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Nature of Suit Code: 950
Nature of Suit: Contitutionality of State Statutes
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-3397

___________

Union Pacific Railroad Company; *

Soo Line Railroad Company, doing *

business as Canadian Pacific Railway, *

*

Appellants, *

*

v. *

* Appeal from the United States 

Minnesota Department of Revenue, * District Court for the

Sued as Department of Revenue of the * District of Minnesota.

State of Minnesota; Ward Einess, *

*

Appellees. *

______________________ *

*

Multistate Tax Commission, *

*

Amicus Curiae – *

Amicus on Behalf of *

Appellee. *

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Submitted: March 15, 2007

Filed: November 6, 2007

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Before WOLLMAN, JOHN R. GIBSON, and MURPHY, Circuit Judges.

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Transportation fuel purchased for use in motor vehicles on public roadways in

Minnesota is subject to a petroleum excise tax of twenty cents per gallon. MINN.

STAT. §§ 296A.07, 296A.08 (2007). Air carriers pay an excise tax between one-half

cent and five cents per gallon, depending on the amount of transportation fuel

purchased in a year. MINN. STAT. §§ 296A.09 (2007), 296A.17 (1999). 

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WOLLMAN, Circuit Judge.

Union Pacific Railroad Company and Soo Line Railroad Company (“the

Railroads”) appeal from the district court’s grant of summary judgment in favor of the

Minnesota Commissioner of Revenue, the Minnesota Department of Revenue, and the

State of Minnesota (hereinafter collectively referred to as “the State”). We reverse.

I.

Minnesota imposes a sales or use tax of 6.5% on certain items purchased or

consumed in the state. MINN. STAT. §§ 297A.62, 297A.63 (2007). The Railroads are

subject to these taxes when they purchase or consume transportation fuel in

Minnesota, as are several of the Railroads’ competitors – barges and Great Lakes

ships. Two of the Railroads’ other competitors, motor carriers and air carriers, are

exempt from such taxes because they pay an excise tax on their transportation fuel

purchases.1

 MINN. STAT. § 297A.68 subd. 19(1) (2007). Because of this exemption,

the Railroads brought this action, which alleges that Minnesota’s statutory scheme for

assessing a sales or a use tax on transportation fuel discriminates against the Railroads

in violation of section 306 of the Railroad Revitalization and Regulatory Reform Act

of 1976 (the “4-R Act”), now codified at 49 U.S.C. § 11501 (2006). 

In granting summary judgment, the district court noted that two of the

Railroads’ competitors – barges and Great Lakes ships – are subject to sales and use

tax on fuel, and that the Railroads’ other two competitors – motor carriers and air

carriers – while not subject to a sales or use tax, are subject to an excise tax on fuel.

The district court concluded that “because railroads are subject to the exact same tax

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as at least two of their competitors, and because all competitors within the comparison

class are subject to a tax on fuel, . . . Minnesota’s taxing scheme does not

‘discriminate’ against the railroads in violation of the 4-R Act.” 

II.

“We review the grant of summary judgment de novo, applying the same

standard as the district court.” Burlington Northern and Santa Fe Ry. Co. v. State Tax

Comm’n, 188 F.3d 1039, 1041 (8th Cir. 1999). “Summary judgment is proper when,

viewed in the light most favorable to the non-moving party, there is no genuine issue

of material fact and the moving party would be entitled to judgment as a matter of

law.” Id.

The 4-R Act was enacted “in part to restore the financial stability of the railway

system of the United States.” Department of Revenue v. ACF Indus., Inc., 510 U.S.

332, 336 (1994) (internal quotations omitted). One of the ways Congress chose to

achieve this objective is found in 49 U.S.C. § 11501, which prohibits “States (and

their subdivisions) from enacting certain taxation schemes that discriminate against

railroads.” ACF Indus., Inc., 510 U.S. at 336. Specifically, §§ 11501(b)(1)-(3)

prohibit “the imposition of higher assessment ratios or tax rates upon rail

transportation property than upon ‘other commercial and industrial property.’” ACF

Indus., Inc., 510 U.S. at 337. Section 11501(b)(4) of the 4-R Act is broader and

prohibits the imposition of “another tax that discriminates against a rail carrier

providing transportation.” ACF Indus., Inc., 510 U.S. at 337. It is this provision that

the Railroads contend bars the State from assessing a sales or use tax on the

transportation fuel used by them.

In determining whether a tax impermissibly discriminates against a rail carrier

in violation of § 11501(b)(4), a court must first determine the class of taxpayers with

whom the railroads are to be compared. In Burlington Northern, Santa Fe Ry. Co. v.

Lohman, 193 F.3d 984, 985 (8th Cir. 1999), we held that the “competitive mode”

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comparison class, which is comprised of the railroads’ direct competitors, was the

proper comparison class for ascertaining whether Missouri’s sales and use tax scheme

violated § 11501(b)(4). The Railroads and the State agree that for purposes of this

appeal the competitive mode class is the proper comparison class and that it consists

of motor carriers, air carriers, barges, and Great Lakes ships.

As recounted above, the fact that motor carriers and airlines are subject to an

excise tax on fuel formed in part the basis of the district court’s conclusion that

Minnesota’s sales and use tax scheme does not violate the 4-R Act. The Railroads

contend that our decision in Lohman precluded the district court from considering the

excise tax the motor carriers and airlines pay on fuel in making its determination. We

agree. In Lohman, we were faced with the same issue present here, namely, whether

an excise tax on fuel paid by the railroads’ competitors in Missouri should be taken

into account when determining whether Missouri’s sales and use taxes are

discriminatory under the 4-R Act. Id. at 986. Relying on our decision in Trailer Train

Co. v. State Tax Comm’n, 929 F.2d 1300 (8th Cir. 1991), we noted in Lohman that

“a state’s overall tax structure need not be examined under the 4-R Act.”

Consequently, we refused to consider the other fuel taxes paid by the competitors,

stating that we “look only at the sales and use tax with respect to fuel to see if

discrimination has occurred.” Lohman, 193 F.3d at 986. Likewise here, we conclude

that the district court should have confined its analysis to only the sales and use taxes

on transportation fuel. 

The question remains whether the district court erred when it determined that,

because barges and ships pay the same sales and use taxes on fuel, Minnesota’s taxing

scheme is not discriminatory. The district court examined the rationale set forth in

Lohman, in which we found Missouri’s sales and use taxes on transportation fuel to

be discriminatory. See id. The district court noted that in Lohman, the railroads were

the only member of the competitive class subject to Missouri’s sales and use taxes on

transportation fuel, whereas in Minnesota railroads, barges, and Great Lakes ships are

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We agree with the district court that the fact that the State, for whatever reason,

has not been collecting the taxes due from the Great Lakes ships has no bearing on

whether those ships are subject to the tax.

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all subject to the same sales and use taxes.2

 The district court concluded that because

two members of the competitive class are also subject to the taxes, the State’s taxing

scheme is distinguishable from that in force in Missouri and thus does not fall within

Lohman’s proscription.

We respectfully disagree with the district court’s analysis, for our holding in

Lohman is clear: only those taxes imposed upon the Railroads are taken into account

in determining whether those taxes are discriminatory. Id. True enough, within the

competitive mode here, barges and ships are also subject to the same tax imposed

upon the Railroads, but also true is the fact that two other members of the competitive

class – motor carriers and air carriers – are not, and it is this fact that requires us to

conclude that our holding in Lohman governs this case.

The judgment is reversed, and the case is remanded to the district court for the

entry of an appropriate judgment.

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