Petition for Writ of Certiorari — Illinois Central Railroad Company, Petitioner v. Tennessee Department of Revenue, et al.

No.

IN THE

Supreme Court of the United States

_______________

ILLINOIS CENTRAL RAILROAD COMPANY,

Petitioner,

v.

TENNESSEE DEPARTMENT OF REVENUE AND

REAGAN FARR, COMMISSIONER OF REVENUE OF THE

STATE OF TENNESSEE,

Respondents.

_______________

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

_______________

PETITION FOR A WRIT OF CERTIORARI

_______________

STEPHEN D. GOODWIN

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

165 Madison Avenue

Suite 2000

Memphis, TN 38103

(901) 577-2141

THOMAS H. DUPREE JR.

Counsel of Record

CLAIRE L. CHAPLA

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue NW

Washington, DC 20036

(202) 955-8500

tdupree@gibsondunn.com

Counsel for Petitioner

[Additional counsel listed on inside cover]

JAMES W. MCBRIDE

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

901 K Street, NW

Suite 900

Washington, DC 20001

(202) 508-3467

MISTY SMITH KELLEY

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

633 Chestnut Street

Suite 1900

Chattanooga, TN 37450

(423) 209-4148

i

QUESTION PRESENTED

Under 49 U.S.C. § 11501(b)(4), states may not

impose taxes that discriminate against railroads by

favoring their competitors, such as motor carriers.

In this case, Tennessee imposed a fuel tax on

railroads but exempted motor carriers. The Sixth

Circuit upheld the tax by pointing out that Tennessee

also imposed what the court deemed a “roughly

equivalent” fuel tax on motor carriers. The court held

it “irrelevant” that Tennessee dedicates the revenue

from the motor carrier tax to building and

maintaining roads—the infrastructure that motor

carriers use for their business—whereas the revenue

from the railroad tax is not similarly dedicated to

building and maintaining railroad tracks, and

railroads are left to pay for their own infrastructure.

The question presented is whether Tennessee’s

tax on railroad fuel discriminates against railroads

under 49 U.S.C. § 11501(b)(4).

ii

PARTIES TO THE PROCEEDING

AND RULE 29.6 STATEMENT

The caption contains the names of all the parties

to the proceeding below.

Pursuant to this Court’s Rule 29.6, undersigned

counsel states that petitioner Illinois Central Railroad

Company is an indirect, wholly-owned subsidiary of

Canadian National Railway Company, a publiclytraded corporation.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED...........................................i

PARTIES TO THE PROCEEDING AND RULE

29.6 STATEMENT ............................................... ii

TABLE OF APPENDICES ......................................... v

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

PETITION FOR A WRIT OF CERTIORARI ............. 1

OPINIONS BELOW .................................................... 1

JURISDICTION .......................................................... 1

STATUTORY PROVISION INVOLVED.................... 1

INTRODUCTION ........................................................ 2

STATEMENT .............................................................. 5

A. The 4-R Act ...................................................... 5

B. Tennessee’s Tax Scheme ................................. 7

C. The Decision Below ......................................... 8

REASONS FOR GRANTING THE PETITION ....... 11

I.

Review Is Warranted To Resolve The

Split Over An Important Question

Of Federal Tax Law. .................................... 11

A. The Iowa Supreme Court Holds That

The Way A State Allocates Tax

Revenue Is Highly Relevant To

Analyzing Discrimination. ..................... 12

B. The Sixth and Eleventh Circuits Hold

That The Way A State Allocates Tax

Revenue Is Not Relevant To

Analyzing Discrimination. ..................... 13

II. Review Is Further Warranted Because

The Decision Below Is Incorrect. ................. 15

iv

III. The Question Presented Is Exceptionally

Important And This Case Provides The

Ideal Vehicle For Resolving It...................... 18

CONCLUSION .......................................................... 20

v

TABLE OF APPENDICES

Page

APPENDIX A:

Opinion of the United States Court of Appeals

for the Sixth Circuit (Aug. 31, 2018) .................. 1a

APPENDIX B:

Opinion of the United States District Court for

the Middle District of Tennessee

(Apr. 12, 2017) ................................................... 12a

APPENDIX C:

Order of the United States Court of Appeals for

the Sixth Circuit Denying Rehearing or

Rehearing En Banc (Oct. 3, 2018) .................... 34a

APPENDIX D:

49 U.S.C. § 11501 .................................................... 36a

APPENDIX E:

Joint Stipulation Of Facts (May 29, 2012) ............. 39a

vi

TABLE OF AUTHORITIES

Page(s)

