Amicus Curiae Brief — Burlington No. R. Co. v. Okla. Tax Comm'n

Supreme Court, U.S,

EIUVED

$)

No. 86-337 CEC 12 1986

| BOSEPH F. SPANIOL, JR.

In the Supreme Court of the Hutter Seetie

OCTOBER TERM, 1986

BURLINGTON NORTHERN RAILROAD COMPANY, PETITIONER

Uv.

OKLAHOMA TAX COMMISSION, ET AL.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

ALBERT G. LAUBER, JR.

Deputy Solicitor General

RICHARD G. TARANTO

Assistant to the Sul citor General

ANTHONY J. STEINMEYER

JEFFREY CLAIR

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

JIM J. MARQUEZ

General Counsel

Department of Transportation

Washington, D.C. 20590

JOHN M. MASON

Chief Counsel

Federal Railroad Administration

Washington, D.C. 20590

sl

QUESTION PRESENTED

Whether, in a case alleging that a state has overvalued

railroad property for ad valorem property tax purposes,

the prohibition against discriminatory state taxation of

railroads in Section 306 of the Railroad Revitalization

and Regulatory Reform Act of 1976, 49 U.S.C. 11503, is

limited to purposeful overvaluation with discriminatory

intent.

TABLE OF CONTENTS

Interest of the United States _...... ee = AT e nes

Statement JOSE

Summary of argument ................

Argument:

I. Section 306 bars any state property tax that

discriminates against railroads, without regard

to the state’s intent _......

II. Section 306 forbids discriminatory overvalua-

tion of railroad property and thus of necessity

requires federal courts to make an independent

determination of the true market value of that

property ........ . et ae

III. A judicial narrowing of Section 306 cannot be

justified on the theory that the statute as writ-

ten unreasonably interferes with state tax col-

lection or unduly burdens federal courts

Conclusion ...... Peet Soe + a

TABLE OF AUTHORITIES

Cases:

Alabama G. S. R.R. v. Eagerton, 633 F.2d 1036

Arizona V. Atchison, T. & S.F. R.R., 656 F.2d 398

Atchison, T. & S.F. Ry. v. Bair, 338 N.W.2d 338,

cert. denied, 465 U.S. 1071

Atchison, T. & S.F. Ry. v. Board of Equalization,

~]

9,13

10

10

795 F.2d 1442 . ia 4,12, 26

Bacchus Imports, Ltd. V. Dias, 468. U.S . 263

Burlington N. R.R. v. Bair, 766 F.2d 1222

Burlington N. R.R. v. Lennen, 715 F.2d 494, cert.

denied, 467 U.S. 1230 a

Fair Assessment in Real Estate Ass’n v. MeNary,

EE cD

12

7,19

passim

27

IV

Cases—Continued:

Greene V. Louis & 1. R.R., 244 U.S. 499

Illinois Commerce Comm’n v. United States, 292

U.S. 474

Louisville & N. R.R. v. Department of Revenue,

736 F.2d 1495

McLoud Telephone Co. v. State Bd. of Equaliza-

tion, 655 P.2d 1037

Memphis Bank & Trust Co. v. Garner, 459 U:S.

392

Minnesota v. Clover Leaf Creamery Co., 449 U.S.

456

Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., 460 U.S. 1

Moses Lakes Homes, Inc. v. Grant County, 365 U.S.

744

Norfolk & W. Ry. vy. Missouri State Tax Comm'n.

390 U.S. 317

Ogilvie v. State Bd. of Equalization, 657 F.2d 204,

cert. denied, 454 U.S. 1086

Richmond, F. & P. R.R. vy. Department of Taxa-

tion, 762 F.2d 375

Rosewell v. LaSalle National Bank, 450 U.S. 503

Southern Ry. v. State Bd. of Equalization, 7

F.2d 522

Trailer Train Co. Vv. State Bd. of Equalization, 710

F.2d 648 al

Union Tank Line Co. v. Wright, 249 U.S. 275

Washington v. United States, 460 U.S. 536

15

Constitution and statutes:

U.S. Const. :

Commerce Clause

Amend. XIV (Due Process Clause)

Act of Oct. 17, 1978, Pub. L. No. 95-473, 92 Stat.

1337 et seq.

§ 3(a), 92 Stat. 1466

Airport and Airway Improvement Act of 1982,

Pub. L. No. 97-248, § 532, 95 Stat. 701 (49

U.S.C. App. 1513(d) )

Vv

Constitution and statutes—Continued: Page

Bus Regulatory Reform Act of 1982, Pub. L. No.

97-261, § 20, 96 Stat. 1122 (49 U.S.C. 11503a) 12

Interstate Commerce Act, 49 U.S.C. (1976 ed.) 1

et seq.:

§ 13(4), 49 U.S.C. (1976 ed.) 13(4) 12

§ 202(b), 49 U.S.C. (1976 ed.) 302 (b) 22

$ 202(b(1), 49 U.S.C. (1976 ed.) 302(b) (1) 22

Motor Carrier Act of 1980, Pub. L. No. 96-296,

§ 31, 94 Stat. 823 (49 U.S.C. 11503a) 12

Railroad Revitalization and Regulatory Reform

Act of 1976, Pub. L. No. 94-210, § 306, 90 Stat.

54 (49 U.S.C. (1976 ed.) 26c, recodified at 49

U.S.C. 11503) passim

$ 306(1), 90 Stat. 54 2,10, 22

§ 306(1) (a), 90 Stat. 54 3, 10, 24

§ 306 (1) (b), 90 Stat. 54 3

$ 306(1) (c), 90 Stat. 54 2-3, 9, 10

§ 306(1) (d), 90 Stat. 54 2,9,17

§ 306(2), 90 Stat. 54 3

§ 306 (2) (b), 90 Stat. 54 4, 23

§ 306 (2) (c), 90 Stat. 54 4, 23, 24

§ 306 (2) (d), 90 Stat. 55 3, 4, 14, 24

§ 306(2) (e), 90 Stat. 55 3, 4, 6, 14

Tax Injunction Act, 28 U.S.C. 1341 2, 21

Okia. Stat. Ann. tit. 68 (West 1966 & Supp. 1985) :

§ 2442 21

$§ 2465-2468 5

Miscellaneous :

1 J. Bonbright, The Valuation of Property (1937) 19

Common and Contract Carrier State Property Tax

Discrimination: Hearing on H.R. 16245, et all.

Before the Subcomm. on Transportation and

Aeronautics of the House Comm. on Interstate

and Foreign Commerce, 91st Cong., 2d Sess.

