Amicus Curiae Brief — Illinois Central Railroad Company, Petitioner v. Tennessee Department of Revenue, et al.

No. 18-866

IN THE

Supreme Court of the United States

_______________

ILLINOIS CENTRAL RAILROAD COMPANY,

v.

Petitioner,

TENNESSEE DEPARTMENT OF REVENUE AND

REAGAN FARR, COMMISSIONER OF REVENUE OF THE

STATE OF TENNESSEE,

_______________

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

_______________

BRIEF OF THE TENNESSEE RAILROAD

ASSOCIATION AS AMICUS CURIAE IN SUPPORT

OF PETITIONER

_______________

Walter Hellerstein

Counsel of Record

University of Georgia

School of Law

303 Rusk Hall

Athens, Georgia 30602

(706) 542-5175

wallyh@uga.edu

Eric S. Tresh

Maria M. Todorova

Eversheds Sutherland (US) LLP

999 Peachtree Street, NE

Suite 2300

Atlanta, Georgia 30309-3996

(404) 853-8000

EricTresh@evershedssutherland.com

MariaTodorova@evershedssutherland.com

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

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

STATEMENT OF INTEREST ....................................1

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

SUMMARY OF ARGUMENT.....................................2

ARGUMENT ...............................................................3

I.

IN CSX II, THIS COURT PROVIDED

CONTROLLING GUIDANCE ON THE

MEANING AND APPLICATION OF

THE “ROUGH EQUIVALENCE”

STANDARD IN THE ANALYSIS OF

“DISCRIMINATION” UNDER THE 4-R

ACT. ............................................................................ 3

II.

THIS COURT’S GUIDANCE IN CSX II

REQUIRES THAT THE INQUIRY INTO

“ROUGH EQUIVALENCE” FOCUS ON

THE SUBSTANCE OF THE

EXACTIONS AND NOT THEIR FORM. ........... 7

III. THE SIXTH CIRCUIT COURT’S

FAILURE TO APPLY THE

COMPENSATORY TAX DOCTRINE IN

ITS “ROUGH EQUIVALENCE”

INQUIRY CONSTITUTES PLAIN

ERROR REQUIRING THIS COURT’S

REVIEW. ................................................................. 10

ii

IV. EVEN TAKEN ON ITS OWN TERMS,

AND WITHOUT REGARD TO

NEGATIVE COMMERCE CLAUSE

JURISPRUDENCE OR THE

COMPENSATORY TAX DOCTRINE,

THE SIXTH CIRCUIT COURT’S

“ROUGH EQUIVALENCE” ANALYSIS

IS INDEFENSIBLE AND WARRANTS

THIS COURT’ REVIEW. ..................................... 11

A.

The Sixth Circuit’s Limited Focus on

the “Dollar Equivalence” in

Determining Whether Diesel Fuel

Taxes Imposed on Railroads Are

“Roughly Equivalent” to Diesel Fuel

Taxes Imposed on Motor Carriers

Without Regard to the Use of the

Revenues Elevates Form Over

Substance in Violation of

Fundamental Principles of Sound

Tax Analysis. .............................................12

B.

Controlling Case Law Requires That

the Inquiry into Taxes on Railroads

and Motor Carriers to Determine

the Existence of Discrimination

Consider How the Tax Revenues Are

Spent. .........................................................14

CONCLUSION ..........................................................19

iii

TABLE OF AUTHORITIES

CASES

Alabama Department of Revenue v.

CSX Transportation, Inc.,

135 S. Ct. 1136 (2015)................ 2, 3, 4, 8, 9, 11, 13

Associated Industries of Missouri v. Lohman,

511 U.S. 641 (1994)................................................9

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

338 N.W.2d 338 (Ia. 1983) ...................................18

Burlington Northern Railroad Co. v. Triplett,

682 F. Supp. 443 (D. Minn. 1988) .......................18

Commissioner of Internal Revenue v. Hansen,

360 U.S. 446 (1959)................................................8

Commissioner of Internal Revenue v.

Southwest Exploration Co.,

350 U.S. 308 (1956)................................................8

Complete Auto Transit, Inc. v. Brady,

430 U.S. 274 (1977)................................................7

Fulton Corp. v. Faulkner,

516 U.S. 325 (1996)......................................8, 9, 18

Gregg Dyeing Co. v. Query,

164 S.E. 588 (S.C. 1931) ........................................5

Gregg Dyeing Co. v. Query,

286 U.S. 472 (1932).................................... 4, 5, 6, 7

iv

Mobil Oil Corp. v. Commissioner of Taxes,

445 U.S. 425 (1980)................................................7

Oregon Waste Systems, Inc. v.