Cases

Ala. Dep’t of Revenue v. CSX

Transp., Inc.,

135 S. Ct. 1136 (2015) .......................... 2, 5, 6, 9, 18

Atchison, Topeka & Santa Fe

Ry. v. Bair,

338 N.W.2d 338 (Iowa 1983)...................... 3, 12, 13

BNSF Ry. v. Tenn. Dep’t of Revenue,

800 F.3d 262 (6th Cir. 2015) .................. 3, 7, 11, 13

Burlington N. R.R. v. Triplett,

682 F. Supp. 443 (D. Minn. 1988)........................ 13

Comm’r v. Sunnen,

333 U.S. 591 (1948) .............................................. 18

Comptroller of Treas. of Md. v. Wynne,

135 S. Ct. 1787 (2015) .......................................... 17

CSX Transp., Inc. v. Ala. Dep’t

of Revenue,

562 U.S. 277 (2011) ................................................ 7

CSX Transp., Inc. v. Ala. Dep’t

of Revenue,

888 F.3d 1163 (11th Cir. 2018) ...... 4, 11, 14, 15, 19

Dep’t of Revenue of Or. v. ACF Indus.,

510 U.S. 332 (1994) ................................................ 6

vii

Gregg Dyeing Co. v. Query,

286 U.S. 472 (1932) .......................................... 9, 17

Ill. Cent. R.R. v. Tenn. Dep’t of Revenue,

969 F. Supp. 2d 892

(M.D. Tenn 2013) ............................................... 8, 9

Or. Waste Sys., Inc. v. Dep’t of

Envtl. Quality,

511 U.S. 98 (1994) ................................................ 17

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

Equalization of S.D.,

480 U.S. 123 (1987) ............................................ 5, 6

West Lynn Creamery v. Healy,

512 U.S. 186 (1994) .......................................... 4, 16

Statutes

49 U.S.C. § 11501 .................................................... 1, 2

49 U.S.C. § 11501(b) .................................................... 6

49 U.S.C. § 11501(b)(1)-(3). ......................................... 6

49 U.S.C. § 11501(b)(4) ............................... 2, 6, 13, 15

49 U.S.C. § 11501(c) .................................................... 6

49 U.S.C. § 11503(b)(4) ............................................. 13

Tenn. Code Ann. § 4-3-1016(c) .................................... 8

Tenn. Code Ann. § 67-3-202(c) .................................... 7

Tenn. Code Ann. § 67-6-201 ........................................ 7

viii

Tenn. Code Ann. § 67-6-201-203 ................................. 7

Tenn. Code Ann. § 67-6-329(a)(2) ............................... 8

Other Authorities

H.R. Rep. No. 94-725 (1975)........................................ 6

S. Rep. No. 87-445 (1961) ...................................... 6, 16

S. Rep. No. 91-630 (1969) ............................................ 6

U.S. Gov’t Accountability Office, GAO07-94, Freight Railroads: Industry

Health Has Improved, but Concerns

About Competition and Capacity

Should Be Addressed (2006) ............................... 16

1

PETITION FOR A WRIT OF CERTIORARI

Illinois Central Railroad Company respectfully

petitions for a writ of certiorari to review the

judgment of the United States Court of Appeals for

the Sixth Circuit in this case.

OPINIONS BELOW

The Sixth Circuit’s opinion (App. 1a) is not yet

reported, but is available at 2018 WL 4183464. The

Sixth Circuit’s order denying rehearing or rehearing

en banc (App. 34a) is not reported. The order and

opinion of the district court (App. 12a) is available at

2017 WL 1347269.

JURISDICTION

The Sixth Circuit entered its judgment on August

31, 2018, and denied petitioner’s timely petition for

rehearing or rehearing en banc on October 3, 2018.

This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1254(1).

STATUTORY PROVISION INVOLVED

Section 306 of the Railroad Revitalization and

Regulatory Reform Act of 1976, now codified at 49

U.S.C. § 11501, provides, in relevant part:

(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:

….

2

(4) Impose another tax that discriminates

against

a

rail

carrier

providing

transportation subject to the jurisdiction of

the [Surface Transportation] Board under

this part.

The full text of 49 U.S.C. § 11501 is reproduced at the

back of this brief, App. 36a.

INTRODUCTION

The Sixth and Eleventh Circuits have split with

the Iowa Supreme Court on an important question of

federal law: In determining whether a state tax

discriminates against railroads in violation of 49

U.S.C. § 11501, is how the state allocates its tax

revenue relevant?

Congress enacted the Railroad Revitalization and

Regulatory Reform Act—the 4-R Act—in hopes of

preserving the nation’s interstate freight rail system.

The Act forbids states from imposing any “tax that

discriminates against a rail carrier,” 49 U.S.C.

§ 11501(b)(4), by, for example, favoring motor carriers

or other transportation businesses that compete with

the railroads.