(1970) 16-17

121 Cong. Rec. 41341 (1975) 19

Miscellaneous—Continued : Page

Discriminatory Taxation of Common Carriers:

Hearings on S. 927 Before the Subcomm. on

Surface Transportation of the Senate Comm.

on Commerce, 90th Cong., 1st Sess. (1967) 15

H.R. Rep. 94-725, 94th Cong., lst Sess. (1975). 11, 20,

22, 24

International Association of Assessing Officers,

Improving Real Property Assessment (1978) 3

Railroad Revitalization: Hearings on H.R. 6351

and H.R. 7681 Before the Subcomm. on Trans-

portation and Commerce of the House Comm.

on Interstate and Foreign Commerce, 94th

Cong., Ist Sess. (1975) 23

S. Rep. 445, 87th Cong., Ist Sess. (1961) 10

S. Rep. 1483, 90th Cong., 2d Sess. (1968) _............ passim

S. Rep. 91-630, 91st Cong., 1st Sess. (1969) passim

S. Rep. 92-1085, 92d Cong., 2d Sess. (1972) 10, 19, 23

S. Rep. 94-595, 94th Cong., 2d Sess. (1976)... 21

State Tax Discrimination Against Interstate Car-

rier Property: Hearing on S. 2289 Before the

Subcomm. on Surface Transportation of the

Senate Comm. on Commerce, 91st Cong., 1st

Sess. (1969) SEAS a

Surface Transportation Legislation: Hearings on

S. 2362, et al. Before the Subcomm. on Surface

Transportation of the Senate Comm. on Com-

merce, 92d Cong., lst Sess. (1972) ...... 17

Tax Assessments on Common Carrier Property:

Hearing on H.R. 736, H.R. 10169 Before the

Subcomm. on Transportation and Aeronautics

of the House Comm. on Interstate and Foreign

Commerce, 88th Cong., 2d Sess. (1964) 10, 16

Tax Assessments on Common Carrier Property:

Hearings on H.R. 4972 Before the House Comm.

on Interstate and Foreign Commerce, 89th

Cong., 2d Sess. (1966) 10

Iu the Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-337

BURLINGTON NORTHERN RAILROAD COMPANY, PETITIONER

Vv.

OKLAHOMA TAX COMMISSION, ET AL.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONER

INTEREST OF THE UNITED STATES

This case concerns the scope of federal court jurisdic-

tion to enjoin discriminatory state taxation of railroads

under Section 306 of the Railroad Revitalization and

Regulatory Reform Act of 1976 (4R Act), Pub. L. No.

94-210, 90 Stat. 54 (codified at 49 U.S.C. 11503). The

4R Act sets out a comprehensive framework for revitaliz-

ing the Nation’s railroads. Section 306 is an integral part

of this national transportation policy and is intended to

protect interstate rail commerce from the burdens of dis-

criminatory state taxation. The United States has a

strong interest in preserving the federal courts’ power

to enforce these statutory protections. This Court on a

previous occasion has invited the United States to ex-

press its views on the question presented. See U/S.

Amicus Br., Burlington N. RR. v. Lennen, No. 83-802.

cert. denied, 467 U.S. 1230 (1984) (U.S. Lennen Br.).

(1)

2

STATEMENT

1. Section 306 of the 4R Act prohibits, and vests fed-

eral district courts with jurisdiction to enjoin, discrimi-

natory state taxation of railroads. The 4R Act as a

whole sets out a comprehensive congressional response to

the economic deterioration of the rail industry. Section

306 focuses on discriminatory state taxation as a par-

ticular cause of that decline. See, ¢.g., H.R. Rep. 94-725,

94th Cong., lst Sess. 78 (1975). After 15 years of study,

Congress found that excessive state taxation “consti-

tute[s}] an unreasonable and unjust discrimination

against, and an undue burden on, interstate commerce”

($ 306(1), 90 Stat. 54). Accordingly, in the exercise of

its plenary power to protect the channels of interstate

commerce, Congress carved out an exception to the Tax

Injunction Act, 28 U.S.C. 1341, and empowered federal

courts to enjoin prohibited forms of discriminatory state

taxation.

Section 306 broadly prohibits a state from imposing

any tax that “results in discriminatory treatment of a

common carrier by railroad” (§ 306(1)(d), 90 Stat.

04). With respect to tax rates, the statute forbids a

State or political subdivision to levy or collect an ad

valorem tax on railroad property at a rate that exceeds

the rate generally applicable to commercial and industrial

property in the same jurisdiction (§ 306(1) (c). 90 Stat.

1 This statutory language, along with certain other statutory

provisions, was altered slightly when Section 306, originally ccdified

at 49 U.S.C. (1976 ed.) 26c, was recodified in 1978 at 49 U.S.C.

11503. See Act of Oct. 17, 1978, Pub. L. No. 95-473, 92 Stat. 1337

et seq. The changes effected by the 1978 recodification were made

solely “for clarity” (see 49 U.S.C. 11503 (historical and revision

notes) ) and “may not be construed as making a substantive change

in the laws replaced” (Pub. L. No. 95-473, §3(a), 92 Stat. 1466).

Although there is thus no substantive difference between the origi-

nal and recodified versions of the statute, it has become customary

to refer to it by citing the relevant subsections of Section 306, and

we will follow that practice here.

3

54). With respect to tax assessments (and taxes levied

or collected on the basis of such assessments), the statute

requires that a state’s assessment practices be tested by

a simple comparison of two arithmetic ratios. Under that

test, a state’s assessment practices are unlawfully dis-

criminatory if the ratio of assessed value to true market

value (referred to as the “assessment ratio”) for railroad

property exceeds the assessment ratio for “all other com-

mercial and industrial property” (§ 306(1)(a) and (b),

90 Stat. 54).

In proceedings brought under Section 306, “the burden

of proof with respect to the determination of assessed

value and true market value shall be that declared by the

applicable State law” (§ 306(2)(d), 90 Stat. 55). The

statute also provides that the assessment ratio for non-

railroad commercial and industrial property may be es-

tablished “through the random-sampling method known

as a Sales assessment ratio study” (§ 306(2) (e), 90 Stat

55)." If the assessment ratio for non-railroad property

cannot be satisfactorily established by that method, the

court must base :*s comparison on the assessment ratio

for “all other [non-exempt] property in the assessment

jurisdiction,” not just for commercial and industrial

property (ibid.).

A federal court that finds state property tax assess-

ments to discriminate against railroads is empowered to

enjoin the violation. The statute provides (§ 306(2), 90

Stat. 54):

Notwithstanding any provision of section 1341 of

title 28 [United States Code, the Tax Injunction

Act], or of the constitution or laws of any State,

the district courts of the United States shall have

jurisdiction, without regard to amount in contro-

versy or citizenship of the parties, to grant such

2A “sales assessment ratio study” compares the assessed value

to the actual sale price for a representative and statistically valid

sample of property within the assessment jurisdiction. See Interna-

tional Association of Assessing Officers, Improving Peal Property

Assessment 122-155 (1978).

mandatory or prohibitive injunctive relief, interim

equitable relief, and declaratory judgments as may

be necessary to prevent, restrain, or terminate any

acts in violation of this section * * *.

The scope of this equitable jurisdiction is limited by the

provisions (described above) defining the burden and

manner of proving the “assessment ratio.” See § 306

(2) (d) and (e). 90 Stat. 55. The scope of the court’s

jurisdiction is also limited in two other respects. State

taxing authorities were given a grace period of three

years following enactment—that is. until February 5,

1979—before Section 306 took effect (§ 306(2) (b). 90

Stat. 54). And a district court is barred from granting

any relief under Section 30€ unless the railroad proves

that the assessment ratio for its property exceeds the

assessment ratio for other commercial and industrial

property by at least 5% (§ 306(2) (c), 90 Stat. 54).

The courts of appeals have unanimously concluded that

Section 306 prohibits both de jure and de facto discrimi-

nation. See Atchison, T. & S.F. Ry. v. Board of Equaliza-

tion, 795 F.2d 1442 (9th Cir. 1986): Richmond. F. &

P. R.R. v. Department of Taxation, 762 F.2d 375. 379

(4th Cir. 1985); Louisville & N. R.R. v. Department of

Revenue, 736 F.2d 1495, 1498 (11th Cir. 1984); Burling-

ton N. R.R. v. Lennen, 715 F.2d 494, 497 (10th Cir.

