the motor carrier portion of

the Eleventh Circuit’s holding. The Eleventh Circuit

held that Alabama does not discriminate against railroads in violation of 49 U.S.C. § 11501(b)(4) by imposing sales and use taxes on railroad diesel fuel while

exempting motor carriers, another principal competitor of railroads. This motor carrier holding conflicts

with a decision of the Iowa Supreme Court, and is also contrary to both this Court’s recent decisions interpreting the 4-R Act and this Court’s wellestablished precedent on the standards for examining

a facially discriminatory tax that burdens interstate

commerce.

OPINIONS BELOW

The Eleventh Circuit’s opinion is reported as CSX

Transportation, Inc. v. Alabama Department of Revenue, 888 F.3d 1163 (11th Cir. 2018), modified on partial denial of rehearing at 891 F.3d 927, and repro-

duced at App. 1a-46a.1 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.

JURISDICTION

CSX filed this action against the Alabama Department of Revenue and its Commissioner under Section

306(2) of the Railroad Revitalization and Regulatory

Reform Act of 1976 (“the 4-R Act”), codified at 49

U.S.C. § 11501, which grants district courts subjectmatter jurisdiction to restrain and prohibit state taxes that discriminate against railroads. The district

court entered final judgment in the State’s favor. See

App. 75-76a. CSX noticed a timely appeal, and the

Eleventh Circuit had jurisdiction under 28 U.S.C.

§ 1291. 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). The State’s petition (Docket No. 18447) was docketed on October 10, 2018, and this Conditional Cross-Petition is timely filed within 30 days

of October 10, 2018, in accordance with this Court’s

Rule 12.5.

STATUTORY PROVISION INVOLVED

The statutory provision involved is Section 306 of

the Railroad Revitalization and Regulatory Reform

Act of 1976 (reproduced in the Appendix to this

Cross-Petition), presently codified at 49 U.S.C.

§ 11501. As currently codified, this provision states,

in relevant part:

1 Unless otherwise noted, cites to the Appendix are to the Appendix filed by the Petitioner in Docket No. 18-447.

(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.

This Cross-Petition will sometimes reference Section 306 as well as the current codification at 49

U.S.C. § 11501. The codification slightly altered the

language of Section 306, but without substantive

change. CSX Transportation, Inc. v. Alabama Dept.

of Revenue, 562 U.S. 277, 280 n.1 (2011).

STATEMENT OF THE CASE

A. INTRODUCTION.

For the reasons that will be stated in its opposition

to Alabama’s petition for certiorari, CSX believes the

Court should not review this case. Alabama’s petition seeks review of the water carrier portion of the

Eleventh Circuit’s opinion, namely, the holding that

Alabama’s sales and use tax on railroad diesel fuel

discriminates against railroads in violation of 49

U.S.C. § 11501(b)(4), because interstate water carriers, a principal railroad competitor, are exempt from

that tax. The water carrier holding does not warrant

further review. It does not conflict with any decision

of any federal circuit court, state supreme court, or

this Court. The State’s petition should therefore be

denied. However, if this Court grants the State’s petition, CSX respectfully requests that this Court

grant its cross-petition for a writ of certiorari to review the Eleventh Circuit’s ruling on motor carriers.

Diesel fuel purchased by interstate motor carriers,

another principal railroad competitor, is also exempt

from the sales and use tax Alabama imposes on railroad diesel fuel. The Eleventh Circuit held, however,

that Alabama’s sales and use tax exemption for motor

carrier fuel does not violate 49 U.S.C. § 11501(b)(4),

because Alabama, like all other states, imposes a

highway motor fuel excise tax on the diesel fuel purchased by motor carriers. The Eleventh Circuit held

that this highway motor fuel excise tax sufficiently

justifies Alabama’s facially discriminatory sales tax

on railroad diesel fuel.

This motor carrier holding is contrary to the rulings

of this Court in CSX I2 and CSX II3, as well as decades of settled jurisprudence addressing how a state

can justify a facially discriminatory tax that burdens

interstate commerce. The Eleventh Circuit’s holding

concerning motor carriers also conflicts with the decisions of this Court rejecting a strict formalism in deciding when taxes violate federal law, and decisions

requiring consideration of how the tax proceeds are

spent when judging discrimination.

The State’s petition necessarily presupposes that

the Eleventh Circuit correctly decided the motor carrier issue because the State claims that reversal of

the Eleventh Circuit’s water carrier ruling would resolve this case. But if this Court grants review concerning the water carrier issue, then granting this

cross-petition would be essential to a complete resolution of the question whether Alabama can impose its

sales and use tax on railroad diesel fuel, one of the

railroads’ largest operating expenses, while exempting the railroads’ principal competitors, without violating Section 306 of the 4-R Act, an important Congressional anti-discrimination law.

