Supreme Court Decision Alert - March 4, 2015

Today, the Supreme Court issued one decision, described below, of interest to the business community.

Railroad Revitalization and Regulatory Reform Act—Discriminatory State Taxation

Alabama Department of Revenue v. CSX Transportation, Inc., No. 13-553 (previously described in the July 1, 2014, Docket Report)

The Railroad Revitalization and Regulatory Reform Act of 1976 (the "4-R Act") prohibits States from imposing any "tax that discriminates against a rail carrier." 49 U.S.C. § 11501(b)(4). Today, in Alabama Department of Revenue v. CSX Transportation, Inc., No. 13-553, the Supreme Court held that a State may potentially violate this prohibition by taxing fuel purchases made by a rail carrier while exempting similar purchases made by its competitors. The Court further clarified that a tax is discriminatory only if the State cannot sufficiently justify differences in treatment between similarly situated taxpayers.

CSX, an interstate rail carrier, is subject to Alabama's sales tax for its purchases of diesel fuel. Under separate statutory provisions, CSX's competitors in the State—motor and water carriers—are exempt from paying the sales tax for their diesel-fuel purchases. Motor carriers pay an alternative fuel-excise tax on diesel, but water carriers pay neither the sales tax nor the excise tax. CSX sought to enjoin Alabama officers from collecting sales tax on its diesel-fuel purchases, claiming that the State's tax treatment violated § 11501(b)(4).

After the lower courts rejected CSX's claim, the case reached the Supreme Court for the first time. The Court reversed, holding that a tax "discriminates" under subsection (b)(4) when it treats "groups [that] are similarly situated" differently without sufficient "justification for the difference in treatment." CSX Transp. v. Ala. Dept. of Revenue, 562 U.S. 277, 287 (2011). On remand, the Eleventh Circuit held that CSX could establish discrimination by showing that Alabama treated rail carriers differently from their competitors. The Eleventh Circuit rejected Alabama's argument that its sales-tax exemption did not unlawfully discriminate against rail carriers because motor carriers (but not rail carriers) had to pay an excise tax on their fuel.

Today, the Supreme Court again reversed and remanded. The Court upheld the Eleventh Circuit's conclusion that CSX's competitors, including motor carriers and water carriers, were an appropriate comparison class for its discrimination claim. The proper...