Appendix — Bair v. Atchison
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IN THE a
Supreme Court of the United States
October Term, 1983
GERALD D. BAIR, DIRECTOR OF REVENUE OF THE IOWA
DEPARTMENT OF REVENUE; IOWA DEPARTMENT OF REV-
ENUE; IOWA RAILWAY FINANCE AUTHORITY; MAURICE
E. BARINGER, TREASURER OF IOWA AND CUSTODIAN OF
THE SPECIAL RAILROAD FACILITY FUND; RAYMOND L. KAS-
SEL, DIRECTOR OF TRANSPORTATION OF THE STATE DE-
PARTMENT OF TRANSPORTATION; STATE TRANSPORTATION
COMMISSION OF THE STATE DEPARTMENT OF TRANSPOR-
TATION; and STATE DEPARTMENT OF TRANSPORTATION,
Petitioners,
VS.
THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COM-
PANY; BURLINGTON NORTHERN RAILROAD COMPANY;
CHICAGO AND NORTH WESTERN TRANSPORTATION COM-
PANY; ILLINOIS CENTRAL GULF RAILROAD COMPANY; NOR-
FOLK AND WESTERN RAILROAD COMPANY; RICHARD B.
OGILVIE, TRUSTEE OF THE PROPERTY OF CHICAGO, MiIL-
WAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY,
DEBTOR; and UNION PACIFIC RAILROAD COMPANY,
Respondents,
IOWA RAIL SHIPPERS ASSOCIATION,
Intervenor-Respondent.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE
SUPREME COURT OF IOWA
Ly
a
Thomas A. Miller, Att’y Gen. Donald A. Wine
Brent R. Appel Stephen W. Roberts
Harry M. Griger David W. Dunn
Lester A. Pa Davis, Hockenberg, Wine,
lowa Department of Justice Brown & Koehn
Second Floor Hoover Building 2300 Financial Center
Des Moines, lowa 50319 Des Moines, lowa 50309
Telephone: (515) 281-5164 Telephone: (515) 243-2300
Attorneys for Petitioners
COCKLE PRINTING ©O., 2311 Douglas St., Omaha 68102
ae
bo
~]
.
APPENDIX
TABLE OF CONTENTS
Pages
The Atchison, Topeka and Santa Fe Railway
Company v. Bair, 338 N.W.2d 338 (lowa
Order Denying Rehearing in The Atchison,
Topeka and Santa Fe Railway Company v.
Bair, (lowa, October 13, 1983) ene App. 28
The Atchison, Topeka and Santa Fe Railway
Company v. Bair, No. CE16-09145 (lowa
District Court for Polk County, September
ee ne (Me
Section 306 of the Railroad Revitalization and
Regulatory Reform Act of 1976, Pub. L. 94
210, 90 Stat. 54 (4-R Act). App. 111
Commerce Clause, U.S. Const., art. I, § 8,
| ia ne _.wApp. 114
Supremacy Clause, U. S. Const., art. VI,
ee FASE ae
Iowa Code Chapter 324A (1983)... App. 116
Iowa Code Chapter 307B (1983) 0000 App. 121
App. 1
APPENDIX
264
69397
IN THE SUPREME COURT OF IOWA
THE ATCHISON, TOPEKA AND SANTA FE RAIL-
WAY COMPANY; BURLINGTON NORTHERN RAIL-
ROAD COMPANY ; CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY; ILLINOIS CENTRAL
GULF RAILROAD COMPANY; NORFOLK AND
WESTERN RAILWAY COMPANY; RICHARD B.
OGILVIE, TRUSTEE OF THE PROPERTY OF CHI-
CAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAIL-
ROAD COMPANY, DEBTOR; AND UNION PACIFIC
RAILROAD COMPANY,
Appellants,
Vs.
GERALD D. BAIR, DIRECTOR OF REVENUE OF THE
IOWA DEPARTMENT OF REVENUE; IOWA DE-
PARTMENT OF REVENUE; IOWA RAILWAY FI-
NANCE AUTHORITY; MAURICE E. BARINGER,
TREASURER OF IOWA AND CUSTODIAN OF THE
SPECIAL RAILROAD FACILITY FUND; RAYMOND
L. KASSEL, DIRECTOR OF TRANSPORTATION OF
THE STATE DEPARTMENT OF TRANSPORTATION;
STATE TRANSPORTATION COMMISSION OF THE
STATE DEPARTMENT OF TRANSPORTATION; AND
STATE DEPARTMENT OF TRANSPORTATION,
Appellees.
IOWA RAILROAD SHIPPERS COMPANY,
Intervenor.
(Filed September 21, 1983)
App. 2
Appeal from Iowa District Court for Polk County,
Anthony M. Critelli, Judge.
Appeal by railroads challenging validity of state tax
on fuel consumption by railway vehicles. REVERSED.
Bennett A. Webster, Frank W. Davis, Jr., and Brent
B. Green of Gamble, Riepe, Burt, Webster & Davis, Des
Moines, and Sheldon I. Fink, William T. Barker, and
Maureen Martin of Sonnenschein Carlin Nath & Rosen-
thal, Chicago, Illinois, for appellants.
Thomas J. Miller, Attorney General, Harry M. Gri-
ger, Special Assistant Attorney General, and Lester A.
Paft, Assistant Attorney General, and Donald A. Wine,
Stephen W. Roberts, and David W. Dunn of Davis, Hock-
enberg, Wine, Brown & Koehn, Des Moines, for appellees.
kK. Kevin Kelly, Des Moines, for intervenor.
Considered en bance.
UCHLENHOPP, J.
This appeal requires us to consider the validity of
an lowa tax which is challenged by plaintiff railroads,
all of which are interstate carriers subject to the juris-
diction of the Interstate Commerce Commission (ICC).
The State claims the tax is a salutory effort to require
the entire Iowa railroad industry to help support the re-
habilitation of its members who are in Whancial trouble.
Unfortunately, the problem is not that simple, primarily
because of an act of Congress prohibiting discriminatory
taxation of railroads.
The financial condition of most American railroads
deteriorated over a number of years. Part of the problem
App. 3
was over-capacity, in the words of one expert, ‘‘too much
track chasing too little traffic.”’ The first significant re-
sponse by Congress was enactment of the Regional Rail
Reorganization Act of 1973 (3-R Act) which, inter alia,
established a Rail Services Planning Office in the ICC.
The finances of railroads continued to deteriorate,
however, and Congress next enacted the Railroad Revi-
talization and Regulatory Reform Act of 1976 (4-R Act),
which declared a national policy to ‘‘foster competition
among all carriers by railroads and other modes of trans-
portation.” 45 U.S.C. 4 801(b)(1) (1982 Supp.). The act
made a major cominitment of federal financing for rail-
road rehabilitation and improvement to selected railroads
‘‘according to the degree to which they are essential to
the rail transportation system.” 45 U.S.C. 4§823(b)(1)
(1982 Supp). The act resulted in ascertaining “corridors
of excess capacity,’’ and it eased procedures for abandon-
ment of uneconomic railroad lines. In fostering compe-
tition among the several modes of transportation, the act
also contained what is now section 11503 of title 49, United
States Code (1983 Supp.), which proscribes discrimina-
tory state taxation of railroads.
The condition of most railroads continued to worsen,
and Congress eventually enacted the Staggers Rail Act
of 1980, which substantially reduced regulatory control
of rail rates, limited state authority to regulate in-state
rail rates, and further eased abandonment procedures.
In 1981, the Iowa General Assembly enacted a special
excise tax on railroads measured by the amount of fuel
consumed to propel railway vehicles in the state. 1981
Iowa Acts ch. 3, § 29 (codified as Iowa Code $§ 324A.1
et seq. (1981)). Revenue from the tax is placed in a spe-
App. 4
cial railroad facility fund, 4 3244.9, for use in carrying
out the functions of the Iowa Railway Finance Authority
(Authority).
Creation of the Authority in section 307B.5 appears
to be the result of reduced rail services in Iowa in recent
years due to the railroads’ increasing financial difficul-
ties. Legislative findings on which creation of the Author-
ity were predicated include:
(3.] There will exist a serious shortage of viable
rail lines and railway facilities serving the urban,
rural, argicultural and industrial communities of the
state.
4. There exists a serious problem in this state
regarding the ability of agricultural producers to
transport economically farm products to traditional
markets because of the abandonment and possible
abandonment of railway facilities within the state.
5. These conditions are making it more and
more difficult for farmers and farm related business-
es to survive in the present state of the economy thus
threatening the very heart blood of Iowa.
6. One major cause of this condition has been
recurrent shortages of funds in private channels and
the high interest cost of borrowing.
7. These shortages have contributed to reduc-
tions in construction of new railway facilities, and
have made the sale, purchase and repair of exist-
ing railway facilities a virtual impossibility in many
parts of the state.
8. Iowa faces the possible consequences of two
railroad bankruptcies and further reductions in serv-
ice by other railroads due to deteriorating rail fa-
cilities. The loss of rail service on three thousand
ninety miles may be the immediate consequence of
the bankruptcies, with a resultant increase in trans-
App. 5
portation costs. This will be accompanied by a re-
duction in lowa farm income. Any prolonged loss of
service on the essential portions of these rail facil-
ities means the loss of jobs in Iowa and a loss to the
state economy.
9. A stable supply of adequate funds for financ-
ing of railway facilities is required to encourage
construction of railway facilities, the rehabilitation
of existing facilities and to prevent the abandonment
of others in an orderly and sustained manner and to
reduce the problems described in this section.
10. It is necessary to create a railway finance
authority to encourage the investment of private
capital and stimulate the construction, rehabilitation
and repair of railway facilities and to prevent the
abandonment of others through the use of public
financing, publicly assisted financing and other forms
of public assistance.
Iowa Code § 307 B.3 (1983).
The General Assembly created the Authority for the
purpose of ‘‘providing or providing for the financing of
railway facilities and enhancing and continuing the op-
eration of railway facilities... .” 4§307B.5. The “[dJec-
laration of necessity and purpose” for the Authority
states in part in section 307 B.2:
Access to adequate railway transportation facilities
is essential to the economic welfare of the state. One
purpose of this chapter is to preserve or provide for
the citizens of Iowa those railway services now in
existence or needed in the state which have a viable
future but which for a variety of economic and legal
reasons may not exist if the state does not provide
the financing or other mechanisms referred to in this
chapter. It is the intent of the chapter that any pub-
lic ownership and control of railway facilities pro-
vided for in this chapter be transferred to private
App. 6
ownership as promptly as econoinically practicable
subject to financing requirements. It is further in-
tended that the authority created in this chapter be
vested with all powers to enable it to accomplish
the purposes of this chapter.
The record indicates the Authority contemplated us-
ing money from the special fund, derived in part from
the railroad excise tax in question, to purchase various
abandoned lines, especially the north-south ‘‘spine line’ —
of the Rock Island Railread running through Iowa which
was abandoned after the Rock Island entered bankruptcy.
The State would then either lease the abandoned lines to
railroad coinpetitors or eventually sell them back to the
railroads. The Soo Line Railroad and the Chicago North-
western Transportation Company made formal bids to
the bankruptcy trustee and court to purchase the aban-
doned Rock Island spine line. The Northwestern was
eventually allowed to purchase it.
The special excise tax was to go into effect on Oc-
tober 1, 1981. Iowa Code §324A.3. Plaintiff railroads,
however, filed a petition in equity on November 6, 1981,
asking that collection of the tax be temporarily enjoined.
Iowa Railroad Shippers Company intervened on the side
of the railroads. A temporary injunction was granted
on December 28, 1981, and trial of the action was held
in January 1982.
The railroads challenged the tax on various grounds,
the trial court upheld the tax, and the railroads appealed.
In this court the railroads narrowed their attack to three
grounds. They first contend the tax discriminates against
rail carriers contrary to section 11503 of title 49, United
States Code. Next, they claim the tax violates the Su-
premacy Clause in Article VI, Section 2, of the United
App. 7
States Constitution. They argue that while Congress
has streamlined the railroad industry to the lines which
can survive and has forbidden discriminatory taxation
in order to assist the viable lines, the General Assembly
has burdened those lines with a tax for the purpose of
helping the railroad to be abandoned. In this the rail-
roads see a conflict of policies implicating the Suprem-
acy Clause. Finally, the railroads urge that the tax con-
travenes the Commerce Clause in Article I, Section 8,
of the United States Constitution because it is unrelated
to services the state furnishes the railroads. Complete
Auto Transit Inc. v. Brady, 430 U.S. 274, 277-78, 97 S. Ct.
1076, 1078, 51 L. Ed. 2d 326, 330 (1977). They assert that
the revenue from the tax will not benefit them and in some
instances will be used to compete against them.
Prefatorially, we note that state taxes carry a pre-
sumption of validity. City of Pittsburgh v. Alco Parking
Corp., 417 U.S. 369, 375, 94 S. Ct. 2291, 2295, 41 L. Ed.
2d 132, 138 (1974); State ex rel. Bishop v. Travis, 306
N.W. 2d 733, 735 (Iowa 1981).
I. Violation of section 11503? The railroads argue
the state excise tax violates that portion of the Revised
Interstate Commerce Act codified as section 11503 (b)
(4) of title 49, United States Code. Subsection (b) of that
section provides:
(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 val-
ue 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 in-
App. 8
dustrial 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 clause (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 juris-
diction.
(4) tmpose another tax that discriminates against
a rail carrier providing transportation subject to the
jurisdiction of the Commission under subchapter I
of chapter 105 of this title.
(Emphasis added.)
Sections 10101 and following of the Revised Inter-
state Commerce Act of 1978 recodified subtitle IV of title
49, United States Code. 49 U.S.C. §§ 10101 et seq.
Section 11503 recodified section 306 of the 4-R Act, which
was originally codified as section 26C of title 49, United
States Code (1976). The legislative purpose of the Re-
vised Interstate Commerce Act of 1978 was
[t]o restate in comprehensive form, without sub-
stantive change, the Interstate Commerce Act... .
In the restatement, simple language has been sub-
stituted for awkard and obsolete terms. ...
H.R. No. 95-1395, reported in 1978 U.S. Code Cong. &
Admin. News 3013 (emphasis added). See also Alabama
Great Southern R.R. v. Eagerton, 663 F.2d 1036, 1037
(11th Cir. 1981) (language of § 11503 cannot be construed
as making a substantive change in § 306).
Section 306 of the 4-R Act reads in pertinent part:
App. 9
Section 306. Part I of the Interstate Commerce
act (49 U.S.C. 1 et seq.), as amended by this Act, is
further amended by inserting therein a new section
28 as follows:
“Sec. 28. (1) Notwithstanding the provisions of
section 202(b), any action described in this subsection
is declared to constitute an unreasonable and unjust
discrimination against, and an undue burden on,
interstate commerce. It is unlawful for a State, a
political subdivision of a State, or a governmental
entity or person acting on behalf of such State or
subdivision to commit any of the following prohibited
acts:
“(a) The assessment (but oniy to the extent of
any portion based on excessive values as hereinafter
described), for purposes of a property tax levied by
any taxing district, of transportation property at a
value which bears a higher ratio to the true market
value of such transportation property than the ratio
which the assessed value of all other commercial and
industrial property in the same assessment jurisdic-
tion bears to the true market value of all such other
commercial and industrial property.
“(b) the levy or collection of any tax on an
assessment which is unlawful under subdivision (a).
“(e) The levy or collection of any ad valorem
property tax on transportation property at a tax rate
higher than the tax rate generally applicable to com-
mercial and industrial property in the same assess-
ment jurisdiction.
“(d) The imposition of any other tax which
results in discriminatory treatment of a common
carrier by railroad subject to this part.”
(Emphasis added.) We thus construe section 11503 in
light of the language in section 306.
App. 10
Initially, section 306 did not contain subsection (d).
A Senate report at that time stated the purpose of sec-
tion 306 was
{[t]o eliminate the longstanding burden on interstate
commerce resulting from discriminatory State and
local taxation of common and contract carrier trans-
portation property. . . . Substantively [this section]
would amend the Interstate Commerce Act to declare
unlawful, as an unreasonable and unjust discrimina-
tion against and an undue burden upon interstate
commerce, a State or local tax rate, assessment, or
collection upon the transportation property of a coin-
mon or contract carrier at a higher level than upon
property in the same taxing district. Procedurally, it
would provide a remedy in the Federal courts for
common and contract carriers against the collection
of the excessive portion of any tax based upon such
unlawful assessment or rate.
Senate Report No. 91-630, 91st Cong., Ist Sess. (1969).
See also Ogilvie v. State Loard of Equalization of North
Dakota, 657 F.2d 204, 206 (Sth Cir.), cert. denied, 454
U.S. 1086, 102 S. Ct. 644, 70 L. Ed. 2d 621 (1981). Sub-
sequently, when the Senate and House developed separate
bills, subsection (d) was added in conference committee.
Alabama Great Southern R.R. v. Eagerton, 663 F.2d
1036, 1040-41 (11th Cir. 1981).
A. With this legislative history as background, we
first inquire whether section 11503 applies at all in the
present context. The State argues section 11503 pro-
hibits only discriminatory property taxes and not excise
taxes such as we have here. Relying first on principles
of statutory construction, the State points to the title of
section 11503: “Tax discrimination against rail trans-
portation property.” It also notes the prohibited taxes in
App. 11
subsections (1), (2), and (3) all refer to property taxes,
and it concludes that the words of subsection (4) [of see-
tion 306], “impose any other tax that discriminates”,
must refer to any other property tax. We do not think so.