In cases where a state enacts a facially

discriminatory tax, such as a sales tax that applies to

the fuel used by railroads but exempts the fuel used

by motor carriers, the state can rebut the prima facie

case of discrimination by showing that motor carriers

must pay a “roughly equivalent” tax. See Ala. Dep’t of

Revenue v. CSX Transp., Inc., 135 S. Ct. 1136 (2015)

(“CSX II”).

Comparing two taxes obviously requires

comparing the relative tax rates. But it should also

require comparing the way a state allocates the tax

revenue. A state discriminates against railroads if it

3

taxes motor carriers and railroads at the same rate—

but dedicates the revenue from the motor carrier tax

to building and maintaining highways (the

infrastructure used for the truckers’ business), while

directing the revenue from the railroad tax to a

purpose that does not directly benefit the railroads

that pay the tax. Tax schemes of this type give motor

carriers a competitive advantage, in that their tax

dollars are immediately plowed into projects that

benefit their business, whereas the railroads are left

to pay for their own infrastructure.

The first court to confront this issue was the Iowa

Supreme Court in Atchison, Topeka & Santa Fe

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

court invalidated Iowa’s railroad fuel tax as

discriminatory under the 4-R Act because Iowa did not

dedicate the revenues to rail infrastructure used by

the active railroads that paid the tax, whereas it

dedicated the revenues of its motor carrier fuel tax to

building and maintaining highways and bridges.

Two federal circuit courts, however, have recently

held the precise opposite—that the way a state tax

scheme allocates revenue is not relevant to analyzing

discrimination under the 4-R Act. In BNSF Railway

v. Tennessee Department of Revenue, 800 F.3d 262

(6th Cir. 2015), and again in the decision below, the

Sixth Circuit held that allocation is irrelevant. In the

Sixth Circuit’s view, the fact that a state dedicates the

taxes paid by motor carriers to the very infrastructure

the motor carriers use for their business—but fails to

do the same for the taxes paid by the railroads—does

not give rise to discrimination. The Eleventh Circuit

agrees with the Sixth Circuit, deeming allocation

irrelevant to analyzing discrimination under the 4-R

4

Act. See CSX Transp., Inc. v. Ala. Dep’t of Revenue,

888 F.3d 1163 (11th Cir. 2018).

This Court, in West Lynn Creamery v. Healy, 512

U.S. 186 (1994), held that the way a state allocates tax

revenue is relevant to determining whether a tax is

discriminatory under the Commerce Clause. The

Court explained that, in assessing discrimination, one

cannot “divorce” the tax “payments from the use to

which the payments are put.” Id. at 201. But the

Court has never addressed whether the same rule

applies in deciding whether a tax is discriminatory

under the 4-R Act. Now that there is a deepening split

in the lower courts over that very question, this case

presents the ideal vehicle for resolving it.

This question is important and recurring. It is of

immense importance to the nation’s freight railroads,

which purchase more than 3 billion gallons of diesel

fuel annually, and are placed at a competitive

disadvantage when the resulting tax revenue is not

dedicated to their rail infrastructure, while the tax

payments of their competitors are dedicated to

building their competitors’ infrastructure.

This

competitive disadvantage is the very outcome

Congress sought to prevent when it enacted the 4-R

Act. And the question presented is also of great

importance to the states themselves, as illustrated by

Alabama’s recent request that the Court grant

certiorari on this issue. See Response of Alabama to

Conditional Cross-Petition, CSX Transp., Inc. v. Ala.

Dep’t of Revenue, No. 18-612, at 1 (acknowledging that

resolving this issue is “in the nation’s best interest”

given that it is unsettled and will recur with great

frequency).

5

STATEMENT

Petitioner challenged Tennessee’s imposition of a

tax on the diesel fuel bought by railroads in

Tennessee—a tax from which motor carriers (i.e.,

trucks) are exempt. Tennessee did not dispute that

the tax is a prima facie violation of the 4-R Act’s

antidiscrimination mandate, in that railroads had to

pay it but motor carriers did not. Rather, Tennessee

argued that the tax on railroads was not

discriminatory because motor carriers paid a different

tax on fuel. See CSX II, 135 S. Ct. 1136, 1143-44

(2015) (holding that a state can justify a tax levied

against railroads but not their competitors by

identifying a roughly equivalent tax levied against the

competitors). But when petitioner pointed out that

the two taxes were not rough equivalents because the

motor carrier tax revenue was used for highway

improvements, whereas the railroad tax revenue was

used for purposes that did not directly benefit the

railroads that paid the tax, the Sixth Circuit rejected

the argument. It held that the way Tennessee

allocated the tax revenue was irrelevant to the

discrimination analysis. App. 9a.

A. The 4-R Act

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

bankrupt and the industry was near collapse.

