[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 12-14611

________________________

D.C. Docket No. 2:08-cv-00655-AKK

CSX TRANSPORTATION, INC., 

 Plaintiff - Appellant,

versus

ALABAMA DEPARTMENT OF REVENUE, 

COMMISSIONER, ALABAMA DEPARTMENT OF REVENUE, 

 Defendants - Appellees.

________________________

Appeal from the United States District Court

for the Northern District of Alabama

________________________

(July 1, 2013)

Case: 12-14611 Date Filed: 07/01/2013 Page: 1 of 28 
2

Before WILSON and COX, Circuit Judges, and BOWEN,* District Judge.

WILSON, Circuit Judge: 

The State of Alabama (State) imposes a 4% sales tax on the gross receipts of 

retail businesses, and a 4% use tax on the storage, use, or consumption of tangible 

personal property. See Ala. Code §§ 40-23-2(1), -61(a).1

 Appellant CSX 

Transportation, Inc. (CSX), an interstate rail carrier, pays the 4% sales tax 

whenever it purchases diesel fuel in the State. CSX’s main competitors in the 

State—interstate motor and water carriers—do not. In this appeal, we must decide 

whether exempting CSX’s main competitors from the State’s sales tax is 

discriminatory as to rail carriers in violation of the Railroad Revitalization and 

Regulation Reform Act of 1976 (4-R Act), 49 U.S.C. § 11501(b)(4). We conclude 

that the sales tax is indeed discriminatory and that the State has not offered a 

“sufficient justification” for exempting CSX’s competitors. See CSX Transp., Inc. 

v. Ala. Dep’t of Revenue (CSX II), ––– U.S. –––, 131 S. Ct. 1101, 1109 n.8 (2011) 

(“Whether the railroad will prevail . . . depends on whether the State offers a 

sufficient justification for declining to provide the exemption at issue to rail 

carriers.”). Accordingly, we reverse. 

 

* Honorable Dudley H. Bowen, Jr., United States District Judge for the Southern District 

of Georgia, sitting by designation. 

1 For purposes of clarity, both taxes will be referred to as the “sales tax.”

Case: 12-14611 Date Filed: 07/01/2013 Page: 2 of 28 
3

I. BACKGROUND

Rail carriers, motor carriers, and water carriers all compete for the shipment 

of freight in interstate commerce. Although all three purchase diesel fuel toward 

that end, the State taxes each competitor’s purchases differently: water carriers pay 

no tax whatsoever on their diesel fuel purchases, see Ala. Code § 40-23-4(a)(10); 

rail carriers pay the State’s 4% sales tax; and motor carriers pay an excise tax of 

19¢ per gallon, see Alabama Terminal Excise Tax Act (fuel excise tax), 2011 Ala. 

Act 565 (effective October 2012).2

 

The State distributes the revenue from the fuel excise tax as follows: for 

every gallon sold, 13¢ goes to the Alabama Department of Transportation for the 

construction, repair, maintenance, and operation of public roads and bridges, and 

the payment of principal and interest on highway bonds; the remaining 6¢ goes to 

cities and counties for the construction and maintenance of roads and bridges, and 

to the Department of Transportation for general highway purposes. Revenue from 

the sales tax, on the other hand, goes toward a general revenue fund. See Ala. 

Code §§ 40-23-35, 40-23-85.

 

2 During the majority of this litigation, the State codified its fuel excise tax at section 40-

17-2 of the Alabama Code. In October 2012, the State repealed that section and modified its 

motor fuel tax scheme. See Alabama Terminal Excise Tax Act, 2011 Ala. Act 565 (effective 

October 2012). The new statute changes the timing of the tax’s imposition, but the amount of 

the excise tax (19¢/gallon of diesel fuel) remains the same, and it still exempts motor carriers 

from paying the State’s sales tax on diesel-fuel purchases. For purposes of clarity, both taxes 

will be referred to as the “fuel excise tax.”

Case: 12-14611 Date Filed: 07/01/2013 Page: 3 of 28 
4

It is axiomatic that a state has broad discretion in the exercise of its taxing 

power. See Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359, 93 

S. Ct. 1001, 1003 (1973); Weissinger v. White, 733 F.2d 802, 805 (11th Cir. 1984). 

That discretion will be reined in, however, where it offends a “specific federal 

right.” Lehnhausen, 410 U.S. at 359, 93 S. Ct. at 1003. At issue here are the 

federal rights Congress has afforded rail carriers pursuant to the 4-R Act. That Act 

provides that a state may not: 

(1) Assess rail transportation property at a value that has a higher ratio 

to the true market value of the rail transportation property than the 

ratio that the assessed value of other commercial and industrial 

property in the same assessment jurisdiction has to the true market 

value of the other commercial and industrial property.

(2) Levy or collect a tax on an assessment that may not be made under 

paragraph (1) of this subsection.

(3) Levy or collect an ad valorem property tax on rail transportation 

property at a tax rate that exceeds the tax rate applicable to 

commercial and industrial property in the same assessment 

jurisdiction.

(4) Impose another tax that discriminates against a rail carrier 

providing transportation subject to the jurisdiction of the Board under 

this part.