Department of Environmental Quality,

511 U.S. 93 (1994)..................................................9

PPL Corp. v. Commissioner of Internal Revenue,

133 S. Ct. 1897 (2013)............................................7

Railway Express Agency, Inc. v. Virginia,

358 U.S. 434 (1959)................................................7

South Central Bell Telelphone Co. v. Alabama,

526 U.S. 160 (1999)................................................9

South Dakota v. Wayfair, Inc.,

138 S. Ct. 2080 (2018)............................................7

Trinova Corp. v. Michigan Department of Treasury,

498 U.S. 358 (1991)................................................7

West Lynn Creamery, Inc. v. Healy,

512 U.S. 186 (1994)...................... 14, 15, 16, 17, 18

OTHER AUTHORITIES

1 J. Hellerstein, W. Hellerstein & J. Swain,

State Taxation (3d ed. 2018 rev.) ..........................8

Walter Hellerstein, Complementary Taxes as a

Defense to Unconstitutional State Tax

Discrimination, 39 Tax Lawyer 405 (1986) ..........4

1

STATEMENT OF INTEREST

The

Tennessee

Railroad

Association

(“TNRRA”) respectfully submits this brief as Amicus

Curiae in support of Petitioner Illinois Central

Railroad Company, urging this Court to grant

Petitioner’s petition for certiorari seeking review of

the decision of the United States Court of Appeals for

the Sixth Circuit. 1 That court improperly held that

Tennessee’s sales tax imposed on diesel fuel

purchased by railroads was “roughly equivalent” to

the motor fuel tax imposed on diesel fuel purchased

by motor carriers and therefore did not discriminate

against railroads in violation of the 4-R Act, even

though almost 100 percent of the revenues from the

motor fuel tax were dedicated to uses specifically

benefiting motor carriers while sales tax revenues

were used for general governmental purposes or other

purposes not specifically benefiting major railroads.

Amicus Curiae has authority to file this brief

pursuant to Rule 37.3. 2

TNRRA is a non-profit trade association whose

members include Class I railroads with a significant

presence in the State of Tennessee.

TNRRA’s

members operate 2,500 miles of track and employ

more than 3,618 employees. TNRRA encourages

railroad safety and advocates for its members in

matters of common interest, such as the issues

involved in this litigation. This case raises concerns

Amicus Curiae states that no counsel

for a party authored this brief in whole or in part, and no person

or entity other than Amicus Curiae, its members, or its counsel

made a monetary contribution to the preparation of submission

of the brief.

1 *Pursuant to Rule 37.6,

2 All parties were timely notified and have consented to the filing

of this brief.

2

about the validity and effectiveness of federal laws

enacted by Congress to protect interstate commerce

from discriminatory and unduly burdensome

taxation. TNRRA has a significant interest in the

outcome of this case in order to ensure that the 4-R

Act is rigorously enforced and that its members are

not subject to discriminatory state taxation.

INTRODUCTION

This case raises an important issue bearing on

the ultimate question of whether Tennessee’s sales

tax on diesel fuel discriminates against railroads

under the 4-R Act. The issue, as framed by this Court

in a similar case, is “whether [Tennessee’s] fuel-excise

tax is the rough equivalent of [Tennessee’s] sales tax

as applied to diesel fuel, and therefore justifies the

motor carrier sales-tax exemption.” Alabama Dep’t of

Revenue v. CSX Transp., Inc., 135 S. Ct. 1136, 1144

(2015) (CSX II).

SUMMARY OF ARGUMENT

The fundamental question is what “rough

equivalence” means for purposes of this inquiry. The

Court of Appeals for the Sixth Circuit held that

“rough equivalence” means “dollar equivalence,” and

since Tennessee’s sales tax on the railroads’ purchase

of diesel fuel was roughly the same in dollar terms as

Tennessee’s motor fuel tax on the motor carriers’

purchase of diesel fuel, the taxes satisfied the “rough

equivalence” requirement. In so holding the court

embraced the view that how the state “‘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.’” Pet. App. 29a (quoting BNSF Ry. Co. v.