1983), cert. denied, 467 U.S. 1230 (1984): Ogilvie Vv.

State Bd. of Equalization, 657 F.2d 204, 210 (8th Cir.).

cert. denied, 454 U.S. 1086 (1981). De jure discrimination

occurs when state laws apply a dilferent tax rate or a

different assessment percentage to railroad property than

they apply to other commercial and industria] proper‘y.

De facto discrimination occurs when the tax rates and

assessment percentages are nominally the same but pro-

duce disparate results, in that the “assessment ratios”

for railroad and non-railroad property are different.*

* States typically calculate assessed value (the numerator in the

“assessment ratio”) as a percentage of true market value he

denominator in the “assessment ratio”). If a state has accurately

a |

De facto discrimination may arise in two ways. A

state may underestimate the true market value of non-

railroad property, without equivalently underestimating

the true market value of railroad property. Alterna-

tively, the state may overestimate the true market value

of railroad property, without equivalently overestimating

the true market value of non-railroad property. In either

event, the “assessment ratios” for railroad and non-

railroad property will differ, in violation of Section

306(1)(a). A railroad’s claim of the first type of de

facto discrimination has been termed by the courts a

claim for “equalization” relief. A railroad’s claim of the

second type of de facto discrimination has been termed

a claim for “valuation” relief. See, e.g., Pet. App. 2a:

Burlington N. R.R. v. Lennen, 715 F.2d at 496, 497.

We find this terminology confusing, and will generally

refer in this brief to “undervaluation” and “overvalua-

tion” claims, respectively.

2. This case involves an overvaluation claim. Peti-

tioner, a rail carrier, brought this action in the United

States District Court for the Western District of Okla-

homa to enjoin the Oklahoma Tax Commission from col-

lecting ad valorem property taxes alleged to be excessive

and discriminatory under Section 306.‘ Petitioner as-

serted that Oklahoma tax authorities had so drastically

overestimated the market value of its transportation

property that the assessment ratio for its property was

far in excess of the ratio for non-railroad property (Pet.

App. 3la-32a).

calculated true market value, this assessment percentage will obvi-

ously be the same as the “assessment ratio” independently deter-

mined in court. These two figures will differ when the market value

declared by the state is not the true market value.

* Petitioner has also challenged the tax assessment pursuant to

procedures made available under Oklahoma law. See Okla. Stat.

Ann. tit. 68, §§ 2465-2468 (West 1966 & Supp. 1985). We under-

stand that those administrative proceedings are currently pending

a

6

The district court, though acknowledging that “the

|respondents] themselves admit the existence of a legiti-

mate valuation dispute between the parties,” concluded

that it lacked jurisdiction to entertain petitioner’s claim

of discriminatory overvaluation (Pet. App. 16a). In so

ruling, the district court relied on the Tenth Circuit’s

earlier decision in Burlington N. R.R. v. Lennen. 715

F.2d at 497-498. In Lennen, the Tenth Circuit held that

Section 306 was not “intended to provide relief from

every form of de facto discrimination” and that only

“equalization, not valuation, relief was intended to be

made.available to the railroads” (ibid.). The court noted

that Section 306(2)(e) specifies statistical random sam-

pling as a permissible method for determining the true

market value of non-railroad property, whereas the

statute “contains no discussion of a proper method for

valuing rail property”; the Tenth Circuit inferred from

this silence a legislative intent that courts should refrain

from taking jurisdiction of a railroad’s claim that its

property had been overvalued (715 F.2d at 497). The

Tenth Circuit in Lennen also reasoned that, if Section 306

were construed to permit railroads to bring federal court

challenges to the states’ computation of railroad prop-

erty’s market value, that construction “would impose

significant burdens on district courts and would substan-

tially thwart the tax collection process of states and their

subdivisions” (715 F.2d at 498). The Lennen court ulti-

mately held that Section 306 affords no relief from dis-

criminatory overvaluation of railroad property unless the

complaining railroad “can make a strong showing of a

purposeful overvaluation * * * with discriminatory in-

tent” (715 F.2d at 498).

Turning to the facts of the instant case. the district

court held that it was “without jurisdiction to entertain

|petitioner’s] de facto discrimination claims of over-

valuation” (Pet. App. 16a). The court stated that the

jurisdictional issue of discriminatory intent had to be

“resolved prior to trial” (id. at 12a) and that petitioner’s

pre-trial filings therefore had to “make the requisite

‘strong prima facie case of * * * intentional discrimina-

tion’”’ (ibid. (quoting Lennen, 715 F.2d at 498)). The

court concluded that petitioner had not made the neces-

sary showing of discriminatory intent (Pet. App. 14a-

16a) and accordingly “dismissed for lack of subject mat-

ter jurisdiction” (id. at 16a-17a).

On appeal, petitioner first sought en banc review of

the district court’s decision, arguing that the Tenth Cir-

cult should overrule Lennen. The United States filed a

brief amicus curiae in support of that request. We noted

that the Eighth Circuit’s decision in Burlington N. R.R. v.

Bair, 766 F.2d 1222 (1985), conflicted with the ruling in

Lennen and that the issue was of considerable importance

to national transportation policy.

The Tenth Circuit rejected petitioner’s request for en

bane review and thereby declined to reconsider Lennen

(Pet. App. 19a). A panel of the Tenth Circuit subse-

quently heard petitioner’s appeal and affirmed the dis-

trict court’s conclusion that Lennen compelled dismissal

of the instant suit for lack of subject matter jurisdiction.

The panel first reaffirmed the soundness of Lennen.

reiterating the concern expressed in the earlier case that

federal courts should not be asked to “ ‘sit as state tax

assessment boards for railroad property’” (Pet. App. 2a-

3a (quoting Lennen, 715 F.2d at 498)). The court then

agreed with the district court that petitioner had “failed

to establish a strong initial showing of [a] prima facie

case of intentional discrimination” (Pet. App. 3a). The

court reasoned that petitioner had failed to allege that

Oklahoma revenue officials had made “remarks regarding

an intent to discriminate in valuation” (ibid.), had failed

to allege any valuation procedure that was discriminatory

“on its face” (id. at 3a-4a), and had failed to allege

“facts from which a trier of fact reasonably could infer

discriminatory intent, such as assessments based on flat

rates that take no account of an item’s value, assessments

that ignore changed business conditions, or unexplained

8

radical changes in the methods for calculating value” (id.

at 4a).

SUMMARY OF ARGUMENT

The plain language of the 4R Act bars any state law

or practice that compels a railroad to pay a dispropor-

tionate share of property taxes. The statute defines the

prohibited discrimination in purely arithmetic terms, and

neither the statutory language nor the legislative history

furnishes any support for the Tenth Circuit’s require-

ment that a railroad complaining of discriminatory over-

valuation of its property show purposeful overvaluation

with discriminatory intent. Indeed, an intent requirement

would frustrate Congress’s clear purpose—to provide a

remedy for all forms of discriminatory state taxation and

thus alleviate the crippling economic burden that such

taxation had placed on railroads.

