Alabama imposes sales and use taxes on railroads when they purchase or consume diesel fuel, but exempts their main competitors — interstate truckers and water carriers.
CSX sued the Alabama Department of Revenue and its commissioner (Alabama), claiming the tax scheme discriminates against railroads in violation of the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), which bars four forms of discriminatory taxation.
A U.S. District Court had dismissed CSX's suit and the 11th Circuit had agreed.
But in a 7-2 decision, the Supreme Court, without deciding if the tax was discriminatory, said CSX could challenge the taxes and sent the case back to the lower courts for further proceedings.
“We do not address whether CSX should prevail in that challenge — whether, that is, Alabama's taxes in fact discriminate against railroads by exempting interstate motor and water carriers,” the justices wrote.
While Alabama had said the inquiry into discrimination may pose difficulties, it could not “respond to it by precluding CSX's claim,' the high court said. 'Discrimination cases sometimes do raise knotty questions about whether and when dissimilar treatment is adequately justified. In the context of the 4'R Act, those hard calls can arise when states charge different tax rates to different entities in a practice the statute specifically subjects to challenge.
“So too, difficult issues can emerge when, as here, states provide certain entities with tax exemptions. In either case, Congress has directed the federal courts to review a railroad's challenge; and in either case, we would flout the congressional command were we to declare the matter beyond us,” the court added.
