In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 19-1741 

UNION PACIFIC RAILROAD COMPANY, 

Plaintiff-Appellee, 

v.

WISCONSIN DEPARTMENT OF REVENUE,

et al., 

Defendants-Appellants. 

____________________ 

Appeal from the United States District Court 

for the Western District of Wisconsin. 

No. 17-cv-00897 — William M. Conley, Judge. 

____________________ 

ARGUED SEPTEMBER 17, 2019 — DECIDED OCTOBER 7, 2019 

____________________ 

Before FLAUM, ROVNER, and SCUDDER, Circuit Judges. 

FLAUM, Circuit Judge. The Wisconsin Department of Revenue (the “Department”) disallowed the Union Pacific Railroad Company (“Union Pacific”) from claiming a property tax 

exemption for the value of its custom computer software, 

which under Wisconsin law is a type of intangible personal 

property. Union Pacific refused to pay the tax on its custom 
2 No. 19-1741 

software and filed suit, arguing that the tax singles out railroads as part of an isolated and targeted group in violation of 

Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (the “4-R Act”), codified at 49 U.S.C. 

§ 11501(b)(4) (“subsection (b)(4)”). The defendants contend 

that Wisconsin is permitted to grant non-railroads an exemption from its generally applicable ad valorem property tax 

scheme for intangible property, even if railroads do not qualify for the same exemption. The intangible property tax, however, exempts everyone except for an isolated and targeted 

group of which railroads are a part. The district court entered 

summary judgment for Union Pacific. We affirm. 

I. Background 

Chapter 70 of the Wisconsin Tax Code (“the Code”) governs the taxation of manufacturing and commercial companies aside from railroad and utilities companies. Chapter 76 

governs the taxation of railroad and utilities companies, including air carriers, pipeline companies, and water conservation and regulation companies. Wis. Stat. §§ 76.01–76.02. Taxpayers under chapters 70 and 76 must pay taxes on their real 

and personal property unless that property is exempt. 

The Code contains several exemptions from the general 

property tax for various classes of property, including an exemption for “all intangible personal property,” which covers 

custom computer software. Wis. Stat. § 70.112(1). Manufacturing and commercial taxpayers generally qualify for the intangible personal property exemption, but railroad and utilities companies do not. Compare id., with Wis. Stat. § 76.025(1). 

The parties do not dispute that railroad and utilities companies are the only taxpayers that Wisconsin requires to pay 

taxes on their intangible property, including custom software. 
No. 19-1741 3

For several years, Union Pacific claimed the value of its 

custom software as exempt under Wis. Stat. § 70.11(39), which 

applies to computers and certain types of software; however, 

that exemption expressly does not cover custom software. The 

Department audited Union Pacific and concluded that, for the 

years 2014 and 2015, it owed $2,631,104.77 in back taxes and 

interest after disallowing Union Pacific’s deduction of its custom software. Union Pacific filed suit against the Department 

and its secretary,1 contending that Wisconsin’s tax on Union 

Pacific’s custom software violates subsection (b)(4) of the 4-R 

Act. 

The district court entered summary judgment for Union 

Pacific, concluding that because railroads are “the only entities in Wisconsin who are taxed for their intangible personal 

property -- including custom computer software,” the tax on 

intangible personal property “is not one of general applicability, but rather is one that appears to fall squarely, if not entirely, on railroads ‘as part of some isolated and targeted 

group.’” The defendants now appeal, arguing that Wisconsin 

is permitted under subsection (b)(4) to grant exemptions from 

its generally applicable ad valorem tax scheme, even if those 

same exemptions are denied to railroads. 

II. Discussion 

This case comes to the Court on appeal of the district 

court’s ruling on cross-motions for summary judgment with 

 

1 Wisconsin’s current Secretary of Revenue, Peter Barca, has been substituted as a defendant for his predecessor, Richard Chandler. 
4 No. 19-1741 

no disputed material facts. Accordingly, we review the district court’s legal conclusions de novo. State Auto Prop. & Cas. 

Ins. Co. v. Brumitt Servs., Inc., 877 F.3d 355, 357 (7th Cir. 2017). 