49 U.S.C. § 11501(b) (emphasis added). 

Enacted to “restore the financial stability of the railway system of the United 

States,” the 4-R Act “target[s] state and local taxation schemes that discriminate 

against rail carriers.” CSX II, 131 S. Ct. at 1105 (internal quotation marks 

Case: 12-14611 Date Filed: 07/01/2013 Page: 4 of 28 
5

omitted). CSX contends that the State’s sales tax discriminates against it in 

violation of § 11501(b)(4) because CSX’s main competitors do not pay the sales 

tax when they purchase diesel fuel, giving them a competitive advantage over 

CSX.

CSX filed this lawsuit against Alabama’s Department of Revenue and its 

Commissioner in 2008. After the district court dismissed the complaint, we 

affirmed the dismissal based on our precedent in Norfolk Southern Railroad Co. v. 

Alabama Department of Revenue, 550 F.3d 1306, 1316 (11th Cir. 2008), which 

established the rule that a railroad could not challenge its competitors’ exemptions 

from a sales tax as discriminatory under the 4-R Act. See CSX Transp., Inc. v. Ala. 

Dep’t of Revenue (CSX I), 350 F. App’x 318, 319 (11th Cir. 2009) (per curiam). 

CSX appealed, and the Supreme Court granted certiorari, overruled our decision in 

Norfolk, and held that “CSX may challenge Alabama’s sales and use taxes as 

tax[es] that discriminat[e] against rail carrier[s] under § 11501(b)(4).” CSX II, 131 

S. Ct. at 1114 (alterations in original) (internal quotation marks omitted). The 

Court appeared to impliedly assume that the State’s exemptions for CSX’s 

competitors would be discriminatory unless “the State offers a sufficient 

justification for declining to provide the exemption at issue to rail carriers.” Id. at 

1109 n.8. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 5 of 28 
6

After we remanded the case back to the district court, the court conducted a 

bench trial and issued an order holding that the State’s sales tax did not 

discriminate against CSX in violation of § 11501(b)(4). See CSX Transp. Inc. v. 

Ala. Dep’t of Revenue (CSX III), 892 F. Supp. 2d 1300, 1317 (N.D. Ala. 2012). 

The district court reasoned that because the State’s motor carriers paid a roughly 

equivalent amount in taxes pursuant to the State’s fuel excise tax, the motor 

carriers’ exemption from the sales tax was not discriminatory. Id. at 1313 (finding 

that “the tax rate imposed per gallon of diesel fuel for rail carriers and motor 

carriers is essentially the same”). As to the water carriers, the district court held 

that CSX had offered “no evidence regarding the purported discriminatory effect as 

it relates to water carriers.” Id. at 1316. The district court dismissed the matter, 

and this appeal followed. 

II. ANALYSIS

We review the district court’s application of the 4-R Act de novo, see 

Alphamed, Inc. v. B. Braun Med., Inc., 367 F.3d 1280, 1285 (11th Cir. 2004), 

taking special heed of the guidance provided by the Supreme Court in CSX II. 

“‘Discrimination,’” the Court wrote, “‘is the failure to treat all persons equally 

when no reasonable distinction can be found between those favored and those not 

favored.’” CSX II, 131 S. Ct. at 1108 (quoting Black’s Law Dictionary 534 (9th 

ed. 2009)). For example, “[t]o charge one group of taxpayers a 2% rate and 

Case: 12-14611 Date Filed: 07/01/2013 Page: 6 of 28 
7

another group a 4% rate, if the groups are the same in all relevant respects, is to 

discriminate against the latter.” Id. A tax exemption is analogous because the 

“State takes the favored group’s rate down to 0%.” Id. Therefore, CSX II’s 

holding suggests that a tax exemption disfavoring a rail carrier creates a rebuttable 

presumption of discrimination, unless the State can “offer[] a sufficient 

justification for declining to provide the exemption at issue to rail carriers.” Id. at 

1110 n.8. 

A. Comparison Class

Before we address whether the exemption at issue is discriminatory, there 

remains a first-order question that the Court left untouched and has yet to be 

answered in this circuit: against what do we compare the railroads? The matter is 

one of scope, as any model of discrimination requires a fixed set of participants. If 

we compare CSX to all of the State’s taxpayers, it is no worse off because most 

taxpayers pay the sales tax when they purchase diesel fuel. On the other hand, if 

we compare CSX to motor and water carriers, questions of favorable treatment 

arise because they do not pay the sales tax. Among our sister circuits there are 

essentially two camps: the functional approach and the competitive approach. 

We acknowledge that the question of the proper comparison class has not 

been the central inquiry of this appeal. In the proceedings below, the district court 

and the parties adopted the competitive approach, assuming that CSX must be 

Case: 12-14611 Date Filed: 07/01/2013 Page: 7 of 28 
8

compared with only motor and water carriers. Although we ultimately conclude 

that the competitive approach is appropriate in this circumstance, we are obliged to 

say a few words concerning the diversity of opinions on this matter.