3

Tennessee Dep’t of Revenue, 800 F.3d 262, 274 (6th

Cir. 2015)). As the ensuing discussion demonstrates,

the Sixth Circuit’s disposition of the “rough

equivalence” issue ignores this Court’s guidance as to

the proper approach to the “rough equivalence”

inquiry in its opinion in CSX II; it flies in the face of

the purposes of the 4-R Act; and it defies common

sense. Indeed, absent review the Sixth Circuit’s

approach would ignore the cardinal rule of

interpretation of tax statutes, namely, that substance

rather than form is the touchstone of analysis.

ARGUMENT

I.

IN CSX II, THIS COURT PROVIDED

CONTROLLING GUIDANCE ON THE

MEANING AND APPLICATION OF THE

“ROUGH EQUIVALENCE” STANDARD IN

THE ANALYSIS OF “DISCRIMINATION”

UNDER THE 4-R ACT.

In CSX II, a case whose facts closely resemble

those of the instant case, this Court provided

guidance on how the courts should undertake the

“rough equivalence” inquiry.

First, the Court

explicitly recognized the difficulty of the task

confronting courts in undertaking this inquiry. Thus,

the Court declared that it was “inclined to agree” with

the suggestion “that federal courts are ill qualified to

explore the vagaries of state tax law” (CSX II, 135 S.

Ct. at 1144) in undertaking the “rough equivalent”

inquiry, but it determined that there was no escape

from this burden because “Congress assigned this

task to the courts by drafting an antidiscrimination

command in such sweeping terms.” Id. Accordingly,

the Court continued, if the task of determining “when

there are roughly comparable taxes . . . is ‘Sisyphean,’

4

as the Eleventh Circuit called it, it is a Sisyphean task

that the statute imposes.” Id. (internal citation

omitted).

Nevertheless – and what is dispositive for the

purposes of this petition – in instructing courts how

to discharge the task of determining whether two

taxes are “roughly comparable,” this Court pointed

specifically to its “negative Commerce Clause cases”

that “endorse the proposition that an additional tax

on third parties may justify an otherwise

discriminatory tax.” Id. at 1143. Moreover, in so

doing, the Court made explicit reference to Gregg

Dyeing Co. v. Query, 286 U.S. 472, 479-80 (1932), as

illustrating its view that “an alternative, roughly

equivalent tax . . . renders a tax disparity nondiscriminatory.” CSX II, 135 S. Ct. at 1143. This is

understandable, as Gregg Dyeing is one of a long line

of cases reflecting the application of the Court’s

“constitutional doctrine that protects an apparently

discriminatory tax from attack when the state can

identify a ‘complementary’ exaction that cures the

apparent discrimination.”

Walter Hellerstein,

Complementary

Taxes

as

a

Defense

to

Unconstitutional State Tax Discrimination, 39 Tax

Law. 405, 406 (1986) (cited in Fulton Corp. v.

Faulkner, 516 U.S. 325, 341 n.7 (1996)). The Court’s

complementary or compensatory doctrine (as

reflected in Gregg Dyeing) therefore provides an

analytical template for approaching the “rough

equivalence” issue raised in this case.

Gregg Dyeing involved a challenge to a South

Carolina license tax of six cents per gallon upon

persons importing gasoline and other petroleum

products into South Carolina for use or consumption

in the state. The taxpayer, who used gasoline

5

purchased outside the state for operating its South

Carolina bleachery, contended that the statute

discriminated against interstate commerce by

singling out for taxation petroleum products imported

from sister states. The South Carolina Supreme

Court had disposed of this objection on the ground

that the allegedly discriminatory levy was

“complementary” to other South Carolina statutes

imposing license taxes of six cents per gallon on

dealers in petroleum products sold in the state. Gregg

Dyeing Co. v. Query, 164 S.E. 588, 590 (S.C. 1931)

(quoted in Gregg Dyeing, 286 U.S. at 476). Taking the

provisions collectively, the state court held that the

taxes in substance imposed the same six cents per

gallon tax upon all consumers of petroleum products

in the state, even though the legal incidence of the

levies fell variously on “dealers” selling such products

in the state and on “importers” using or consuming

such products in the state. Gregg Dyeing, 286 U.S. at

476-77. Moreover, payment of the license tax imposed

on dealers guaranteed immunity from the license tax

imposed on importers so that only one tax was

imposed on the sale or use of any particular gallon of

petroleum in the state.