Congress determined that state and local taxes were

in part to blame. It found 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-ofway, whereas motor carriers—the railroads’ main

competitors—operate on highways, which are

publicly-funded infrastructure. See W. Air Lines, Inc.

6

v. Bd. of Equalization of S.D., 480 U.S. 123, 131

(1987); H.R. Rep. No. 94-725, at 78 (1975); S. Rep. No.

91-630, at 1 (1969); S. Rep. No. 87-445, at 449-66

(1961).

Congress responded with the 4-R Act. The

legislation was 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).

Congress emphasized that the railroads “‘are easy

prey for State and local tax assessors’ in that they are

‘nonvoting, often nonresident, targets for local

taxation,’ who cannot easily remove themselves from

the locality.” W. Air Lines, 480 U.S. at 131 (quoting S.

Rep. No. 91-630, at 3). “Section 306 of the 4-R Act,

now codified at 49 U.S.C. § 11501, addresses this

concern by prohibiting the States (and their

subdivisions) from enacting certain taxation schemes

that discriminate against railroads.” Dep’t of Revenue

of Or. v. ACF Indus., 510 U.S. 332, 336 (1994). The 4R Act gives federal courts the power to grant

injunctions to enjoin violations of Section 306. See 49

U.S.C. § 11501(c).

Section 306 identifies four types of taxes that

“unreasonably burden and discriminate against

interstate commerce.” 49 U.S.C. § 11501(b). The first

three categories are various types of property taxes.

Id. § 11501(b)(1)-(3). The fourth category—the one at

issue in this case—sweeps broadly to encompass

“another tax that discriminates against a rail carrier.”

Id. § 11501(b)(4). This Court has stated that the

phrase “another tax” means “any other tax,” and has

described subsection (b)(4) as a “catch-all” provision

7

that “encompass[es] any form of tax a State might

impose.” CSX Transp., Inc. v. Ala. Dep’t of Revenue,

562 U.S. 277, 280, 284 n.6, 285 (2011).

B. Tennessee’s Tax Scheme

The tax on railroad fuel. Tennessee imposes a tax

on the purchase or use of tangible personal property

in Tennessee. The tax is imposed at the rate of 7% of

the purchase price. See Tenn. Code Ann. § 67-6-201

(sales tax); id. § 67-6-201-203 (use tax). During the

years at issue—2006 through mid-2014—Tennessee

imposed the 7% sales and use tax on railroads’ diesel

fuel. 1 During each of these years, petitioner paid the

state between $1.3 million and $2.9 million in taxes

for its purchase of diesel fuel in Tennessee. D. Ct. Dkt.

#88-1.

Most of the taxes petitioner paid were

deposited into a short line rehabilitation program to

aid county economic development—a program that

does not directly benefit petitioner. App. 46a (stip.

¶ 38). The remainder of the taxes were deposited into

Tennessee’s general revenue and education funds,

and used for a wide variety of government functions.

Id. (stip. ¶ 39). 2

The tax on motor carrier fuel. “The principal

competitors to rail carriers in the transportation of

property in interstate commerce in the State of

1 Tennessee amended its sales tax effective July 1, 2014. See

Tenn. Code Ann. § 67-3-202(c). The amended tax scheme was

challenged in a separate lawsuit. See BNSF Ry. v. Tenn. Dep’t of

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

2 Specifically, with regard to the 7% sales tax on railroad diesel

fuel, 5.5% goes to the Transportation Equity Trust Fund, the

railroad portion of which funds the short line rehabilitation

program. The remaining 1.5% is deposited in the general fund

and/or used for educational purposes. See App. 46a (stip. ¶ 39).

8

Tennessee are on-highway motor carriers.” App. 41a.

Tennessee exempts motor carriers from paying the

sales or use tax on their purchase or use of diesel fuel

in Tennessee. See Tenn. Code Ann. § 67-6-329(a)(2).

However, Tennessee, like all states, requires motor

carriers to pay a highway fuel motor excise tax.

During the years at issue, this tax was imposed at a

rate of 17 cents per gallon of diesel fuel consumed on

Tennessee roadways. See App. 42a (stip. ¶¶ 17-18).

The revenues from Tennessee’s highway tax are

dedicated to the costs of building and maintaining

state highways, roads, and bridges. See Tenn. Code

Ann. § 4-3-1016(c); App. 43a (stip. ¶ 24).

C. The Decision Below

Petitioner Illinois Central sued Tennessee in the

Middle District of Tennessee under the 4-R Act.

Petitioner argued that Tennessee’s application of its

7% sales-and-use tax to railroad diesel fuel was

discriminatory in violation of 49 U.S.C. § 11501(b)(4),

because motor carriers are exempted from paying the

tax. Tennessee argued in response that the tax was

not discriminatory because motor carriers paid the 17cents-a-gallon motor fuel tax instead. The parties

submitted a joint set of stipulated facts, App. 39a, and

the district court conducted a bench trial.