Employing the functional approach, the Seventh and Ninth Circuits have 

compared the rail carriers to other “commercial and industrial” taxpayers based on 

§ 11501(b)(4)’s three preceding subsections, which all contain the phrase 

“commercial and industrial.” See Kansas City S. Ry. Co. v. Koeller, 653 F.3d 496, 

508 (7th Cir.), cert. denied, 132 S. Ct. 855 (2011); Atchison, Topeka & Santa Fe 

Ry. Co. v. Arizona, 78 F.3d 438, 441 (9th Cir. 1999). For example, in Koeller the 

Seventh Circuit considered whether an Illinois subdivision’s method of calculating 

taxes discriminated against railroads in violation of § 11501(b)(4). Seven hundred 

taxpayers comprised the tax base of the subdivision: eight of the 700 taxpayers 

were railroads, pipelines, and utilities (RPU properties). Koeller, 653 F.3d at 500. 

Of the remaining 692 taxpayers, 14 conducted commercial and industrial 

operations, several were residents, and the vast majority used the land for 

agricultural purposes. Id. After severe floods and an increase in the price of diesel 

fuel sent the subdivision into a budgetary crisis, its commissioners increased the 

annual maintenance assessment—which for all intents and purposes was a “tax.” 

Id. Although the majority of the subdivision’s landowners saw modest hikes in 

their annual assessments, the RPU properties saw “astronomical increase[s].” Id.

Case: 12-14611 Date Filed: 07/01/2013 Page: 8 of 28 
9

at 502. Norfolk Southern’s assessment, for instance, jumped a whopping 8,300% 

in one year, from $1,126 to $93,920. Id. 

Before reaching the question of whether the tax was discriminatory, the 

Seventh Circuit acknowledged the different comparison-class options at its 

disposal. The court opted for the functional approach, in part because of “the need 

to read subsection (b)(4) in light of the approach taken in the first three subsections 

of the 4-R Act, which all directly or indirectly look to other commercial and 

industrial property.” Id. at 509 (internal quotation marks omitted). Yet the 

Seventh Circuit also recognized that “there are no competitors of the railroads—

motor carriers, air carriers, barges, [or] Great Lakes ships—that [the subdivision] is 

trying to tax.” Id. (alteration in original) (emphasis in original) (internal quotation 

marks omitted). Therefore, opting for the competitive approach in Koeller would 

have yielded the bizarre result that a tax singularly raising a rail carrier’s tax rate 

by 4,800% was not discriminatory. With that in mind, the court compared the rail 

carriers with “the 14 additional commercial and industrial taxpayers” who did not 

suffer such a dramatic increase in their tax obligations, and held that the tax was 

discriminatory. Id. at 509–10.

Contrarily, the Eighth Circuit has endorsed the narrower “competitive

approach” model, at least when considering a state’s sales tax. See Union Pac. 

R.R. Co. v. Minn. Dep’t of Revenue, 507 F.3d 693, 695 (8th Cir. 2007); Burlington 

Case: 12-14611 Date Filed: 07/01/2013 Page: 9 of 28 
10

N., Santa Fe Ry. Co. v. Lohman, 193 F.3d 984, 986 (8th Cir. 1999) (choosing the 

competitive model, but acknowledging that “the comparison class should be 

appropriate to the type of tax and discrimination challenged in a particular case” 

(emphasis added)). In Lohman, the Eighth Circuit addressed a scenario identical to 

the one before us: whether an exemption to Missouri’s sales tax caused the sales 

tax to violate § 11501(b)(4). See Lohman, 193 F.3d at 984. In that case too, motor 

carriers paid a fuel excise tax rather than a sales tax. Id. at 985. The court 

ultimately held that “the proper comparison class for Missouri sales and use taxes 

is the competitive mode.” Id. at 986. Paying homage to the 4-R Act’s broad 

purpose of restoring the railroads’ financial stability, the court emphasized that 

“[s]tability cannot be restored without making the railroads competitive.” Id. 

Furthermore, the court continued, if Congress “had wanted [§ 11501(b)(4)] to have 

the same comparison class as the property tax subsections, and none other, it would 

have written it that way.” Id.; see also Atchison, 78 F.3d at 445 (Nielsen, J., 

dissenting) (“If Congress wanted [§ 11501(b)(4)] to share the same broad 

comparison class as the three preceding subsections, and none other, it would have 

said so. It did not.”). This result made sense, the court reasoned, because a broad 

comparison class in that instance would have put the railroads “at a competitive 

disadvantage.” Lohman, 193 F.3d at 986.

Case: 12-14611 Date Filed: 07/01/2013 Page: 10 of 28 
11

We have carefully studied the different approaches available to us, and we 

conclude that in light of the 4-R Act’s purpose of ensuring “financial stability” for 

rail carriers, the competitive model best serves that goal in the context of a state’s 

sales tax on diesel fuel.3

 Moreover, CSX and the State stipulated, and the district 

court agreed, that the proper comparison class for this case was CSX’s 

competitors.4

 Having determined that the appropriate comparison class is CSX’s 

competitors, we turn to the question of whether the sales tax is discriminatory. 

B. Discrimination

As noted earlier, the Supreme Court held that tax exemptions can be 

discriminatory under the 4-R Act. CSX II, 131 S. Ct. at 1114. Given that we have 

opted for a competitive model in this case, and CSX’s competitors do not pay the 

State’s sales tax, we hold that CSX has established a prima facie case of 

 

3 We therefore decline to adopt Justices Thomas’s dissent in CSX II, which would have 

held that the appropriate comparison class in all 4-R Act discrimination cases is all commercial 

and industrial taxpayers. See CSX II, 131 S. Ct. at 1115 (Thomas, J., dissenting) (“I would hold 

that, to violate § 11501(b)(4), a tax exemption scheme must target or single out railroads by 

comparison to general commercial and industrial taxpayers.”). While this comparison class 

might be appropriate in certain situations, like Koeller, it fails to address discriminatory taxes 

that place rail carriers at a significant disadvantage vis-à-vis their competitors. 