In this Court, the taxpayer launched a frontal

assault on the complementary or compensatory tax

theory, arguing that “to stand the test of

constitutionality . . . the act must be constitutional

‘within its four corners,’ that is, considered by itself.”

Id. at 479-80. The Supreme Court rebuffed the

attack:

The question of constitutional validity is

not to be determined by artificial

standards. What is required is that state

action, whether through one agency or

6

another, or through one enactment or

more than one, shall be consistent with

the

restrictions

of

the

Federal

Constitution. There is no demand in that

Constitution that the State shall put its

requirements in any one statute. It may

distribute them as it sees fit, if the result,

taken in its totality, is within the State's

constitutional power.

Id. at 480 (emphasis supplied).

Reading the statutes together, the Court found

nothing objectionable in South Carolina’s taxing

scheme. It saw “no reason . . . to challenge [the state

court’s] view” that the “burden” of the tax on sales of

petroleum products within the state “actually rests

upon the consumer, although not placed upon the

consumer directly.” Id. Accordingly, the taxpayer

was treated no worse than other in-state consumers

of petroleum products who purchase such products

from dealers and “are in effect required to pay

through the tax on the dealers from whom such

consumers buy.” Id. Nor was the taxpayer treated

any worse than manufacturers who produced gasoline

in the state and consumed it in their own enterprises

because the state court had construed the statute as

imposing a tax upon the gasoline that such a company

uses as well as that which it sells. In short, the

taxpayer had “failed to show that, whatever

distinction there existed in form, there was any

substantial discrimination in fact.”

Id. at 482

(emphasis supplied).

7

II.

THIS COURT’S GUIDANCE IN CSX II

REQUIRES THAT THE INQUIRY INTO

“ROUGH EQUIVALENCE” FOCUS ON THE

SUBSTANCE OF THE EXACTIONS AND NOT

THEIR FORM.

The clear message from this Court’s opinion in

CSX II, and the Commerce Clause authority it

invokes, is that the inquiry into “rough equivalence”

should be determined by whether there is any

“discrimination in fact,” and should “not . . . be

determined by artificial standards.” Gregg Dyeing,

286 U.S. at 480. In this respect, the Court is

essentially reaffirming the fundamental principle of

tax adjudication that it has long embraced, in cases

involving both constitutional and statutory issues,

that the substance rather than form of the taxes at

issue governs the analysis. See, e.g., South Dakota v.

Wayfair, Inc., 138 S. Ct. 2080, 2094 (2018) (declaring

that “The Court's Commerce Clause jurisprudence

has ‘eschewed formalism for a sensitive, case-by-case

analysis of purposes and effects’” (quoting West Lynn

Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994));

PPL Corp. v. Comm’r of Internal Revenue, 133 S. Ct.

1897, 1905 (2013) (adverting to “the black-letter

principle that ‘tax law deals in economic realities, not

legal abstractions’”); Ry. Express Agency, Inc. v.

Virginia, 358 U.S. 434, 441 (1959) (declaring that

Commerce Clause is contemptuous of “magic words or

labels”); Trinova Corp. v. Michigan Dep’t of Treasury,

498 U.S. 358, 372-73 (1991) (declaring that Commerce

Clause analysis rejects “formalism”); Mobil Oil Corp.

v. Comm’r of Taxes, 445 U.S. 425, 443 (1980)

(observing that Commerce Clause analysis looks to

“the practical effect of a challenged tax”); Complete

Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977)

(noting that Commerce Clause jurisprudence is

8

grounded in “economic realities”); Comm’r of Internal

Revenue v. Hansen, 360 U.S. 446, 461 (1959) (noting

that “the incidence of taxation depends upon the

substance, not the form, of the transaction”); Comm’r

of Internal Revenue v. Sw. Expl. Co., 350 U.S. 308,

315 (1956) (noting that “the tax law deals in economic

realities, not legal abstractions”).

There is no litmus test for determining

whether, as a matter of substance and not form, two

taxes are “roughly equivalent.” Nevertheless, as

noted above, the Court recognized in CSX II that

“[o]ur negative Commerce Clause cases endorse the

proposition that an additional tax on third parties

may justify an otherwise discriminatory tax.” CSX II,

135 S. Ct. at 1143. Moreover, in citing Gregg Dyeing

in support of that proposition, the Court was clearly

signaling that Gregg Dyeing, and the “compensatory”

or “complementary” tax doctrine (Fulton Corp. v.