The purpose of Section 306 would likewise be frus-

trated, and the language of the statute rather egregiously

rewritten, by the Tenth Circuit’s holding that a federal

court may not look behind a state’s determination of the

true market value of railroad property. Treating the

state determination as conclusive would deprive the court

of the power to scrutinize an assessment for discrimina-

tion. Since state property tax assessments are based on

the valuation of property, a court cannot measure state

taxation against the statutory standards without inde-

pendently determining the true market value of railroad

property. The legislative history makes it plain that Con-

gress understood the necessity of this inquiry, and the

statute therefore provides that true market value is an

element to be proved by the plaintiff, and adjudicated

by the court, in a de facto discrimination suit under

Section 306.

The Tenth Circuit invented its “discriminatory intent”’

requirement, and conversely sought to restrict judicial

inquiry into the market value of railroad property, out

of concern with overburdening the federal courts and

with intruding upon state tax administration. These con-

cerns are misplaced. Congress took these matters into

account when enacting Section 306 and decided, bec: use

of the inadequacies of existing state remedies for dis-

criminatory taxation, to create under its Commerce Power

an extraordinary exception to the Tax Injunction Act

It is not for the courts to disrupt the congressional balance

between federal and state interests, as long as the balance

that Congress has struck is authorized by the Constitu-

tion. In any event, the statute itself limits the intrusion

on state government and the burden on federal courts.

An erroneous valuation of railroad property is not, by

itself, a ground for bringing suit under the statute:

rather, discrimination against the railroad must be

proved to make out a violation, and only if the disparity

exceeds a 5% margin is judicial relief available. Thus,

contrary to the Tenth Circuit’s view (Lennen, 715 F.2d

at 498), giving the statute its plain meaning will not

require the federal courts to “sit as state tax assessment

boards for railroad property.”

ARGUMENT

I. SECTION 306 BARS ANY STATE PROPERTY TAX

THAT DISCRIMINATES AGAINST RAILROADS,

WITHOUT REGARD TO THE STATE’S INTENT

The Tenth Circuit’s requirement that a railroad claim-

ing discriminatory overvaluation prove discriminatory in-

tent is contrary to the plain language of Section 306. The

catch-all provision of Section 306, as the original statu

tory language makes plain, prohibits “any * tax

which results in discriminatory treatment of a common

carrier by railroad” (§ 306(1)(d), 90 Stat. 54 (emphasis

added)).° Section 306(1) (ec), which concerns tax rates.

®* The courts of appeals have construed Section 306(1)(d) as

prohibiting tax discrimination in any form whatsoever. See, e.g

ilabama G. S. R.R. v. Eagerton, 662 F.2d 1036, 1040 (11th Cir

198] state license tax): Richmond, F. & P. R.R. vy Department

of Taxation, 762 F.2d 375 (4th Cir. 1985 orporate income tax

‘ . . —ite ™ otar *tat > . oo +

| ~ . axatio1 ' I ral road propel \ a a ax rate

nigner tna! ne tax rate generally applicable to commer-

Cli ana Industrial property in the Same assessment 1uris-

di 1 Stat. 04); a state’s “intent” in taxing a rail-

road at higher rate is obviously irrelevant under that

subsectio1 Section 306(1)(a) defines its prohibition

against discriminatory assessments in terms of a simple

arithmetic ratio of assessed value to true market value.

nd that definition likewise makes irrelevant any con-

sideration of discriminatory intent. In short, the statute

es 1 eference to discriminatory intent: it focuses

solely on the results of state taxing practices.

The legislative history * is devoid of any indication that

the “discriminatory treatment” standard set out in the

statute was meant to incorporate a threshold requirement

of discriminatory intent. Rather, the legislative history

confirms that Congress’s clear purpose was to relieve the

lue burden” (§ 306(1), 90 Stat. 54) that discrimina-

tory taxation placed on railroads in interstate commerce.

Congress found in 1969 that discriminatory taxation “de-

see also Atchison, T. & S.F. Ry. v. Bair, 338 N.W.2d 338. 344

lowa 1983 en ban ert. denied, 465 U.S. 1071 (1984 fi

AuUCci

* Before enacting Section 306, Congress considered a number of

simliar proposals to bar discriminatory taxation of carriers operat-

ing in interstate commerce. See S. Rep. 445, 87th Cong., Ist Sess

165 1961) : Tax Assessments on Common Carrier Pr perty

Hearing on H.R. 736 & H.R. 10169 Before the Subcomm. on Trans-

portation and Aeronautics of the House Comm on Interstate and

Foreign Commerce 88th Cong., 2d Sess. 2 1964 hereinafter

cited as Hearing on H.R. 736 & H.R. 10169

Common Carrier Property: Hearings on BH

Taz A ss¢ ssments on

. R —_

4972 Be fore the

House Comm. on Interstate and Foreign Commerce 29th Cong..,

2d Sess. 1 (1966); S. Rep. 1483, 90th Cong., 2d Sess. 9 (1968): S

Rep. 91-630, 91st Cong., Ist Sess. 10 (1969); S. Rep. 92-1085, 92d

Cong., 2d Sess. 2 (1972). Because these prior proposals closely re-

ble Section 306, the courts of appeals have correctly considered

lated congressional hearings and reports as evidence of Con-

gress s intent in enacting Section 306. See, e.g., Arizona v. Atchison

T. & S.F. R.R., 656 F.2d 398, 404 n.6 (9th Cir. 1981): Lennen. 715

F.2d at 497-498

11

>

prive([s] * a carrier of revenues needed in the per-

formance of its services in interstate commerce” (S. Rep.

91-630, 91st Cong., 1st Sess. 9 (1969)). After further

study, Congress concluded (H.R. Rep. 94-725, 94th Cong.,

Ist Sess. 78 (1975) ):

[Rjailroads are over-taxed by at least $50 million

each year. In view of the generally poor economic

condition of the railroad industry and the effect such

economic hardship is having on the ability of the

industry to adequately serve our national rail trans-

portation needs, the Committee [on Interstate and

Foreign Commerce] believes discriminatory property

and “in lieu” taxation should be ended.

Section 306 was accordingly enacted “to eliminate the

long-standing burden on interstate commerce resulting

from discriminatory State and local taxation of common

and contract carrier transportation property” and to end

“the discriminatory tax practices weakening our national

transportation system” (S. Rep. 91-630, supra, at 1, 3).

The intent behind a discriminatory state tax on rail-

roads is clearly irrelevant in light of this congressional

objective. The burden on railroads is the same regardless

of the taxing authority’s intent. An intent requirement

would thus directly undermine the statutory goal by ex-

empting from the bar of Section 306 a large class of dis-

criminatory and economically burdensome taxation that

Congress intended to eliminate. In short, Section 306,

written without reference to discriminatory intent and

concerned only with the effects of taxation, cannot re-

quire proof of discriminatory intent as a prerequisite to

relief.

This plain-meaning construction of Section 306 is bol-

stered by parallels to similar prohibitions in other laws.

First, there is no intent requirement in the prohibitions

on discriminatory taxation, modeled on Section 306, that

Congress subsequently enacted for motor carriers, buses,

12

and air carriers." Nor was there an intent requirement

under the anti-discrimination prohibition of former Sec-

tion 13(4) of the Interstate Commerce Act, 49 U.S.C.

(1976 ed.) 13(4). See, e.g., Illinois Commerce Comm’n

v. United States, 292 U.S. 474, 484 (1984). Finally, a

simple “effects” reading of Section 306 is supported by

this Court’s decisions defining the constitutional prohibi-

tions on state taxes that discriminate against interstate

commerce or federal property. In both of those areas, in-

equality of tax burdens is the focus of the prohibition,

and this Court has therefore held that there is no need

to prove discriminatory intent in order to obtain relief.

Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270-271

(1984) ; Washington v. United States, 460 U.S. 536, 544

(1983) ; Memphis Bank & Trust Co. v. Garner, 459 U.S.

392, 397 (1983) ; Minnesota v. Clover Leaf Creamery Co.,

449 U.S. 456, 471 n.15 (1981). Since Congress enacted

Section 306 to give railroads greater protection than had

been afforded to them under this Court’s constitutional

jurisprudence, it would be odd to read into Section 306 a

burden-of-proof requirement that a railroad would be

spared under the Commerce Clause. Every court of ap-

peals that has addressed the question, apart from the

Tenth Circuit, has thus concluded, correctly, that a “dis-

criminatory intent” requirement has no place in inter-

preting Section 306.°

*See Motor Carrier Act of 1980, Pub. L. No. 96-296, § 31, 94

Stat. 823 (codified at 49 U.S.C. 11508a): Bus Regulatory Reform

Act of 1982, Pub. L. No. 97-261, § 20, 96 Stat. 1122 (likewise codi-

fied at 49 U.S.C. 11503a); Airport and Airway Improvement Act

of 1982, Pub. L. No. 97-248, § 532, 96 Stat. 701 (codified at 49

U.S.C. App. 1513(d)). The last-mentioned provisions respecting

air carriers are at issue in Western Air Lines, Inc. v. South Dakota

Bd. of Equalization, No. 85-732.

* See, e.g., Atchison, T. & S.F. Ry. v. Board of Equalization, 795

F.2d at 1446 (Section 306 is intended to afford relief from every

form of de facto discrimination regardless of intent); Louisville

& N. R.R. v. Department of Revenue, 736 F.2d at 1498 (intent is not

a precondition for relief once disparate impact is shown): Trailer

13

Il. SECTION 306 FORBIDS DISCRIMINATORY OVER-

VALUATION OF RAILROAD PROPERTY AND

THUS OF NECESSITY REQUIRES FEDERAL

COURTS TO MAKE AN INDEPENDENT DETER-

MINATION OF THE TRUE MARKET VALUE OF

THAT PROPERTY

The Tenth Cirenit devised its threshold test of “dis-

criminatory intent” for Section 306 overvaluation claims

in order to eliminate or reduce the need for federal court

review of state determinations of the true market value

of railroad property (Pet. App. 2a; Lennen, 715 F.2d at

497-498). Believing such a judicial inquiry into market

value to be inappropriate and not intended by Congress,

the court held that Section 306 permits railroads to bring

undervaluation claims, which require review of the true

market value of non-railroad property, but precludes them

absent a showing of discriminatory intent—from bring-

ing overvaluation claims, which require review of the

true market value of railroad property (Lennen, 715 F.2d

at 497-498). This distinction, as well as the premise

supporting it, is contrary to the language, history, and

purposes of Section 306.

A. The statutory language itself calls for an independ-

ent federal inquiry into the true market value of railroad

property. Section 306 makes “true market value” of rail-

road property an integral element of the statutory test for

ascertaining whether state taxation is discriminatory.

Indeed, insofar as de facto discrimination is concerned,

this element determines the value of one of the two “as-

sessment ratios” that must be compared in the test for

unlawful discrimination. Nothing in the text or struc-

ture of the statute supports the extraordinary notion that

a district court should be barred from making an inde-

pendent finding on a critical factual element of the plain-

tiff’s claim. The district court below acknowledged “the

Train Co. v. State Bd. of Equalization, 710 F.2d 468, 472 (8th Cir.

1983) (Section 306 bars taxation that results in discrimination) ;

Alabama G. S. R.R. v. Eagerton, 663 F.2d at 1040 (Section 306

bars taxation that is discriminatory in effect).

14

existence of a legitimate valuation dispute between the

parties” (Pet. App. 16a), and it would be contrary to all

norms of judicial procedure to require a court to accept

as true the defendant’s determination of value even

though it is contested by the plaintiff. In fact, Section

306 (2) (d) clearly contemplates adjudication of this issue,

specifying that “the burden of proof with respect to the

determination of assessed value and true market value

shall be that declared by the applicable State law” (em-

phasis added). Nothing in the statute suggests that this

provision applies only to non-railroad property, and this

reference clearly indicates Congress’s understanding that

questions of value in general would be subject to litiga-

tion in cases under Section 306.

The Tenth Circuit, observing that the statute (§ 306

(2) (e), 90 Stat. 55) specifies certain methods for measur-

ing the true market value of non-railroad property but

does not specify methods for valuing railroad property

(Lennen, 715 F.2d at 497), inferred from the statutory

text that inquiry into the value of railroad property is

barred. That inference is wholly unwarranted. In light

of the obvious difficulty of directly measuring the true

market value of every piece of taxable commercial and

industrial property in a taxing jurisdiction, Congress sen-

sibly specified that random-sampling techniques—such as

a “sales assessment ratio study”—may be used to value

non-railroad property. There was no comparable need to

specify a method for establishing the value of railroad

property, for railroad property can be valued without

resort either to a laborious item-by-item cumulation or

to averaging or random-sampling techniques. Indeed,

Congress was well aware that states commonly value

railroad property by the “unit method,” a method that

considersfrailroad’s total value, then allocates a share rat-

ably to each state in which the railroad does business. See

S. Rep. 91-630, supra, at 25-26; S. Rep. 1483, supra, at

22. Under the “unit method,” obviously, there is no need

to appraise each item of railroad property separately and

15

then aggregate the results. See, e.g., Union Tank Line

Co. V. Wright, 249 U.S. 275 (1919). Accordingly, there

was especially little need for Congress to designate in

Section 306 permissible methods for calculating the mar-

ket value of a railroad’s holdings in a state.

B. Like the statutory language, the legislative history

of Section 306 contains no evidence that Congress in-

tended to bar a federal court from looking behind state

valuations of railroad property. Indeed, the contrary in-

tent is implicit in Congress’s recognition that railroads

“ “are discriminated against as compared to other property

taxpayers in the same jurisdiction, due in large measure to

outdated procedures (which are sometimes deliberately

retained) for assessment of property’” (S. Rep. 91-630,

supra, at 2 (citation omitted) ). Discriminatory assess-

ments caused by “outdated procedures” could hardly be

addressed without scrutiny of state valuations. Moreover,

Congress contemplated that “true market value” was to be

the standard to which state valuations would be compared

in determining discrimination (id. at 25-26: S. Rep. 1483,

supra, at 22; see page 18, infra). “True market value”

would not be much of a litmus test if the state’s own

assertions as to true market value were dispositive.

Throughout the hearings leading up to the enactment

of Section 306, state representatives repeatedly objected

to an assessment-ratio test, like the one ultimately

adopted by Congress, on the precise ground that it would

require federal court review of state determinations of

market value. For example, a spokesman for an organi-

zation of state taxing officials observed (Discriminatory

Taxation of Common Carriers: Hearings on S. 927 Before

the Subcomm. on Surface Transportation of the Senate

Comm. on Commerce, 90th Cong., Ist Sess. 114 (1967)

(statement of Charles F. Conlon) (emphasis in origi-

nal) ):

If there is any question about the assessment ratio

used by the state agency, then the reviewing agency

—whether it be a board of tax appeals, a state court

or a United States district court—must decide

16

whether the property has been correctly valued in

order to determine what percentage of that value is

actually used for assessment purposes. This step is

unavoidable in the circumstances.