In August 2013, the district court ruled in

petitioner’s favor. It held that Tennessee’s sales tax

as applied to railroad diesel fuel was facially

discriminatory and placed railroads at a competitive

disadvantage to motor carriers. See Ill. Cent. R.R. v.

Tenn. Dep’t of Revenue, 969 F. Supp. 2d 892, 899-901

(M.D. Tenn 2013). The court found that Tennessee

had failed to justify the discrimination, and

9

permanently enjoined the tax on railroad diesel fuel.

Id. at 901.

While the case was on appeal, but before the Sixth

Circuit ruled, this Court decided CSX II. The Court

confirmed that a state violates 49 U.S.C. § 11501(b)(4)

by imposing a fuel tax on railroads that is not imposed

on competitors—unless the state can justify the

discrimination. 135 S. Ct. at 1143. The Court

explained that “an alternative, roughly equivalent tax

is one possible justification” that can save a facially

discriminatory tax. Id. (citing Gregg Dyeing Co. v.

Query, 286 U.S. 472 (1932)). The Sixth Circuit then

remanded the case to the district court “for further

proceedings in light of [CSX II].” CA6 Dkt. # 61-2. 3

On remand, petitioner introduced expert

testimony that per-gallon excise taxes on motor fuels

are dedicated benefit taxes in the nature of user fees.

D. Ct. Dkt. #89, at ¶ 1. These taxes provide direct,

tangible benefits to the motor carrier industry, as they

are the principal source of funds for constructing,

improving and maintaining highways. Id. ¶¶ 1, 19.

The railroad industry, in contrast, receives minimal

direct benefit from the sales taxes it pays. Id. ¶ 19.

Railroads must pay the construction and maintenance

costs for their own infrastructure—including railroad

tracks, bridges, and the many other elements of a rail

network—themselves. Id. In addition, railroads must

pay taxes on this infrastructure. App. 44a (stip.

¶¶ 27-28).

3 This citation refers to earlier appellate proceedings in this

case: Illinois Central Railroad v. Tennessee Department of

Revenue, No. 13-6348 (6th Cir.).

10

The district court entered judgment in

Tennessee’s favor. The court held that the sales tax

(as applied to railroads) and the motor fuel tax (as

applied to motor carriers) were “roughly equivalent.”

To reach this result, the court made a simple

mathematical comparison of the relative tax rates

from 1941 through 2014, concluding that because the

tax rates over this 73-year span were comparable,

there was no discrimination. The court rejected

petitioner’s argument that discrimination resulted

from the different ways Tennessee allocated the

revenue from the two taxes. App. 29a n.6.

The Sixth Circuit affirmed. Mirroring the district

court’s approach, the court of appeals focused

exclusively on the relative tax rates. The court

acknowledged that railroads paid approximately 30

percent more per gallon of diesel fuel than did motor

carriers during the seven years preceding the lawsuit,

but brushed aside the difference as inconsequential.

App. 9a. The court concluded “that the taxes are

roughly equivalent,” and thus Tennessee did not

discriminate by exempting motor carriers from the

sales tax. Id.

The court rejected petitioner’s argument that

discrimination arose from the different ways

Tennessee allocated the revenue from the two taxes.

The court did not dispute that the revenue from the

tax paid by motor carriers is dedicated to improving

their business infrastructure, whereas the tax paid by

railroads is not. But it declared this difference

irrelevant. App. 9a. It held that, under settled Sixth

Circuit law, “‘how Tennessee uses the proceeds of its

taxation of diesel fuel is irrelevant to the question of

whether the Railroads have been discriminated

11

against within the meaning of the 4-R Act.’” Id.

(quoting BNSF Ry. v. Tenn. Dep’t of Revenue, 800 F.3d

262, 274 (6th Cir. 2015)). The court “agree[d]” with

the Eleventh Circuit’s holding in the remanded CSX

II case, where that court examined the text of the 4-R

Act, and “found that the statute’s plain language

thwarts any call to examine how states allocate their

tax revenue.” App. 8a-10a (citing CSX Transp., Inc. v.

Ala. Dep’t of Revenue, 888 F.3d 1163, 1175-76 (11th

Cir. 2018)). Thus, the court concluded, “[b]ecause the

motor carriers instead paid another, comparable fuel

tax, we conclude that Tennessee did not discriminate

against rail carriers” by exempting motor carriers

from the sales tax on diesel fuel. App. 2a.

The Sixth Circuit denied rehearing. App. 35a.