4 Our approach creates tension with the Seventh Circuit’s holding in Koeller only to the 

extent that Koeller established a bright-line rule for § 11501(b)(4) cases. See Koeller, 653 F.3d 

at 509 (“Given our preference for clarity, however, rather than an ill-defined ‘all the 

circumstances’ type of test, we are content for now to endorse reference to other commercial and 

industrial users.”). While we recognize the virtues of bright-line rules, § 11501(b)(4) is a broad 

statute, designed to strike down all discriminatory taxes that place rail carriers at a competitive 

disadvantage—and Congress “specifically chose to omit any reference to a comparison class in 

subsection [(b)(4)].” Atchison, 78 F.3d at 445 (Nielsen, J., dissenting). Thus, while a malleable 

approach might not lend itself to the most efficient application, the language and purpose of 

§ 11501(b)(4) require that “the comparison class should be appropriate to the type of tax and 

discrimination challenged in a particular case.” Lohman, 193 F.3d at 986. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 11 of 28 
12

discrimination. Quite simply, the sales tax overburdens the rail carriers because its 

competitors do not pay it. It therefore becomes the State’s burden to justify its 

discriminatory tax. See id. at 1110 n.8.

The State devotes the majority of its brief to defending the motor carriers’ 

exemption to the sales tax on the ground that the motor carriers pay a roughly 

equivalent amount of taxes under the fuel excise tax. This argument misses the 

mark. Rather than framing the tax in question at its highest level of abstraction as 

“all the taxes paid on diesel-fuel purchases,” we agree with the Eighth Circuit that 

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

has occurred.” Union Pacific, 507 F.3d at 695 (internal quotation marks omitted). 

We are persuaded that even though in some years—depending on the price of 

diesel fuel—the State’s taxing arrangement might yield a fair result, “the actual 

fairness of those arrangements is too difficult and expensive to evaluate.” Lohman, 

193 F.3d at 986 (quoting Trailer Train Co. v. State Tax Comm’n, 929 F.3d 1300, 

1303 (8th Cir. 1991)). 

This construction of the 4-R Act finds support in the Act’s text. Section 

11501(b)(4) prohibits the states from “impos[ing] another tax that discriminates 

against a rail carrier,” but the statute hardly “suggests that an individually 

discriminatory tax should be assessed for fairness against the entire tax structure of 

the state.” Kansas City S. Ry. v. McNamara, 817 F.2d 368, 377 (5th Cir. 1987). If 

Case: 12-14611 Date Filed: 07/01/2013 Page: 12 of 28 
13

the 4-R Act required us to examine the tax regime for an entire commodity, it 

would have said so rather than speaking in the singular about “another tax.” Like 

the Eighth Circuit in Lohman, we find the Fifth Circuit’s well-reasoned opinion in 

McNamara to speak directly on this issue. 

In McNamara, the Fifth Circuit struck down a Louisiana tax imposed on 

transportation and communication utilities, which included rail carriers. Id. at 370. 

Using a commercial and industrial taxpayer comparison class, the Fifth Circuit 

held that the tax was discriminatory, and that Louisiana could not justify it based 

on the fact that other commercial and industrial taxpayers paid a roughly 

equivalent amount in sales and use taxes. Id. at 377. Refusing to consider the 

sales tax, the Fifth Circuit held that “[d]etermining the intrinsic economic fairness 

of a tax system to a particular taxpayer is a paradigm of the kind of polycentric 

problem for which courts are ill-suited.” Id.

McNamara provided the rationale for the Eighth Circuit in Lohman and its 

progeny to hold that courts should not evaluate a state’s sales tax against other 

taxes in the state’s code. See Lohman, 193 F.3d at 986. Here, the district court 

below rejected the Eighth Circuit’s reliance on McNamara because McNamara

employed the functional approach rather than the narrower competitive approach, 

and when the comparison class is thereby “drastically reduced” it does not “impose 

substantial theoretical and practical difficulties on a court.” CSX III, 892 F. Supp. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 13 of 28 
14

2d at 1311. Because the comparison class has been narrowed, the dissent assures 

us, federal courts would not engage in “such a searching, time-consuming, 

expensive, and impracticable analysis.” Dissenting Op. at 6. We disagree. 