B. STATEMENT OF FACTS.

1. The Parties.

Cross-Petitioner and Plaintiff below, CSX, is an interstate common carrier by rail operating in Alabama, as well as other states. CSX II, 135 S. Ct. at

2 CSX Transportation, Inc. v. Alabama Dept. of Revenue, 562

U.S. 277 (2011).

3 Alabama Dept. of Revenue v. CSX Transportation, Inc., 135

S. Ct. 1136 (2015).

1140; (Stip., ¶ 1).4 The Defendants are the Alabama

Department of Revenue, and its Commissioner. The

Alabama Department of Revenue is the entity responsible for administering and collecting taxes within Alabama, including the state sales and use taxes.

The Commissioner, named in his official capacity only, exercises general supervision over the administration of the assessment and taxation laws of Alabama,

including those imposing sales and use taxes. (Stip.,

¶¶ 2-3).

2. The Sales And Use Tax Imposed Under

Chapter 23 Of The Alabama Revenue

Code.

Alabama imposes sales taxes on the gross receipts

from the sale of goods at retail. CSX II, 135 S. Ct. at

1140. Although it is collected from retailers, the Alabama sales tax is conclusively presumed to be a direct

tax on the retail consumer, and is pre-collected from

retailers for convenience only. Ala. Code § 40-2326(c) (Stip., ¶¶ 4-5). Alabama imposes a use tax on

the storage, use or consumption of tangible personal

property in Alabama where a sales tax has not already been paid. Ala. Code § 40-23-60 et seq. Thus,

the sales tax and use tax are considered “complementary” and not duplicative, and are often collectively

referred to hereafter simply as the “sales” tax imposed on the “purchase” of fuel.

Railroads are subject to sales tax on their purchase

of diesel fuel in Alabama. Fuel costs incurred in the

transportation of property in interstate commerce

constitute a major annual operating expense of rail

carriers, motor carriers and water carriers. (Stip.

¶ 12). The tax is imposed by the State at the rate of

4 The parties filed Agreed Facts which appear at Doc. 137 of

the district court’s record.

4%, plus additional amounts imposed at varying rates

by several Alabama counties and municipalities.

CSX II, 135 S. Ct. at 1140; (Stip., ¶¶ 7-8, 16). In

Birmingham and Montgomery, where CSX purchases

over 95% of its Alabama fuel, the combined state and

local sales tax rate is 10%, and statewide, CSX pays

approximately $5 million per year in diesel fuel sales

taxes. (Stip. ¶ 16; Trial Trans. (Doc. 139) p. 467).

Revenues from the Alabama sales tax are deposited

in the general revenue fund as provided in Ala. Code

§§ 40-23-35 and 40-23-85, and earmarked principally

for education purposes. The tax revenues generated

are not devoted to transportation uses, and thus railroads are in no way the direct beneficiaries of the

sales taxes they pay to the state, counties, or municipalities.

The principal competitors of rail carriers in Alabama are on-highway motor carriers of property in

interstate commerce (“motor carriers”) and carriers of

property in interstate commerce by ships, barges and

other vessels (“water carriers”). CSX II, 135 S. Ct. at

1140; (Stip., ¶ 10). Motor carriers do not pay sales or

use tax on their purchase or use of diesel fuel in Alabama. CSX II, 135 S Ct. at 1140; Ala. Code § 40-17325; (Stip., ¶ 14). Water carriers likewise do not pay

sales or use taxes on their purchase or use of diesel

fuel in the Alabama used for interstate transportation. Ala. Code § 40-23-4(a)(10) (sales tax); Ala. Code

§ 40-23-62(3) (use tax); (Stip., ¶ 11).

3. The Separate Motor Fuel Excise Tax

Imposed Under Chapter 17 Of The Alabama Revenue Code.

Interstate motor carriers do pay an Alabama Motor

Fuels Excise tax totaling 19 cents a gallon on the diesel fuel they consume on the state highways. Ala.

Code § 40-17-325(a)(2). An Alabama constitutional

amendment requires that all motor fuel tax revenues

must be expended solely for the costs of building and

maintaining highways, roads and bridges, Amend.