REASONS FOR GRANTING THE PETITION

The current state of affairs—in which two federal

circuits are directly at odds with a state’s highest

court on a substantial and recurring question of

federal tax law—is untenable. This Court’s review is

necessary to resolve the split, and to ensure that

railroads are afforded the full measure of

antidiscrimination protection that Congress enacted

into law.

I.

Review Is Warranted To Resolve The

Split Over An Important Question Of

Federal Tax Law.

The Iowa Supreme Court holds that a state’s

method of allocating tax revenue is highly relevant to

assessing

discrimination

under

49

U.S.C.

§ 11501(b)(4). The Sixth and Eleventh Circuits, in

contrast, deem it irrelevant as a matter of law.

12

A. The Iowa Supreme Court Holds That

The Way A State Allocates Tax

Revenue Is Highly Relevant To

Analyzing Discrimination.

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

338 N.W.2d 338 (Iowa 1983), the Iowa Supreme Court

held that a fuel tax on railroads was discriminatory

under the 4-R Act because, unlike the arguably

comparable fuel tax paid by motor carriers, the

railroad tax was not earmarked for railroad

infrastructure used by the railroads that paid the tax.

Iowa had imposed a tax on the amount of fuel the

railroads used within the state. Id. at 341. The tax

rate was initially three cents a gallon, and later raised

to eight cents a gallon. Id. at 346. Just like

Tennessee’s tax at issue here, Iowa dedicated the

revenues from its diesel fuel tax to a special fund used

to rehabilitate debilitated railroad lines; it was not

used for the benefit of the “viable railroads” that

actually paid the tax. Id. at 347.

The Iowa Supreme Court compared the railroad

fuel tax to the tax that motor carriers paid for their

use of fuel. The court noted that motor carriers

actually paid a higher tax rate—anywhere from ten to

fifteen and a half cents per gallon more—than did the

railroads. 338 N.W.2d at 346-47. However, the court

explained, the tax scheme nonetheless discriminated

against the railroads because “[t]he various taxes

which [Iowa] requires the trucks to pay go into an

earmarked fund for the construction, maintenance,

supervision, and administration of the highways.” Id.

at 347. In contrast, “the railroads acquire, construct,

maintain, and pay taxes on their own roads.” Id.

Because Iowa’s different ways of allocating the

revenues of the two taxes “give[ ] the trucks a distinct

13

competitive advantage,” the court concluded, “the

railroad tax in question discriminates against the

railroads contrary to section 11503.” Id.; see also

Burlington N. R.R. v. Triplett, 682 F. Supp. 443, 446

(D. Minn. 1988) (following Atchison in enjoining fuel

tax as discriminatory because “[w]hile the fuel tax

paid by trucks is dedicated to the trucks’ roadbeds, the

railroads must pay the fuel tax in addition to paying

for their tracks”). 4

B. The Sixth and Eleventh Circuits Hold

That The Way A State Allocates Tax

Revenue Is Not Relevant To Analyzing

Discrimination.

In conflict with the Iowa Supreme Court’s

approach, the Sixth and Eleventh Circuits hold that

the way a state allocates the tax revenue is irrelevant

for purposes of the 4-R Act’s antidiscrimination

mandate.

In BNSF Railway v. Tennessee Department of

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

Circuit considered a challenge to Tennessee’s diesel

fuel tax scheme (an amended version of the tax

scheme at issue in this case). The railroads argued

that even though railroads and motor carriers paid

the same tax rate, the tax scheme was nonetheless

discriminatory because “the diesel tax funds the

maintenance of Tennessee roads, and railroads do not

use or benefit from Tennessee roads.” Id. at 274. The

Sixth Circuit rejected this argument, holding that

“how Tennessee uses the proceeds of its taxation of

diesel fuel is irrelevant to the question of whether the

4 At the time Atchison was decided, the 4-R Act’s

antidiscrimination provision was codified at 49 U.S.C.

§ 11503(b)(4). It has since been recodified, without substantive

change, at 49 U.S.C. § 11501(b)(4).

14

Railroads have been discriminated against within the

meaning of the 4-R Act.” Id.

The Sixth Circuit reaffirmed BNSF’s holding in

this case. Petitioner argued that “[t]he motor carriers’

fuel taxes fund public highways,” thus “benefiting

trucks,” whereas “the railroads’ taxes go to state funds

that allegedly afford little benefit to large railroads.”

App. 9a. The Sixth Circuit again rejected this

argument. It declared that “this train has already left

the station,” citing its prior decision in BNSF, as well

as the Eleventh Circuit’s latest CSX decision,

discussed below. Id. at 9a-10a. The Sixth Circuit

stated that it would “decline the invitation to revisit

BNSF” and again declared “irrelevant” the way

“Tennessee uses the proceeds of its taxation of diesel

fuel.” Id. (internal quotation marks omitted).