The title of a statute or heading of a section cannot
limit the plain meaning of the text. Brotherhood of Rail-
road Trainmen v. Baltimore, 331 U.S. 519, 528, 67 S. Ct.
1387, 1392, 91 L. Ed. 1646, 1652 (1947). We are unable
to read Congress’ words, “any other tax” to mean “any
other property tax”.
Our conclusion finds support in Alabama Great
Southern R.R. v. Eagerton, 663 F.2d 1036 (11th Cir.
1981). The court there held section 11503 applies to a
business license tax, as against the argument the section
applies only to property taxes:
It would be difficult to imagine statutory lan-
guage that would be less needful of construction than
the “any other” language used here. Following three
subparagraphs, (a), (b) and (¢) dealing with taxation
of “transportation property,” paragraph (d) then for-
bids “the imposition of any other tax which results in
discriminatory treatment of a common carrier by
railroad.” Without invoking any of the ordinary
rules of construction, it would appear that paragraph
(d) is indeed intended as a catchall provision to pre-
vent discriminatory taxation of a railroad carrier by
any means. This view is greatly strengthened when
we consider the avowed purpose of the Act which has
been clearly set forth by the Court of Appeals for the
Eighth Cireuit which has now affirmed the Ogilvie
case:
As noted in our review of the history of this
section, its purpose was to prevent tax diserimi-
nation against railroads in any form whatsoever.
App. 12
Ogilvie v. State Board of Equalization, 657 F.2d 204,
210 (Sth Cir. 1981).
Id. at 1040.
The trial court in Ogilvie held: “The phrase ‘any
other tax’ obviously means a tax not referred to in sub-
sections (1)(b) or (ce)... .” Ogivie v. State Board of
Equalization of North Dakota, 492 F. Supp. 446, 454
(D.N.D. 1980), aff'd, 657 F.2d 204 (8th Cir. 1981). The
United States Court of Appeals for the Eighth Cireait
recently made clear again that section 11503 is not limited
to property taxes:
Section 306(1)(d), rather than proscribing spe-
cific types of tax discrimination against “transpor-
tation property” like subdivisions (1)(a) through
(c), prohibits “the imposition of any other tax which
results in the discriminatory treatment of a common
carrier by railroad.” As the Fifth Circuit noted in
Alabama Great Southern Railroad Co. v. Eagerton,
663 F.2d 1036, 1041 (5th Cir. 1981), however, Con-
gress’ purpose in changing the language of section
306 from “transportation property” in subdivisions
(1)(a) through (1)(¢c) to “any other tax” and “com-
mon carrier by railroad” in subdivision (1)(d) was
most likely to broaden, not narrow, the scope of the
section by making it applicable to all forms of state
taxation rather than just property taxation.
Trailer Train Co. v. State Board of Equalization of North
Dakota, F. 2d , n. 6 (8th Cir. 1983) (emphasis
added).
The State also urges application of the doctrine of
ejusdem generis, that general words (any other tax),
following enumeration of specific terms (property taxes),
apply only to the kinds of taxes previously enumerated.
We do not find the doctrine to be applicable here. The
App. 13
United States Supreme Court has recently stated that
this doctrine is to be used only where the meaning of words
is uncertain. Harrison v. PPG Industries, Inc., 446 U.S.
578, 589, 100 S. Ct. 1889, 1895, 64 L. Ed. 2d 525, 535
(1980). We see no uncertainty in the clear and unambigu-
ous words “any other tax.” As pointed out by the court
in Eagerton, 663 F.2d at 1041:
The Supreme Court made that clear in the Gordon
case [Gordon v. Appeal Tax Court, 44 U.S. (3 How.)
132, 11 L. Ed. 529 (1845) ], where the Court said:
“The words ‘any further tax’... will, by common
consent . . . be intended to mean any additional tax
besides that referred to, and not any further like tax.”
44 U.S. at 147 [11 L. Ed. at 536].
The State contends that the legislative history of
section 11503 supports its view that Congress intended
to prohibit only discriminatory property taxes. We have
examined the mater.al the State cites. Acts of Congress,
however, must be interpreted in light of the spirit in which
they were written and the reasons for their enactment.
General Services Employees Union Local No. 73 v. NLRB,
578 F.2d 261, 366 (D.C. Cir. 1978). As already quoted
in Eagerton, the federal court of appeals for this circuit
stated the purpose of section 11503 “was to prevent tax
discrimination against railroads in any form whatsoever.”
Ogilvie v. State Board of Equalization of North Dakota,
657 F.2d 204, 210 (Sth Cir. 1981). Moreover, as also
stated in Eagerton, “a mere prohibition against discrimi-
natory property taxes would be without effect if a state
were to be permitted to enact any other discriminatory
tax.” 663 F.2d at 1041. In addition, the words in the
conference report which the State relies on (“limited
... to taxation of railroad property”) appear to dis-
App. 14
tinguish property of rai/roads from property of all car-
riers as included in the Senate bill under consideration in
the report. Sen. Rep. No. 94-595, 94th Cong., 2d Sess.
(1976).
The Court of Appeals in Eagerton reached this con-
clusion about the state’s argument of legislative history:
Finally, the legislative history seems to us to
cut the other way from that urged by the state of
Alabama. The earlier bills did not contain anything
like subsection (d). They were primarily concerned
with an important existing discrimination in property
taxes. Then, as stated by the appellee in its brief
here: “Section 11503(b)(4) [correctly stated it
should be section 306(1)(d)] does not appear to
have been included in any of the debates. Instead,
it seems to have been added at the last minute almost
as an afterthought.’ Of course, such debates as were
had on the bill, under such circumstances, usually in-
cluded the words “property” or “transportation prop-
erty.” But, towards the end of the debate, it must
have become plain to Congress that a mere prohibi-
tion against discriminatory property taxes would be
without effect if a state were to be permitted to enact
any other discriminatory tax, so long as it was not a
property tax. The appellees would have us ignore
subparagraph (d) because they do not understand
why Congress added it “almost as an afterthought.”
We cannot give such cavalier treatment to a formal
act of Congress, or a part of it that seems clearly
within the purpose and intendment of the law.
663 F.2d at 1041.
In holding section 11503 applies to excise taxes, we
note that the United States District Court for the South-
ern District of Iowa, faced with the same parties and
issues, so held. Atchison, Topeka, & Santa Fe R.R. v.
Bair, 535 F. Supp. 68 (S. D. Towa 1982). Proceedings in
App. 15
that case have been stayed pending disposition of the
present litigation. We also note that the anti-diserimi-
nation section applicable to trucks is in fact limited to
property taxes; it contains paragraphs (1), (2), and (3),
but not paragraph (4) relating to other taxes. Compare
§ 11503 with § 11503a, 49 U.S.C. (1983 Supp.).
B. We thus approach the central question regarding
section 11503: does the lowa excise tax discriminate
against railroads! The first problem involved in that
question is this: with what other taxpayers and taxes
do we compare the railroad fuel tax?
Because individuals and corporations in business
usually have property in their enterprises, a tax on rail-
road property is compared with state taxes on property
of commercial and industrial taxpayers generally. <Ala-
bama Great Southern R.R. v. Eagerton, 541 F. Supp.
1084, 1086 (M. D. Ala. 1982); see Trailer Train Co. v.
State Board of Equalization of North Dakota, — F.2d —
(8th Cir. 1983); Ogilvie «©. State Board of Equaliza-
tion of North Dakota, 657 F.2d 204, 209 (8th Cir. 1981).
Property taxes of railroads must be nondiseriminatory
when compared with property taxes of each and every
other class of commercial and industrial taxpayer. <Art-
zona v. Atchison, Topeka & Santa Fe R.R., 656 F.2d 398,
404 (9th Cir. 1981); Ogilvie, 492 F. Supp. at 455.
This particular tax, however, is not on property. It
is on the burning of propulsion fuel in part of the trans-
portation industry, the railroads. For relevant com-
parisons we must thus look to taxpayers who employ
propulsion fuel in transportation. This narrows the field
of comparison, in the main, to three other transportation
modes; trucks, barges, and aircraft. Drawing on the anal-
App. 16
ogy of property taxes, the present excise tax must be non-
discriminatory compared with fuel taxes on any of these
other modes so as to avoid a competitive disadvantage.
In making the comparison with taxation of fuels
burned by the other three modes, two limitations must be
observed. First, we do not consider the whole tax struc-
ture of the state. Arizona v. Atchison, T.€S.F.R.R.,
656 F. 2d 398, 404 (9th_Cir. 1981); Alabama Great South-
ern R.R. v. Eagerton, 541 F. Supp. 1084 (M. D. Ala. 1982) ;
Oguvte v. State Board of Equalization of North Dakota,
492 F. Supp. 446, 455 (D.N.D. 1980), aff'd, 657 F.2d 204
(8th Cir. 1981). Second, because section 11503 is a pro-
hibition on discriminatory state taxation of railroads, we
compare Jowa fuel taxes on the several transportation
modes; we do not add federa’ taxation to the equation.
Arizona Public Service Co. v. Snead, 441 U.S. 141, 150,
99 S. Ct. 1629, 1634, 60 L. Ed. 2d 106, 113 (1979).
We thus turn to the actual step of making compari-
son, to the extent made possible by the record before us.
The only tax which lowa exacts regarding railroad fuel
is the present one on the burning of fuel within the state,
at the rate of three cents per gallon originally and eight
cents per gallon since July 1, 1982.
Trucks. Competition for freight between railroads
and trucks is intense; trucks have taken much of that
traffic. In general, the Iowa excise tax regarding truck
fuel, burned in the state, is thirteen cents per gallon for
gasoline, ten cents per gallon for gasohol, and fifteen and
one-half cents per gallon for diesel. Iowa Code $4 324.3,
34, 52, .54.
Superficially the trucks rather than the railroads
appear to be at a competitive disadvantage as to fuel
App. 17
taxes. But a major adjustment must be made in order to
compare railroad-fuel with 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 high-
ways. lowa 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 rail-
roads acquire, construct, maintain, and pay taxes on their
own roads. We thus have the railroads providing their
own roads with the eight-cent 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.
The State counters that plaintiff railroads could
themselves apply for moneys from the railroad fuel tax
fund. If the record demonstrated that plaintiff railroads
will be taxed eight cents per gallon but will get it back
again, they would sustain no loss and no discrimination.
The record establishes, however, that the fund is for
rehabilitation of the debilitated railroad lines and
branches, not for viable railroads. The state would
hardly tax operating railroads eight cents per gallon
simply to pay it back to them.
Comparing state fuel taxation of railroads and of
trucks, the railroad tax in question discriminates against
the railroads contrary to section 11503.
Barges. Presently and potentially, barges constitute
a substantial and competitive transportation mode, esepe-
App. 18
cially in this area which is bounded by two great rivers.
Barges generally use diesel fuel. They pay no Iowa
excise tax on it, either in plying bordering rivers or in
serving lowa ports of call. They are not required to
purchase diesel in lowa, but they are subject to the Iowa
sales tax of four percent of the price if they do purchase
diesel in the state. See Dodgen Industries, Inc. v. Iowa
State Tax Commn, 160 N. W.2d 289, 294 (Iowa 1968).
If barges buy none of their diesel in Iowa, they have a
competitive Lowa tax advantage over railroads of eight
cents per gallon for diesel. If they buy some or all of
their diesel in lowa, their competitive advantage is less,
but it remains substantial. The railroads thus have a
competitive Iowa tax disadvantage in comparison with
barges.
At one time barges in navigable waters were consid-
ered immune from state taxation of fuel by virtue of the
Commerce Clause. Helson & Randolph v. Commonwealth
of Kentucky, 279 U.S. 245, 251, 49 S. Ct. 279, 281, 73
L. Ed. 683, 687 (1929). We believe Helson is no longer
law as a result of Complete Auto Transit, Inc. . Brady,
430 U.S. 274, 97 S. Ct. 1076, 51 L. Ed. 2d 326 (1977). Un-
der Complete Auto, the challenger of a state tax must
show that the activity taxed
does not have a sufficient nexus with the State; or
that the tax discriminates against interstate com-
merce; or that the tax is unfairly apportioned; or that
it is unrelated to services provided by the State.
Id. at 277-78, 97 S. Ct. at 1078, 51 L. Ed. 2d at 330. The
question here relates to the first part of the test—a suffi-
cient nexus. We believe that Iowa has a sufficiently sig-
nificant relationship to barge traffic on its bordering riv-
App. 19
ers to satisfy that requirement. See 5 Stat. 742, § 3, 28th
Cong., 2d Sess. (1845) (concurrent jurisdiction of Iowa
over bordering rivers under act of admission into Union) ;
Iowa Const. Preamble; lowa Code (1983 $4 1.1-.3; Higman
Towing Co. v. Cocreham, 70 F. Supp. 628, 636-37 (E. D.
La. 1947), aff'd 165 F. 2d 789 (1948) (state statute taxing
income of foreign barge operators on Mississippi upheld) ;
Witke v. State Conservation Comm'n, 244 Iowa 261, 267,
56 N. W. 2d 582, 586 (1953) (state may impose charges for
use of improved waterway); 65 C.J.S. Navigable Waters
§ 10b (1966) ; see also 70 Am. Jur. 2d Shipping § 50, at 322
(1973); 15 C.J.S. Commerce 473, at 651 (1967); 80
C.J.S. Shipping 44 (1953); cf. Pfeiffer v. Wet'and, 226
N. W. 2d 218, 220-21 (lowa 1975) (maritime torts); State
v. Mullen, 35 Iowa 199, 202 (1872) (crimes).
The State also argues that the question of apportion-
ment—the third part of the Complete Auto test—would
be difficult as between Iowa, on the one hand, and the
surrounding states on the bordering rivers, on the other.
Apportionment would be difficult and would pose admin-
istrative problems, but we do not think that a fair ap-
proximation, in a carefully drafted tax statute, is impos-
sible or that administrative difficulties are insurmount-
able. An argument can also be made, if He'son is actually
still the law so Iowa cannot tax barge fuel, that Iowa can-
not tax railroad fuel either, because barges would other-
wise have a de facto competitive state tax advantage con-
trary to the purpose of section 11503. We find no neces-
sity to decide that point. Applying Complete Auto Tran-
sit, we hold that Iowa taxation of railroad fuel is discrim-
inatory when compared with Towa taxation of barge fuel,
contrary to section 11503.
App.20
Aircraft. Competition between railroads and aircraft
for freight does not appear momentous, but the possibility
of some tax discrimination exists. Purchases in lowa of
aircraft fuel are subject to the four percent sales tax on
the price. See Dodgen Industries, Inc. v. lowa State Taz
Comm'n, 160 N. W. 2d 289 (Iowa 1968); Chicago, B. & Q.
R.R. v. lowa State Tax Comm’n, 259 Iowa 178, 142 N. W.
2d 407 (1966). In addition, aircraft fuel purchased out-
side Lowa but used intrastate is subject to the four per-
cent use tax on the price. 1983 lowa Legis. Serv. S. F. 184
$5 (West). See United Airlines v. Mahin, 410 U.S. 623,
629, 93 S. Ct. 1186, 1191, 35 L. Ed. 2d 545, 552 (1973). Air-
craft pay the same excise taxes on gasoline (and gasohol)
as trucks, but the tax is subject to refund. Iowa Code
§ 324.17. They pay no other excise taxes on aircraft fuel.
The result is that the most lowa taxes that aircraft
do in fact pay are four percent on the price. This con-
stitutes a substantial competitive advantage over the eight-
cent per gallon railroad fuel tax, constituting discrimina-
tion under section 11503.
We conclude that the railroad fuel tax violates sec-
tion 11503 on comparison with each of the three other prin-
cipal transportation modes.
Il. Violations of Supremacy and Commerce Clauses?
Since we have held that the Iowa excise tax violates sec-
tion 11503, we leave the railroads’ other two propositions
undecided. We repeat our statement at the outset that
we do not have a simple question of whether the railroad
fuel tax is a salutory measure for Iowa railroads as a
whole. We must consider the federal anti-discrimination
statute and the reasons which prompted it. Under that
statute we hold the Iowa railroad excise tax is invalid.
App. 21
In taxing the costs, the clerk is directed to tax the ex-
pense for appendix and briefs at actual cost but not ex-
ceeding four dollars per page.
REVERSED.
All Justices concur except Carter, J., who concurs
specially, and McCormick, Harris, Larson, and Wolle, JJ.,
who dissent.
CARTER, J. (concurring specially).
Although I cannot accept the court’s reasoning as to
why the railroad fuel tax is violative of 49 U.S.C. section
11503(b)(4), | agree that it is. I therefore concur in the
result.
| do not find the court’s comparison of the railroad
fuel tax with other taxes levied incident to truck, barge,
and air transportation to be helpful for purposes of apply-
ing section 11503(b)(4). The comparison which is made
by the majority is based on supposed competitive disad-
vantage. Although the elimination of competitive disad-
vantage may have been one of the legislative purposes for
the enactment of the statute, competitive disadvantage is
not a practical standard by which to determine whether
a tax is discriminatory. Too many variables are involved
to make such comparisons meaningful.
I do not believe it would be possible under the test
laid down by the majority to sustain any tax whose bur-
den falls on interstate rail carriers if the incident of taxa-
tion differs from that employed in taxing other commer-
cial taxpayers. I do not believe it was the intent of Con-
gress to prohibit special tax treatment of interstate rail
App. 22
carriers under section 11503(b)(4) if the tax is tied to
benefits which are conferred on interstate rail carriers.