93, Ala. Const. V, § 111.06, and the proceeds from the

motor carrier fuel excise tax are used exclusively for

these purposes (Stip., ¶ 18.). The excise tax thus

stands in stark contrast to the sales taxes collected

from railroads, which provide no special benefit to

them. The sales tax is imposed on the railroads’ purchase of diesel fuel in Alabama, regardless of whether

or where the fuel is eventually used (i.e., whether it

fuels a train that travels solely in Alabama or a train

that traverses several other states.). In contrast, the

motor carrier fuel excise tax is effectively levied on

the consumption of diesel fuel in Alabama, as a highway user fee, regardless of where it was purchased,

by operation of the interstate reconciliation process

under the International Fuel Tax Agreement

(“IFTA”). (Trial Tr. (Doc. 139) pp. 272-73, 340-45).

Numerous government reports, including those

that motivated Congress to enact Section 306, recognize the direct benefit motor carriers receive from

these types of motor fuel taxes that fund the infrastructure necessary to their business, and the fact

that this gives the trucks a significant competitive

advantage over railroads, who must pay for and

build, and pay taxes on, their right of way infrastructure. This imbalance is widely recognized, and has a

significant impact on the competitive position among

modes of transportation, which was one of the fundamental drivers in enacting Section 306, viz., to enhance the railroads’ ability to compete with other carriers. CSX II, 135 S. Ct. at 1142. For example, the

U.S. General Accountability Office recently found

that:

federal programs treat different freight modes

differently. For example, trucks and barges use

infrastructure that is owned and maintained by

the government, while rail companies use infrastructure that they pay to own and maintain.

The trucking and barge industries pay fees and

taxes to use this government-funded infrastructure, but their payments generally do not cover

the costs they impose on highways and waterways, thereby giving the trucking and barge industries a competitive price advantage over railroads.

Pls. Ex. 57 (2006 GAO Report) at p. 00067.5 The seminal study on national transportation policy that ultimately led to the legislation that included Section

306, the “Doyle Report,” likewise expressly recognized

the different benefits bestowed by the highway fuel

taxes that motor carriers pay to support highway infrastructure and the taxes railroads pay to support

general state revenues, and the competitive harm

this asymmetry does to rail carriers. S. Rep. No. 87445 (1961) (“Doyle Report”).6

The unique benefit motor carriers receive from the

highways funded by the motor fuel taxes is evident in

the American Trucking Associations’ participation as

amicus for Alabama in the previous appeals in this

case, as well as the motor carrier industry’s recent

suit seeking to compel Georgia to dedicate diesel fuel

sales taxes, in addition to motor fuel taxes, exclusively to road construction. Georgia Motor Trucking As5 The

October 2006 GAO report Freight Railroads Industry

Health, is available online at http://www.gao.gov/new.items/

d0794.pdf.

6 The Doyle Report is available online at https://babel.hathi

trust.org/cgi/pt?id=mdp.39015023117982;view=1up;seq=9.

soc. v. Georgia Dept. of Rev., 801 S.E.2d 9 (Ga. 2017).

As the government reports acknowledge, unlike motor carriers, railroads do not receive any direct benefit from the sales taxes they pay, beyond the benefits

enjoyed by society in general.

At both trials below, CSX also presented the undisputed expert testimony of Richard R. Mudge, Ph.D.,

who was tendered without challenge as an expert

transportation economist. In his written statement

in the second trial (Pls. Ex. 5) and testimony at both

trials, Dr. Mudge established the following:

1. The per-gallon excise taxes on motor fuels, in

Alabama and throughout the United States, are dedicated benefit taxes in the nature of user fees that

provide direct, tangible benefits to highway users, including the motor carrier industry.

2. These user fees historically have been, and continue to be, the principal source of funds to construct,

improve, and maintain highways, thus directly benefitting the trucking industry.

3. In contrast, sales taxes on diesel fuel paid by the

railroads in Alabama do not provide direct benefits to

the railroads.

4. Imposing a sales tax on railroad diesel fuel but

not motor carrier diesel fuel “provides a competitive

advantage” to the trucking industry relative to the

railroad industry. While the motor fuel excise taxes

paid by motor carriers maintain a highway network

essential to their industry, the railroads must expend

more than $19 billion a year to build, maintain and

operate their nationwide system of track and signal

structure. CSX also pays more than $2 million annually in property taxes on its track structure in Alabama.

5. Although both motor carriers and railroads pay

taxes in Alabama triggered by the purchase of diesel

fuel, the motor excise tax and the sales tax are not

comparable taxes. The motor carrier industry receives tangible, direct benefits in the form of a network of well-maintained roads and bridges for the

taxes it pays, while the railroad industry must build,

maintain and pay taxes on its rail network from its

own resources, and receives no direct benefit from the

sales taxes it pays. (Tr. (Doc. 65), pp. 34-53; Tr. (Doc.

139), pp. 327-392).