The Eleventh Circuit joins with the Sixth Circuit

in deeming a state’s method of allocating tax revenue

irrelevant under the 4-R Act. In CSX Transportation,

Inc. v. Alabama Department of Revenue, 888 F.3d

1163 (11th Cir. 2018), the railroad contended that

Alabama’s fuel tax scheme discriminated against

railroads vis-à-vis motor carriers, because the taxes

that railroads paid were deposited in the state’s

general fund, whereas the taxes that motor carriers

paid were “used exclusively to fund public highways,

effectively subsidizing the infrastructure on which

motor carriers travel.” Id. at 1175 (internal quotation

marks omitted). The Eleventh Circuit rejected the

argument, reasoning that “[b]ecause none of the four

paragraphs comprising [49 U.S.C.] § 11501(b)

mention revenue, it is evident that Congress did not

intend (assuming it had any collective intent) for us to

consider revenue expenditures in deciding whether a

tax discriminates for purposes of subsection (b)(4).”

15

Id. at 1176. Thus, “we hold that how the State

allocates its tax revenues is irrelevant to whether it

‘[i]mposes [a] tax that discriminates against a rail

carrier.’” Id. (citing 49 U.S.C. § 11501(b)(4)).

II.

Review Is Further Warranted Because

The Decision Below Is Incorrect.

The Sixth Circuit’s holding all but nullifies the

4-R Act’s nondiscrimination mandate. In comparing

two taxes, a state’s allocation of the tax revenues is

highly relevant to determining whether a tax is

discriminatory. Two taxes imposing the identical tax

rate could not be deemed rough equivalents if, for

example, the revenues from one tax were kept by the

government, while the revenues from the other tax

were refunded to the taxpayer. In the former

scenario, the taxpayer bears the full burden of the tax

at the assessed rate, whereas in the latter scenario,

the taxpayer bears no burden other than

administrative costs and the time value of money. By

myopically analyzing questions of tax discrimination

as requiring nothing more than a mathematical

comparison of tax rates, the Sixth Circuit’s approach

empowers states to give motor carriers an unfair

competitive advantage over railroads. As long as the

tax rates (in a court’s view) are similar enough, states

are free to discriminate against railroads by allocating

tax revenues to benefit railroads’ competitors.

In this case, Tennessee’s use of the tax revenues

gives rise to discrimination in that the tax paid by the

motor carriers is used to subsidize their business,

whereas the tax paid by the railroads is not. That is

a textbook example of a discriminatory tax prohibited

by the 4-R Act and directly contravenes the Act’s

purpose—to remedy the competitive disadvantage

between railroads, which must build and maintain

16

their own infrastructure, and the trucking industry,

which operates on publicly funded infrastructure. See

S. Rep. No. 87-445, at 449-66 (1961). In fact, a

Government Accountability Office report specifically

recognized the unfairness arising from this

asymmetry. See U.S. Gov’t Accountability Office,

GAO-07-94, Freight Railroads: Industry Health Has

Improved, but Concerns About Competition and

Capacity Should Be Addressed 62 (2006).

The Sixth Circuit’s approach conflicts with how

this Court has historically approached questions of

tax discrimination. In West Lynn Creamery v. Healy,

512 U.S. 186 (1994), the Court held that a

Massachusetts milk pricing order violated the

Commerce Clause prohibition on discriminatory taxes

by favoring in-state milk producers over out-of-state

producers. In reaching that conclusion, the Court

looked to how Massachusetts allocated the tax

revenues as a critical part of the discrimination

inquiry. The Court noted that “[a]lthough the tax also

applies to milk produced in Massachusetts, its effect

on Massachusetts producers is entirely (indeed more

than) offset by the subsidy provided exclusively to

Massachusetts dairy farmers.” Id. at 194. The Court

emphasized that where a state has enacted an

“integrated regulation”—that is, a scheme that taxes,

and then subsidizes with the tax proceeds—a court

“cannot divorce the [taxes] from the use to which the

[taxes] are put,” but must examine the scheme as a

whole. Id. at 201.

The same logic applies here. Although the Court

in CSX II did not specify how a federal court should

conduct a “rough equivalency” analysis for purposes of

determining whether a tax is discriminatory vis-à-vis

a purportedly comparable tax, it did not need to. That

17

is because the Court, in a long line of cases stretching

back decades, had already developed a common-law

test—the compensatory tax doctrine—for determining

whether taxes are “roughly equivalent” in order to

adjudicate claims of discrimination under the

dormant Commerce Clause. See Gregg Dyeing Co. v.

Query, 286 U.S. 472, 481 (1932).