Senator Lausche made a similar point in a dissenting

statement attached to a key committee report. S. Rep.

1483, supra, at 26. Similarly, the Director of the Wash-

ington State Department of Revenue testified regarding

proposed legislation setting forth an assessment ratio test

(State Tax Discrimination Against Interstate Carrier

Property: Hearing on S. 2289 Before the Subcomm. on

Surface Transportation of the Senate Comm. on Com-

merce, 91st Cong., lst Sess. 99 (1969) [hereinafter cited

as Hearing on S. 2289] (statement of George Kinnear)

(emphasis added) ) :

[I]t would be immediately necessary * * * for fed-

eral courts to review and determine the correctness

of not only valuation procedures and the actual valu-

ation results for the carriers, but also the entire work

of each assessing agency with respect to all other

properties. Very simply, this would become neces-

sary because the bill concerns itself with the ratio of

assessed valuation of transportation property to the

true market value of such property * * *.

To avoid this result, the State of Washington proposed

an amendment that would have expressly foreclosed fed-

eral court review of true market value by defining the

term to mean the “true market value finally determined

in accordance with state statutory procedures” (id. at

102). This suggested amendment, which would have had

precisely the same effect as the rule adopted by the Tenth

Circuit, was never enacted.’

® The legislative history is replete with testimony observing that

an assessment-ratio test would require federal court review of the

true market value determination. See, ¢.¢., Hearing on H.R. 736

& H.R. 10169, supra, at 2 (comments of Abe McGregor Goff, Chair-

man of the Interstate Commerce Commission) ; Common and Con-

tract Carrier State Property Tax Discrimination: Hearing on H.R.

16245, et al. Before the Subcomm. on Transportation and Aero-

17

The Tenth Circuit relied in part (Lennen, 715 F.2d

at 497-498) on certain statements in some early com-

mittee reports that the assessment-ratio test for discrim-

inatory taxation was not intended to require states to

change their assessment practices or standards and that

true market value was “not a standard for determining

value” (S. Rep. 91-630, supra, at 10, 25-26; S. Rep. 1483,

supra, at 22-23). Those statements lend no support what-

ever to the Tenth Circuit’s view. To begin with, Section

306 as enacted differs from, and places r~eater restric-

tions on states than, the legislation considered by Con-

gress in 1968 and 1969, the time of the cited legislative

history. In particular, Section 306, unlike the bills con-

sidered in earlier years, and contrary to statements in

the committee reports to which the Tenth Circuit re-

ferred, does require changes in state assessment practices

that treat different kinds of property differently. See

pages 20-21, infra. Section 306, unlike the earlier bills,

also contains a broad catch-all prohibition against “any

other tax which results in discriminatory treatment of a

common carrier by railroad” (§ 306(1) id), 90 Stat. 54).

Accordingly, even if the early legislative history were

thought to suggest some limitation upon judicial author-

ity to inquire into “true market value,” that limitation

would be of dubious relevance to the law as enacted.

In any event, the context of the statements shows that

they in fact contain no such suggestion. The committee

reports note that “trne market value” is the objective

goal at which assessors theoretically aim and that the

“unit method” (see pages 14-15, supra) is used in most,

though not all, states for valuing railroad property. The

nautics of the House Comm. on Interstate and Foreign Commerce,

9Yist Cong., 2d Sess. 94 (1970) (statement of Charles Ottermann,

Chief Counsel, Cal. State Bd. of Equalization) ; Surface Transporta-

tion Legislation: Hearings on S. 2362, et al. Before the Subcomm.

on Surface Transportation of the Senate Comm. on Commerce, 92d

Cong., Ist Sess. 208-209 (1972) (testimony of Charles F. Conlon

Hearing on S. 2289, supra, at 59 (testimony of Broley E. Travis

a

18

reports then explain (S. Rep. 91-630, supra, at 25-26; S.

ep. 1483, supra, at 22) that the proposed legislation

does not suggest or require a State to change its

assessment standards, assessment practices, or the

assessments themselves. It merely provides a single

standard against which all affected assessments must

be measured in order to determine their relationship

to each other. It is not a standard for determining

value; it is a standard to which values that have

already been determined must be compared. This

standard is “true market value” (also the generally

accepted standard for assessment purposes) and the

requirement is that carrier property be assessed at

the same proportion of such value as the proportion

at which all other property subject to the same tax

rates 1S assessed.

Thus, “true market value” was not an assessment

method or practice that the states were being required by

Congress to adopt; states could use any method they liked

as long as it did not result in discriminatory taxes.

cather, “true market value” was the standard to which

state assessments were to be compared.” Since the stand-

ard of comparison must be independently determined be-

fore anything can be compared to it, this legislative his-

tory, far from interdicting judicial inquiry into market

value, affirmatively requires it.

C. A bar on judicial inquiry into the market value of

railroad property is not only unsupported in the language

and legislative history of Section 306, but would gravely

weaken the protections of the statute. As we have noted,

In Greene v. Louis & 1. R.R., 244 U.S. 499 (1917), this Court

drew an analogous distinction in interpreting state law provisions

requiring uniform taxation. The Court noted that the state uni-

formity provisions did permit different modes of assessment (id.

at 513), provided that the different methods employed resulted in

equal tax burdens; the Court thus observed that “the principal if

not the sole reason for adopting ‘fair cash value’ as the standard

for valuations, is as a convenient means to an end—the end being

equal taxation” (id. at 516

19

the statute is intended to prohibit all discriminatory tax-

ation of railroads, and it thus prohibits de facto as well

as de jure discrimination (see S. Rep. 91-630, supra, at

3, 9 (discriminatory taxation forbidden whether by law,

“practice, or otherwise”); see also S. Rep. 1483, supra,

at 8; 121 Cong. Rec. 41341 (1975) (Rep. Skubitz)). If

a state’s determination of true market value were re-

garded as conclusive, one of the two forms of de facto

discrimination—discriminatory overvaluation of railroad

property—would be excised from the coverage of the stat-

ute. As the Eighth Cirenit observed, states would then

“be free to discriminate against railroads by assessing a

value far in excess of the true market value, while assess-

ing all other property at true market value, and then

asserting * * that assessed value is always equal to

true value” (Burlington N. R.R. v. Bair, 766 F.2d 1222,

1225-1226 (8th Cir. 1985) ).

Congress plainly intended to eliminate tax discrimina-

tion against railroads whether effected by discriminatory

overvaluation of railroad property or by discriminatory

undervaluation of non-railroad property. While local tax

assessors have an economic and political incentive to un-

dervalue commercial and industrial property in order to

lighten their constituents’ tax burden (see 1 J. Bonbright,

The Valuation of Property 498, 503 (1937) (state boards

of equalization created to redress this problem) ), state

tax assessors have an equally strong, though different, in-

centive to overvalue railroad property. Congress itself

recognized (S. Rep. 92-1085, 92d Cong., 2d Sess. 4

1972) ) that

rjegulated interstate carriers, especially railroads,

are easy prey for State and local tax assessors. They

are non-voting, often non-resident, targets for local

taxation, and cannot remove their rights-of-way and

terminals even if the burden of tax discrimination

becomes heavy. Their statutory obligation as regu-

lated common carriers further roots them to their

location since they are obliged to provide service to

the locality.