Although the class of taxpayers might have been narrower had we opted for 

the functional approach, the “theoretical difficult[ies]” that concerned the 

McNamara court would remain. McNamara, 817 F.2d at 377. We would still be 

forced to decide whether a state’s fixed-percentage sales tax for one market 

participant is roughly equivalent to an ad valorem excise tax for another market 

participant. In addition, the authoritative value of that assessment would ebb and 

flow with every oscillation in diesel fuel’s market value—we would operate for 

some months, perhaps even years, under the fiction that the two taxes are 

equivalent.5

 Id. (“Furthermore, there is no reason in principle why the railroads 

could not sue for such a judicial assessment each year (or for each tax bill) because 

the dynamic nature of any state’s economy will alter the relative benefits and 

burdens of its tax system from moment to moment.” (emphasis in original)). And 

if the price of diesel fuel causes rail carriers to bear a significantly larger tax 

burden than its competitors, at what point must we reverse course and hold that the 

 

5 The dissent also points out that under today’s holding, “the sales and use taxes would 

discriminate against a rail carrier even if its competitors paid four times as much tax as the rail 

carrier for the same commodity.” Dissenting Op. at 7–8. But if we were to adopt the dissent’s 

approach and accept the State’s justification for its discriminatory tax—that motor carriers pay 

some other commodity tax, that is sometimes equivalent—the reverse would also be true. That 

is to say, the sales and use tax exemption would not discriminate against a rail carrier even if its 

competitors paid four times less in tax as the rail carrier for the same commodity. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 14 of 28 
15

sales tax is discriminatory? After one year of inequity? Three?6 To adjust the 

comparison class makes little difference, and it behooves us to bear in mind the 

words of the Supreme Court:

[C]ourts as institutions are poorly equipped to evaluate with precision 

the relative burdens of various methods of taxation. The complexities 

of factual economic proof always present a certain potential for error, 

and courts have little familiarity with the process of evaluating the 

relative economic burden of taxes.

Minneapolis Star & Tribune Co. v. Minn. Comm’r of Revenue, 460 U.S. 575, 589–

90, 103 S. Ct. 1365, 1374 (1983) (footnote omitted). 

We therefore decline to undertake the Sisyphean burden of evaluating the 

fairness of the State’s overall tax structure in order to determine whether a single 

tax exemption causes a state’s sales tax to be discriminatory. This case, then, 

becomes much simpler than it would appear at first blush. Rail carriers pay the 

State’s sales tax—motor and water carriers do not. It is not a sufficient 

justification for the State to counter that its tax code will ultimately level the 

playing field. 

Even if it were true that the exemptions at issue were not enacted to 

unfavorably target rail carriers, our decision would be the same because 

discrimination under § 11501(b)(4) “can be shown even if there is no direct 

 

6 This is to say nothing of the added value that the motor carriers receive from being able 

to accurately forecast their year-to-year tax burden by virtue of being subject to a fixed excise tax 

rather than a variable ad valorem tax. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 15 of 28 
16

evidence of targeting,” as long as the tax imposes a proportionately heavier burden 

on rail carriers. Koeller, 653 F.3d at 510. Here, the rail carriers’ main competitors 

have received favorable treatment: tax exemptions. In response, the State offers no 

“reasonable distinctions between the favored and the disfavored”; therefore it has 

failed to carry the burden set forth by the Supreme Court in CSX II. Id. In CSX II, 

the Supreme Court queried the State: “Can you justify why motor and water 

carriers are taxed differently than rail carriers?” The State responds: “Motor and 

water carriers are taxed differently because they are taxed differently.” But the 

Supreme Court demanded a justification from the State, not a Zen proverb. 

Section 11501(b)(4) does not allow us to sit idly by and take the State at its word 

that, in the long run, its tax code will burden CSX no more than its competitors. 

Moreover, no one can seriously dispute that the water carriers, who pay not a cent 

of tax on diesel fuel, are the beneficiaries of a discriminatory tax regime. 

III. CONCLUSION

In short, after establishing a comparison class of competitors and showing 

that its competitors did not pay the sales tax on diesel fuel purchases, CSX made a 

prima facie showing of discrimination under § 11501(b)(4). The burden shifted to 

the State to provide a “sufficient justification” for the exemptions. It did not. We 

reverse the district court, hold that the State’s sales tax violates the 4-R Act, and 

Case: 12-14611 Date Filed: 07/01/2013 Page: 16 of 28 
17

remand to the district court with instructions to enter declaratory and injunctive 

relief in favor of CSX consistent with this opinion. 

REVERSED AND REMANDED.

Case: 12-14611 Date Filed: 07/01/2013 Page: 17 of 28 
18

COX, Circuit Judge, dissenting:

I dissent. Though I agree that the appropriate comparison class consists of 

the stipulated competitors, I do not agree that a tax exemption for interstate motor 

carriers discriminates against interstate rail carriers when motor carriers in fact 

carry a similar or heavier tax burden for purchase of the same commodity. As for 

the tax exemption for interstate water carriers, I conclude that the district court 

improperly placed the burden on CSX to provide evidence of the exemption’s 

discriminatory effect. I would affirm the district court’s ruling to the extent that it 

finds no violation of the 4-R Act with respect to the motor carriers’ exemption but 

remand for reconsideration as to interstate water carriers.

The Railroad Revitalization and Regulatory Reform Act of 1976 (the 4-R 

Act) prohibits a state taxing authority from taking certain actions that place unfair 

burdens on railroads. The statute’s first three subsections bar a state from making 

unfair assessments on railroad property, collecting a tax on such unfair 

assessments, and collecting an ad valorem property tax at a rate greater than that 

imposed on other “commercial and industrial property,” 49 U.S.C. § 11501(b)(1)–

(3).1

 At issue in this case is § 11501(b)(4), which prohibits a state and its 

 

1 Section 11501(b)(1)–(3) reads:

(b) The following acts unreasonably burden and discriminate against interstate 

commerce, and a State, subdivision of a State, or authority acting for a State or 

subdivision of a State may not do any of them:

Case: 12-14611 Date Filed: 07/01/2013 Page: 18 of 28 
19

subdivisions from “[i]mpos[ing] another tax that discriminates against a rail 

carrier.” Id. § 11501(b)(4).

