Editorial: Taxation Fairness

Fairness is a bedrock requirement for a just taxation system. And fairness is surely what state officials in Alabama had in mind some years ago when they imposed a 4% sales tax on diesel fuel purchases by railroads.

Alabama officials exempted trucking company diesel fuel purchases from this tax, which railroads have cited as discrimination against them. They argue that the tax gives trucking an upper hand by raising railroads’ operating costs.

CSX Transportation has been fighting Alabama in court since 2008, a journey that already has taken the combatants to the U.S. Supreme Court and back to a federal appeals court.

That appeals court, in the 11th U.S. Circuit, has sided with CSX, ruling that “the sales tax is indeed discriminatory.”

The court obviously discounted Alabama officials’ explanation that the sales tax was actually intended as a way to eliminate an earlier unfairness: Namely, that the very railroads complaining about being hit with a tax that trucking isn’t subject to don’t pay the state’s 19-cent-a-gallon fuel tax on the diesel that truckers buy for their vehicles.

Railroads don’t pay the federal tax on diesel fuel, either, under the argument that since that revenue goes to improve roads and bridges, rail carriers don’t receive any of the benefits that accrue from the tax.

We can only hope that Alabama officials decide to stick to their guns and bring the case back to the Supreme Court.

When the high court considered the case in 2010, it declined to rule on the merits of CSX’s claim. But it did send the case back to the trial court, saying that court had erred by refusing to at least consider CSX’s challenge to the tax.

As it is, railroads already have an advantage over trucking when it comes to diesel taxes in Alabama. According to state trucking officials, at current prices, railroads are paying about 15 cents a gallon under the sales tax, while truckers are paying the 19-cent-a-gallon fuel tax.

CSX sued under a 1976 law that Congress passed mostly to prevent local jurisdictions from charging railroads unfair property tax rates.

Back in 2010, American Trucking Associations told the Supreme Court that a tax exemption for trucking did not, in and of itself, mean that there was discrimination against railroads.

Unfortunately, the appeals court didn’t accept trucking’s logic.

Let’s hope this case makes its way back to the Supreme Court — and that the justices restore fairness to the taxes on diesel purchases in Alabama.