Under the compensatory tax doctrine, “a facially

discriminatory tax that imposes on interstate

commerce the rough equivalent of an identifiable and

substantially similar tax on intrastate commerce does

not offend the negative Commerce Clause.” Or. Waste

Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 98, 10203 (1994) (internal quotation marks omitted). To

establish rough equivalence, the state must identify

the state tax for which the challenged tax is

attempting to compensate. Id. at 103. The state then

must show that the challenged tax roughly

approximates—but does not exceed—the comparator

tax. Id. And finally, the state must show that “the

events on which the [two] taxes are imposed [are]

substantially equivalent; that is, they must be

sufficiently similar in substance to serve as mutually

exclusive proxies for each other.” Id. (alterations and

internal quotation marks omitted); see also

Comptroller of Treas. of Md. v. Wynne, 135 S. Ct. 1787,

1803 n.8 (2015) (Taxes “are ‘compensatory’ if they are

rough equivalents imposed upon substantially similar

events.”).

In CSX II, the Court specifically invoked this line

of caselaw in holding that 4-R Act discrimination

claims should be evaluated under the “rough

equivalence” standard. The Court stated that “[o]ur

negative Commerce Clause cases”—i.e., the cases

discussed above—“endorse the proposition that an

18

additional tax on third parties may justify an

otherwise discriminatory tax.” 135 S. Ct. at 1143.

And the Court specifically cited its ruling in Gregg

Dyeing—a seminal comparative tax doctrine

precedent—to make its point clear. See id. The Sixth

Circuit erred by brushing aside this Court’s wellsettled test and fashioning its own “rough

equivalence” standard that eschews the Court’s

holistic approach in favor of a simplistic comparison

of tax rates.

III.

The Question Presented Is Exceptionally

Important And This Case Provides The

Ideal Vehicle For Resolving It.

This case raises an exceptionally important and

recurring question of federal tax law over which the

lower courts have split.

This Court has long

emphasized the importance of a nationally uniform

tax law. In Commissioner v. Sunnen, 333 U.S. 591,

599 (1948), the Court explained how different legal

interpretations give rise to “inequalities in the

administration of the revenue laws, discriminatory

distinctions in tax liability, and a fertile basis for

litigious confusion.” For those reasons, the split in the

lower courts cannot be allowed to stand.

Resolution of the question presented is important

to the railroads, which have been denied the statutory

protections against discrimination that Congress

guaranteed them in the 4-R Act. In states within the

Sixth and Eleventh Circuits, railroads are now subject

to discriminatory tax schemes that favor their

primary competitors, the motor carriers, by funneling

the motor carriers’ tax payments to infrastructure

projects that directly benefit the motor carriers’

business. The railroads, in contrast, are left to pay for

their own infrastructure. In this way, the tax scheme

19

puts railroads at a severe competitive disadvantage,

in violation of 49 U.S.C. § 11501(b)(4). Resolution of

the question presented is also important to the states,

as

Alabama

recognized

when

it

recently

acknowledged that resolving this issue is “in the

nation’s best interest.” See Response of Alabama to

Conditional Cross-Petition, CSX Transp., Inc. v. Ala.

Dep’t of Revenue, No. 18-612, at 1.

This case is a perfect vehicle for resolving the split

in the lower courts over whether a state’s way of

allocating tax revenue is relevant to assessing

discrimination under the 4-R Act. Petitioner has

pressed the question presented at all stages of this

case and it was fully briefed by the parties. The Sixth

Circuit squarely addressed the issue, relying on

settled circuit precedent and expressly “agree[ing]”

with the Eleventh Circuit’s approach. App. 8a. The

Sixth Circuit entered a final judgment and there are

no further proceedings to be had in the district court.

Moreover, the district court and the court of

appeals decided this case on a jointly-stipulated set of

relevant facts, and on cross-motions for summary

judgment. See App. 30a, 39a. Consequently, the

record is clean and there are no significant factual

disputes that could cloud the legal issues. Because the

factual record is not just fully developed but largely

undisputed, the legal question is squarely presented

for this Court’s resolution.

20

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

STEPHEN D. GOODWIN

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

165 Madison Avenue

Suite 2000

Memphis, TN 38103

(901) 577-2141

THOMAS H. DUPREE JR.

Counsel of Record

CLAIRE L. CHAPLA

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue NW

Washington, DC 20036

(202) 955-8500

tdupree@gibsondunn.com

JAMES W. MCBRIDE

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

901 K Street, NW

Suite 900

Washington, DC 20001

(202) 508-3467

MISTY SMITH KELLEY

BAKER, DONELSON,

BEARMAN, CALDWELL &

BERKOWITZ, PC

633 Chestnut Street

Suite 1900

Chattanooga, TN 37450

(423) 209-4148

Counsel for Petitioner

January 2, 2019