When Congress prohibited discriminatory taxes

against railroads, it did so to protect railroads’ ability

to compete against their main competitors, motor

carriers. Therefore failing to analyze the entire effect

of the State’s taxing regime cannot fulfill Congress’s

primary purpose. We turn now to that history.

C. THE 4-R ACT.

In the 1970s, many of the nation’s railroads were

bankrupt and the industry near collapse. After more

than 15 years of investigation, Congress determined

that state and local taxes were in part to blame, noting that discriminatory tax schemes had exacerbated

the inherent competitive disadvantage railroads have

because they must build, fund, and pay taxes on their

own tracks and rights-of-way, whereas their competitors—the trucks and barges—operate on publiclyfunded infrastructure.7

Congress responded with the Railroad Revitalization and Regulatory Reform Act of 1976 (the “4-R

7 S. Rep. No. 87-445 (1961) (“the Doyle Report”), at 449-66,

available online at https://babel.hathitrust.org/cgi/pt?id=

mdp.39015023117982. See also W. Air Lines, Inc. v. Bd. of

Equalization, 480 U.S. 123, 131 (1987); H.R. Rep. No. 94-725

(1975), at 78; S. Rep. No. 91-630 (1969), at 1.

Act”), legislation designed “to restore the financial

stability of the railway system of the United States

while fostering competition among all carriers by

railroad and other modes of transportation.” CSX II,

135 S. Ct. at 1142 (internal citations omitted). One

method Congress chose to accomplish these goals,

particularly the goal of furthering railroad financial

stability, was to eliminate the long-standing burden

on interstate commerce resulting from discriminatory

state and local taxation of railroads. Burlington

Northern Railroad Co. v. Oklahoma Tax Commission,

481 U.S. 454, 457 (1987).

Among the acts that Congress prohibited is the imposition of a tax that discriminates against a rail carrier. As this Court has held, a tax that facially discriminates against a railroad by imposing a tax on

railroads that is not imposed on railroad competitors

violates 49 U.S.C. § 11501(b)(4), unless the government can prove a sufficient justification for the discrimination. CSX II, 135 S. Ct .at 1143.

Declaring state tax discrimination against railroads

to be “an unreasonable and unjust discrimination

against, and an undue burden on, interstate commerce,” Section 306 confers jurisdiction upon district

courts of the United States, notwithstanding 28

U.S.C. § 1341 and without regard to the amount in

controversy or citizenship of the parties, to “grant

such mandatory or prohibitive injunctive relief, interim equitable relief, and declaratory judgments as

may be necessary to prevent, restrain, or terminate

any acts in violation of [Section 306].”

D. THE HISTORY OF THIS LITIGATION.

1. CSX I.

CSX sued in 2008 to enjoin imposition of Alabama’s

discriminatory

sales

tax

under

U.S.C.

§ 11501(b)(4). The district court initially dismissed

CSX’s suit prior to trial, and the Eleventh Circuit affirmed. Both courts relied on Norfolk Southern Railway Company v. Alabama Department of Revenue,

550 F.3d 1306 (11th Cir. 2008), overruled by CSX I,

which held that a railroad could not invoke Section

11501(b)(4) to challenge a generally-applicable property tax with discriminatory exemptions. 350 Fed.

App’x 318 (2009).

This Court subsequently granted CSX’s petition for

a writ of certiorari, overruled the Eleventh Circuit’s

decision in Norfolk Southern, and held that CSX had

stated a claim of discrimination under Section

11501(b)(4) because the purchase of diesel fuel by

railroads was subject to sales tax, but the purchase of

diesel fuel by railroad competitors was not. This

Court 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.’” 562 U.S.

at 288. Moreover, this Court imposed the following

burden-shifting analysis for the lower courts:

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 to rail carriers.

Id. at n.8.

This Court thus reversed the Eleventh Circuit’s

earlier opinion, and remanded the case for further

proceedings consistent with this Court’s decision.

2. CSX II.

Upon remand from CSX I, the district court preliminarily enjoined the tax, and subsequently conducted

a trial on the merits. Following trial, the district

court issued an order dismissing the complaint with

prejudice. In regard to the motor carrier issue, the

district court held that the imposition of the sales tax

on the purchase of CSX’s diesel fuel was not discriminatory because Alabama imposes a motor fuel excise

tax at a tax rate imposed per gallon of diesel fuel that

the district court concluded was mathematically “essentially the same” as the per-gallon rate of the Alabama sales tax, when the percentage sales tax is multiplied by the average price of railroad diesel fuel in

the years preceding the lawsuit. CSX Transportation, Inc. v. Alabama Dept. of Revenue, 892 F. Supp.