Where, however, a tailored tax on the activities of inter-
state rail carriers is placed in a separate fund to be ex-
pended for specific purposes, the carriers protected by
section 11503(b)(4) must receive from that fund benefits
which are proportionate to the tax imposed. In the pres-
ent case, while some individual carriers may benefit from
the use made of lowa’s railroad fue! tax, any benefits flow-
ing to interstate rail carriers as a class are too tenuous to
stave off the carrier’s section 11503(1)(4) challenge.
MecCORMICK, J. (dissenting).
For me the determinative question is whether the
challenged tax imposes a burden on railroads that is not
uniformly placed on similarly situated commercial and in-
dustrial enterprises in lowa. Before the tax can be held
to violate 49 U.S.C. 11503(b)(4), plaintiffs must prove it
is discriminatory on this basis. Because I believe they
did not prove discrimination and have failed to establish
any other ground for invalidating the tax, I would affirm
the trial court.
Discrimination does not occur unless equals are treated
unequally. One problem the railroads therefore have is
in showing who their equals are in the business community
for purposes of the federal statute. Congress defined the
comparison group for determining whether a property tax
violates the statute but did not identify the comparison
group for evaluating other taxes. The comparison group
for property taxes is “commercial and industrial prop-
erty,” defined in section 11503(a)(4) as “property, other
than transportation property and land used primarily for
App. 23
agricultural purposes or timber growing, devoted to a com-
mercial or industrial use and subject to a property tax
levy.” Property taxes on railroads thus must be nondis-
criminatory when compared with property taxes on the
businesses in the defined group. See generally Arizona
v. Atchison, Topeka & Santa Fe R. R., 656 F. 2d 398, 403-
06 (9th Cir. 1981).
Before a comparison group for the present tax can
be defined, it is necessary to decide what is to be compared.
This inquiry is not answered solely by identifying the tax-
able event. The precise taxable event here is the consump-
tion of diesel fuel within lowa for the propulsion of a rail-
way vehicle. If the inquiry stopped there, the only com-
parison group would seem to be businesses other than
railroads that operate railway vehicles. Certainly no dis-
crimination has been shown on that basis. It is doubtful
that Congress would have intended the comparison group
to be so limited. I believe the separate treatment of prop-
erty taxes under 11503(b) proves that the character of the
tax provides the basis upon which the. comparison group
is to be identified. The state has labeled the tax a priv-
ilege tax. See lowa Code 4 3244.3 (1981). Privilege taxes
are therefore the taxes that are to be compared. Privilege
taxes are explained and distinguished from other taxes in
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97
S. Ct. 1076, 51 L. Ed. 2d 326 (1977).
The federal statute, by its terms, delineates acts that
Congress has determined will “unreasonably burden and
discriminate against interstate commerce. . . .” § 11503(b).
A violation of the statute thus turns on the character of
the tax as burdensome and discriminatory upon interstate
App. 24
commerce. It is the impact of the tax upon the taxpay-
er’s relative position in interstate commerce that is sig-
nificant. In subsections (1), (2), and (3), Congress has
effectively decided the issue by requiring absolute parity
in property tax rates. In subsection (4), however, the
statute bars “another tax that discriminates against a rail
carrier. .. .” The test under subsection (4) is therefore not
one of parity but of discriminatory impact. See Alabama
Great Southern R. R. Co. v. Eagerton, 663 F. 2d 1036, 1040
(11th Cir. 1981). Consequently I believe that to show a
violation of section 11503(b)(4), the railroads must prove
that the tax, regardless of the exact taxable event on which
it is based, results in a disproportionate economic burden
on railroads when compared to privilege taxes on other
businesses engaged in interstate commerce.
I would therefore examine the relative burden of
privilege taxes on similarly situated businesses rather
than “competitive disadvantage” resulting from the tax.
The approach I advocate is consistent with Arizona Pub-
lic Service Co. v. Snead, 441 U.S. 141, 99 S. Ct. 1629, 60
L. Ed. 2d 106 (1979), because it involves consideration only
of the burden from the type of tax involved rather than
the impact upon a particular business of the state’s entire
tax structure. Competitive disadvantage cannot be deter-
mined through the requisite limited inquiry.
Furthermore, in attempting to identify similarly situ-
ated businesses, it is logical to look at transportation
modes because they are most likely to have similar char-
acteristics. In doing so, however, differences in the nexus
between the state and particular business must be taken
into account. This is a factor the court’s opinion wholly
App. 25
omits from consideration. Discrimination cannot be shown
unless the privilege tax burden on businesses similarly sit-
uated is unequal when allowances are made for di.ierences
in the activities of the businesses within the state. This
is because the state is entitled to measure the tax in ac-
cordance with the extent of the taxpayer’s activities in the
state. See Commonwealth Edison Co. v. Montana, 453
U.S. 609, 627, 101 S. Ct. 2946, 2958, 69 L. Ed. 2d 884, 900
(1981).
The only transportation mode that has activities in
Iowa comparable to those of railroads is the trucking in-
dustry. As the court acknowledges, airplanes are not
major competitors of trains. In addition, the extent of
their activities within the state is limited. Barge routes
are unique, and I question whether barges constitute com-
petition as much as a complementary system of transpor-
tation. In any event, the extent of barge contact with the
state is minimal. Trucks do have activities in the state
similar to those of trains. They also pay a substantially
higher tax on fuel consumption than do railroads. See
Iowa Code § 324.34 (1983). Therefore I would not find
that the tax on diesel fuel consumption is discriminatory
when railroads are compared to the trucking industry.
Moreover, I do not think the disposition of the rev-
enues is relevant. The railroad tax is earmarked for use
by the Railway Finance Authority, and the trucking fuel
tax is earmarked under Iowa Const. art. VII, § 8 for high-
way purposes. Although the “competitive disadvantage”
may vary, the burden on the industry is not different
merely because of earmarking of the revenues. In each
instance the tax is a general revenue measure. In one
App. 26
instance the .egislature has dictated a particular use for
the money, and in the other the people have dictated a
particular use. he earmarked funds, however, might as
well have come from general revenues. This is consistent
with the approach set out for property taxes under 11503
(b), which ineludes no consideration of benefits received.
If benefits to the taxpayer were relevant, the relative
value of other government services such as police and fire
protection should be considered. If benefits that are paid
for by the tax are relevant, so are benefits that are not
paid for by it. In addition, a determination should be
made of the actual share of highway costs paid by the
truck tax, other privilege taxes such as license fees paid
by trucks should be considered, and a caleulation should
be made of any economic benefit to railroads as a group
from projects to be funded by the Railway Finance Au-
thority. Therefore, even if benefits to the railroads were
relevant, the record is wholly inadequate to prove dis-
crimination on that basis. I do not believe, however, that
benefits are relevant.
The issue is the relative burden of the tax. This is
the test that was applied in Alabama Great Southern R. R.
Co. v. Eagerton, 541 F.Supp. 1084 (M.D. Ala. 1982). In
that case a railroad license tax was compared to other
business license taxes. It was computed on a percentage
of gross receipts while other businesses except utilities
were taxed at a flat rate. The resulting burden on a rail
carrier was 350 times the license tax on any Alabama com-
mercial or industrial taxpayer other than utilities. After
comparing the relative burden, and relying on expert tes-
timony concerning the issue, the court held that the tax
was discriminatory. ;
os
App. 27
In the present case, no evidence of disproportionate
burden appears. If anything, the trucking industry car-
ries a heavier burden, perhaps for good reason. Air and
barge modes of transportation have substantially less
nexus with the state. When the differences in the extent
of their contacts with the state and those of railroads are
taken into account, it cannot fairly be said that the tax on
railroad fuels results in a greater relative burden. There-
fore I would hold that the railroad tax has not been shown
to be discriminatory.
Because I would also hold that the railroads’ constitu-
tional arguments are without merit, I would affirm the
trial court.
Harris. Larson and Wolle, JJ. join this dissent.
App. 28
No. 69397
IN THE SUPREME COURT OF IOWA
THE ATCHISON, TOPEKA AND SANTA FE RAIL-
WAY COMPANY; BURLINGTON NORTHERN RAIL-
ROAD COMPANY; CHICAGO AND NORTH WESTERN
TRANSPORTATION COMPANY; ILLINOIS CENTRAL
GULF RAILROAD COMPANY; NORFOLK AND
WESTERN RAILWAY COMPANY; RICHARD B.
OGILVIE, TRUSTEE OF THE PROPERTY OF CHI-
CAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAIL-
ROAD COMPANY, DEBTOR; and UNION PACIFIC
RAILROAD COMPANY,
Appellants,
vs.
GERALD D. BAIR, DIRECTOR OF REVENUE OF
THE IOWA DEPARTMENT OF REVENUE; IOWA
DEPARTMENT OF REVENUE; IOWA RAILWAY
FINANCE AUTHORITY; MAURICE E. BARINGER,
TREASURER OF IOWA AND CUSTODIAN OF THE
SPECIAL RAILROAD FACILITY FUND; RAYMOND
L. KASSEL, DIRECTOR OF TRANSPORTATION OF
THE STATE DEPARTMENT OF TRANSPORTATION ;
STATE TRANSPORTATION COMMISSION OF THE
STATE DEPARTMENT OF TRANSPORTATION; and
STATE DEPARTMENT OF TRANSPORTATION,
Appellees.
IOWA RAILROAD SHIPPERS COMPANY,
Intervenor.
ORDER
(Filed October 14, 1983)
After consideration by the court en banc, appellees
petition for rehearing in the above-captioned case is here-
by overruled and denied.
’
App. 29
Done this 13th day of October, 1983.
THE SUPREME COURT OF IOWA
By /s/ W. W. Reynoldson
Chief Justice
Copies to:
Bennett A. Webster, Frank W. Davis, Jr.,
and Brent B. Green, Lawyers
2600 Ruan Center
Des Moines, LA 50309
Sheldon I. Fink, William T. Barker,
and Maureen Martin, Lawyers
8000 Sears Tower
Chicago, IL 60606
Honorable Thomas J. Miller,
Harry M. Griger and
Lester A. Paff
Attorney General’s Office
Hoover State Office Puilding
LOCAL
Donald A. Wine, Stephen W.
Roberts and David W. Dunn, Lawyers
2300 Financial Center
666 Walnut Street
Des Moines, LA 50309
E. Kevin Kelly, Lawyer
1400 Dean Avenue
Des Moines, LA 50316
Ms. Sam Purpora
Mead Data Central
P.O. Box 933
Dayton, Ohio 45401
App. 30
Case No. CE 16-09145
IN THE IOWA DISTRICT COURT
FOR POLK COUNTY
THE ATCHISON, TOPEKA AND SANTA FE RAIL-
WAY COMPANY; BURLINGTON NORTHERN RAIL-
ROAD COMPANY; CHICAGO AND NORTHWESTERN
TRANSPORTATION COMPANY; ILLINOIS CEN-
TRAL GULF RAILROAD COMPANY; NORFOLK AND
WESTERN RAILWAY COMPANY; RICHARD B.
OGILVIE, TRUSTEE OF THE PROPERTY OF CHI-
CAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAIL-
ROAD COMPANY, DEBTOR; and UNION PACIFIC
RAILROAD COMPANY,
Plaintiffs,
vs.
GERALD D. BAIR, DIRECTOR OF REVENUE OF THE
IOWA DEPARTMENT OF REVENUE; IOWA DE-
PARTMENT OF REVENUE; IOWA RAILWAY FI-
NANCE AUTHORITY; MAURICE E. BARINGER,
TREASURER OF IOWA AND CUSTODIAN OF THE
SPECIAL RAILROAD FACILITY FUND; RAYMOND
L. KASSEL, DIRECTOR OF THE TRANSPORTATION
OF THE STATE DEPARTMENT OF TRANSPORTA-
TION; STATE TRANSPORTATION COMMISSION OF
THE STATE DEPARTMENT OF TRANSPORTATION;
and STATE DEPARTMENT OF TRANSPORTATION,
Defendants,
IOWA RAILROAD SHIPPERS CO.,
Intervenor.
FINDINGS OF FACT, CONCLUSIONS OF
LAW AND DECREE
The Petition in the above-captioned matter was filed
on November 6, 1981. Plaintiffs sought relief in the na-
ture of temporary injunction, enjoining enforcement of
App. 31
and collection of tax involved; enjoining disbursement
from Special Railroad Facility Fund by either Defendant
IRFA or Defendant Baringer; that after bond is set or
procedure determined for payment of estimated tax into
court and hearing on thé merits, the Court declare the
tax sections unconstitutional, null and void, make the in-
junction permanent, and award Plaintiffs their attorney
fees, costs and expenses.
On that same date the Court signed an Order setting
this matter down for hearing on temporary injunction for
the 23rd day of November, 1981.
The hearing on the temporary injunction did com-
mence on the 23rd day of November, 1981, and concluded
and was submitted to the Court on the lst day of Decem-
ber, 1981.
Because the tax law involved required the Plaintiffs
to make monthly reports of fuel consumption and pay the
tax required and because the first requirement of report-
ing and payment of tax (for consumption during the
month of October 1981) was required even before the
Court had concluded the hearing on the temporary in-
junction, an Order was entered on the 30th day of No-
vember, 1981, granting all Plaintiffs an extension for re-
porting and payment of the taxes due for calendar month
October 31, 1981, until December 30, 1981.
On December 23, 1981, the Court entered its Ruling
on Plaintiffs’ Application for Temporary Injunction. The
Court ruled therein that the Plaintiffs were entitled to the
requested Temporary Injunction. On December 28, 1981,
a Temporary Injunction was entered and signed by the
App. 32
Court granting the temporary relief requested and also
providing for the amount of bond to be posted by the re-
spective Plaintiffs.
A Petition of Intervention was filed by Iowa Rail-
road Shippers Co., and it appeared and participated in
the hearing on the merits in these proceedings.
Trial on the merits commenced on the 25th day of
January, 1982, and concluded with formal acceptance of
testimony on the 29th day of January, 1982. By request
of all parties, the record remained open. On March 26,
1982, a Stipulation was entered as to the final exhibits in
these proceedings, and a Stipulation was also entered that
the record would be closed (this was also filed on March
26, 1982).
A substantial briefing schedule was provided by the
Court and was extended or modified, and in its final form
provided that the final Reply Briefs were to be filed no
later than April 23, 1982.
On May 27, 1982, the parties entered into a Stipula-
tion to reopen this record for the purpose of admitting
as a part of said record amendments to the tax law in-
volved that had been passed by the 1982 session of the
Iowa Legislature. The Court signed an Order on said
date reopening the record for the sole purpose of making
a part of said record the aforementioned amendments to
the tax law.
After giving due consideration, therefore, to the total
record made in these proceedings, including the lengthy
open court trial sessions involving first the Temporary
Injunction and then the hearing on the merits, the sub-
App. 33
stantial exhibits filed and received in these proceedings,
the substantial depositions agreed to be a part of this
record by the respective parties, the briefs of the parties
and the Court’s own research in these proceedings, this
Court is now prepared to issue its Findings of Fact, Con-
clusions of Law and Decree.
The Court first finds it has jurisdiction over the par-
ties and subject matter herein.
Plaintiffs in these proceedings were all represented
by Frank W. Davis, Jr., and Brent B. Green. Defendant,
Iowa Railroad Finance Authority was represented by
Stephen Roberts and Donald A. Wine. Defendant, Maur-
ice E. Baringer, Treasurer of Iowa and custodian of the
Special Railroad Facility Fund was represented by Mark
E. Schantz. Defendant, Raymond L. Kassel, Director of
Transportation, the State Transportation Commission and
the State Department of Transportation were all repre-
sented by Lester A. Paff. Defendants, Gerald D. Bair,
Director of Revenue and the Iowa Department of Rev-
enue were represented by Harry Griger. Intervenor, Iowa
Railroad Shippers Co. was represented by Kevin Kelly.
PARTIES
Plaintiff, the Atchison, Topeka and Santa Fe Rail-
road Company (herein “Santa Fe”) is a Delaware rail-
road corporation with principal place of business in the
state of Kansas and is qualified to do business in Iowa as
a foreign corporation.
Plaintiff, Burlington Northern Railroad Company
(herein “BN”) is a Delaware railroad corporation with
principal place of business in the state of Minnesota and
App. 34
is qualified to do business in the state of lowa as a foreign
corporation.
Plaintiff, Chicago and Northwestern Transportation
Company (herein “CNW”) is a Delaware railroad corpo-
ration with its principal place of business in the state of
Illinois and is qualified to do business in the state of Lowa
as a foreign corporation.
Plaintiff, Illinois Central Gulf Railroad Company
(herein “ICG”) is a Delaware railroad corporation with
principal place of business in the state of Illinois and is
qualified to do business in lowa as a foreign corporation.
Plaintiff, Norfolk and Western Railroad Company
(herein “N&W”) is a Virginia railroad corporation with
principal place of business in the state of Virginia and is
qualified to do business in lowa as a foreign corporation.
Plaintiff, Richard B. Ogilvie, a resident of the state
of Lllinois, is the bankritecy trustee of the property of
the Chicago, Milwaukee, St. Paul and Pacifie Railroad
Company (herein “Milwaukee”). The Milwaukee is a
Wisconsin railroad corporation with its principle place
of business in the state of Illinois, and it is qualified to do
business in the state of Iowa as a foreign corporation.
Plaintiff, Union Pacific Railroad Company (herein
“UP”) is a Utah railroad corporation with its principal
place of business in the state of Nebraska, and it is quali-
fied to do business in the state of lowa as a foreign cor-
poration.