We use a two-step inquiry to evaluate a claim of discrimination in violation 

of § 11501(b)(4). See CSX Transp., Inc. v. Ala. Dep’t of Revenue, 131 S. Ct. 1101, 

1109 n.8 (2011) (CSX II). The plaintiff railroad (CSX here) has the initial burden 

to establish a prima facie case of discriminatory tax treatment. If the plaintiff does 

so, the burden shifts to the defendant taxing authority (the State here) to establish 

that the differential tax treatment is justified and does not discriminate against the 

railroad. Id. (“Whether the railroad will prevail—that is, whether it can prove the 

alleged discrimination—depends on whether the State offers a sufficient 

justification for declining to provide the exemption at issue to rail carriers.”). If 

the defendant cannot meet its burden, the tax treatment violates § 11501(b)(4).

The parties in this case have agreed that CSX’s competitors are interstate 

motor carriers (“on-highway motor carriers of property in interstate commerce”) 

and interstate water carriers (“carriers of property in interstate commerce by ships, 

 

(1) Assess rail transportation property at a value that has a higher ratio to 

the true market value of the rail transportation property than the ratio that 

the assessed value of other commercial and industrial property in the same 

assessment jurisdiction has to the true market value of the other 

commercial and industrial property.

(2) Levy or collect a tax on an assessment that may not be made under 

paragraph (1) of this subsection.

(3) Levy or collect an ad valorem property tax on rail transportation 

property at a tax rate that exceeds the tax rate applicable to commercial 

and industrial property in the same assessment jurisdiction.

Case: 12-14611 Date Filed: 07/01/2013 Page: 19 of 28 
20

barges and other vessels”). (Dkt. 63 ¶ 10, at 3.) I proceed through the two-step 

analysis first with respect to motor carriers and then with respect to water carriers.

A. Motor Carriers

Like the majority, I have no doubt that CSX has established a prima facie 

§ 11501(b)(4) violation by showing that the sales and use taxes apply to rail 

carriers but exempt motor carriers. (Op. at 11–12.) Where I disagree is in the 

second step of the analysis: whether the State has justified the differential 

treatment.

The State explains the exemption by pointing out that motor carriers must 

pay the 19¢ state excise tax per gallon of fuel they purchase. Rail carriers do not 

pay this tax. According to the State’s argument, the fact that rail carriers are not 

subject to the excise tax justifies the differential treatment in the sales and use 

taxes, and the sales and use taxes do not discriminate against rail carriers.

The district court agreed with the State. CSX Transp., Inc. v. Ala. Dep’t of 

Revenue, 892 F. Supp. 2d 1300, 1312–14 (N.D. Ala. 2012) (CSX III). The court 

compared the state sales and use taxes (measured in terms of what rail carriers paid 

per gallon of fuel, including the 4% tax) to the state motor-fuel excise tax 

(measured in terms of what motor carriers paid per gallon, including the 19¢-pergallon tax) assessed from January 2007 to December 2009. Id. at 1313. The court 

found that “motor carriers actually pa[id] a higher” state tax. Id. Even adding to

Case: 12-14611 Date Filed: 07/01/2013 Page: 20 of 28 
21

the comparison the additional sales and use taxes imposed on rail carriers by 

counties and cities in Alabama, motor carriers and rail carriers paid “substantially 

similar” taxes during the period in question. Id.2

 And that comparison failed to 

incorporate the motor-fuel excise taxes assessed by counties and cities on motor 

carriers, which ranged from 1¢ to 6¢ added to the state excise tax imposed on 

motor carriers. Id. In sum, the district court found, the taxes paid by rail carriers 

and motor carriers for fuel was “essentially the same.” Id. Because its findings are 

not challenged on appeal, I accept them as accurate.

None of these findings are relevant, CSX argues, because the State cannot 

justify differential treatment by showing that the entities that are exempt from sales 

and use taxes are subjected to a separate tax not imposed on rail carriers. The 

majority agrees with CSX’s position. It refuses to compare the two taxes, 

regardless of the numbers the taxing arrangement yields. (See Op. at 12.) But 

based on my reading of the Supreme Court’s opinion in CSX II and case law in 

other circuits, I find this position both unsupported and contrary to Congress’s 

intent.

CSX’s argument and the majority opinion follow the approach taken by the 

Eighth Circuit in Union Pacific Railroad Co. v. Minnesota Department of Revenue, 

 

2 I assume that sales and use taxes imposed by cities and counties are at issue in this case. 

Given that CSX named no city or county as a defendant, this assumption may not be true; I 

hesitate to agree that a city or county can be enjoined from imposing a tax when it has not been 

named as a party. But even if they can, my conclusion remains the same.

Case: 12-14611 Date Filed: 07/01/2013 Page: 21 of 28 
22

507 F.3d 693 (8th Cir. 2007). There, the Eighth Circuit considered Minnesota’s 

generally applicable sales tax on railroad fuel that exempted two primary 

competitors (motor carriers and air carriers) because they paid a separate excise 

tax, see id. at 694—a scenario nearly identical to the one confronting us here. 