Faulkner, 516 U.S. 325, 331 n.2 (1996)) it applied,

embodied an appropriate analytical framework for

adjudicating the “rough equivalence” issue.

Although the compensatory tax doctrine has

been reflected in the U.S. Supreme Court’s

constitutional jurisprudence for the past 150 years,

see 1 J. Hellerstein, W. Hellerstein & J. Swain, State

Taxation ¶ 4.14[3][c] (3d ed. 2018 rev.) (tracing

development of doctrine), the Court’s contemporary

constitutional jurisprudence has “distilled three

conditions necessary for a valid compensatory tax.”

Fulton, 516 U.S. at 332.

•

First, the state must identify the tax

burden

for

which

the

facially

discriminatory

tax

allegedly

compensates.

9

•

•

Second, the facially discriminatory tax

“must be shown roughly to approximate

– but not to exceed” the amount of the

tax for which the state is attempting to

compensate.

Third, the taxes “must be ‘substantially

equivalent’; that is, they must be

sufficiently similar in substance to serve

as mutually exclusive ‘prox[ies]’ for each

other.”

Id. at 332-33 (citations omitted). See also S. Cent.

Bell Tel. Co. v. Alabama, 526 U.S. 160 (1999);

Associated Indus. of Mo. v. Lohman, 511 U.S. 641

(1994); Oregon Waste Sys., Inc. v. Dep’t of Envtl.

Quality, 511 U.S. 93 (1994).

There is nothing talismanic about the Court’s

compensatory doctrine. Indeed, the Court itself has

recognized that the compensatory tax doctrine was

not “a doctrine unto itself, [but] merely a specific way

of justifying a facially discriminatory tax as achieving

a legitimate local purpose that cannot be achieved

through nondiscriminatory means.” Oregon Waste,

511 U.S. at 102. Moreover, it is not the only way in

which a determination of “rough equivalence” can be

made when a tax that appears to discriminate is offset

by another levy that, as a matter of substance, does

not discriminate. But it is indisputably an instructive

framework for determining “rough equivalence,” and

it is a framework that this Court has endorsed, in

general, and in a case that, in relevant respects, is

virtually indistinguishable from the instant case, in

particular. Accordingly, failure of a tax to satisfy the

strictures of the compensatory tax doctrine reveals, at

a minimum, that there is a prima facie case that the

10

tax is not the “rough equivalent” of the apparently

discriminatory tax for which it allegedly compensates.

As the ensuing discussion demonstrates, it was

plain error of the Court of the Appeals for the Sixth

Circuit summarily to refuse to apply that doctrine in

undertaking its “rough equivalence” analysis.

Moreover, wholly apart from the application of the

Court’s compensatory tax doctrine to the taxes at

issue, the Sixth Circuit’s analysis cannot withstand

scrutiny even under a generic “rough equivalence”

standard that focuses simply on the taxes’ substance

rather than their form.

III. THE SIXTH CIRCUIT COURT’S FAILURE TO

APPLY THE COMPENSATORY TAX

DOCTRINE IN ITS “ROUGH EQUIVALENCE”

INQUIRY CONSTITUTES PLAIN ERROR

REQUIRING THIS COURT’S REVIEW.

In light of the U.S. Supreme Court’s reference

to the compensatory tax doctrine as guidance for the

“rough equivalence” inquiry on remand from CSX II

and citation to Gregg Dyeing, a leading compensatory

tax decision embodying the principle that “an

alternative, roughly equivalent tax . . . renders a tax

disparity nondiscriminatory,” (CSX II, 135 S. Ct. at

1143), the Sixth Circuit’s wholesale rejection of the

doctrine in its analysis of the “rough equivalence”

question is inexplicable. The Sixth Circuit effort to

justify its position on the grounds that the Court in

CSX II “never mention[ed] that doctrine” (Pet. App.

7a) and that the Court’ reference to Gregg Dyeing

does not “require[] us to apply the compensatory tax

doctrine” (id.) is unpersuasive at best.

11

What the Sixth Circuit ignores is that it was

the this Court itself – fully aware of the fact that the

discrimination issue before it involved a comparison

between interstate railroads and interstate motor

carriers – that recognized the relevance of “[o]ur

negative Commerce Clause cases” and to a leading

compensatory tax decision (Gregg Dyeing) in the

inquiry into “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.” CSX II, 135 S. Ct. at 1143-44.