2d 1300, 1313 (N.D. Ala. 2012).

On appeal, the Eleventh Circuit reversed this finding, holding that Section 11501(b)(4) does not allow

the State to justify a facially discriminatory sales tax

by relying on a different tax imposed on competitors.

CSX Transportation, Inc. v. Alabama Dept. of Revenue, 720 F.3d 863 (11th Cir. 2013). The State successfully sought review in this Court, resulting in its

decision in CSX II.

As to motor carriers, this Court rejected the Eleventh Circuit’s wooden refusal to consider Alabama’s

tax-based justification (the motor fuel tax) for the facial discrimination against railroads, concluding:

We think that an alternative, roughly equivalent

tax is one possible justification that renders a tax

disparity nondiscriminatory.

135 S. Ct. at 1143. In reaching this conclusion the

Court relied on its dormant Commerce Clause precedent, particularly Gregg Dyeing Co. v. Query, 286

U.S. 472 (1932).

The instructions on remand from this Court were

“to consider 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.” Id. at 1144.

3. CSX III.

After the second remand by this Court, the district

court conducted another trial, and (reiterating without further analysis its previous finding) held that

the motor fuel tax and the sales tax were “roughly

equivalent” based solely on an arithmetic analysis.

Specifically, the district court calculated a cents-pergallon rate for the approximately 10% sales tax by

multiplying it by the average price of fuel during the

years preceding the lawsuit, and compared that rate

to the 19 cent motor fuel excise tax. 247 F. Supp. 3d

1240 (N.D. Ala. 2017); App. 66a. The district court

rejected the use of this Court’s well-established Compensatory Tax Doctrine and refused to consider any

dormant Commerce Clause cases as relevant in determining whether two disparate taxes are, in fact,

“roughly equivalent.” Instead, the district court relied solely on the mathematical “rate” comparison. In

rejecting the Compensatory Tax Doctrine, the district

court also refused to consider that the proceeds of the

motor fuel tax paid by the motor carriers fund and

support the highways, which are essential to motor

carrier operations, whereas the proceeds of the sales

tax paid by railroads is of only attenuated benefit to

the railroads.

On appeal, the Eleventh Circuit affirmed that part

of the district court’s holding. 888 F.3d 1163 (11th

Cir. 2018), modified on partial denial of rehearing at

891 F.3d 927, App. 1a-46a. Like the district court,

the Eleventh Circuit did not go beyond a mathematical “tax rate” analysis and offered no articulable

standard to determine when two taxes are “roughly

equivalent,” notwithstanding this Court’s citation to

its dormant Commerce Clause analysis in CSX II.

REASONS THE COURT SHOULD GRANT THE

CROSS-PETITION

CSX believes that the State’s petition should be denied because its challenges to the Eleventh Circuit’s

holding on water carriers do not meet the standards

of this Court’s Rule 10. But if the Court disagrees

and does grant Alabama’s petition, it should grant

CSX’s conditional cross-petition as well and provide

needed guidance on the standard for discrimination

under 49 U.S.C. § 11501(b)(4).

The Eleventh Circuit’s decision upholding Alabama’s discriminatory sales tax on railroad diesel

fuel conflicts with CSX I and CSX II, as well as with

a similar 4-R Act decision issued by the Iowa Supreme Court. Furthermore, the Eleventh Circuit’s

decision in regard to motor carriers directly contradicts this Court’s well-established precedent articulating the standards for justifying a facially discriminatory tax that burdens interstate commerce, including this Court’s decisions recognizing the relevance of

the use of tax proceeds in deciding whether a tax is

impermissibly discriminatory.

A. THE ELEVENTH CIRCUIT’S HOLDING

CONFLICTS WITH THIS COURT’S DECISIONS IN CSX I AND CSX II AND THIS

COURT’S OPINIONS ON HOW TO EXAMINE A FACIALLY DISCRIMINATORY TAX.

In CSX II, this Court invoked the Compensatory

Tax Doctrine applicable to “negative Commerce

Clause cases” to hold, for the first time in a 4-R Act

case, that a state’s imposition of “an alternative,

roughly equivalent tax” on a railroad competitor is

one possible justification that can potentially save a

facially discriminatory tax like Alabama’s from violating Section 11501(b)(4). 135 S. Ct. at 1143. This

Court cited Gregg Dyeing Co. v. Query, 286 U.S. 472

(1932), the foundational case establishing, and frequently used as shorthand for, what is now referred

to as the Compensatory Tax Doctrine, which is the

Court’s well-developed test to determine whether an

alternative tax can justify a facially discriminatory

tax that burdens interstate commerce. CSX II, 135 S.

