By Michele Fuetsch, Staff Reporter This story appears in the Dec. 15 print edition of Transport Topics.
WASHINGTON — The Supreme Court last week heard arguments in a case that could cost some states millions of dollars in lost fuel-tax revenue and allow railroads to pay less for fuel than truckers.
The state of Alabama defended its fuel-tax system against a suit by CSX Transportation Inc., which said the state discriminates against railroads by exempting truckers from Alabama’s general sales tax on fuel purchases.
At issue is the intersection of state tax law and a federal law passed decades ago to protect railroads from tax discrimination by states.
“What the court should do is . . . put itself in the position of a state and local policymaker who is trying to impose a fair and nondiscriminatory tax scheme that does not discriminate against railroads but does actually require them to pay their fair share of taxes,” Andrew Brasher,
Alabama’s solicitor general, told the court Dec. 9.
But CSX’s attorney, Carter Phillips, said that under federal law, railroads are entitled to protections to ensure their financial stability so they can “approach all of our business decisions in the most efficient way and hopefully put ourselves in a posi-
tion in order to compete against the motor carriers and the water carriers.”
Like fuel-tax systems in many states, Alabama’s is complex and varies from mode to mode.
There’s no tax, for instance, on water carriers buying fuel, but truckers pay a 19-cents-a-gallon tax for on-road diesel.
Railroads are not exempt from the state’s 4% general sales tax when they buy off-road diesel, sometimes called red-dye diesel. However, the rail carriers have choices not open to truckers, according to the state and groups filing amicus (“friend of the court”) briefs on Alabama’s behalf.
While truckers must pay state and federal highway taxes when they purchase on-road diesel used on the state’s highways, “railroads can . . . elect to pay highway tax on undyed fuel instead, allowing them to take the benefit of the exemption from sales tax, and giving them the choice of paying whichever tax is lower at a given time,” said an amicus brief from the Multistate Tax Commission.
American Trucking Associations filed an amicus brief, arguing that, like many states, Alabama exempts truckers from a sales tax on fuel purchases, lest truckers suffer double taxation.
Unless the court reverses the lower court’s ruling in favor of CSX, rail carriers in Alabama will pay “significantly less for diesel fuel than their primary competitors,” ATA said.
CSX’s case rests on the Railroad Revitalization and Regulatory Reform Act that Congress enacted in 1976 to protect railroads from predatory tax discrimination by states.
The federal law, however, does not specify how to measure discrimination, a key question in this case.
The Supreme Court first heard the case in 2010 and in 2011 sent it back to the lower courts for another look.
For a second time, however, the district court dismissed CSX’s complaint, but the 11th U.S. Circuit Court of Appeals again affirmed the complaint, then Alabama took the case back to the Supreme Court.