A. The 4-R Act 

Union Pacific asserts that Wisconsin “[i]mposes another 

tax that discriminates against a rail carrier” in violation of 49 

U.S.C. § 11501(b)(4) (“subsection (b)(4)”) by taxing railroads’ 

custom computer software while exempting custom computer software for other taxpayers. The 4-R Act provides that 

states and their subdivisions may not: 

(1) [a]ssess 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) [l]evy or collect a tax on an assessment that 

may not be made under paragraph (1) of this 

subsection[;] 

(3) [l]evy 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[; or] 

(4) [i]mpose another tax that discriminates 

against a rail carrier providing transportation subject to the jurisdiction of the Board 

under this part. 
No. 19-1741 5

49 U.S.C. § 11501(b). Railroads “are easy prey for State and 

local tax assessors in that they are nonvoting, often nonresident, targets for local taxation, who cannot easily remove 

themselves from the locality.” W. Air Lines, Inc. v. Bd. of Equalization of State of S.D., 480 U.S. 123, 131 (1987) (citation and internal quotation marks omitted). The 4-R Act “restricts the 

ability of state and local governments to levy discriminatory 

taxes on rail carriers.” CSX Transp., Inc. v. Ala. Dep’t of Revenue, 562 U.S. 277, 280 (2011). 

In Dep’t of Revenue of Or. v. ACF Indus., Inc., railroad car 

lines brought a 4-R Act challenge to Oregon’s tax scheme, 

which exempted several classes of non-railroad property but 

did not exempt railroad cars. 510 U.S. 332, 335 (1994). The Supreme Court held that a tax upon railroad property is not 

“subject to challenge under subsection (b)(4) on the ground 

that certain other classes of commercial and industrial property are exempt.” Id. at 338–39. The Court went on to explain 

that the case was not one 

in which the railroads—either alone or as part 

of some isolated and targeted group—[were] 

the only commercial entities subject to an ad 

valorem property tax.... If such a case were to 

arise, it might be incorrect to say that the state 

“exempted” the nontaxed property. Rather, one 

could say that the State had singled out railroad 

property for discriminatory treatment. 

Id. at 346–47. In providing this explanation, the Court cited 

Burlington N. R.R. Co. v. City of Superior, 932 F.2d 1185 (7th Cir. 

1991), as an example of a case where a rail carrier was one of 

the only commercial entities singled out for discriminatory 

treatment. ACF, 510 U.S. at 346. The tax challenged in City of 
6 No. 19-1741 

Superior was an occupational tax imposed on “owners and operators of iron ore concentrates docks.” 932 F.2d at 1186 (internal quotation marks omitted). Although the tax was 

framed broadly, in practical effect it applied only to the one 

railroad company that operated the only three such docks in 

the state. Id. Because the state was “levying a tax on an activity 

in which, in Wisconsin anyway, only railroads engage,” the 

iron ore docks tax could not stand. Id. at 1188. 

The ACF holding does not apply, therefore, where the “actual tax levied is a general tax in name only and is in fact a tax 

on railroads” or a targeted group of which railroads are a part. 

Burlington N. R.R. Co. v. Wis. Dep’t of Revenue, 59 F.3d 55, 58 & 

n.2 (7th Cir. 1995). Notwithstanding the ACF holding, subsection “(b)(4) might be violated if a railroad was ‘singled out’ 

for unfavorable treatment in the form of inability to benefit 

from property tax exemptions given to other taxpayers.” CSX 

Transp., Inc. v. S.C. Dep’t of Revenue, 851 F.3d 320, 331 (4th Cir. 

2017). Indeed, “[t]he most obvious form of tax discrimination 

is to impose a tax on a class of rail transportation property that 

is not imposed on other nonrailroad property of the same 

class.” Ogilvie v. State Bd. of Equalization of State of N.D., 657 

F.2d 204, 210 (8th Cir. 1981). 

Following ACF, two of our sister circuits have held that 

intangible personal property taxes that were imposed on targeted and isolated groups of which railroads were a part ran 

afoul of subsection (b)(4). In Burlington N. R.R. Co. v. Huddleston, the Tenth Circuit considered Colorado’s intangible property tax exemption, concluding that “[u]nlike the tax exemption at issue in ACF, Colorado’s intangible property tax exemption applies to all commercial and industrial taxpayers 

other than ‘public utilities,’” thereby “singl[ing] out Plaintiff 
No. 19-1741 7

as part of an ‘isolated and targeted group’ for discriminatory 

tax treatment in violation of [subsection (b)(4)].” 94 F.3d 1413, 

1417 (10th Cir. 1996), abrogated in part on other grounds by Ala. 

Dep’t of Revenue v. CSX Transp., Inc., 135 S. Ct. 1136, 1141 

(2015). Similarly, in Burlington N. R.R. Co. v. Bair, the Eighth 

Circuit held that Iowa’s intangible personal property tax violated subsection (b)(4) because it was imposed only “on railroads and a handful of other interstate concerns” and therefore was not “generally applicable.” 60 F.3d 410, 413 (8th Cir. 