Defendant, Gerald D. Bair is the Director of Revenue
of the Iowa Department of Revenue.
Defendant, Iowa Department of Revenue (herein “De-
partment”) is an agency of the State of lowa.
App. 35
Defendant, Lowa Railway Finance Authority (herein
“TRFA”) is an agency of the State of Iowa existing under
Chapter 307B of The Code of Lowa.
Defendant, Maurice E. Baringer is Treasurer of Iowa
and as such custodian of the Special Railroad Facility
Fund.
Defendant, Raymond E. Kassel is the Director of
Transportation of the State Department of Transportation
(herein “Director”).
Defendant, State Transportation Commission of the
State Department of Transportation (herein “Commis-
sion”) is an agency of the State of Iowa existing under
the provisions of Chapter 307 of The Code of Iowa.
Defendant, State Department of Transportation
(herein “IDOT”) is an agency of the State of Iowa exist-
ing under Chapter 307 of The Code of Iowa.
THE LEGISLATION INVOLVED
These proceedings are all concerned with the applica-
tion, enforcement and constitutionality of what is now
Chapter 307B of The Code of Iowa (effective June 3, 1980)
as amended first by House File 874, Acts of the 69th Gen-
eral Assembly (effective September 15, 1981) and as
amended by Senate File 2304, Acts of the 69th General
Assembly (effective July 1, 1982).
As necessary, the pertinent portions of now Chapter
307B of The Code, other than those that have specific ref-
erence to the tax involved will be referred to hereinafter
in this ruling.
App. 36
Of primary importance to these proceedings, sections
19 through 29 of House File 874 establish a Special Rail-
road Facility Fund, the imposition of an excise tax, the
requirement that a railroad company obtain a railroad
company license and that the railroad company report,
compute and pay the required tax.
The important part of section 24 of House File 874
reads as follows:
“For the privilege of operating railway vehicles in
this state, an excise tax is imposed at the rate of 3
cents per gallon beginning October 1, 1981, and is
imposed at the rate of 8 cents per gallon beginning
July 1, 1982, upon the use of fuel for the propulsion
of a railway vehicle within the state. The tax at-
taches at the time of use and shall be paid inonthly
to the Department by the railroad company using the
fuel. Fuel dispensed in this state shall only be
through meters which have been approved for ac-
curacy by the Department of Agriculture and sealed
by the Department. Fuel dispensed through sealed
meters shall be presumed taxable unless the railroad
company proves otherwise.”
Section 26 of House File 874 referring to the re-
quired railroad company reports, tax computation and
payment states as follows:
“For the purpose of determining railroad company’s
tax liability, each railroad company required to ob-
tain a license under this chapter shall file with the
Department a monthiy report. The report shall be
filed by the end of the month following the month of
use. The report shall include the following informa-
tion:
1. The total gallons of fuel dispensed in Iowa.
2. The total gallons of fuel dispensed in Iowa and
placed in railway vehicles used solely within the
state during the reporting period.
App. 37
3. The total gallons of fuel dispensed in Iowa for
nontaxable purposes.
4. The total gallons of fuel dispensed in Iowa and
placed in railway vehicles used within and with-
out the state.
5. The total gallons of fuel dispensed outside Iowa
and placed in railway vehicles traveling within
and without the state.
6. Other information the Director or Revenue re-
quires,
The report shall be accompanied by a payment equal
to the tax due. The taxable gallons of fuel shall be
computed by adding the number of gallons of fuel dis-
pensed in Iowa and placed into railway vehicles travel-
ing solely within the state during the reporting period
and the result of multiplying the total gallons of fuel
used in railway vehicles traveling within and without
Iowa by a fraction, the numerator of which is miles
traveled in Iowa by railway vehicles traveling within
and without Iowa and the denominator of which is the
total miles traveled by the same railway vehicles. The
tax shall be computed by multiplying the taxable gal-
lons times the per gallon tax rate.
7. If a railroad company believes that the method
of computing the tax of the prescribed mileage
formula has operated or will so operate as to sub-
ject to taxation a greater portion of fuel than is
reasonably attributable to use for the propulsion
of a railway vehicle in this state, it shall be en-
titled to file with the Department a statement of
objections and of such alternative method of de-
termining fuel use in this state as it believes to
be proper under the cireumstances. If the De-
partment concludes that the mileage formula in
fact does not reasonably attribute fuel use to the
state, it shall redetermine the tax per gallons of
fuel by such methods as seen best calculated to
App. 38
assign to the state the portion of fuel reasonably
used in this state.”
Also important to this discussion and the determina-
tion of the issues before the Court are some of the defini-
tions that appear in section 23 of House File 874. These
include the following:
“1. ‘Fuel’ means a combustible gas or liquid suitable
for the generation of power for the propulsion of
railway vehicles except it does not include motor
fuel as is defined in section 324.2.
~
2. ‘Department’ means the Department of Revenue.
3. ‘Railway vehicle’ means a vehicle designed and
used primarily upon railways for self-propulsion
or for propelling conveyances.
4. ‘Railroad company’ means a person responsible
for the operation of a railway vehicle within the
state.”
The aforementioned second amendment to section 307B
of The Code in part provides for an annual payment of
this tax if the railroad company’s liabilities do not exceed
$1,200 for a calendar year.
More important to these proceedings, this second
amendment amends section 24 as above quoted having to
do with the requirement of dispensation of fuel through
“meters” and the pertinent part of section 24 as amended
would read as follows:
“The tax attaches at the time of use and shall be paid
monthly to the Department by the railroad company
using the fuel. At such time the lowa Railway Fi-
nance Authority deems it necessary, it may require
that fuel dispensed in the state only be through meters
which have been approved for aeeuracy by the lowa
Railway Finance Authority and sealed by the Author-
App. 39
ity. The Authority may contract the responsibility
for approving and sealing meters to the Department
of Agriculture. Fuel dispensed through sealed meters
shall be presumed taxable unless the railroad company
proves otherwise.”
The significance of this second amendment is that the
dispensing of fuel through meters shall only be required
if and when the Iowa Railway Finance Authority deems
such action necessary. It is also important in that, fol-
lowing the amendment, the Iowa Railway Finance Author-
ity is authorized to approve the accuracy of the meters
rather than the Department of Agriculture. As indicated
above, such Authority, however, may contract the responsi-
bility for such approval and sealing of meters to the De-
partment of Agriculture.
CLAIMED CONSTITUTIONAL AND
STATUTORY VIOLATIONS
Stated in a substantially truncated and summarized
method, Plaintiffs in their Petition allege and claim that
House File 874 is either unconstitutional on its face and
as applied or that it violates certain and specified por-
tions of either the Constitution of the United States or
the State of Iowa or of laws or statutes of said United
States or State of Iowa and more specifically alleges that
House File 874 violates:
a. The Commerce Clause of the United States Con-
stitution, U.S. Const., Art. L, seetion 8, el. 3, and the pro-
visions of the Interstate Commerce Act, 49 U.S. C. seetions
10101, et seq.
b. The Supremacy Clause of the United States Con-
stitution, U.S. Const., Art. VL, 2.
App. 40
ce. The Due Process Clauses of the United States Con-
stitution, U.S. Const., Amend. 5 and 14, section 1, the Due
Process Clause of the Iowa Constitution, Iowa Const., Art.
I., section 9, and the tax specificity requirement of the
Iowa Constitution, Iowa Const., Art. VII., section 7.
d. The Due Process Clauses of the United States
Constitution, U.S. Const., Amend. 5 and 14, section 1, and
the Due Process Clause of the Iowa Constitution, Iowa
Const., Art. I, section 9.
e. The Equal Protection Clause of the United States
Constitution, U.S. Const., Amend. 14, section 1, and the
uniform laws requirements of the Iowa Constitution, lowa
Const., Art. I., section 6 and Art. III, section 30.
f. The Privileges and Immunities Clause of the Uni-
ted States Constitution, U.S. Const., Amend. 14, section
1, and the uniform laws requirements of the Iowa Consti-
tution, Iowa Const., Art. I. section 6 and Art. IIL., sec-
tion 30.
g. The seperation of powers requirement of the Iowa
Constitution, lowa Const., Art. IIL., section 1.
h. The public purpose requirement of the Iowa Con-
stitution, lowa Const., Art. II1., section 31.
i. 42 U.S.C. section 1983.
THE RAILROADS
Admitted paragraph 17 of Plaintiffs’ Verified Peti-
tion as amended alleges the Plaintiff railroads are com-
mon carriers by railroad, are engaged in the interstate
and intrastate transportation of freight for hire, and the
furnishing of services in connection therewith, are sub-
App. 41
ject to the provisions of the Interstate Commerce Act, 49
U.S.C. sections 10101, et seq., and are rail carriers pro-
viding transportation subject to the jurisdiction of the
Inters.ate Commerce Commission under 49 U.S.C. see-
tion 10501.
Admitted paragraphs 18 through 24, inclusive, of
Plaintiffs’ Verified Petition as amended sets forth certain
background information concerning each of the railroads
involved. For the most part, the information alleged and
admitted has reference to calendar year 1980. The infor-
mation includes the number of miles or trackage owned by
the railroad through its system, the amount of such track-
age owned within the state of lowa, the number of diesel
locomotives operated by the railroad, the amount of diesel
fuels (in gallons) consumed by the railroad, the number
of miles traveled by the locomotives throughout the sys-
tem, the number of such miles traveled within the state
of Iowa, the amount of property tax paid by the railroad
on property owned by it in the state of Iowa, and the
amount of other taxes paid by the railroad to the State
of Iowa and its political subdivisions.
Rather than set forth all of this detailed information
which covers four typewritten pages in the Petition, as
such factual matters have been admitted and as evidence
was presented in support of same, the Court finds that
same are generally true and correct, and rather than set
same forth in this already burgeoning opinion, the Court
adopts as admitted and includes herein as if set forth in
their entirety the statements at least in a general manner
as are contained in paragraph 17 through 24 of the Plain-
tiffs’ Petition as amended.
App. 42
LEGISLATIVE CHRONOLOGY
The regular session of the first session of the 69th
General Assembly (1981) ended on May 22, 1981. The
first extraordinary session began on June 24 and ended
on June 26, 1981. House File 874 (the tax bill) passed
the House of Representatives on June 26, 1981. The only
bill passed and adopted by both houses of the legislature
during this first extraordinary session was one that estab-
lished dates for the submission and application of certain
acts incident to the process of legislative redistricting.
An Attorney General’s Opinion was requested by State
Senator George R. Kinley, and it appears that same was
issued on August 11, 1981. It had reference to the consti-
tutionality of this tax law but was limited to an opinion
concerning whether or not the tax law was an unconstitu-
tional burden on interstate commerce (only one of the con-
stitutional questions presented in these proceedings).
The second extraordinary session commenced on Au-
gust 12 and terminated on August 14, 1981. Apparently,
House File 874 received legislative approval by the State
Senate during this second session and during one of the
three mentioned dates. That same second extraordinary
session of no more than three days’ duration also appar-
ently passed a final reapportionment plan, a motor fuel
tax bill (it appears to have raised motor vehicle gas tax
by 1 cent per gallon for a period of about 22 months), and
a bill that extended the time for the elderly and disabled
to file for property tax relief.
Although it is conceivable and perhaps even likely that
at least in general terms the contents of and the concept
of this tax bill were being considered by committees or
App. 43
legislative leaders and the administration prior to the
aforementioned extraordinary sessions, the Court consid-
ers it at least necessary and proper to set forth the above
chronology which is at least arguably supportive of the
Plaintiffs’ Petition that this legislation was conceived and
considered in haste and without the benefit of adequate
consideration and debate concerning the numerous alleged
deficiencies and problem areas that have been raised by
Plaintiffs in these proceedings.
As indicated above, the Iowa Legislature passed a
second bill which in part amended the “metering” require-
ment. This bill was passed during the legislative session
in 1982 and was effective July 1, 1982. It was SF 2304.
The legislative chronology of that particular bill is
important because it probably was filed and passed both
houses after our record was closed and after the questions
concerning the “metering” problems had all surfaced in
these proceedings. That chronology is at least arguably
supportive of the fact that the Defendants recognized the
existence of “metering” problems and had the bill passed
to preserve, as they could, the integrity of the total leg-
islation.
As indicated above, all counsel requested that the ree-
ord be reopened to the end that the Court could consider
this last passed legislation as a part of the total record.
If this Court registers an opinion based on a record both
with and without this latest legislation, it will eliminate
the necessity of these same parties being back before the
Court for such purpose. The Court has agreed to issue
such opinion as requested.
sa
>
App. 44
BURDEN OF PROOF ON PLAINTIFFS TO
PROVE UNCONSTITUTIONALITY
The burden of proof that rests upon the Plaintiffs if
they are to prevail in these proceedings and the presump-
tions of constitutionality with which statutory enactments
are manteled require recognition. A carefully worded and
all inclusive statement concerning constitutional presump-
tions and the burden of proof required of one seeking to
dislodge constitutionality is set forth by the Iowa Snu-
preme Court in City of Waterloo v. Selden, 251 N. W. 2d
506, at page 508 as follows:
“The general principles applicable to the determina-
tion of the constitutionality of the challenged statutory
provision are well established. All presumptions are
in favor of the constitutionality of the statute, and it
will not be held invalid unless it is clear, plain and
palpable that such decision is required. The legisla-
ture may pass any kind of legislation it sees fit, so
long as it does not infringe the state or federal con-
stitutions. Courts do not pass on the policy, wisdom,
advisability or justice of a statute. The remedy for
those who coutend legislation which is within consti-
tutional bounds is unwise or oppressive is with the
legislature. The burden is not upon Defendant, Sel-
den, and Intervenor, State Appeal Board, to prove
the act is constitutional. Plaintiffs have the burden
to demonstrate beyond a reasonable doubt the act
violates the constitutional provision envoked and to
point out with particularity the details of the alleged
invalidity. To sustain this burden, Plaintiffs must
negative every reasonable basis which may support
the statute. Dickinson v. Porter, 240 Iowa 393, 399-
400, 35 N. W. 66, 71 (1949). Every reasonable doubt
is resolved in favor of constitutionality. Avery v.
Peterson, 243 N. W. 2d 630, 633 (Iowa 1976).”
App. 45
The subject in Selden, supra, was not the constitution-
ality of an enacted tax but rather dealt with the constitu-
tionality of legislation which had the effect of imposing
budget limitations on cities with populations of more than
750.
Iowa’s single-sales factor formula for taxing net in-
come of corporations doing interstate business was at-
tacked as being unconstitutional in Moorman Manufactur-
ing Company v. Bair, 254 N. W. 2d 737 (1977). The Court
stated beginning at page 743 as follows:
“It is well settled with notable exceptions not here
involved that all presumptions are in favor of the con-
stitutionality of a regularly enacted statute.
Where the constitutionality of a statute is merely
doubtful, this Court will not interfere as it must be
shown that legislative enactments clearly, palpably
and without doubt infringe upon constitutional rights
before an attack will be upheld.
Moorman as the attacking party has the burden to
demonstrate beyond a reasonable doubt the Act vio-
lates the constitutional provisions envoked and to point
out with particularity the details of the alleged in-
validity. To sustain this burden, it must negative
every reasonable basis which may support the statute
(cases cited).”
Continuing on page 743 the Court in Moorman stated:
“Keasling v. Thompson, 217 N. W. 2d 687, 690 (lowa
1974), states this principle:
‘The judicial branch of the government has no power
to determine whether legislative Acts are wise or un-
wise, nor has it the power to declare an Act void un-
less it is plainly and without doubt repugnant to some
provision of the Constitution.’
In the field of taxation, it would appear the above
principles somewhat understate the defe ‘ence accorded
App. 46
the legislature. In this regard, see 71 Am. Jur. 2d,
State and Local Taxation, section 96, page 417, and 84
C.J.S. Taxation, section 7, pages 53-54.”
Judicial pronouncements concerning the extraordinarily
heeavy burden which will be borne by the Plaintiff chal-
lenging the constitutionality of a tax statute are not just
of recent vin.age. In Lee Enterprises, Inc. v. lowa State
Tax Commission, 162 N.W. 2d 730, 739 (lowa 1969), the
Iowa Supreme Court quoted State v. Fairmont Creamery
Company, 152 lowa 702, 711, 133 N. W. 895, 899, a 1911
decision as follows:
“The Constitution was intended to announce certain
basic principles to serve as a perpetual foundation of
a state. It was not intended to be a limitation upon
its helpful development, nor to be an obstruction to
its progress. New days bring new problems. Legis-
lation must meet these problems as they come. Other-
wise, our plan of government must prove inadequate.
Manifestly, we ought not to be swift to adopt such a
technical or a strained construction of the Constitu-
tion as would unduly impair the efficiency of the leg-
islature to meet its unavoidable responsibilities.”
UNCONSTITUTIONALITY BASED ON VIOLATION
OF 49 U.S.C., SECTION 11503(b) (4)
Section 306 of the 4-RA Act now codified as 49 U.S. C.,
section 11503(b) provides:
“The following acts unreasonably burden and dis-
criminate 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:
(4) impose another tax that discriminates against
a rail carrier providing transportation sub-
ject to the jurisdiction of the Comunission
App. 47
under subchapter I of Chapter 105 of this
title.”
It is undisputed that the Plaintiffs are providing trans-
portation subject to the jurisdiction of the Commission
under the indicated title.
