Alabama Department of Revenue v. CSX Transportation, Inc.

Alabama’s sales and use tax exemption for diesel fuel purchases by motor carriers and water carriers, but not rail carriers, does not violate the Railroad Revitalization and Reform Act, 49 USC 11501 et. seq. because Alabama does not treat similarly situated taxpayers differently and provides sufficient justification for their different tax treatment of water carriers.

Respondent, a cargo rail carrier, brought an action against Petitioner, the Alabama Department of Revenue, which alleged that Alabama’s sales and use tax exemption for diesel fuel purchases by motor carriers and water carriers, but not rail carriers, violates the Railroad Revitalization and Reform Act, 49 USC 11501 et. seq. (The “Act”). The Act prohibits states from imposing taxes that discriminate against a rail carrier.

The district court agreed with Alabama’s argument that because fuel-excise taxes charged to motor carriers, but not rail carriers, this offset the sales tax on diesel fuel paid by rail carriers and thus does not discriminate against rail carriers.

Respondent appealed and the Eleventh Circuit Court of Appeals held that respondent could establish discrimination by showing that they were taxed differently from their competitors, including motor and water carriers.

Alabama appealed and the United States Supreme Court granted certiorari to resolve whether respondent’s competitors were an appropriate comparison class under subsection (b)(4) of the Act. The Court reversed the decision of the Eleventh Circuit, and held that Alabama’s sales and use tax regime does not discriminate against rail carriers because a tax does not discriminate unless it treats railroads differently than similarly situated taxpayers without sufficient justification. The Court reasoned that Alabama’s different treatment of water carriers is sufficiently justified, because Alabama is compelled by other federal law.