20

Thus, Congress was centrally concerned with railroads’

vulnerability to burdensome overvaluation of their prop-

erty, an evil that Congress specifically identified as one

form of prohibited discrimination (H.R. Rep. 94-725,

supra, at 113). The Tenth Circuit’s rule barring full

and independent adjudication of railroads’ overvaluation

claims would be squarely contrary to this congressional

intent.

iil. A JUDICIAL NARROWING OF SECTION 306 CAN-

NOT BE JUSTIFIED ON THE THEORY THAT THE

STATUTE AS WRITTEN UNREASONABLY IN-

TERFERES WITH STATE TAX COLLECTION OR

UNDULY BURDENS FEDERAL COURTS

The Tenth Circuit rejected the plain meaning of Sec-

tion 306 out of concern that federal court jurisdiction of

overvaluation claims would “impose significant burdens

on district courts and would substantially thwart the

tax collection process of states and their subdivisions”

(Lennen, 715 F.2d at 498). Given Congress’s purpose in

enacting the statute, these concerns are both improper as

a basis of statutory construction and, in any event, ex-

aggerated. The task of accommodating state interests

is, within the terms set by the Constitution, one for Con-

gress, not for the courts, and Congress enacted into law

a deliberately unusual although constitutionally valid bal-

ance of federal and state interests, a balance that differs

from that prevalent in the field of state taxation gen-

erally. Moreover, the Tenth Circuit vastly overestimated

the actual burden that is imposed on federal courts and

state tax collection processes by permitting railroads to

prove discriminatory overvaluation of their property

without proving discriminatory intent.

A. In enacting Section 306, Congress exercised its

Commerce Power to “interfere” with state tax admin-

istration in several carefully considered—and relatively

modest—ways. Substantively, the statute set a new

standard of non-discrimination limiting state tax prac-

»)}

ae

tices. This new standard required states to cease apply-

ing different assessment percentages or tax rates to dif-

ferent classes of property—even though such differentia!

treatment might be allowable under state law—if that

practice would result in discrimination against railroad

property. Thus, whereas the Senate version of Section

306 in the 94th Congress would have permitted differ-

ential classification of property for state tax purposes if

such classifications were set forth in the state constitu-

tion, the Conference bill deleted that provision (S. Rep.

94-595, 94th Cong., 2d Sess. 166 (1976)). Section 306

as enacted therefore requires comparison of the assess-

ment ratio for railroad property to the assessment ratio

for all other commercial and industrial property in the

taxing jurisdiction."

In addition to these substantive effects upon state

taxing authority, Section 306 provides for an exception

one of the few such exceptions found in the United

States Code—to the Tax Injunction Act, 28 U.S.C. 1341.

That Act is “first and foremost a vehicle to limit drasti-

cally federal district court jurisdiction to interefere with

so important a local concern as the collection of taxes.”

Rosewell v. LaSalle National Bank. 450 U.S. 503, 522

(1981). The Tax Injunction Act thus embodied Con-

gress’s decision “to transfer jurisdiction over a class of

substantive federal claims from the federal district courts

to the state courts, as long as state-court procedures were

‘|The “interference” in state taxing authority worked by the

Conference Committee’s action is evident in this case. Oklahoma

law permits public service corporations, including railroads, to be

singled out for different tax treatment (Okla. Stat. Ann. tit.

68, § 2442 (West 1966 & Supp. 1985)) and under Oklahoma law

“it is not necessary that the property of public service corpora-

tions be valued at the same percentage of actual value as that placed

on other classes of property’” (McLoud Telephone Co. v. State Bd.

of Equalization, 655 P.2d 1037, 1089 (Okla. 1982) (citation

omitted) ). Section 306 as enacted specifically displaces these provi-

sions of Oklahoma law in circumstances where they would produce

discrimination against railroad property.

99

‘plain, speedy and efficient’ and final review of the sub-

stantive federal claim could be obtained in this Court”

(id. at 515 n.19).

Section 306, which removes the restraints of the Tax

Injunction Act for railroads alleging discriminatory tax-

ation, reflects a deliberate decision by Congress to transfer

jurisdiction over such claims back to the federal district

courts. Congress found that the Tax Injunction Act had

“close[d] the doors of the Federal courts to carriers af-

fected by discriminatory taxation” without ensuring that

state remedies afforded adequate relief (S. Rep. 1483,

supra, at 6). Witnesses testifying before Congress noted

a number of deficiencies commonly found in existing state

remedies, including the necessity of bringing muitiple

suits (one in each county or other taxing jurisdiction) to

secure complete relief, the delay in obtaining a decision,

the limited form of review available in state court, and

the reluctance of state courts to overturn decisions of

the assessing agency (ibid.). Congress concluded that a

federal procedural remedy was necessary to vindicate the

substantive rights that Section 306 created (S. Rep. 1483,

supra, at 7). In authorizing the district courts to enforce

a railroad’s rights under Section 306 notwithstanding the

Tax Injunction Act, Congress expressed its determination

that any consequential intrusion on state tax collection

was necessary to avoid demonstrable burdens on inter-

state commerce. See S. Rep. 1483, supra, at 11; see also

S. Rep. 91-630, supra, at 6-7, 11; H.R. Rep. 94-725, supra,

at 76-77.

The depth of Congress’s concern to protect railroads

from discriminatory taxing processes is also evident in the

provision of the statute, as originally enacted (§ 306(1),

90 Stat. 54), stating that discrimijfitory taxation was

prohibited notwithstanding former Section 202(b) of the

Interstate Commerce Act, 49 U.S.C. (1976 ed.) 302(b).

That section had declared that the Interstate Commerce

Act generally should not be construed “to affect the powers

of taxation of the several States” (49 U.S.C. (1976 ed.)

302(b)(1)). Section 306’s exception to this limitation

92

reconfirms what the exception to the Tax Injunction Act

already makes clear—that Congress plainly intended the

unusual degree of interference with the ordinary admin-

istration of state property tax collection that Section 306

by its terms authorizes. See S. Rep. 91-630, supra, at 9;

see also S. Rep. 92-1085, 92d Cong., 2d Sess. 6-8 (1972)

(noting the opposition that had been voiced to “involving

the Federal courts in State tax matters” and pointing out

that Section 306 had been crafted so as to “interfere[] to

the least extent possible with State taxing systems’’).

There being no constitutional objection to this clear con-

gressional decision, the Tenth Circuit had no license to

rewrite the statute to diminish its reach.

B. In any event, the statute is limited in several ways

that greatly reduce the potential for interfering with

state tax collection or burdening the federal courts with

inappropriate tasks. First, by delaying the effective date

of Section 306 for three years (§ 306(2)(b). 90 Stat.

54), Congress gave state and local governments an oppor-

tunity to adjust their tax practices to eliminate unlawful!

discrimination. See S. Rep. 1483, supra, at 13: see also

Railroad Revitalization: Hearings on H.R. 6351 and

H.R. 7681 Before the Subcomm. on Transportation and

Commerce of the House Comm. on Interstate and For-

eign Commerce, 94th Cong., 1st Sess. 162-168 (1975)

(statement of William T. Coleman. Jr.. Secretary of

Transportation). Second, the statute prohibits a court

from awarding relief unless the railroad’s assessment

ratio exceeds the ratio for non-railroad property by at

least 5% (§ 306(2) (ce), 90 Stat. 54). Given the magni-

tude of railroad property values, this 5% tolerance factor

is a sizable margin of error, and it protects taxing juris-

dictions from injunctions where uncertainties in the as-

sessment process produce trivial variations in assessment

ratios. See S. Rep. 91-630, supra, at 14-15." Third. by

It is noteworthy that the nondiscrimination provision govern-

ing air carriers (49 U.S.C. App. 1513(d)), which contains no

exception to the Tax Injunction Act and hence does not permit suits

24

adopting state law regarding the burden of proof

$ 306(2)(d), 90 Stat. 55), the statute generally imposes

the burden of proving assessment discrimination on the

rail carriers. Any difficulties that attend proof of de

facto discrimination must thus be surmounted initially

by the railroad as part of its prima facie case. See 38.