Ct. at 1144. This Court’s reference to a “roughly

equivalent” alternative tax is most naturally understood as referring to the Compensatory Tax Doctrine.

In fact, during the same term as CSX II, this Court

acknowledged that taxes “are ‘compensatory’ if they

are rough equivalents imposed upon substantially

similar events.” Comptroller of Treas. of Maryland v.

Wynne, 135 S. Ct. 1787, 1804 n.8 (2015) (emphasis

added). It also makes sense for this Court to have interpreted sufficient justification under the 4-R Act

using Commerce Clause standards, as the 4-R Act

explicitly declares that taxes which violate the Act

“unreasonably burden and discriminate against interstate commerce.” 49 U.S.C. § 11501(b). Indeed,

this Court referred to its dormant Commerce Clause

cases to interpret the 4-R Act in both CSX I and CSX

II. See 562 U.S. at 286; 135 S. Ct. at 1143.

As this Court knows, the Compensatory Tax Doctrine employs a three-pronged analysis to determine

if two different taxes are truly equivalent. Only one

of the prongs considers the actual tax “rate,” which

was the sole indicia of “rough equivalency” used by

the Eleventh Circuit. But the Compensatory Tax

Doctrine analysis is far more rigorous, including inquiry into the purpose of the two taxes, and whether

they are sufficiently similar in substance to serve as

mutually exclusive proxies for each other. Fulton

Corporation v. Faulkner, 516 U.S. 325, 334-39 (1996).

The motor fuels tax does not qualify as a roughly

equivalent tax under the Compensatory Tax Doctrine

analysis.

Under the dormant Commerce Clause analysis that

this Court has now twice used to interpret the 4-R

Act, discriminatory taxes are “virtually per se invalid” and any justification must “pass the strictest

scrutiny.” Oregon Waste v. Dept. of Envtl. Quality,

511 U.S. 93, 99 (1994). The Compensatory Tax Doctrine is the sole test this Court uses to determine

whether a sufficient justification based on an alternative tax meets this strict standard. In fact, it is the

only test the Court has ever applied to determine

whether facial tax discrimination is cured by the existence of a comparable, “roughly equivalent” alternative tax. This Court in CSX II explicitly recognized

the difficulty of undertaking this inquiry, and specifically referenced this Court’s Compensatory Tax Doctrine cases, which take into consideration not only

the “rates,” but, consistent with this Court’s adherence to substance rather than form when examining

taxes, also requires analysis of whether the two taxes

are the same in type and effect. In both CSX I and II,

the Court recognized that questions of discrimination

and “rough equivalency” are not easily resolved and

require an exhaustive analysis consisting of “knotty

questions about when dissimilar treatment is adequately justified,” 562 U.S. at 297, and the potentially

“Sisyphean” burden of determining when two different taxes are comparable and roughly equivalent, 135

S. Ct. at 1144. This Court held that despite the burdens, this type of exhaustive analysis is precisely

what the 4-R Act requires. Id. The lower courts’

arithmetic solution is hardly “Sisyphean” in nature

and it does not remotely justify the competitive harm

done to the railroads by Alabama’s facially discriminatory tax.

The Eleventh Circuit rejected the use of the Compensatory Tax Doctrine because this Court in CSX II

did not specifically “tell us to do that.” App. 21-22a.

But this sophomoric rejection of this Court’s guidance

in CSX II ignores the Court’s specific invocation of

the dormant Commerce Clause cases, specifically its

citation to Gregg Dyeing. And neither the district

court nor the Eleventh Circuit explains why the simplistic “rate” analysis is sufficient when that analysis

was already in the record when this Court in CSX II

remanded the case for further analysis. A remand

would not have been necessary if the arithmetic “rate

equivalency” analysis already in the record fulfilled

the State’s sufficient justification obligation. Surely

something more than a calculator (or even an abacus)

is required to determine if two disparate taxes are in

fact “roughly equivalent.” If the Court decides to review the water carrier issue presented by Alabama, it

should resolve both of the issues decided below and

provide guidance on what constitutes justifiable discrimination against railroads.

B. THE ELEVENTH CIRCUIT’S HOLDING

CONFLICTS WITH THIS COURT’S RULINGS ON THE RELEVANCE OF THE USE

OF TAX PROCEEDS.