Although arguments were proposed to the contrary,
there is no question in this Court’s mind that the imposi-
tion of the tax involved herein comes within the perameters
of the aforementioned and quoted section 11503(b)(4). On
September 22, 1981, the same Plaintiffs in these proceed-
ings brought a federal complaint against the same Defend-
ants in United States District Court for the Southern Dis-
trict of Iowa. The identical relief sought by the Plaintiffs
in these proceedings was the subject of the federal action,
and same was heard by the federal court on December 21,
1981. The basis of the Motion to Dismiss was the Defend-
ant’s reliance on the Federal Anti-Tax Injunction Act, 28
U.S.C., section 1341, which provides in pertinent part as
follows:
“The district courts shall not enjoin, suspend or re-
strain the assessment, levy or collection of any tax
under state law or a plain, speedy and efficient remedy
may be had in the courts of such state.”
In response, the Plaintiffs took the position that the
federal court did have jurisdiction to maintain the instant
action, under the exception to section 1341 as contained
in 49 U.S.C., section 11503, as follows:
“(e) Notwithstanding section 1341 of Title 28 and with-
out regard to the amount in controversy or citi-
zenship of the parties, a district court of the Uni-
ted States has jurisdiction concurrent with other
jurisdictions of courts of the United States and
the states to prevent a violation of subsection (b)
of this section.” (Emphasis added.)
App. 48
Chief Judge Stuart in his decision of February 2, 1982,
(Atchison T & SF Ry. Co. v. Bair, 535 F. Supp. 68 (S.D.
Iowa 1982), overruled the Motion to Dismiss relying on
the 11th Cireuit Decision in Alabama Great Southern Rail-
road Company v. Eagerton, 663 F. 2d 1036. He held that
the aforementioned subsection (d) which has reference to
“any other tax” was not limited to any other property
taxes, but meant just what it said, i.e., “any other tax”,
and that an excise tax such as is involved in both that fed-
eral district court action and in this lowa district court
action was the type of imposition of tax that could on ade-
quate proof of “discriminatory treatment of a common
carrier by railroad subject to this chapter” be considered
and held to be an unreasonable burden and discrimination
against interstate commerce.
This Court concurs and agrees with the position atul
decision of Judge Stuart and rules that the excise tax in-
volved herein is an “any other tax” for the purposes of sub-
section (b) of the federal law above quoted and cited.
Having so determined, it is now necessary for this
Court to determine on the basis of this record whether or
not Plaintiffs have met their burden and have presented
adequate proof to the effect that by the imposition of such
tax there has resulted in a “discriminatory treatment of
a common carrier by a railroad subject to this chapter”.
Respective counsel have dealt with this question of
“discrimination” in their briefs, Plaintiffs in their Post-
Trial Brief beginning on page 109 and in their Reply Brief
beginning on page 31 and Defendants beginning on page
132 (actually 141) of Defendants’ Brief and beginning on
page 33 of Defendants’ Reply Brief.
App. 49
Although it appears that the Defendants would opt
for the “entire tax structure” test, this Court rules that a
more fair, equitable and proper and perhaps legal test
would be a comparison of the current tax situation involv-
ing railroads as opposed to other modes of transportation,
i.e., barges, truckers and to some extent airlines. (See
Arizona Public Services Company v. Snead, 441 U.S. 141;
99 S. Ct. 1629; 60 L. Ed. 2d 106; a 1979 case.)
Plaintiffs contend that there is discrimination because
HF 874 imposes a tax solely on railroads and not upon
competing modes of transportation. They contend that
motor fuel tax paid by truckers is not comparable because
that tax is used solely for the construction and maintenance
of highways on which the trucks travel. Plaintiffs contend
that barges are not taxed at all in the state of Iowa and
such taxes and fees that they pay to the federal govern-
ment are likewise to defray the costs of maintaining
these publicly owned right-of-ways. Plaintiffs contend that
neither trucks or barges pay property tax on their public
right-of-way and the only other state charges paid by
truckers for use of highways are registration fees under
section 321.122 of The Code of Iowa.
In that respect, the Court notes that the highest an-
nual registration fee charged by the state of lowa for
truck tractors, road tractors, etc., is $1,695 for such piece
of equipment that weighs between 39 and 40 tons, the
amount increasing at the rate of $80 for each ton over 40
tons. To this Court’s recollection there was no testimony
or evidence or exhibit offered in these proceedings bear-
ing on the general question and position as to the extent
App. 50
and amount of “registration fees” collectively paid by com-
mercial truckers to the state of lowa. Of course, in addi-
tion to the aforementioned collective registration fees,
other physical personal and real property owned by trucker
corporations within the State of Iowa and upon which
taxes are imposed and paid to the State of Lowa would
be important in viewing this mode of transportation col-
lective tax responsibility.
We do have in this record by stipulation and admitted
pleadings the fact that for the year 1980 the Plaintiffs
collectively paid to the State of Lowa almost 7 and % mil-
lion dollars in either property taxes on property owned
by them in the State of lowa and other taxes owed to the
State of lowa and its political subdivisions.
Considerable of the briefs of Plaintiffs dealt with the
undisputed fact that neither trucks nor barges pay prop-
erty taxes on their public rights-of-way. On the other
hand, the railroads do pay property tax on their right-of-
way, as that property is owned by the railroads and is
taxed by the state or other subdivisions thereof. Plain-
tiffs argue further that they would receive or see little
direct benefit from this tax imposed. Whereas, on the
contrary, and for example giving full consideration to the
vehicle fuel tax paid by truckers, those taxes go to defray
and maintain expenses in connection with highways which
are, of course, used by truckers in their business.
The Court’s attention has been called to three exhibits
in these proceedings for the reason that in the opinion of
the Defendants they contain relevant statements on the
question of discrimination. These exhibits consisted of
Deposition Exhibit 127 (which appears to be a position
App. 91
paper or staff recommendation of the IDOT concerning
“State Ownership of Essential Rock Island Trackage”),
Deposition Exhibit 130 (a statement prepared to be given
to the House Ways and Means Committee at a public hear-
ing on railroad transportation, same prepared by the
[DOT Planning and Research Division), and Deposition
Exhibit 152 (what appears to be minutes of a meeting of
the lowa Railway Finance Authority). Coincidentally,
the aforementioned exhibits were specifically brought to
the Court’s attention by Plaintiffs on page 110 of Plain-
tiffs’ Post-Trial Brief for the purpose of indicating to the
Court that the “Defendants themselves have repeatedly
recognized that such intermodal discrimination is forbid-
den”. While these three exhibits do perhaps support the
reason why they were referred to the Court by Plaintiffs,
they also beared, in this Court’s view, on this question of
“discrimination”.
For instance, Exhibit 127 in discussing “railroad diesel
fuel tax” contained certain staff findings and computa-
tions. The exhibit contained the statement that a tax of
10 to 15 cents per gallon (we are here involved with a
maximum of 8 cents per gallon) would have a minimal im-
pact (1 to 1.5 percent) on the cost of railroad transporta-
tion services, that a 10 to 15 cent per gallon tax would
approximate the tax levels which will be charged over the
next several years to motor carriers and barge operators,
and that Iowa’s collection of all taxes from railroads on
a per mile basis is among the lowest of all of the states
(even the collection of 15 million dollars of revenues—
based on 15 cent per gallon tax—would only place Iowa
above 50 percent in comparison with all of the other states).
App. 52
It was indicated that fuel costs currently represent
about 15 percent of railroad freight operating costs, that
a 1 cent tax levied upon a gallon of fuel (which currently
costs railroads buying on bulk contracts about 1 dollar
per gallon) would increase railroad operating costs by
only about 0.15 percent. Thus, a 10 cent per gallon tax
would raise costs by 1.5 percent.
A comparison was set forth of the anticipated per-
centage of traffic loss relative to the rail traffic involving
certain specific products such as agricultural crops,
chemicals, stone and clay, transportation equipment, ma-
chinery, metals, corn and soybeans, ete. It reflected the
impact of a 1 percent rail rate increase. The estimated
percentage of traffic loss ranged from a high of 2.7 per-
cent involving the shipping of transportation equipment
nationwide to a low of 0.2 percent concerning the trans-
portation of metals nationwide and the transportation of
corn and soybeans, northwest Iowa.
The report-exhibit also presented the supposition that
increases in fuel taxes for trucks and/or barges in the
future were likely to become a reality. Assuming a 10
percent tax on rail fuel and likewise assuming for various
comparisons a 3.5 cent per gallon increase in truck fuel, a
4 cent per gallon barge fuel increase and a 3.4 cent per
gallon barge fuel increase, the report went on to make a
comparison of the impact upon rail traffic assuming the
aforementioned variables and possible increases. De-
pending on the variables used, the anticipated percentage
of traffic gain or loss was indicated. The Court notes
in that regard that on the assumption of a 10 cent rail
increase, a 3.5 cent truck increase and a 4 cent barge
increase the report indicated that there would be a
“negligible change”’.
App. 53
The other two named exhibits, i.e., Deposition Ex-
hibit 120 and Deposition Exhibit 152, are only of par-
ticular significance because in each instance the exhibit-
report indicated that there was definitely a question of
constitutionality involving this proposed tax on this ques-
tion of “discrimination”.
Considerable brief attention was given to comparison
of the current “comparable” taxes imposed concerning
barge operations and trucking. Currently, diesel fuel
purchased in Towa by barges is subject to Iowa sales tax
but not the Iowa fuel tax. However, diesel fuel used by
barges is taxed by the United States government and pre-
sumably these taxes are used to keep up and maintain the
waterways. That tax amounts to 6 cents per gallon, is
to go to 8 cents per gallon on October 1, 1982, and to 10
cents per gallon on October 1, 1985. It is the position of
the Defendants that at the present time the Plaintiffs
enjoy the benefit of substantial competitive advantage as
compared with barges since the Plaintiffs pay no tax at
all on their use of fuel. It is the position of the Defend-
ants that the overall tax burden upon barge diesel fuel
created by the federal tax and the Towa sales tax is
presently greater than that borne by railroad diesel fuel
under HF 874.
In regards to a comparison of trucker taxes, it
appears that the truckers are required to pay diesel fuel
tax in the amount of 13% cents per gallon, again sub-
stantially in excess of the maximum now proposed for the
railroad diesel fuel tax of 8 cents per gallon. It is like-
wise the Court’s understanding that as of July 1, 1982
(the date now passed), the tax on truck diesel fuel will
increase to 15% cents per gallon.
App. D+
Defendants have brought to the Court’s attention the
fact that in their view the Plaintiff-railroads enjoy other
tax benefits which give them an advantage over other
transportation competition and over other businesses.
lowa sales tax:
“The gross receipts from sales of tangible personal
property used or to be used as railroad rolling stock
for transporting persons or property or materials or
parts thereof.” (See also section 423.4(4) of The
Code for a comparable use tax exemption.)
The railroads do not currently pay any Iowa sales or
use tax on fuel consumed in their railway vehicles. It
has also been brought to the Court’s attention by De-
fendants that for lowa property tax purposes the rate of
assessed value for railroad property is carefully set at
the lower of the rates existing for the assessment year for
either commercial property, industrial property, or cen-
trally assessed property (see section 441.21[10] of The
Code). (Plaintiffs bring to the Court’s attention and
take the position that the claimed “advantage” of being
assessed at lower levels was nothing more than the Iowa
legislature recognizing that such favored treatment was
warranted under the very section now being considered
—section 11503. While conceding same for the sake of
argument, the fact remains that there is what one must
consider to be a tax advantage afforded to railroad
property.)
As indicated above, Plaintiffs in support of their
“discrimination” argument rely heavily on the fact that
they feel they are being taxed for the consumption of fuel
used in locomotives that are operated on their own right-
App. 55
of-ways. In contrast, fuel taxed, for instance, for the
use of truckers is used in turn to repair and maintain the
very right-of-way that is used by the truckers. Stated
another way, the Plaintiffs consider that the tax is un-
reasonable and is discriminatory since there are no recog-
nizable henefits that the railroad will receive as a result
of the tax imposed. In support of such proposition, the
Plaintiffs have brought to the Court’s attention two
United Ste’ s Supreme Court decisions, namely, Evans-
ville-Vanderburgh Airport Authority District v. Delta
Airlines, 405 U. S. 707, 712; 92 S. Ct. 1349, 1353; 31
L. E. 2d 620, 626 (1972); and Massachusetts v. United
States, 485 U.S. 444, 446; 98 S.Ct. 1153; 55 L. E.2d
403, 418 (1978).
In Massachusetts, supra, the state of Massachusetts
brought an action contending that the United States could
not constitutionally impose a tax that affected the state’s
function of operating a police force. Specifically, Con-
gress enacted legislation which in part imposed an annual
“flat fee” registration tax on all civil aircraft, including
those owned by the states. The tax was imposed on
Massachusetts law enforcement helicopters. This tax
was part of a comprehensive program to recoup the cost
of federal aviation programs from those who used the
national air system. The Court held that the registration
tax does not violate the implied immunity of a state
government from federal taxation. At page 1166 of the
Supreme Court decision it stated as follows:
“We held that such taxes are valid so long as they
(1) do not discriminate against interstate commerce,
(2) are based upon some fair proximation of use and
(3) are not shown to be excessive in relation to the
?
App. 56
costs to the government of the benefits conferred.”
(Delta, supra, was cited as authority for such enum-
eration and legal statement.)
In Delta, supra, which was combined with an appeal
also entitled Northeast Airlines, Inc. v. New Hampshire
Aeronautics Commission, the United States Supreme
Court was called upon to decide whether or not 1 dollar
fees charged passengers enplaning commercial aircraft
within the states of either Indiana or New Hampshire
amounted to an unconstitutional burden on interstate
commerce. The Court held that it was not, relying to
some extent on the fact that the funds collected were used
at least in part for the maintenance of airline facilities
which in turn were used by the taxed passengers.
At the fear of being redundant, Plaintiffs herein
have consistently argued that these tax funds are not
contemplated to be used for any purpose that will in any
way positively affect them and to the contrary their posi-
tion is that they will adversely affect them. First off,
it is not unconstitutional to tax a business and use the
revenue to compete with the taxpayer (if in fact one can
assume for the henefit of argument that there will in fact
be competition of other railroad or railroads with the
Plaintiffs). See Pittsburgh v. Alco Parking Corporation,
417 U.S. 269; 41 L.E.2d 132; 94 S.Ct. 2291 (1974);
and Puget Sound Power and Light Company v. Seattle,
291 U.S. 619: 78 L. E. 1025; 548. Ct. 542 (1934).
Plaintiffs are mistaken if they consider that there
must be some direct relationship between the tax imposed
and any benefits received by them as a result of said taxes
or the funds to which thev are deposited.
App. 57
The “controlling test ... ‘is whether the state has
exerted its power in proper proportion to the taxpayer’s
activities within the state and to the taxpayer’s consequent
enjoyment of the opportunities and protection which the
state has afforded’”. See Colonial Pipe Line Company
v. Traigle, 421 U.S. 100, 108-09; 44 L. E. 2d 1; 95 S. Ct.
1538 (1975).
As indicated in Defendants’ brief, the latest United
States Supreme Court pronouncement on the permissibil-
ity of state taxaton of interstate commerce (Common-
wealth Edison Company v. Montana—U.S.—69 L. E. 884;
101 S. Ct. 2946 [1981]), confirms that so long as the tax-
payer engages in substantial business in the state the
taxpayer can be required to pay state taxes even when no
direct benefit is derived from the taxes paid. Plaintiffs
here seem to labor under the “incorrect assumption that
the amount of state taxes that may be levied on an activity
connected to interstate commerce is limited by the costs
incurred by the state on account of that activity.” (See
Commonwealth Edison, supra—emphasis applied.)
It is also stated in Commonwealth Edison, supra, that
it is only “when the measure of tax bears no relationship
to the taxpayer’s presence or activities in a state that a
court may properly conclude under the fourth prong of
the Complete Auto Transit test that the state is imposing
an undue burden on interstate commerce”.
It is undisputed in these proceedings and in the
record herein that the respective Plaintiffs have a sub-
stantial nexus with the state of Iowa and that they are
all in varying degrees actively engaged in business within
the state of Iowa. It is also necessary and interesting to
App. 5S
note that the tax imposed herein is based on the fuel con-
sumed as measured by the miles actually traveled in the
state (the degree of activity within the state).
In any event, these Plaintiffs unquestionably own
hundreds of miles of right-of-way in the state and derive
millions of dollars of business within the state. They
receive police and fire protection, access to the courts
and they themselves have access to financial assistance in
the rehabilitation of railroad tracks, road beds and
tressels.
The Court has made an effort to examine and con-
3 as amended by House File 874, giving
sider Chapter 307
particular attention to the objects and purposes of said
amended Act. As amended, the last unnumbered para-
graph of section 307B.2 reads as follows:
“It is a further intent of this chapter and of the gen-
erl assembly that, in order to preserve rail competi-
tion and to provide for railway services in this state,
the authority work primarily with railroad carriers
already providing service in this state based upon
their willingness and ability to meet these objectives.”
It is obvious in reading the amended Act that the
lowa legislature was making efforts to respond to a crisis
situation having to do with the fact that railroad lines
and trackage were being abandoned or that abandonment
was eminent and that this would cause and have a
crippling affect on several facets and types of industry
within the state of lowa, including agriculture and rail-
roads (as a system).
Based on this record made, this Court finds that the
preserved and improved condition of health of the total
App. 59
railroad system within the State of Iowa would in fact
bestow at least indirect benefits on the Plaintiffs in these
proceedings.