Rep. 91-630, supra, at 15. Fourth, by prohibiting only

that portion of a tax assessment determined to be ex-

cessive under the assessment-ratio test (§ 306(1) (a), 90

Stat. 54), and by leaving in place federal courts’ ordinary

equitable power to structure remedies so as to avoid un-

justly burdening the litigants (H.R. Rep. 94-725, supra,

at 78), the statute protects state tax collection to the

maximum extent possible consisent with the need to elimi-

nate unlawful discrimination.”

The Tenth Circuit’s fear of federal court displacement

of state taxing authority not only ignores the statutory

limitations that we have just discussed but also, and more

fundamentally, ignores the limitations inherent in Section

306’s character as an anti-discrimination provision. An

erroneous valuation of railroad property is not, in end of

itself, a violation of the statute and will not support a

suit under Section 306. Thus, if a state overvalues raii-

to be brought in federal court, contains no “de minimis” rule

analogous to the 5% margin of error set forth in Section 306(2) (c

13 Congress intended district courts to enjoin only the discrimina-

tory portion of a state tax, thus leaving states free to collect the

balance of the tax (S. Rep. 91-650, supra, at 13 Because Section

06 sets forth a clear definition of what portion of a tax is valid,

requires no assessment or levy by the federal courts, and expressly

provides for the injunctive remedy, Congress believed that Section

306 was compatible with Moses Lake Homes, Inc. V. Grant County,

65 U.S. 744, 751-752 (1961), which held that a federal district

urt may not remedy an unconstitutionally discriminatory state

tax by simply excising the discriminatory portion. See S. Rep. 91-

630, supra, at 12-12 The district court did not grant relief in this

case, and this Court need not reach the issue of whether there would

be any bar to a federal court’s implementation of the remedial pro-

edure that Section 306(1) (a) explicitly commands

25

road property but also overvalues non-railroad property

to a similar extent, there is no unlawful discrimination.

Only if the state treats railroad and non-railroad prop-

erty differently, and only if the margin of error exceeds

5%, does Section 306 compel a state to change its assess-

ment practices or standards. Thus, contrary to the Tenth

Circuit’s view, federal courts will not, in the absence of

an intent requirement for overvaluation claims, “sit as

state tax assessment boards” (Lennen, 715 F.2d at 498)

for each and every claim of error in the valuation process.

The courts must instead confine relief to cases in which

the valuation error discriminates against railroads, and

does so to the statutorily defined degree."

For all of these reasons, the intrusion on state tax

collection that Section 306 calls for is much less sub-

stantial than the Tenth Circuit believed. Similarly, the

burden that Section 306 places on federal courts is easily

manageable. There are at most a few dozen reported

decisions involving Section 306, even though the statute

has been in effect for seven years, and even though no

court of anpeals except the Tenth Circuit has adopted an

intent reyuirement to discourage the bringing of such

lawsuits. Moreover, the determination of “true market

value” for railroad property does not require the sort of

tedious item-by-item investigation that the Tenth Circuit

apparently envisioned. Under the “unit method” of valu-

ation employed by Oklahoma (Pet. App. 8a) and most

other states (see pages 14-15, supra), the worth of rail-

road property is determined by calculating the value of the

entire railroad and then allocating a portion of the sys-

tem value to the state. System value may in turn be

4 As we stated in our Lennen amicus brief (at 14-15), Section

306 applies “to overvaluations that result from an assessment rule

or methodology that—either on its face or as applied—systemati-

cally determines excessive values for rail property. On the other

hand, if a railroad, like any other state taxpayer, asserts only

that the state made an error in reaching an excessively high value

for its property, no relief for that overvaluation claim would be

available under Section 306.”

26

determined by such factors as capitalized earnings, ad-

justed original cost, or market price of stock and debt

(see Pet. App. 8a). Proof of these factors does not re-

quire the court to engage in a time-consuming appraisal

of the railroad’s property, looking at each railyard, loco-

motive, and caboose one at a time; nor does it require

any particular experience with local business or real

estate conditions. To the contrary, a railroad’s “system

value” is typically established by standard accounting

materials and expert testimony. The federal courts have

previously reviewed such unit valuations in determining

whether ad valorem property taxes violate the Due Proc-

ess and Commerce Clauses of the Co stitution. See, e.¢.,

Norfolk & W. Ry. v. Missouri State Tax Comm’n, 390

U.S. 317 (1968). Contrary to the implication of the

Tenth Circuit (Lennen, 715 F.2d at 497), a similar

investigation of “true market value” under the authority

of Section 306 would not impose unmanageable burdens

on the federal courts.

In sum, Congress clearly intended that federal district

courts exercise equitable jurisdiction over all forms of

de jure and de facto tax discrimination against rail-

roads." The Tenth Circuit’s effort to alter the resulting

In Atchison, T. & S.F. Ry. v. Board of Equalization, supra, the

Ninth Circuit held that, although a claim of discriminatory over-

valuation states a claim for relief under Section 306 without any

showing of discriminatory intent, the district court should have

abstained from exercising its jurisdiction pending complet:on of

related state proceedings. See 795 F.2d at 1447. We understand

that a petition for panel rehearing, confined to the abstention ques-

tion, is still pending in that case. Because the Tenth Circuit in this

case found no jurisdiction in the first instance, the court of appeals

did not consider whether a district court should abstain from exer-

cising its jurisdiction. We nonetheless note our agreement with the

Eleventh Circuit’s ruling (Southern Ry. v. State Bd. of Equaliza-

tion, 715 F.2d 522, 529 (1983)) that Section 306 was “meant to

guarantee a federal forum for railroad suits, and only an exemption

from abstention in all its forms would accomplish this purpose.”

Congress clearly determined that federal remedies were needed to

afford protection against discriminatory taxation, and that fact is

statutory balance of federal and state interests deprives

the federal courts of the remedial power to end the bur-

den on interstate commerce that prompted Congress to

enact Section 306. The court of appeals’ requirement of

discriminatory intent is contrary to the plain meaning

and purpose of the statute and seriously frustrates fed-

eral transportation policy. The decision should not be

permitted to stand.

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted.

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

ALBERT G. LAUBER, JR.

Deputy Solicitor General

RICHARD G. TARANTO

Assistant to the Solicitor General

ANTHONY J. STEINMEYER

JEFFREY CLAIR

Attorneys

JIM J. MARQUEZ

General Counsel

Department of Transportation

JOHN M. MASON

Chief Counsel

Federal Railroad Administration

DECEMBER 1986

sufficient to make abstention inappropriate. See Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 23,

26-28 (1983); Fair Assessment in Real Estate Ass'n v. McNary,

154 U.S. 100, 116 n.8 (1981)

wv s.s SOVEGHMENT PRINTING OFFice, 1966 181483 40130