In short, the Sixth Circuit’s summary refusal to

consider this Court’s compensatory tax doctrine in

undertaking its “rough equivalence” analysis

disregards this Court’s opinion in CSX II, and it

plainly warrants this Court’s review.

IV. Even Taken on Its Own Terms, and Without

Regard to Negative Commerce Clause

Jurisprudence or the Compensatory Tax

Doctrine, the Sixth Circuit Court’s “Rough

Equivalence” Analysis is indefensible and

warrants this court’ review.

The Sixth Circuit’s entire analysis of the

“rough equivalence” issue is contained in a single

paragraph:

[T]axes are roughly equivalent if they

impose similar rates. In comparing the

taxes, Illinois Central’s expert asks us to

focus on the period between 2007 and

June 2014. But even looking only at that

seven-year stretch, the tax rates were

roughly equivalent. According to the

railroad’s own expert, between 2007 and

June 2014, the railroads’ and motor

12

carriers’ tax rates differed by between

less-than-half-of-one

cent

and

approximately five cents per gallon. The

railroads paid a higher rate in 2008 and

again from 2011 through June 2014, but

motor carriers paid more in every other

year. The excess tax burden for railroads

was, at most, an extra 5.2 cents per

gallon; motor carriers paid up to 4.2 extra

cents per gallon . . . . We [] conclude that

the taxes are roughly equivalent.

Pet. App. 8a-9a (citations omitted).

The Sixth

Circuit’s narrow focus on the “dollar equivalence”

between the diesel fuel taxes imposed on rail carriers

and motor carriers as the exclusive factor for

determining “rough equivalence” for purposes of the

4-R Act’s bar against imposing “another tax that

discriminates against a rail carrier” cannot withstand

analysis.

A.

The Sixth Circuit’s Limited Focus on the

“Dollar Equivalence” in Determining

Whether Diesel Fuel Taxes Imposed on

Railroads Are “Roughly Equivalent” to

Diesel Fuel Taxes Imposed on Motor

Carriers Without Regard to the Use of the

Revenues Elevates Form Over Substance

in Violation of Fundamental Principles of

Sound Tax Analysis.

As we have already observed (see supra pp. 710), this Court has consistently embraced the

fundamental principle that the substance rather than

form of the tax under consideration controls the

analysis of both statutory and constitutional issues.

Accordingly, in approaching the question of whether

the diesel fuel taxes imposed on railroads are “roughly

13

equivalent” to the diesel fuel taxes imposed on motor

carriers within the meaning of the 4-R Act’s bar

against “another tax that discriminates against a rail

carrier,” the analysis should focus on “economic

realities,” look “to the practical effect of a challenged

tax,” and reflect “the substance, not the form” of the

taxes under consideration. See pp. 8-10 supra (citing

cases in which the quoted language appears).

Under these criteria, one cannot maintain that

diesel fuel taxes imposed on railroads are “roughly

equivalent” to the diesel fuel taxes imposed on motor

carriers. The “economic reality” is that railroads pay

a tax whose revenues are used for economic

development and general governmental purposes in

local communities whereas motor carriers pay a tax

whose revenues are dedicated to uses that are of

particular benefit to the motor carriers.

The

“practical effect of the challenged tax” is that the

motor carriers are effectively getting the tax back in

the form of highway infrastructure.

And the

“substance” of the “tax” on motor carriers is a user

charge for the use of state-provided transportation

facilities. The substance and effect of the taxes should

not be confused with the “dollar equivalence” of the

two taxes, which simply reflects their “form.” 3 In

short, there can be no “rough equivalence” between

two taxes when the revenues from one of the taxes are

effectively rebated to the taxpayers but the revenues

from the other tax are not.

Indeed, if “dollar equivalence” alone were the appropriate

criterion for determining “rough equivalence,” one must wonder

how this Court could have been “inclined to agree” with the

Eleventh Circuit’s observation in CSX II that the “task” that

“Congress assigned . . . to the courts by drafting an

antidiscrimination command in such sweeping terms” will often

be “Sisyphean.” CSX II, 135 S. Ct. at 1144.

3

14

B.

Controlling Case Law Requires That the

Inquiry into Taxes on Railroads and Motor

Carriers to Determine the Existence of

Discrimination Consider How the Tax

Revenues Are Spent.

