News and Insights

Eleventh Circuit Rules Against Sales and Use Tax on Rail Carriers

Tax Development Jul 09, 2013

In CSX Transportation, Inc. v. Alabama Department of Revenue, the Eleventh Circuit Court of Appeals (“Circuit Court”) held on July 1, 2013 that Alabama’s imposition of sales and use tax on diesel fuel purchased by rail carriers violates the Railroad Revitalization and Regulatory Reform Act of 1976 (“4-R Act”). This is the second time that the case has been before the Circuit Court. An earlier decision of the Circuit Court holding that a rail carrier could not challenge its competitors’ exemptions from sales and use tax under the 4-R Act was reversed by the U.S. Supreme Court on February 22, 2011.

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 Circuit Court held that this established a prima facie showing of discrimination under the 4-R Act, shifting the burden to the State to prove a “sufficient justification” for taxing rail carriers differently. Because the State failed to do so, the Circuit Court held that the tax on diesel fuel purchased by rail carriers is discriminatory in violation of the 4-R Act. It remanded the case to the U.S. District Court for the Northern District of Alabama, directing it to enter declaratory and injunctive relief in favor of CSX.


Trisha C. Fortune