1995).2

B. Wisconsin’s Intangible Property Tax 

Wisconsin’s intangible personal property tax singles out 

railroads as part of a targeted and isolated group in violation 

of subsection (b)(4). What Wisconsin refers to as its “generally 

applicable property tax” is, functionally, generally applicable 

only to real and tangible personal property. Manufacturing 

and commercial companies generally must pay property 

taxes on the value of their real and tangible personal property. 

Only railroad and utilities companies, however, are required 

to pay an additional tax on their intangible property. Hence, 

Wisconsin does not simply exempt intangible property from 

taxation; rather, it imposes an intangible property tax only on 

railroad and utilities companies. The intangible property tax 

 2 Also, a district court in Oregon recently held that Oregon’s intangible personal property tax violated subsection (b)(4) because “intangible 

personal property [was] not subject to taxation except for property owned 

by” one of fourteen categories of taxpayers, including railroads. BNSF 

Railway Co. v. Or. Dep’t of Revenue, 358 F. Supp. 3d 1129, 1138 (D. Or. 2018), 

appeal docketed, No. 19-35184 (9th Cir. Mar. 7, 2019). An appeal of that decision is now pending in the Ninth Circuit. 
8 No. 19-1741 

“exemption”—for which railroad and utilities companies categorically do not qualify—reflects and operates as “another 

tax that discriminates against a rail carrier” within the meaning of subsection (b)(4) and thereby offends the 4-R Act. 

ACF does not foreclose Union Pacific’s claim because the 

question before the Court there was “[w]hether a tax upon 

railroad property is even subject to challenge under subsection (b)(4) on the ground that certain other classes of commercial and industrial property are exempt.” 510 U.S. at 338–39 

(emphasis added). Here, the challenge is to the same class of 

property being taxed differently based on the owner’s membership in a targeted and isolated group. 

Moreover, the ACF holding does not apply where the “exemption” is just a pretext for targeting railroads, either alone 

or as part of an isolated group. “Practically speaking, if a state 

exempts sufficient property from a particular property tax, 

that tax no longer can be said to be one of general application.” Bair, 60 F.3d at 413. Otherwise, “the anti-discrimination 

purpose of the 4-R Act could be utterly eviscerated by a state 

that ostensibly imposed a tax of general applicability but then 

systematically exempted all but a targeted few taxpayers.” Id.

Wisconsin systematically exempts from its intangible property tax all manufacturing and commercial taxpayers except 

for railroad and utilities companies. 

The effect of the intangible property tax challenged here is 

functionally similar to that of the iron ore concentrates docks 

tax the Supreme Court cited in ACF as an example of a tax 

that runs afoul of subsection (b)(4), see City of Superior, 932 

F.2d at 1188, and the taxes courts have regularly struck down 

under subsection (b)(4) since the ACF decision, see, e.g., Huddleston, 94 F.3d at 1417; Bair, 60 F.3d at 413; BNSF, 358 F. Supp. 
No. 19-1741 9

3d at 1138. The common defect with those taxes was that they 

went beyond the state’s generally applicable tax by imposing 

an additional tax on railroads or a targeted and isolated group 

of which railroads were a part. 

The defendants’ reliance on our decision in Burlington N. 

R.R. Co. v. Wis. Dep’t of Revenue, 59 F.3d 55 (7th Cir. 1995), is 

misplaced. In that case, we noted that even though 80% of 

non-railroad property was exempt from taxation under Wisconsin’s property tax scheme, railroads bore only a small proportion of the overall property tax burden. Id. at 57–58. Wisconsin’s entire property tax scheme was therefore not a “nominally general tax which is in fact a tax only on railroads,” and 

ACF precluded the plaintiff’s claim that Wisconsin’s taxation 

of railroad property altogether violated subsection (b)(4). Id.

We did not, however, consider a challenge to the particular 

property tax at issue here. The question here is whether Wisconsin’s intangible property tax singles out railroads as part 

of a targeted and isolated group in violation of subsection 

(b)(4). We hold that it does. 

“It is now well established that a showing that the railroads have been targeted is enough to prove discrimination.” 

Kan. City S. Railway Co. v. Koeller, 653 F.3d 496, 510 (7th Cir. 

2011). The defendants have not provided a non-discriminatory justification for imposing a targeted tax on the intangible 

property of railroad and utilities companies, nor have they 

contested the district court’s conclusion that the railroad and 

utilities companies as defined in the Code are a targeted and 

isolated group. 
10 No. 19-1741 

III. Conclusion 

For the foregoing reasons, we AFFIRM the judgment of the 

district court.