As noted at the outset of this brief (see pp. 2-3

supra), the Sixth Circuit narrow approach to the

“rough equivalence” analysis, which is confined to an

inquiry into the “dollar equivalence” of taxes on

railroads and motor carriers, is rooted in that court’s

statement in a prior opinion that how a state ‘“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.’” Pet. App. 29a (quoting BNSF Ry. Co. v.

Tennessee Dep’t of Revenue, 800 F.3d 262, 274 (6th

Cir. 2015). The Sixth Circuit cited no authority for

the quoted proposition. That is hardly surprising,

since the proposition cannot be reconciled with

controlling precedent.

In West Lynn Creamery, Inc. v. Healy, 512 U.S.

186 (1994), this Court considered a Massachusetts

milk “pricing order” that, in substance, placed a tax

on wholesale distributors for every local sale of milk,

whether the milk was produced inside or outside the

state. In addition, the order stipulated that all

proceeds of the tax would go into a segregated fund

that the state periodically would disperse to in-state

milk producers (that is, local dairy farmers). 4 The

question in the case was whether the tax

4 Under limited circumstances, portions of the fund would not be

paid to producers; such undistributed funds would simply be

returned to milk dealers, thus effectively reducing their total tax

burden. West Lynn Creamery, 412 U.S. at 191 n.8.

15

discriminated against out-of-state interests in favor of

in-state interests in violation of the Commerce

Clause.

Under this Sixth Circuit’s approach to tax

discrimination, the tax in that case would be

nondiscriminatory, because wholesale sales of milk

were subject to the same tax and how the state “uses

the proceeds of its taxation of [milk] is irrelevant to

the question of . . . discriminat[ion].” Pet. App. 9a. In

short, under the “dollar equivalence” approach to tax

discrimination that lies at the heart of the Sixth

Circuit’s decision, in reliance on its own declaration in

BNSF, the Massachusetts milk tax regime passes the

nondiscrimination test with flying colors.

This

Court’s decision in West Lynn Creamery

demonstrates why a tax discrimination analysis

confined to a “dollar equivalence” inquiry cannot

survive scrutiny.

In West Lynn Creamery, the Court held that

the Massachusetts tax regime was discriminatory. In

response to the state’s contention that the pricing

order was a “nondiscriminatory tax” and that the

state “is free to use the proceeds of the tax as it

chooses” (West Lynn Creamery, 512 U.S. at 198), the

Court flatly rejected the state’s effort artificially to

separate the taxing measure from the spending

measure. The state’s argument, the Court declared,

would require us to analyze separately

two parts of an integrated regulation, but

we cannot divorce the premium payments

from the use to which the payments are

put. It is the entire program–not just the

contributions to the fund or the

distributions from that fund–that . . .

16

discriminates in favor of local producers.

The choice of constitutional means–

nondiscriminatory tax and local subsidy–

cannot guarantee the constitutionality of

the program as a whole.

Id. at 201 (emphasis supplied). The Court noted that

its Commerce Clause jurisprudence, which it would

subsequently invoke in CSX II, was “not . . .

controlled by the form” (id.) of the state legislation;

“eschewed formalism for a sensitive, case-by-case

analysis of purposes and effects,” (id.); and “‘forbids

discrimination, whether forthright or ingenious.’” Id.

(citation omitted). Guided by the principle “‘whether

the statute under attack, whatever its name may be,

will in its practical operation work discrimination,’”

id. (citation omitted), the Court concluded that the

nondiscriminatory tax, when considered in

conjunction with the “use to which the payments are

put,” was unconstitutionally discriminatory.

Precisely the same analysis demonstrates that

Tennessee’s motor fuel tax regime discriminates

against railroads, that the Sixth Circuit’s decision to

the contrary cannot withstand scrutiny, and that it

compels this Court’s review.

•

Just as this Court in West Lynn Creamery Court

rejected the state’s contention that the pricing

order was a “nondiscriminatory tax” and that the

state “is free to use the proceeds of the tax as it

chooses,” one must reject the Sixth Circuit’s

position that the sales tax on diesel fuel purchased

by railroads and the motor fuel tax on diesel fuel

purchased by motor carriers constitute a

“nondiscriminatory tax” and repudiate the court’s

unsubstantiated declaration that how a state

“uses the proceeds of its taxation of diesel fuel is

17

irrelevant to the question of whether the Railroads

have been discriminated against.”