In summary therefore, this Court determines and
rules that the Plaintiffs have failed to meet their burden
of proof that the imposition of the tax involved was dis-
criminatory and had the effect, pursuant to 49 U.S.C.
section 11503(b), of being an unreasonable burden against
interstate commerce and thereby unconstitutional in vio-
lation of the Commerce Clause of the United States
Constitution.
COMMERCE UNDULY BURDENED BY IRFA
FRUSTRATION OF ABANDONMENT PROCESS
Plaintiffs argue that commerce is being unduly
burdened by IRF A’s frustration of the abandonment
process, i.e., the fund created by this tax would be used
to revitalize and make operative lines that the Interstate
Commerce Commission has already determined should
be abandoned as they constitute a burden on interstate
commerce. Plaintiffs insist that the procedure antic-
ipated by IRFA is merely shifting a burden (for pur-
chase of and rehabilitation of abandoned lines) from a
particular railroad to the industry as a whole.
Defendants on the other hand deny that their in-
tended or actual efforts are designed at frustrating the
ICC abandonment process primarily for the reason that
no provision of the Interstate Commerce Acts prohibits
a party from acquiring a railroad line that has been
abandoned. Defendants insist that nothing on House File
874 empowers the Iowa Railway Finance Authority to
App. 60
coerce or force railroad carriers into operating an aban-
doned line.
Defendants insist that House File 874 empowers the
authority to issue bonds and provide financial assistance
to private parties, including railroad companies like
Plaintiffs herein to take a second look at and to make an
economic analysis of abandoned lines to see if perhaps
they should be rehabilitated or acquired.
The Court determines and rules that the Plaintiffs
have failed to carry their burden of proof that the alleged
objects and effects envisioned in the operation of HF 874
have or will have the effect of materially frustrating the
abandonment process of the Interstate Commerce Com-
mission to the point that same would be determined to be
a burden on interstate commerce.
VIOLATION OF SUPREMACY CLAUSE BY
REVITALIZING LINES THAT CONFLICT WITH
NATIONAL TRANSPORTATION PLANNING
Plaintiffs take the position that pursuant to the 4R
Act the Secretary of Transportation has categorized rail
lines with regard to “the degree to which they are essen-
tial to the rail transportation system” (45 U.S.C. section
823[b][1]. A major purpose of this process was to
effect consolidation of lines and corridors with excess
capacity and in furtherance of that purpose substantial
federal funds were committed to the rehabilitation of what
were deemed some of the most essential and viable lines
in Iowa.
It is the position of the Plaintiffs that if the Defend-
ants are permitted to resurrect or artifically sustain other
App. 61
lines that such process will have the effect of diminishing
the viability and fiseal soundness of the lines that have
been found to be economically justified. Plaintiffs say
further that for such reasons House File 874 stands as an
obstacle to the accomplishment of Congressional purposes
and therefore must yield to federal supremacy.
Defendants respond by first commenting on the policy
or theory of pre-emption or supremacy. In Chicago and
Northwest Transportation Company v. Kalow Brick and
Tile, 67 L. E. 258, 265 (1981) the United States Supreme
Court stated:
“Pre-emption of state law by federal statute or regu-
lation is not favored in the absence of persuasive
reasons—either that the nature of the regulated
subject matter permits no other conclusion or the
Congress has unmistakenly so ordained.”
It is the Defendants’ position that Congress has not
specifically indicated that states cannot rehabilitate
abandoned lines.
It does not appear to be logical or reasonable that
classification or categorization of rail lines by the Seere-
tary of Transportation necessarily prohibits said lines
from receiving a “second look” and from revitalization by
private parties or by the state, or by assistance from the
state, if such abandoned lines can be economically operated
and can provide and fulfill a necessary complement to the
total transportation picture of the state involved.
As indicated by the Plaintiffs:
“The economics of smaller operation without the
larger obligations of the common carrier makes short
line operation feasible to someone other than a Class
I carrier.”
4
: ‘a. :
5 Mi a lst i tl ia al —
App. 62
The language of House File 874 certainly is not man-
datory but only permissive in consideration of the possible
revitalization of previously abandoned lines.
The Court does not find that the Plaintiffs have car-
ried their burden of proof to the effect that Congress has
in fact pre-empted the whole question of treatment of
abandoned lines and likewise has not carried its burden
of proof to the effect that the provisions of House File
874 and the process of utilization of the tax provided
therein for the express purposes of House File 874 and
of Chapter 307B of The Code are in contravention or
frustration of a national transportation policy or an ob-
stacle to such policy. Having so determined, the Court
rules that the Plaintiffs are not entitled to the relief re-
quested pursuant to their claimed violation of the Suprem-
acy Clause of the United States Constitution.
THE TAX IMPOSED BY HOUSE FILE 874 IS
UNCONSTITUTIONAL BECAUSE IT VIOLATES
THE EQUAL PROTECTION CLAUSE OF
THE 14TH AMENDMENT
(ALSO UNDER THE UNIFORM LAWS
REQUIREMENT OF THE IOWA CONSTITUTION)
Plaintiffs claim that House File 874 violates the
Equal Protection Clause of the 14th Amendment to the
United States Constitution and the Uniform Laws Re-
quirement of the Iowa Constitution. This Court has al-
ready ruled that House File 874 does not materially dis-
criminate against railroads and in favor of trucks, barges
and other modes of transportation. The Plaintiffs ques-
tion why they as an industry are singled out to contribute
to a subsidy that is to be given to or at least will benefit
other Iowa shippers.
App. 63
Defendants respond that it is not improper to classify
railroads into a particular or a special class for the pur-
pose of taxation. Numerous cases are set forth on page
108 of the Defendants’ brief in support of the proposition
that “classification of railroads for the purposes of taxa-
tion differently from other businesses does not violate the
14th Amendment’s Equal Protection Clause”.
The defendants quote from Klank v. Grimes, 238 Iowa
495; 28 N.W.2d 34 (1947), wherein the Iowa Supreme
Court rejected an Equal Protection and Uniform Laws
constitutional challenge to the Iowa Motor Vehicle Fuel
Tax Law and stated in part as follows:
“As an excise to be paid by user of motor vehicle fuel
to propel vehicles on the highways of this state, the
law operates with uniformity upon all within the class,
and the equality and due process provisions of the
state and federal constitutions are satisfied.”
As indicated in Defendants’ brief in that regard,
“every railroad comipany operating locomotives within the
state of Iowa will be subject to House File 874 excise tax
for consuming fuel to propel such vehicles in the state of
Iowa. The House File 874 tax treats all within the taxed
classifi¢ation (operating locomotives in Iowa) alike so as
to satisfy the equality provisions of the Iowa and the
United States Constitutions”.
There is nothing in this record to indicate that rail-
roads, whether they be intrastate or interstate are taxed
or treated any differently under this Act. They all are
required to pay tax on the fuel that they consume and use
while operating their locomotives and other railway ve-
hicles within the borders of the State of Iowa.
App. 64
Plaintiffs have failed to carry their burden of proof
to the effect that the Equal Protection Clause of the
United States Constitution or the Uniform Laws Require-
ment of the Iowa Constitution have been violated or will
be violated if the tax under House File 874 is permitted
to be collected and the other provisions of the Act enforced.
HOUSE FILE 874 IS UNCONSTITUTIONAL
UNDER THE PUBLIC PURPOSE REQUIREMENTS
OF THE IOWA CONSTITUTION
Article II], section 31 of the Iowa Constitution
provides:
“No public money or property shall be appropriated
for local or private purposes unless such appropria-
tion, compensation or claim be allowed by two thirds
of the members elected to each branch of the General
Assembly.”
It is not even argued in these proceedings that a two-
thirds vote was obtained for the purpose of avoiding the
effects of the aforementioned. constitutional provision.
Plaintiffs contend that enactment and enforcement
and eventual effect of House File 874 is for a private as
opposed to a public purpose and is therefore unconstitu-
tional under the aforementioned and quoted Iowa Con-
stitutional provision. Both parties (and particularly the
Defendants) have brought to the Court’s attention por-
tions of the language of House File 874 and of certain
sections of Chapter 307B of The Code. As examples,
section 307B.2 of The Code (as amended by House File
874) provides in part as follows:
“Declaration of Necessity and Purpose. The pur-
pose of this chapter is to benefit the citizens of Iowa
App. 65
by improving their general health, welfare and pros-
perity and ensuring the economic and commercial
development of the state and by promoting agricul-
tural and industrial improvement. Access to ade-
quate railway transportation facilities is essential to
the economic welfare of the state .. .”
§ 307B.3 of the Code (as amended by House File 874)
is rather outspoken and direct on this question. Sub-
section 11 of same reads as follows:
“All of the purposes stated in this section are public
purposes and are uses for which public monies may
be borrowed, expended, advanced, loaned or granted.”
Plaintiffs take the position that such a statement or
statements do not in themselves have the effect of chang-
ing a sow’s ear into a silk purse, that is make a private
purpose a public purpose. The lowa Supreme Court in
Simpson v. Low-Rent Housing Agency of Mount Ayr,
224 N. W. 2d 624, 627 (Iowa 1974), held that:
When reviewing a statute challenged under the pub-
lie purpose clause of the lowa Constitution, Articie
III, § 31, the Court while “not required to treat a
legislative declaration purpose as final, binding or
conclusive ... will not find absence of publie pur-
pose except where such absence is so clear ‘as to be
perceptible by every mind at first blush’. Dickinson
v. Porter 240 lowa 393, 417: 35 N.W.2d 66, 80
(1948).” See also Grubb v. Iowa Housing Finance
Authority, 255 N. W. 2d 89, 93 (Iowa 1977), and Green
v. Mount Pleasant, 256 lowa 1184; 131 N.W.2d 5
(1964).
As stated in Grubb, supra, in commenting on the bur-
den on Plaintiffs to establish lack of public purpose in the
face of legislative findings to the contrary, it was held that
same is especially difficult to satisfy because of the “plain
judicial intent to permit the concept of ‘public purpose’
App. 66
to have the flexibility and expansive scope required to
meet the challenges of increasingly complex social, eco-
nomic and technological conditions”.
After giving due consideration to the language of and
expressed purposes and intends of Chapter 307B of The
Code as amended by House File 874, this Court deter-
mines and rules that the Plaintiffs have failed to meet
their burden of proof that House File 874 is a private
purpose enactment as opposed to a public purpose enact-
ment and has further failed to prove that such tax law
violates the public purpose provisions of the Iowa
constitution.
HOUSE FILE 874 UNCONSTITUTIONALLY
BURDENS INTERSTATE COMMERCE BY
IMPOSING A TRANSIT FEE FOR MOVEMENT
ON OUT-OF-STATE SHIPPERS
Plaintiffs take the position that imposition of this
tax can be likened to a state duty or import-export fee.
The Court was referred to Michelin Tire Corp. v. Wages,
423 U.S. 276; 96 S.Ct. 535; 46 L.E.2d 495 (1976).
Therein, the Court examined the historical impetus for
the scheme of commercial regulation established by the
federal constitution. In drawing upon this history, as
well as other sources, the Court concluded that one of the
three principal reasons for the prohibition of state duty
and imposts on imports and exports was that:
“... harmony among the states might be disturbed
unless seaboard states with their crucial ports of
entry were prohibited from levying taxes on citizens
of other states by taxing goods merely flowing
through their ports to the other states not situated
as favorably geographically.”
App. 67
To call this tax an import or export fee such as the
evils sought to be corrected in the historical cases referred
to in Michelin, supra, requires some substantial stretch of
imagination. As indicated before, in Deposition Exhibit
127 only about three of the United States rank below Iowa
in taxes per mile paid by railroads (in the year 1978).
Also as indicated before, a collection of 15 million dollars
in revenues from this purpose would only place Iowa just
above the average of the United States. (Actually if this
Court’s computation is correct, we are talking about an
additional collection of on!y 8 million at the highest as-
sessment authorized by House File 874.)
Likewise, again in reference to Deposition Exhibit
127, the imposition of this tax would have a negligible
effect on the percentage of traffic loss.
The test of validity is whether the tax discriminates
against or unreasonably burdens interstate commerce.
This Court has already determined in these proceedings
and in this ruling that the tax imposed does not materially
discriminate against interstate commerce and is not ma-
terially an unreasonable burden on interstate commerce.
This Court therefore determines and rules that the
Plaintiff has failed to meet its burden of convincing this
Court that the tax involved under House File 874 exploits
out-of-state shippers by imposing upon them a transit fee
for movement though lowa, has failed to convince this
Court that same amounts to an import or export duty or
fee, and failed to convince this Court that such tax for
those reasons is a burden on interstate commerce and a
taking of the property of the Plaintiffs without due pro-
cess of law.
App. 68
THE TAX IMPOSED BY HOUSE FILE 874
DISCRIMINATES AGAINST PLAINTIFFS
BECAUSE THEIR COMPLIANCE BURDENS ARE
GREATER THAN THOSE OF PURELY
LOCAL RAILROADS
In this Court’s view, Western Livestock v. Bureau of
Revenue, 303 U.S. 250, 254; 82 L. E. 823, 827; 58 S.Ct.
546; 115 ALR 944 (1938), is right on point and is directly
against the proposition proposed by Plaintiffs. In
Western Livestock, the Supreme Court stated:
“It is not the purpose of the Commerce Clause to
relieve those engaged in interstate commerce from
their just share of state tax burden even though it
increases the cost of doing business . . ., and the bare
fact that one is carrying on interstate commerce does
not relieve him from many forms of state taxation
which add to the cost of his business.”
Plaintiffs by their own choice chose to function and
operate and do business in various states. If their choice
of conducting interstate commerce requires them to pre-
pare documents and compute their tax obligation respon-
sibility in each of the states involved, so be it. It is a
consequence of doing business in more than one state and
most certainly is not a discrimination that would render
the imposition of the tax an unconstitutional burden on
interstate commerce or deprivation of property without
due process.
The Plaintiffs have failed to carry their burden of
proving that the requirement of additional compliance,
expense or related activity unconstitutionally discrimi-
nates against them as opposed to purely local railroads.
App. 69
THE TAX IS AN UNCONSTITUTIONAL DENIAL
OF DUE PROCESS BECAUSE OF VAGUENESS,
UNREASONABLE DIFFICULTY IN APPLICATION
AND CONFISCATION OF TAXPAYERS’
FUNDS TO COMPLY
Perhaps the most difficult problems confronted by
the Court in these proceedings deals with the subject
matter above indicated. Considerable of the testimony
evidence and depositions in these proceedings had to do
with how certain employees of the Defendant and other
experts for respective sides viewed the terminology in-
volved in the Act involved and how they felt that it could
or could not be applied as a tax-raising measure.
The Iowa Supreme Court noted in Lee Enterprises,
Inc. v. Iowa State Tax Commission, 162 N. W. 2d 730-739
(Iowa 1968), an excise tax case:
“Only when the Act is so indefinite and uncertain that
the Courts are unable, by accepted rules of construc-
tion, to determine with any reasonable degree of cer-
tainty what the legislature intended, or when it is so
incomplete and inconsistent that it cannot be executed,
that the law will be invalidated as indefinite and
uncertain.”
The Iowa Supreme Court in Lee Enterprises, supra,
cited as authority for such proposition State v. Coppes,
247 Iowa 1057, 78 N. W. 2d 10 (1956), and other cites. The
above quote and the proposition of law stated therein un-
doubtedly came from page 1062 of the Iowa citation in
Coppes, swpra, but it was stated in a reverse manner as
follows:
“Tn 25 R. C. L. Statutes, Section 62, page 810, referring
to the fundamental rule governing the validity of a
Fe
>
a
App. 70
statute, it is stated that if it is couched in language
‘so vague, indefinite and uncertain that the Courts are
unable to determine, with any reasonable degree of
certainty, what the legislature intended, or is so in-
complete or is so conflicting and inconsistent in its
provisions that it cannot be executed, that it will be
declared to be inoperative and void.’ ”
Coppes, supra, which dealt with the constitutionality
of an lowa statute prescribing speed limits has a couple
of more statements that are important for this Court’s
understanding of its duty and responsibility in these pro-
ceedings. The following quotes appear on page 1066 of
the lowa citation:
“In State v. Andrews, 108 Conn. 209, 213, 142 Atlantic
840, 841, the Court said: ‘In most jurisdictions
statutes will not be held void for uncertainty if a prac-
ticable or sensible effect may be given to them.’
“In State Ex. Inf. Crow v. West Side Street Railway
Company, 146 Mo. 155, 167, 168, 47 S. W. 959, 961, the
Court said: ‘A statute cannot be held void for un-
certainty, if any reasonable and practical construction
can be given to its language. Mere difficulty in as-
certaining its meaning or the fact that it is susceptible
of different interpretations will not render it nuga-
tory. Doubts as to its proper construction will not
justify us in disregarding it. It is the bounden duty
of the Courts to endeavor by every rule of construc-
tion to ascertain the meaning of and to give full, force
and effect to every enactment of the General Assembly
not obnoxious to constitutional prohibitions.” (Em-
phasis applied)
Another instructive quote from Lee Enterprises,
supra, dealing with this Court’s burden is set forth on
page 738 of the Northwest citation as follows:
“The general rule applicable here is that one chal-
lenging the constitutionality of the legislative act on
at
App. 71
these grounds has the burden of establishing that the
Act is unconstitutional and must negative every rea-
sonable basis which may sustain the statute.” (Cases
cited—emphasis applied)
Iowa Rule of Civil Procedure 14(f) (13), Iowa Rules
of Appellate Procedure, indicates:
“In construing statutes the Court searches for the
legislative intent as shown by what the legislature said
rather than what it should or might have said.”
