News and Insights

U.S. Supreme Court Rules Favorably for Railroads Challenging State Tax Exemptions as Discriminatory

Tax Development Mar 03, 2011

In CSX Transportation, Inc. v. Alabama Department of Revenue, the U.S. Supreme Court (“Court”) held that railroads may challenge state sales and use taxes under the Railroad Revitalization and Regulatory Reform Act of 1976 (“4-R Act”).

The 4-R Act prohibits certain discriminatory taxes. Three prohibitions deal with taxes on property, and the fourth prohibits “another tax” that discriminates against rail carriers. Citing the 4-R Act, CSX Transportation, Inc. (“CSX”) challenged Alabama’s imposition of sales and use tax on diesel fuel purchased by rail carriers. CSX said the tax is discriminatory because fuel purchased by interstate motor and water carriers is exempt from the tax.

The Court’s decision resolves the issue of whether railroads could challenge non-property taxes under the 4-R Act. In addition, the Court determined that an exemption from tax may be discriminatory in the same manner as an imposition of tax. However, the Court returned the case to the lower courts to determine whether Alabama’s tax scheme is actually discriminatory under the 4-R Act.

Although the Court did not address all issues, this decision provides much needed guidance regarding non-property taxes imposed on railroads.


Trisha C. Fortune