•

Just as this Court in West Lynn Creamery Court

rejected the state’s effort artificially to separate

the taxing measure from the spending measure in

determining whether the Massachusetts tax

regime was discriminatory, so one must reject the

Sixth Circuit’s the position that artificially

separates the taxes on railroads and motor

carriers from the spending of the tax revenues,

with railroad fuel tax revenues used for the benefit

of the general public and motor fuel tax revenues

used for the benefit of the motor carriers.

•

Just as this Court in West Lynn Creamery

declared that the state’s argument

would require us to analyze separately

two parts of an integrated regulation, but

we cannot divorce the premium payments

from the use to which the payments are

put. It is the entire program–not just the

contributions to the fund or the

distributions from that fund–that . . .

discriminates in favor of local producers.

The choice of constitutional means–

nondiscriminatory tax and local subsidy–

cannot guarantee the constitutionality of

the program as a whole (id. at 201),

so one must conclude that Sixth Circuit’s

approach would require us to analyze separately

two parts of an integrated regulation, but we

cannot divorce the motor carrier tax payments

from the use to which the payments are put. It is

the entire taxing and spending regime – not just

the taxes or the spending – that . . . discriminates

18

in favor of motor carriers. The choice of legislative

measures – nondiscriminatory tax and motor

carrier subsidy – cannot guarantee the

nondiscriminatory character of the program as a

whole.

•

Just as this Court’s analysis in West Lynn

Creamery Court’s of tax discrimination was “not .

. . controlled by the form” of the state legislation,

“eschewed formalism for a sensitive, case-by-case

analysis of purposes and effects,” and “‘forbids

discrimination, whether forthright or ingenious,’”

so this Court’s analysis should reflect the same

approach to tax discrimination in contrast to the

narrow and formalistic approach reflected in the

Sixth Circuit’s “dollar equivalence” standard.

•

Finally, just as this Court in West Lynn Creamery

Court was guided by the principle “‘whether the

statute under attack . . . will in its practical

operation work discrimination’” in concluding that

the nondiscriminatory tax considered in

conjunction with the “use to which the payments

are put” was unconstitutionally discriminatory, so

this Court should be guided by the principle

“‘whether the statute under attack . . . will in

practical operation work discrimination’” in

concluding that the nondiscriminatory taxes on

railroads and motor carriers considered in

conjunction with the “use to which the payments

are put” discriminates against railroads in

violation of the 4-R Act.

In short, West Lynn Creamery makes it clear

that in determining whether a tax is discriminatory

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

to which the payments are put.” 521 U.S. at 201. This

Court has reaffirmed this principle in evaluating the

19

question of discrimination under the compensatory

tax doctrine, emphasizing the distinction between

“general form[s] of taxation” and “revenues . . .

earmarked for particular purposes.” Fulton, 516 U.S.

at 338. Indeed, in inquiring into alleged tax

discrimination against railroads in favor of motor

carriers under the 4-R Act, courts have inquired into

“the use to which the [tax] payments are put” in

addressing the discrimination question.

See

Atchison, Topeka and Santa Fe Ry. Co. v. Bair, 338

N.W.2d 338, 347 (Ia. 1983) (“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. 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 . . . . This gives the trucks a distinct

competitive advantage.” (internal citation omitted));

see also Burlington Northern R.R. Co. v. Triplett, 682

F. Supp. 443, 446 (D. Minn. 1988) (“While 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. As the Iowa Supreme Court

stated, this difference ‘gives the trucks a distinct

competitive advantage.’”)

The conclusion is therefore inescapable that

the inquiry into taxes on railroads and motor carriers

to determine the existence of discrimination must

take account of how the tax revenues are spent.

CONCLUSION

For the foregoing reasons, this Court should

grant Petitioner’s petition for certiorari seeking

20

review of the decision of the Court of Appeals for the

Sixth Circuit.

Respectfully submitted,

Walter Hellerstein

Counsel of Record

University of Georgia School of Law

303 Rusk Hall

Athens, Georgia 30602

(706) 542-5175

wallyh@uga.edu

Eric S. Tresh

Maria M. Todorova

EVERSHEDS SUTHERLAND (US) LLP

999 Peachtree Street, NE, Suite 2300

Atlanta, Georgia 30309-3996

(404) 853-8000

EricTresh@eversheds-sutherland.com

MariaTodorova@eversheds-sutherland.com

February 6, 2019