In these proceedings, as indicated above, Plaintiffs
offered the testimony of some State Department employ-
ees called as their witnesses as to the interpretation and
possible application of some of the terms and provisions
of the Tax Act involved. In a somewhat similar situation,
the Iowa Supreme Court in Jowa State Education Asso-
ciation v. PERB, 269 N. W. 2d 446 (Iowa 1978), stated as
follows at page 448:
“In order to search out legislative intent the PERB
heard testimony of three members of the General As-
sembly who had been active in the enactment of the
statute. These witnesses, on the basis of their leg-
islative experience, offered opinions on the subject
of legislative intent.
On a number of occasions we have seen records where
legislators gave similar testimony. At first blush it
might seem reasonable to rely upon an individual leg-
islator’s opinion of legislative intent. But we believe
such testimony is generally unpersuasive.
The legislative process is a complex one. A statute
is often, perhaps generally, a consensus expression
of conflicting private views. Those views are often
subjective. A legislator can testify with authority
only as to his own understanding of the words in
question. What impelled another legislator to vote
for the wording is apt to be unfathomable.
a)
App. 72
Accordingly we are usually unwilling to rely upon the
interpretations of individual legislators of statutory
meaning.
This unwillingness exists even where, as here, the
legislators who testify are knowledgeable and entitled
to our respect. See generally 2A Sutherland Statu-
tory Construction, 48.16, p. 22 (Fourth ed. 1973).
We have long ied the rule that ‘in construing
statutes the court searches for the legislative intent
as shown by what the legislature said, rather than
what it should or might have said.’ Rule 14(f) (13),
Rules of Appellate Procedure.
We pass the testimony of the legislators and turn to
the more traditional tools of statutory construction.”
(Emphasis applied)
The Court has examined particularly the testimony
of Cynthia Eisenhauer, Director of Excise Tax for the
Iowa Department of Revenue (beginning in Volume I,
Abstract of Record, page 113), that of Carl Anthony Cas-
telda, Il (beginning in Abstract of Record, Volume II,
at page 36 and in Abstract of Record, Volume III, begin-
ning at page 52), and that of George C. Shaffer, a trans-
portation consultant (Abstract of R rd, Volume ITI, be-
ginning at page 76).
Other witnesses testified for the respective parties
concerning somewhat the same subject matter. Both
Eisenhauer, in the hearing relative to the Temporary In-
junction, and Castelda, by deposition, were called by the
Plaintiffs. Castelda later testified in the trial on the mer-
its, as did Shaffer, for the Defendants.
These witnesses to varying degrees testified to such
matters as their opinion as to what is included in the
definition of “railroad vehicles”, “dispensed”, “within/
App. 73
without the State of Iowa”, “metering” requirements, and
some did to a certain extent make a comparison of the
statutory language with Exhibit 22—the monthly report
form.
Plaintiffs in these proceedings and in their brief have
made much of the fact that there is not a great deal of
consistency between these respective witnesses concerning
their opinions as to definitions and as to application of the
law and the filling out of the report form
However, as indicated above, in Jowa State Educa-
tion, supra, “such testimony is generally unpersuasive”.
This Court would observe, however, that there is in
fact considerable and general agreement among these re-
spective witnesses concerning the aforementioned defini-
tions and to some less extent their application in a form-
ula and in filling out Exhibit 22 im these proceedings.
The Iowa Supreme Court in American Home Prod-
ucts v. lowa State Board of Tax Review, 302 N.W.2d
140, 142-143 (Iowa 1981), set forth a number of traditional
rules of statutory construction utilized in tax cases. Be-
fore setting forth seven enumerated rules of statutory
construction, beginning on page 142 of American Home,
supra, the Court stated:
“The purpose of all rules of statutory construction is
to ascertain the intent of the enacting legislature.
Iowa National Industrial Loan Co. v. Iowa State De-
partment of Revenue, 224 N. W. 2d 437, 439 (Iowa
1974). (Emphasis applied)
The Court does not consider it necessary to set forth
the aforementioned and enumerated seven rules of statu-
tory construction.
App. 74
Sections 22 through 29 of the Act shows a manifest
legislative intent and purpose to impose the excise fuel
tax upon the consumption of fuel by “railway vehicles”
in the State of Iowa for propulsion purposes. The tax
applies to consumption of fuel in locomotives within the
State of lowa.
“Fuel” is defined in Section 23 of the Act. It does
not appear in these proceedings that there is any serious
question or doubt as to what type of “fuel” is the subject
of this tax measure.
“Department” and “railroad company” are also de-
fined; and there does not appear to be any serious ques-
tion as to what is meant by those two particular terms.
Subsection 3 of Section 23 of the Act defines “rail-
way vehicle” as meaning a vehicle designed and used pri-
marily upon railways for self propulsion or for propelling
conveyances.
The Defendants take the position that particular em-
phasis should be put on the words “used primarily” and
that while locomotives would clearly fit within the defini-
tion of “railway vehicle”, track maintenance equipment
would not fall within such definition because they are not
designed and used primarily for self propulsion or for
propelling conveyances.
This proposition was succinctly stated by Defendants
at page 14 of their Brief as follows:
“Any ambiguity in the definition of ‘railway vehicle’
should be resolved in favor of the taxpayer. Asso-
ciated General Contractors v. State Tax Comm’n, 255
lowa 673, 123 N. W. 2d 922 (1963). Therefore, track
App. 75
maintenance self-propelled vehicles do not constitute
‘railway vehicles’ as defined in section 23(3) of House
File 874 and consumption of fuel by such vehicles in
Iowa is nontaxable. To say otherwise would lead to
an absurd interpretation of the tax law.”
Another term that has perhaps caused some confusion
within this tax law and its application is the word “dis-
pense”. The word is used in section 24 in reference to the
requirement of metering. It is also used in section 26
which has reference to the tax computation and is specifi-
cally used in numbered paragraphs 1 throvgh 5 and in an
unnumbered paragraph which provides for the computa-
tion of the tax.
Its particular importance in these proceedings is that
it is used in connection with the requirement of “meter-
ing”. That subject in turn precipitated substantial tes-
timony and evidence in these proceedings as to, first, the
difficulty if not impossibility of a metering process and
more important the alleged tremendous capital expendi-
tures that would be required if the railroads were re-
quired to “meter” all fuel used.
The State takes the position that fuel is “dispensed”
when it is delivered, and fuel can be delivered into storage
or into a locomotive. Exhibit 13 is a letter dated Novem-
ber 16, 1981, from G. D. Bair, Director of Iowa Depart-
ment of Revenue, to F. L. Rilev, a Director of Tax Ac-
counting for the Plaintiff A.T.S.F. In this letter Bair
expresses the Department’s view that only fuel dispensed
in this state is subject to metering. He also states the
Department’s view that this “dispensing” could be either
into a railway vehicle or into a storage facility and that
if it is done by a fuel supplier it would undoubtedly be
App. 76
metered by that supplier and the invoices concerning same
could be used by the railroad without the necessity of it
itself likewise “metering” the fuel as it is “dispensed”
either directly into a railway vehicle or into a railway
storage facility. The Court would observe that the De-
fendants appear to be putting particular emphasis on the
fact that for the most part when the word “dispense” is
used it is used in connection with the following words “in
Iowa”. The only exception to that appears to be in sub-
section 5 of Section 26 where it is used in the following
context:
“DS. The total gallons of fuel dispensed outside Iowa
and placed into railway vehicles traveling within with-
out the State.”
The State’s position that whenever the word “dis-
pense” is used it has reference to fuel that is either placed
by a supplier either directly into a railway vehicle or into
a railway-owned fuel storage facility would seem to be
logical and reasonable with the exception of the aforemen-
tioned quoted subparagraph 5. The State offers explana-
tion for that one apparent inconsistency by taking the
position that fuel “dispensed” outside of Iowa is not re-
quired to be metered but that the definition would follow
that “dispense” still means fuel placed directly into a
railway vehicle or placed into a railway-owned storage
facility.
However, the one distinction might be that the fuel
“dispensed” outside of Iowa might not be metered, depend-
ing on the specific statutory requirements of the states
other than Iowa.
It is the Court's decision at this time to comment about
the comparison that Defendants made beginning on page
cad
App. {7
16 of their Brief in regards to the requirements of Exhibit
22 as compared with the required information to be sup-
plied in Section 26 of the Act. The purpose of this com-
parison is to determine whether or not the Act is so in-
definite and uncertain that the Court is unable to deter-
mine the legislative intent or that it is so incomplete and
inconsistent that it cannot be executed (see Lee Enter-
prises; supra).
It is the position of the Defendants that the first item
in Section 26 (the total gallons of fuel dispensed in Iowa)
and line 1 of Exhibit 22 (total gallons of fuel dispensed
in Iowa) simply represents the railroad company’s monthly
purchases of locomotive diesel fuel delivered by a sup-
plier either into a railroad-owned storage facility or de-
livered directly into a railway vehicle. This fuel would
be metered and invoices would be available to support
same.
The second item in Section 26 of the bill (the total
gallons of fuel dispensed in lowa and placed in railway
vehicles used solely within the State during the reporting
period) corresponds with line 3 of Exhibit 22 (total gal-
lons of fuel dispensed in Iowa for use in vehicles travel-
ing solely within Iowa). Hereinafter there will be a
method proposed to determine the amount of fuel used and
to be taxed regarding line 3 of Exhibit 22. However, in
all honesty it is unlikely that any sizeable amount, if any,
of fuel would fall into this limited category.
The third item in Section 26 (the total gallons of fuel
dispensed in Iowa for nontaxable purposes) corresponds
with line 2 of Exhibit 22 (the total gallons of fuel dispensed
in Towa for nontaxable purposes). It is possible that a
¥
App. 78
railroad might well have some specific figures for this
category, if in fact it could prove that some fuel was dis-
pensed for nontaxable purposes, such as fuel sold to an-
other railroad, fuel used to heat buildings, fuel used in
maintenance equipment, and perhaps some reasonable esti-
mate for spillage, particularly if this was a one-time size-
able occurrence. For the most part, however, this Court
observes that the nontaxable fuel more than likely would
be the product which results from some computation of
estimated fuel used solely within the State subtracted from
total gallons of fuel dispensed in Iowa.
The fourth item in Section 26 (the total gallons of
fuel dispensed in lowa and placed in railway vehicles used
within and without the State) corresponds with line 4 of
Exhibit 22 (total gailons of fuel dispensed in lowa for use
in vehicles traveling within and without the State of
Iowa). Accepting the Defendants’ position as to what
“dispense” means, item 4 of Exhibit 22 would represent
fuel delivered by a supplier within the State of Iowa and
metered by said supplier into a railway vehicle or into a
railway-owned storage facility and then actually (but not
necessarily metered) delivered into a railway vehicle that
during the reporting period traveled both within and with-
out the State of Iowa. Determination of the figure to be
inserted into paragraph 4 of Exhibit 22 would require
some method of determining the estimated amount of fuel
used for such purposes.
The fifth item in Section 26 (the total gallons of fuel
dispensed outside of Iowa and placed into railway vehicles
traveling within and without the State) corresponds to
line 5 of Exhibit 22 (total gallons of fuel dispensed outside
App. 79
of lowa for use in vehicles traveling within and without
the State of lowa). As indicated above, fuel “dispensed”
outside of lowa would not have to be metered. Such
fuel represents fuel that was placed in a railway vehicle
that during the reporting period traveled both within and
without the State of lowa. Again, it is required and
necessary that some method of determining the estimated
amount of fuel so used be utilized.
As indicated in Defendant’s Brief, the second, fourth
and fifth items in Section 26 would require the reporting
of total gallons of fuel dispensed into locomotives which
were used for propulsion of railway vehicles. The De-
fendants take the somewhat restrictive and conservative
view (giving the taxpayer the benefit of the doubt) that
locomotives when they are “idling” would not be used for
propulsion purposes and the fuel used during “idling”
would not be taxable.
Beginning on page 39 of Defendant’s Brief and based
apparently on the testimony of Mr. Castelda, Defendants
and Castelda proposed a six step procedure for comput-
ing line 5.of Exhibit 22, which as indicated above repre-
sents total gallons of fuel dispensed outside of Iowa for
use in vehicles traveling within and without the State of
Iowa.
The first step of the proposal would be the determina-
tion of total system fuel for the railroad involved for the
reporting month involved. This could generally consist
of a system wide dispensation of fue! into fueling loca-
tions by vendors or directly into locomotives by vendors.
This information is now reported annually in the R-1 re-
ports (see page 111 of Defendants’ Exhibit 6—Annual Re-
App. 80
port for Burlington Northern for the year 1980). That
page and form indicates that BN used fuel totaling 490
million gallons for the year 1980. It also indicates that
work train gallonage of 904 thousand was used.
The next step requires a determination of system miles
for the railroad involved and for the month involved.
Again, the railroads are required by the ICC to prepare
on an annual basis a compilation of the locomotive unit-
miles of their locomotives in each state. As an example,
the Iowa information for the year 1980 for BN again
appears in Defendants’ Exhibit 56 and is identified on page
SC-18. This report indicates total locomotive unit-miles
of 8 million plus for the year 1980. Also, it indicates
train-miles work trains in the amount of 30,787.
The third proposed step is mathematically the divi-
sion of the system fuel figure by the system mileage fig-
ure, which results in an average gallons per mile system
wide. Plaintiffs would argue and there was evidence pre-
sented to the effect that such a figure should not be used
to reflect, or be a part of any computation which has the
purpose of reflecting gallons of fuel used in Iowa. The
reason is that such a figure does not reflect what might be
substantial differences in terrain, in total train speed, in
total train load, and the particular driving and operation
methods of the engineer involved, ete. Based on the evi-
dence in these proceedings, however, this Court would de-
termine and rule that such individual characteristics and
factors would not so distort the eventual tax imposed as to
make the tax imposed indiscriminate and unconstitution-
ally sound. Such differences as they exist and to the ex-
App. 81
tent that they exist could certainly be a part of a rail-
road’s alternate proposal.
Step four of the proposal requires the identification
of locomotives that were never in Lowa during the report-
ing period. In this day of technology and computeriza-
tion, it does not appear to this Court to be anything close
to an insurmountable or even extremely expensive proc-
ess for a railroad to compile information that would re-
flect what of its locomotives either were or were not in
the State of Iowa during a particular month. In truth
and fact this Court is sure that most, if not all, of the rail-
roads presently keep such type of information for their
own records and information.
The next step in the proposal requires first the de-
termination of the miles traveled by the identified loco-
motives in step four for the period involved. In that re-
gard, the Court would state that it is reasonable and plaus-
ible and certainly possible that if one is required to keep
information for and to prepare reports that reflect the \
total system miles of locomotives for a year this would
indicate that such information can and more likely is kept
for an individual locomotive, and further, if it is kept for
an individual locomotive for a year, it could likewise be
computed for an individual locomotive for a month. Such
being the case and once that figure is determined, it could
be multiplied by the number of locomotives identified in
number four. The proposal suggests that those number
of miles (i. e., miles during the reporting system attribut-
able to locomotives that never enter the State of Iowa
during the reporting month) be multiplied by the average
gallons per mile (step three) and the result would equal
gallons of fuel used by locomotives during the reporting
‘period that never entered the State of Iowa.
App. 82
Step six of the proposal requires one to first de-
termine the total fuel dispensed into system locomotives
outside the State of Iowa for the reporting period and
for the railroad involved. Again, if it is required that
such information be maintained and obtained for the
preparation of system fuel on a yearly basis, and fuel
of necessity has to be dispensed within a respective
state, either into a holding receptacle or into a loco-
motive, it should be reasonably possible to compute on
a monthly basis the amount of fuel dispensed, as indi-
cated above, by a particular railroad into all of its
locomotives and in all states other than the State of
lowa. The proposal indicates that once that figure is
determined the figure determined in step five, ie. gal-
lons of fuel dispensed into locomotives which never en-
tered lowa during the reporting month, would be sub-
tracted, and the resultant figure would be the figure
required for completion of paragraph number 5 of form
22, i.e., total gallons of fuel dispensed outside of Iowa
for use in vehicles traveling within and without the
State of Iowa.
As one proceeds down form 22, the Court agrees
with the Defendants that the next step is obvious, ie.,
the totaling of items 4 and 5, and the resultant figure
6 represents the total gallons of fuel used in vehicles
traveling within and without the State of Iowa.
The next point of controversy deals with the com-
putation of the percentage. It is the Court’s opinion
that the purpose of the computation and use of such
percentage is to assure as best possible that the tax-
payer is not required to pay tax on fuel that was used
ouside of the State of Iowa and to further show the
App. 83
taxpayer that the tax imposed and paid in the State of
Iowa has a direct reflection on the extent of business
conducted by the railroad in the State for the report-
ing period involved.
This computation first requires the determination
of the total miles traveled in lowa. This Court is of
the opinion that that means the monthly figure which
compares with the annual figure that appears in Sched-
ule SC-18 of Defendants’ Exhibit 56 for the BN Rail-
road. The Court should note that it is not necessary
that a railroad necessarily use and follow the same
process and make the same assumptions that are used
in making and preparing a Schedule SC-18 but only
suggest that such is a process that could be used for
such purpose. According to the testimony, the process
used in the preparation of SC-18 first deals with the
concept of locomotive unit-miles. Edward Burkhardt
of the CNW described a locomotive unit mile as follows:
“Q. Explain what locomotive unit miles is. What
does that mean?
A. Well, as an example, if a locomotive has three
units and operates 100 miles, we’re going to
develop 300 locomotive unit miles on that trip.”’