Based on its earlier opinion in Burlington Northern, Santa Fe Railway Co. v. 

Lohman, 193 F.3d 984 (8th Cir. 1999), the Eighth Circuit refused to consider any 

other tax as a justification for the facial discrimination. See Union Pac., 507 F.3d 

at 695 (“[W]e ‘look only at the sales and use tax with respect to fuel to see if 

discrimination has occurred.’” (quoting Lohman, 193 F.3d at 986)). 

But as the district court recognized, see CSX III, 892 F. Supp. 2d at 1310–11, 

the Eighth Circuit’s simplistic approach to evaluating challenges under 

§ 11501(b)(4) incorrectly relies on distinguishable case law. Lohman, on which 

Union Pacific rests, refuses to consider other taxes as justification for facially 

discriminatory tax treatment. 193 F.3d at 986. The Lohman court relies on two 

cases for the proposition that the fairness of this tax scheme is “too difficult and 

expensive to evaluate,” id.: the Fifth Circuit’s opinion in Kansas City Southern 

Railway Co. v. McNamara, 817 F.2d 368 (5th Cir. 1987), and the Eighth Circuit’s 

own opinion in Trailer Train Co. v. State Tax Commission, 929 F.2d 1300 (8th Cir. 

Case: 12-14611 Date Filed: 07/01/2013 Page: 22 of 28 
23

1991).3 But both McNamara and Trailer Train address a materially distinct fact 

pattern, and their analyses are unsuitable for this case.

In McNamara and Trailer Train, the court considered a different kind of 

tax—a specific tax that “targeted” railroads for differential treatment,4 rather than a 

general tax that exempted railroads’ competitors. In each case, the court decided 

that the appropriate comparison class consisted of all commercial and industrial 

taxpayers. In each case, the state argued that the tax did not discriminate against 

railroads because the state’s tax structure, as a whole, treated railroads similarly to 

every other commercial and industrial taxpayer. And in each case, the court 

refused to entertain such a searching, time-consuming, expensive, and 

impracticable analysis. See Trailer Train, 929 F.2d at 1302–03; McNamara, 817 

F.2d at 377–78.

Here, we have a much narrower issue. The appropriate comparison class 

includes the two stipulated competitors—a far more manageable class than one 

composed of all commercial and industrial taxpayers in Alabama. And in arguing 

that a single tax on motor carriers justifies their exemption from another tax, the 

State does not come close to proposing the massive endeavor that Trailer Train

 

3 The majority opinion also applies McNamara and acknowledges Trailer Train. (See

Op. at 12–14.)

4 In McNamara, Louisiana imposed a tax on “public utilities,” a relatively small group of 

taxpayers that included railroads. 817 F.2d at 374. Notably, “public utilities” also included 

certain motor and water carriers. Id. In Trailer Train, Missouri taxed an activity in which only 

railroads engaged. 929 F.2d at 1302.

Case: 12-14611 Date Filed: 07/01/2013 Page: 23 of 28 
24

and McNamara refused to undertake. Like the district court, see CSX III, 892 F. 

Supp. 2d at 1310–11, I would distinguish Trailer Train and McNamara on that 

ground, and I would decline to follow Lohman’s and Union Pacific’s lead because 

they rely on those distinguishable cases.

That we must evaluate the State’s justification, despite the Eighth Circuit’s 

approach, is all the clearer after CSX II. There, the Court conceded that 

discrimination cases under the 4-R Act will often “raise knotty questions about 

whether and when dissimilar treatment is adequately justified.” CSX II, 131 S. Ct. 

at 1114. But as the Court then insisted, “Congress has directed the federal courts 

to review a railroad’s challenge[,] and . . . we would flout the congressional 

command were we to declare the matter beyond us.” Id.

Perhaps the most compelling reason to depart from the Eighth Circuit’s 

approach is that, under that approach, we may reach the bizarre holding that a tax 

discriminates against a rail carrier even though the tax puts the rail carrier at no 

discernible disadvantage. The majority opinion reaches just that result, concluding 

that the sales and use taxes discriminate against rail carriers and in favor of motor 

carriers even though motor carriers pay “essentially the same” tax on their fuel. 

(See Op. at 12 (refusing to evaluate the comparison between the two taxes “even 

though in some years . . . the State’s taxing arrangement might yield a fair 

result”).) Under the majority’s approach, the sales and use taxes would 

Case: 12-14611 Date Filed: 07/01/2013 Page: 24 of 28 
25

discriminate against a rail carrier even if its competitors paid four times as much 

tax as the rail carrier for the same commodity. 

I cannot agree with that approach. Congress created the 4-R Act to stabilize 

railroads financially. Dep’t of Revenue v. ACF Indus., Inc., 510 U.S. 332, 336, 114 

S. Ct. 843, 846 (1994). This goal implies that an offending tax must disadvantage 

railroads; I fail to see how a tax that places rail carriers in the same tax position as 

their competitors—or a better one—could threaten railroads’ financial stability. So 

it is clear to me that Congress enacted § 11501(b)(4) to eliminate tax schemes that 

impose a greater tax burden on railroads than other taxpayers. This purpose is 

explicit in the first three subsections of § 11501(b), each of which prohibits 

taxation methods that assess or tax rail carriers’ property at a higher rate than other 

taxpayers. See § 11501(b)(1)–(3). By outlawing “another tax that discriminates” 

in the final subsection, Congress specifically targeted taxes that have a similar 

effect as those referred to in the previous three—placing a greater tax burden on

railroads than other taxpayers for the same taxable item or event. In finding 

discrimination against rail carriers without determining whether rail carriers have 

actually been disadvantaged, the majority opinion flouts the language of the statute 

and Congress’s clear intent.