The Eleventh Circuit also rejected any consideration of Alabama’s use of the tax revenue in evaluating

the State’s sufficient justification defense. The highway fuel taxes that motor carriers pay (which railroad companies also pay when they use the state

highways) are dedicated exclusively to fund road construction and maintenance. The undisputed expert

testimony at trial and numerous government reports,

including those that motivated Congress to enact the

4-R Act, recognize the direct benefit trucks receive

from motor fuel taxes, and the competitive advantage

this gives trucks over railroads.8 Thus, the same

highway fuel taxes that the Eleventh Circuit found

justify Alabama’s discrimination against railroads

were one of the competitive harms Congress cited for

enacting the 4-R Act’s protection against railroad tax

discrimination in the first place.

The Eleventh Circuit’s refusal to consider how the

tax proceeds are used is also contrary to the Iowa Supreme Court’s decision in Atchison, Topeka & Santa

Fe Railway Co. v. Bair, 338 N.W. 2d 338, 341 (Iowa

1983), cert. denied, 465 U.S. 1071 (1984), and to this

Court’s decision in West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).

The Iowa Supreme Court in Atchison held in a 4-R

Act case that, in comparing an excise tax on railroad

diesel fuel with motor carrier highway taxes, the

competitive advantage motor carriers receive from

the fact their taxes fund their necessary infrastructure must be taken into account. Iowa had imposed

an excise tax of 8¢ per gallon on railroad fuel, and a

motor fuel tax of up to 15.5¢ per gallon on motor carriers. In rejecting the state’s defense that the motor

fuel tax nullified the railroads’ claim under Section

11501(b)(4), the Iowa Supreme Court ruled:

Superficially the trucks rather than the railroads

appear to be at a competitive disadvantage as to

fuel taxes. But a major adjustment must be

made in order to compare railroad-fuel with

8 2006 GAO Report Freight Railroads Industry Health 67,

available online http://www.gao.gov/new.items/d0794.pdf; The

Doyle Report, p. 459 (S. Rep. No. 87-445 (1961) available online

at https://babel.hathitrust.org/cgi/pt?id=mdp.39015023117982.

truck-fuel taxes: the costs of construction and

maintenance of the roads of the two modes must

be placed in the balance. Trucks operate on publicly constructed and maintained roads. The various taxes which the General Assembly requires

the trucks to pay go into an earmarked fund for

the construction, maintenance, supervision, and

administration of the highways. Iowa Const.

Amend. 18. Those taxes represent the Assembly’s judgment as to the portion of the cost of the

highways that the trucks should bear. But the

railroads acquire, construct, maintain, and pay

taxes on their own roads. We thus have the railroads providing their own roads with the eightcent fuel tax in addition, and the trucks paying

the legislative approximation of their share of

the highways without the additional eight-cent

tax. This gives the trucks a distinct competitive

advantage.

338 N.W.2d at 346-47. The Eleventh Circuit simply

ignored the reasoning of the Iowa Supreme Court.

In West Lynn Creamery, this Court rejected an argument strikingly similar to the argument raised

here by Alabama. A Massachusetts “pricing order”

imposed an assessment on all milk sold by wholesale

dealers to Massachusetts retailers. The state defended these “premium payments” (which this Court

treated as a “tax”) against a Commerce Clause challenge by out-of-state producers by stressing that the

required “premiums” were at the same rates for instate and out-of-state producers. But this Court emphasized that the proceeds of the tax went into a fund

distributed only to Massachusetts producers—clearly

a discriminatory scheme, notwithstanding its superficial neutrality. Thus, this Court rejected the state’s

plea to ignore how the proceeds of an allegedly

“roughly equivalent tax” were spent, ruling instead

that “we cannot divorce the [taxes] from the use to

which the [taxes] are put.” 512 U.S. at 201. This

Court reaffirmed this principle in its most recent

Term, in its Wayfair opinion, where the Court, citing

West Lynn Creamery, noted that “the Court’s Commerce Clause jurisprudence has ‘eschewed formalism

for a sensitive, case-by-case analysis of purposes and

effects.’” South Dakota v. Wayfair, Inc., 138 S. Ct.

2080, 2094 (2018).

The Eleventh Circuit, however, rejected consideration of the use of the tax proceeds, primarily on statutory grounds. The Eleventh Circuit found no “textual” support in the 4-R Act for addressing tax expenditures, surmising that, by its silence, Congress precluded analysis of such expenditures. App. 18-21a.

But this myopic view ignores Congress’s broad prohibition of “taxes that discriminate” against railroads.

As this Court emphasized in West Lynn Creamery, in

determining whether a tax “discriminates” against a

protected party, a court “cannot divorce the [taxes]

from the use to which the [taxes] are put.” 512 U.S.

at 201. The Eleventh Circuit merely mentions West

Lynn Creamery in passing (App. 17a), but makes no

attempt to distinguish it or explain why use of the tax

proceeds is relevant to evaluating “discrimination”

under the Commerce Clause but not to evaluating

“discrimination” under an Act of Congress specifically

protecting against discriminatory taxes imposed on

railroads.