Michael Iezkowski, as indicated above, was called
as a witness (on deposition) by the Defendants. He
was previously identified as a senior analyst in the
operations planning department of CNW. He testified
concerning the process used for determining locomo-
tive unit miles concerning train switching and yard
switching. He testified as follows:
“Q. In the four categories that we have been dis-
cussing of locomotive operations, is mileage
A.
A.
App. 84
developed by the Northwestern for each indi-
vidual locomotive unit?
Using the methodology that I have described,
namely for road unit miles, you take point to
point mileage. For train switching and yard
switching, you take the hours in service times
six. Yes, they do have records for individual
locomotive units.
And then would it be the aggregate of those
individual records that would give you your
total locomotive unit miles for each of the four
catagories?
Right.”
Iezkowski testified further on deposition concern-
ing the computation of locomotive unit miles as follows:
*Q.
A.
©
>
>
Now, to your knowledge does the North West-
ern determine in any manner locomotive miles
for through freight operations?
We do have computer records of locomotive
unit miles which are generated from the—I be-
lieve the conductor’s wheel report. And we
also have—some of these records also include
estimated train switching locomotive unit miles.
. The train switching locomotive unit miles, is
that also on the conductor’s wheel report?
. It’s generated from the conductor’s wheel re-
port, yes.
. What about way freight, do you determine mile-
age on way freight also?
. Yes, the locomotive unit miles for the through
freight as well as the way freight are all de-
termined in the same manner. It’s point to
point mileage from the conductor’s wheel re-
port.
. That’s the source document, in other words?
©
> ©
POP O-rOoOpPOo>d
App. 85
en
. Is that the only source document?
. For that particular record, yes.
Both —
. It’s the primary report, the only input for it.
In other words, for both through freight op-
erations —
. Right.
—and way freight operations?
. Right. The computer in calculating the unit
mileage doesn’t really discriminate hetween a
way freight and a through freight. It’s a train,
a train being a locomotive and/or cars which
operate between stations, over the road.
- Mr. Iezkowski, are you familiar with what has
been marked in this proceeding as Exhibit
204. It’s a schedule 931 statistics.
. Yes.
. Now, you mentioned, I believe, yard. Does
yard include only switching or does it include
other type of operations?
. No, yard is just local switching operation.
. It’s switching?
. Solely local switching right. It does not in-
clude any road service.
. All right. Do you develop any yard switching
miles for locomotives?
. Yes, we take the—I believe it’s the yard en-
gineer’s time return or the conductor—the yard
conductor’s time return and the number of
hours on duty are multiplied by the number
App. 86
of locomotives assigned to the particular yard
engineer and then multiplied by a factor of
six to determine estimated miles traveled—
unit miles traveled in yard service.
Q. And in train switching to determine those
miles, do you also use that type of formula?
A. The same basic formula. Only you take the
— again, it’s the road conductor or engin-er’s
time return, you multiply by the number of
locomotives on the wheel report times six to
get an estimate.”’
The reports prepared and regularly kept by the
railroads and referred to by Mr. Burkhardt and by Mr.
lezkowski are the source materials, or could be the source
materials for compilation of the information required
in determining the total miles traveled in lowa by the
respective railroad during the reporting month.
The next item to be computed is identified as 7B,
i.e., total miles traveled within and without Iowa. Using
the same process, the same source materials and com-
piling the comparable records for all locomotives of
the railroad that were used in the compilation of 7A
(i.e., locomotives that at some time travel within the
State of Iowa), it will be possible to compile the in-
formation required to complete item 7B. 7B, to this
Court’s understanding represents the total miles trav-
eled (regardless of geographical location) during the
reporting period by locomotives that travel to some
extent within the State of Iowa, and such Iowa travel
is reflected in 7A.
App. 87
Form 22 then requires that the 7A item be di-
vided by the 7B item and the resultant figure be mul-
tiplied by 100 to produce a percentage. This appears
to be in reasonable conformity with (albeit in this
Court’s view a somewhat clumsy process) the require-
ments of the statute involved which refers to a ‘‘frac-
tion, the numerator of which is miles traveled in Iowa
by railway vehicles traveling within/without Iowa and
the denominator of which is the total miles traveled
by the same railway vehicles.”
Form 22 then requires the taxpayer to multiple
the item 6 gallons by the indicated percentage and then
add that resultant number of gallons to the gallonages
indicated in item 3, resulting in the total number of
gallons to be taxed. The form then goes on and re-
quires imposition of a 3 cent per gallon tax (as in-
dicated above, that figure now by passage of time
would be in the amount of 8 cents per gallon).
The purpose of this Court’s extended discussion
of the proposals and the attempted explanation as to
how this tax could be computed and enforced and per-
haps more importantly the types of materials and rec-
ords that should be readily available to the railroad
to comply with this Act is to determine whether or not
the tax imposed and the statute involved is so vague
and so unreasonably difficult in application as to be an
unconstitutional denial of due process.
As indicated in lowa National Industrial Loan Co.
v. lowa State Department of Revenue, 224 N.W.2d
437 (lowa 1974). the Iowa Supreme Court at page 442
of the Northwest citation stated as follows:
App. 88
‘*It is well settled that one of two possible inter-
pretations leads to unconstitutionality and the other
to constitutionality. We must adopt the view which
upholds rather than defeats the law.”
The same Court in the same case on the same page
when discussing the use of the word either ‘‘may’’ or
the word ‘‘shall” went on to state:
‘*Conversely, we believe ‘may’ shall be construed
to be mandatory rather than permissive, if that
were necessary to preserve the constitutionality of
Section 422.37(1).”
Again, this is strong, instructive language of our
Appellate Court as to what Plaintiffs might consider
to be extreme lengths the Court must go in attempt-
ing to preserve the constitutionality of questioned stat-
utes.
The Plaintiffs have failed to carry their burden
of proving that the statute involved is so vague and so
unreasonable difficult in application as to be an un-
constitutional denial of due process.
The other problem area referred to in this par-
ticular division or portion of the ruling deals with
the question as to whether or not there has been an
unconstitutional confiscation of railroad property, i.e.,
are unreasonable and exorbitant expenditures required
to comply with this law. Substantial of this record
dealt with testimony of railroad witnesses as to what
they would consider to be astronominical required ex-
penses if in fact they were required to meter fuel as it
goes into locomotives. In the same light, estimates of
considerable expense were given if they are required
App. 89
to have some form of elaborate mechanism on the loco-
motives that would indicate at any one given time the
amount of fuel remaining in its locomotive storage
tanks so as to permit some estimate of use as it passed
perhaps into and out of the State of Iowa. In the
same light, estimates of extreme expense were given
by railroad witnesses concerning miles traveled devices
(odometers!) on locomotives. We note that such de-
vices would not necessarily be of particular import-
ance if one were measuring distance between stations,
but it certainly would be helpful in measuring the dis-
. tance traveled by locomotives within switch yards and in
train switching oprations. There is also testimony and
argument given to the Court to the effect that consid-
erable additional help and the commensurate expense
concerning same would be required if the railroads
were to reasonably and with any degree of accuracy
measure ‘‘idle in tow’’ and ‘‘dead in tow” locomotive
operations.
In regards to metering, the Court has stated before
in this decision that metering approval is only required
in regards to fuel that is dispensed within the State
of Iowa and that would be either into a railroad-owned
storage facility or directly into a locomotive. Again, as
indicated above, that would undoubtedly come from a
fuel dealer and would be metered by them as opposed
to being specifically metered by the railroad. While
App. 90
metering might be of some assistance to the railroad and
this record would indicate that all of them are involved
to some extent in that process, it certainly is not a re-
quirement and is not the basis for any required and nec-
essary substantial expenditure of funds on the part of
the railroad.
In regards to the necessity and expense commen-
surate with the use and the obtaining of some kind of an
odometer device, the Court has hereinbefore indicated
that there are other methods and other reports presently
available and required from which a reasonable estimate
of miles traveled can be obtained without the necessity
of or the expense of the implimentation of some kind
of an odometer device to measure miles traveled by a
locomotive. Again, this is not the basis of required and
unreasonable expenses as far as compliance is concerned.
It is true that some additional expenditure of per-
sonnel will be required for the railroads to determine,
with any degree of accuracy, to what extent locomotives
are “idle in tow’’ or ‘‘dead in tow’’. However, it is con-
ceivable and possible that some of this information is
already being coliected by the railroads, and in any
respect any additional expenditures in that regard would
certainly not be so confiscatory such as to render this
statute unconstitutional as being a deprivation of prop-
erty without due process.
This Court therefore determines and rules that the
Plaintiffs have failed to meet their burden of proof that
the imposition of this tax and its requirements amounts
to a confiscatory deprivation of railroad funds without
due process and it is not therefore in violation of the
Constitution of the United States.
App. 91
Before moving on to other matters, it is necessary
for the Court to comment about two other questions that
were raised concerning the computation of the tax and
its application. As will be noted in the above comment
by the Court concerning the computation of the tax and
in particular in the determination of the system mileage
and the Iowa mileage, reference was made to the SC-18
form which is contained in the R-1 reports. In the com-
pilation of locomotive unit-miles, train switching miles
and yard switching miles used a 6 mile an hour average
for such computation. The Railroad Plaintiffs serious-
ly question the accuracy of such 6 mile factor and in
support of such objection offered into evidence Exhibits
206 and 207. 207 is a letter from Chicago & Northwestern
Railroad to a representative of the Interstate Commerce
Commission wanting to know the basis for the 6 mile an
hour average used for calculating locomotive unit-miles
for yard and train switching services. 206 is the response
from a representative of the Interstate Commerce Com-
mission to such request for information. The important
part of said response is as follows:
‘‘Unfortunately, we are unable to locate in our files
specific documentation on the original establishment
of this factor. However, the factor has been used
for many years and has general acceptance for the
purpose for which it is used in rail costing.”
It certainly would have been beneficial to these pro-
ceedings if we could have had a more definitive and posi-
tive response or answer than was indicated in Exhibit
206. It was also indicated in these proceedings that some
of the expert witnesses called are even now involved in
programs and studies aimed at developing a more cred-
ible process of determining switching and yard mileage.
App. 92
On the other hand, to this Court’s recollection the Plain-
tiffs were not able to come up with any alternative pro-
cedure that would warrant the at least present discon-
tinuance of the 6 mile per hour factor for the determina-
tion of switching and yard mileage. In any event, use of
that factor is not such as in this Court’s view and opin-
ion would produce such a variance in tax collection as
would cause it to be discriminatory and unconstitutional.
The Plaintiff-Railroads also contended that the tax
was unworkable because of their use of ‘‘pooling agree-
ments’’ with other railroads. The Defendants’ response,
which this Court is willing to accept, was that the statute
involved imposes the tax on the consumption of fuel by
the railroad company and that the Defendants interpret
this to mean fuel consumed when the locomotive is op-
erated by the taxpayer railroad company and not by
someone else. It is this Court’s understanding that mile-
age incurred by railroad locomotives while they are in-
volved in a pooling agreement is not included in the mile-
age statement (contained in R-1) of the owner of the
locomotive but rather it is included in the like instrument
for the other railroad involved in the pooling agreement.
In any event, not taxing the owner-railroad for fuel
consumed when a particular locomotive is being operated
by another railroad is a reasonable construction of the
tax law. This Court adopts such construction in an effort,
if same is necessary, to uphold rather than defeat this
statute (see Jowa Natural Industrial Loan Co., supra).
HOUSE FILE 874 VIOLATES THE COMMERCE
CLAUSE AND THE DUE PROCESS CLAUSE OF
THE CONSTITUTION OF THE UNITED STATES
BECAUSE IT TAXES FUEL CONSUMED OUTSIDE
OF THE STATE OF IOWA
a
<
~
*
*
é*
App. 93
The Due Process Clause forbids State taxation of
activities which lack any substantial nexus with the taxing
State. The Commerce Clause also limits such activity
because interstate commerce needs protection from dis-
criminatory burdens and from the danger of multiple
taxation of the same activities or values by different
States.
Plaintiffs claim that they pay sales or use tax on
diesel fuel which is later consumed in the State of lowa
and taxed by the State of Iowa and that such process
amounts to an impermissible double taxation on the same
product.
Defendants counter that the tax imposed under House
File 874 does not amount to impermissible double taxation.
In Dain Manufacturing Co. v. Iowa State Tax Com-
mission, 237 Towa 531, 22 N.W.2d 786 (1946), the Iowa
Supreme Court discussed and explained the complimen-
tary nature of the Iowa Sales and Use Tax scheme as
follows:
“The purpose of the use tax law is indirectly to tax
sales that cannot be directly taxed under the Iowa
sales-tax law. Since sales of property designed for
use in Iowa cannot be taxed if consummated outside
the state, our legislature has resorted to the plan (not
uncommon in recent years) of taxing the use of such
property in the state. The tax is on the use but it
presupposes a prior sale. The tax serves the double
purpose of producing revenue that otherwise might
not be available and of furnishing some measure of
protection to Iowa dealers from competition with out-
side vendors not subject to liability for sales tax. See
discussion in Henneford v. Silas Mason Co., 300 U.S.
577, 581, 57 S. Ct. 524, 526, 81 L. Ed. 814, quoted in
Zoller Brewing Co. v. State Tax Commission, 232
App. 94
Iowa 1104, 1106, 5 N.W.2d 643, 6 N.W.2d 843. The law
is at the same time apparently drawn with the pur-
pose avoiding double taxation.”
237 Iowa at 534, 22 N.W.2d at 788.
The Court has not been apprised that eale or use
taxes in any other states substantially differ in their
approach or intent so as to be distinctly different from
the explanation set forth by the Iowa Supreme Court in
Dain, supra. The basis of either sale or use tax is the
purchase price of the item. The taxable event is when
the item is purchased.
In contrast, the basis of the tax imposed by House
File 874 is so many cents per gallon of diesel fuel con-
sumed or burned in propelling a locomotive within the
State of Iowa. The taxable event is when said fuel is
consumed in Iowa. Our tax applies to the consumption of
fuel in Iowa, so the required connection or nexus with the
taxing State (Iowa) is met.
A business that operates interstate can be tax by
multiple jurisdictions so long as each jurisdiction properly
apportions the income, use or property subjected to taxa-
tion. See Exron Corporation v. Wisconsin Department
of Revenue, 447 U.S. 207, 228-229, 65 L. Ed. 2d 66, 84-85,
100 S. Ct. 2109 (1980). ,
The Iowa legislature in House File 874 and partic-
ularly in the apportionment formula contained therein has
in this Court’s view made an honest effort and attempt to
reasonably avoid imposing a tax on fuel that is not con-
sumed in Iowa. If one understands that the tax is on the
consumption of fuel in Iowa, by its very terms no other
State could tax fuel that is being “consumed” in Iowa.
App. 95
Obviously, fuel can only be consumed in one geographical
area or State.
A 1979 Iowa Supreme Court decision is instructive on
this question. In Cedar Valley Leasing, Inc. v. Iowa De-
partment of Revenue, 274 N.W.2d 357, the Plaintiff
leasing company objected to paying sales tax on the pur-
chase of equipment used in its business. Plaintiff claimed
double taxation because the company also was required
to pay service tax on its gross receipts for the privilege of
renting the equipment.
The Court stated at page 361 of the Northwest 2d
citation :
“The basic premise of Cedar Valley’s position is that
it is a victim of double taxation. It is willing to pay
tax on its gross receipts from the equipment rental
but claims it should not have to pay tax when it pur-
chases the equipment. The constitutional aspects of
this premise have been abandoned on appeal .. .
“There is no double taxation imposed in this case.
Generally speaking, the sales and services taxes are
excise taxes: the tax is imposed on the transactions
and the privilege to conduct it not the property .. .
The sales tax on Cedar Valley machinery acquisition
costs is on the privilege of selling the equipment...
The service tax on the equipment rental is grounded
on the privilege of renting or leasing equipment.
“Double taxation occurs only where there is the im-
position of the same taxes by the same taxing power
upon the same subject matter . . . Contrary to Cedar
Valley’s characterizations, there exists in this case
two separate and distinct transactions which are sub-
ject to the tax imposed by Section 422.43. The fact
that they occur simultaneously is of no significance
... The statutory interpretation we adopt does not
result in double taxation.”
App. 96
In an effort to superimpose the teaching of Cedar
Valley leasing, supra, to our fact situation, let us assume
for the sake of argument (and in this record that is not an
unfair assumption) that the Plaintiffs or some of them
have in fact paid other State taxes at the time that they
purchased the fuel involved. Under the teaching of
Cedar Valley Leasing, supra, however, that is not imper-
missible double taxation as the taxable event and the basis
of tax are different. The basis of taxation and the tax-
able event have been indicated above in this decision.
In any event and in summary, on the basis of this
total record and this Court’s understanding of the law and
its application to these proceedings, this Court deter-
mines and rules that there is not impermissible double
taxation herein such as to render this tax unconstitutional.
Plaintiffs have failed to carry their burden of proof
to the effect that there is an impermissible double taxa-
tion herein which deprives them of their property without
due process of law or which violates the Commerce Clause
of the United States Constitution.
HOUSE FILE 874 IS UNCONSTITUTIONAL
BECAUSE IT PERMITS IN ITS APPLICATION
THE TAXATION BY THE STATE OF IOWA
OF FUEL THAT WAS “CONSUMED”
IN ANOTHER STATE
For the most part this contention on the part of the
This text is long and has been trimmed here. Open the source document for the complete 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.