Case: 12-14611 Date Filed: 07/01/2013 Page: 25 of 28 
26

Turning now to the State’s justification, I agree with the district court that 

the State has met its burden to show that the tax exemption for motor carriers was 

not discriminatory against railroads. 

As I explained above, a tax discriminates against railroads in violation of 

§ 11501(b)(4) if the tax imposes a greater tax burden on railroads than it does on 

comparable taxpayers. The district court found that rail carriers paid less state tax 

on fuel than motor carriers during the period in question and that, even adding the 

local taxes imposed on rail carriers (and without adding local excise taxes paid by 

motor carriers), rail carriers and motor carriers paid “essentially the same” tax. 

CSX III, 892 F. Supp. 2d at 1313. These factual findings are not challenged on 

appeal. And I cannot conclude from these findings that railroads have been 

competitively disadvantaged in any way by the sales and use taxes’ exemptions for 

motor carriers.5

 I would hold that the State has met its burden to justify the 

 

5 CSX contends that, even if rail carriers face the same tax burden as motor carriers in 

terms of purchasing and consuming fuel, rail carriers are still disadvantaged because they must 

maintain their own rights-of-way (tracks) while motor carriers’ rights-of-way (highways) are 

maintained in part by the excise taxes they pay. CSX argues that the district court’s refusal to 

consider these uneven operating expenses in its comparison to the two taxes, see CSX III, 892 F. 

Supp. 2d at 1314–15, was error because any analysis of relative tax burdens must include an 

analysis of the tangible benefits received or not received.

I disagree. True, railroads have to maintain their tracks. But that burden is not a tax

burden that the 4-R Act prohibits, and no tax affects that burden. Say, for example, that the State 

eliminated both the motor-fuel excise tax and the motor-carrier exemptions in the sales and use 

taxes, leaving a system in which rail carriers and motor carriers paid identical 4% taxes on the 

purchase and use of their fuel. By CSX’s logic, even that totally equal tax scheme would 

disadvantage railroads in violation of the 4-R Act because railroads have higher overhead 

Case: 12-14611 Date Filed: 07/01/2013 Page: 26 of 28 
27

differential treatment and, therefore, that the tax exemption does not discriminate 

against rail carriers within the meaning of § 11501(b)(4).

B. Water Carriers

The district court held that the sales and use taxes’ exemptions for water 

carriers did not discriminate against rail carriers in violation of the 4-R Act, in part 

because CSX “fail[ed] to meet it[s] evidentiary burden of proof.” CSX III, 892 F. 

Supp. 2d at 1316. This conclusion is not entirely unreasonable; after all, the 

Supreme Court in CSX II did hint that the rail carrier must “prove the alleged 

discrimination” to prevail. CSX II, 131 S. Ct. at 1109 n.8 (“Whether the railroad 

will prevail—that is, whether it can prove the alleged discrimination—depends on 

whether the State offers a sufficient justification . . . .”). 

But the district court required too much of CSX. The rail carrier bringing a 

§ 11501(b)(4) claim can establish its prima facie case simply by showing that the 

tax in question exempts competitors. See id. at 1108 (noting that a state 

discriminates against one group of taxpayers by charging them a higher tax rate 

than another group). It then becomes the state’s burden to show that the tax did not 

 

expenses. Motor carriers still would not be responsible for maintaining the public highways of 

Alabama.

The difference in right-of-way maintenance costs has no place in the comparison of tax 

burdens. That railroads must pay for their own tracks is the inherent burden of operating a 

transportation network on private rights-of-way. In other words, it is a fundamental competitive 

disadvantage that railroads face. Congress did not intend the 4-R Act to eliminate all of 

railroads’ competitive disadvantages, only those created by taxes. And here, the State has shown 

that the sales and use tax exemptions for motor carriers creates no tax disadvantage for railroads.

Case: 12-14611 Date Filed: 07/01/2013 Page: 27 of 28 
28

in fact discriminate against the railroad. See id. at 1109 n.8 (“[W]hether [the 

railroad] can prove the alleged discrimination[ ]depends on whether the State 

offers a sufficient justification . . . .”). 

In requiring more from CSX than a showing that the tax exempts water 

carriers, the district court muddied the two-step inquiry and applied an incorrect 

legal standard. When a district court uses the wrong legal standard, we can remand 

for application of the appropriate standard. See Kearse v. Sec’y, Fla. Dep’t of 

Corr., 669 F.3d 1197, 1198 (11th Cir. 2011). Accordingly, I would remand this 

case so the district court can apply the correct standard (based on the existing 

record) and determine whether the State has offered sufficient justification for the 

tax exemption given to water carriers.

Case: 12-14611 Date Filed: 07/01/2013 Page: 28 of 28