In rejecting consideration of the use of the motor

fuel tax proceeds, the Eleventh Circuit described

CSX’s argument as an attempted “remodeling” of

subsection (b)(4), requiring the court to add or subtract from the statutory language, a practice disapproved by the courts. App. 19-20a. But considering

the use of tax proceeds does not in any way require a

“remodeling” of subsection (b)(4). Congress has spoken with remarkable clarity in its broad proscription

of taxes that “discriminate” against railroads, and

this Court in CSX I rejected resort to rules of statutory construction that would frustrate this Congressional intent. 562 U.S. at 294-95. In fact, this Court

in CSX I specifically cited West Lynn Creamery to reject a restrictive view of “discriminate” which is “at

odds with its natural meaning.” 562 U.S. at 287.

Further, the Eleventh Circuit erroneously reasoned

that reading subsection (b)(4) “in context” forbids a

court from considering the use of the motor fuel tax

proceeds when judging discrimination. The “context”

relied upon by the Eleventh Circuit was apparently a

comparison of subsection (b)(4) with subsections

(b)(1)-(3). Such a purported “contextual” analysis ignores this Court’s observation that subsection (b)(4)

represents “very different terrain” from the other

subsections in section 11501. Id. at 288 n.8. But

more importantly, limiting the reach of subsection

(b)(4) by reference to the “context” of the other subsections was specifically condemned in CSX I, where

this Court noted that Congress drafted subsection

(b)(4)‘s proscriptions “more broadly” (id. at 296) and

that subsection (b)(4) “speaks both clearly and broadly.” Id. at 285. And the Eleventh Circuit’s observation that Congress did not intend for subsection (b)(4)

to proscribe discrimination “in any other way” (App.

20a) flies in the face of this Court’s view in CSX I:

“After all, the very purpose of a catch-all provision

like subsection (b)(4) is to avoid the necessity of listing each matter (here, each kind of tax discrimination) falling within it.” Id. at 292. At least in the

context of comparing two allegedly “roughly equivalent” taxes, it is no answer to say that use of the pro-

ceeds is “irrelevant” because Congress did not mention them in the Act.

Another court of appeals has also erroneously refused to consider how the tax proceeds are used, stating without analysis or citation to authority 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 Railway Co. v. Tennessee Dept. of Revenue, 800 F.3d 262, 274 (6th Cir.

2015). Although the Sixth Circuit’s decision was on

review of a denial of a preliminary injunction (not a

final judgment) and did not involve a comparison of

two allegedly “roughly equivalent” taxes, the unsupported BNSF ruling has already been cited in another

unpublished opinion by the Sixth Circuit, thus compounding the error. In Illinois Central Railroad v.

Tennessee, which, unlike BNSF, did involve a comparable tax defense, the Sixth Circuit cited BNSF,

without further analysis, as support for its refusal, in

its rough equivalency analysis, to consider how the

tax proceeds are used. 2018 WL 4183464 at * 4 (6th

Cir. Aug. 31, 2018). It is likely that other lower

courts will err on this important issue, making this

Court’s review and correction timely and appropriate.

CONCLUSION

CSX’s Brief in Opposition will set forth the reasons

why the State’s petition should be denied. But in the

event the State’s petition is granted, CSX’s conditional cross-petition for certiorari should also be granted

in order for this Court to decide whether the Compensatory Tax Doctrine or some other articulable

standard that embodies more than simple arithmetic

calculations should be employed to comply with the

roughly equivalent standard in CSX II.

Respectfully submitted,

NATHAN D. GOLDMAN

JOEL W. PANGBORN

CSX CORPORATION

500 Water Street

Jacksonville, FL 32202

(904) 359-3200

CARTER G. PHILLIPS*

JACQUELINE G. COOPER

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

cphillips@sidley.com

JAMES W. MCBRIDE

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

901 K Street, N.W.

Suite 900

Washington, DC 20001

(202) 508-3467

PETER J. SHUDTZ

CSX CORPORATION

1331 Pennsylvania Ave.,

N.W.

Washington, DC 20004

(202) 783-8124

STEPHEN D. GOODWIN

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

First Tennessee Building

165 Madison Ave.

Suite 2000

Memphis, TN 38103

(901) 577-2141

MISTY SMITH KELLEY

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

633 Chestnut Street

Suite 1900

Chattanooga, TN 37450

(423) 209-4148

Counsel for Cross-Petitioner

November 9, 2018

* Counsel of Record

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.