Source: http://al.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180323_0000414.C11.htm/qx
Timestamp: 2019-04-26 00:43:06+00:00

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ALABAMA DEPARTMENT OF REVENUE, TIM RUSSELL, Commissioner of the Alabama Department of Revenue, Defendant-Appellee.
Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY, [*] District Judge.
The Railroad Revitalization and Regulatory Reform Act prohibits states from imposing a tax "that discriminates against a rail carrier." 49 U.S.C. § 11501(b)(4). The question before us is whether Alabama's tax scheme, which imposes either a sales or use tax on rail carriers when they buy or consume diesel fuel but exempts competing motor and water carriers from those taxes, violates the Act. Our answer is "no" as to motor carriers, "yes" as to water carriers.
CSX Transportation, Inc. is an interstate rail carrier that does business and pays taxes in a number of states including Alabama. In the shipment of freight interstate it and other rail carriers compete against trucking transport companies (motor carriers) and commercial ships, vessels, and barges (water carriers). Yet Alabama taxes each type of carrier differently on the purchase or use of diesel fuel inside the state. Rail carriers pay a 4% sales and use tax on diesel fuel,  while motor carriers and water carriers are exempt from that tax, see Ala. Code §§ 40-17-325(b) (motor carriers), 40-23-4(a)(10) (water carriers). Motor carriers do pay a Motor Fuels Excise Tax of $0.19 per gallon of diesel. Id. §§ 40-17-325(a). But water carriers pay no tax of any kind to Alabama for diesel fuel they purchase or use in Alabama. Id. §§ 40-23-4(a)(10) (sales tax exemption), 40-23-62(12) (use tax exemption).
The State deposits revenue from the sales and use tax that rail carriers pay into the general fund and earmarks it for education purposes. Id. § 40-23-35(f). Of the $0.19 per gallon excise tax that motor carriers pay, $0.13 goes to the Alabama Department of Transportation for the construction and maintenance of roads and bridges and for the payment of highway bonds. Id. § 40-17-361(a). The remaining $0.06 per gallon goes to counties, towns, and cities for the construction and maintenance of roads and bridges. Id. § 40-17-361(b).
In 2008 CSX sued the Alabama Department of Revenue, seeking to enjoin the Department from collecting the sales and use tax on the railroad's purchase or consumption of diesel fuel in the state. It also sought a declaratory judgment that the imposition of that tax violates the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. § 11501, often called "the 4-R Act."
(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.
Id. The first three paragraphs address property taxes, not sales and use taxes, and are not at issue here. The fourth paragraph is a catchall that applies to taxes generally and provides the basis for CSX's claim about the sales and use tax imposed on it but not on the other types of carriers.
Over the past decade, this case has made two trips to the Supreme Court, stopping along the way three times at the district court and five times here. Because it is all pretty much relevant, we will set out that procedural history in some detail.
In doing so, we will begin with a discussion of the first district court order, which dismissed CSX's complaint, and from there we will recount our decision on appeal and the Supreme Court's first decision. We will then discuss the district court's second opinion, our second decision on appeal, and the Supreme Court's second decision. Finally, we will discuss the third leg of the journey to date, starting with our second remand order and ending with the district court judgment from which CSX now appeals.
In round one of this case, the district court dismissed CSX's complaint and we affirmed. CSX Transp., Inc. v. Ala. Dep't of Revenue, 350 Fed.Appx. 318 (11th Cir. 2009), rev'd, 562 U.S. 277, 131 S.Ct. 1101 (2011), vacated, 639 F.3d 1040 (11th Cir. 2011). In doing so, we relied on one of our earlier decisions involving a nearly identical challenge to Alabama's tax scheme. See Norfolk S. Ry. v. Ala. Dep't of Revenue, 550 F.3d 1306 (11th Cir. 2008), abrogated by 562 U.S. 277, 131 S.Ct. 1101. Based on Norfolk we held that discrimination in the granting of tax exemptions does not amount to tax discrimination for purposes of the 4-R Act. See 350 Fed.Appx. at 319.
The Supreme Court reversed our decision and held that denying rail carriers exemptions provided to other carriers can be a form of discrimination under the 4-R Act. CSX Transp., Inc. v. Ala. Dep't of Revenue ("CSX I"), 562 U.S. 277, 280, 131 S.Ct. 1101, 1105 (2011). The Court explained that a tax discriminates when it treats "groups [that] are similarly situated" differently without "justification for the difference in treatment." Id. at 287, 131 S.Ct. at 1109. As a result, "a state excise tax that applies to railroads but exempts their interstate competitors is subject to challenge under subsection (b)(4) as a 'tax that discriminates against a rail carrier.'" Id. at 288, 131 S.Ct. at 1109. The Court did not decide whether the different tax treatment violated the 4-R Act, but it did decide that the outcome "depends on whether the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers." Id. at n.8, 131 S.Ct. at 1109 n.8.
On remand, after holding a bench trial the district court ruled that Alabama's sales and use tax scheme does not discriminate against CSX. CSX Transp., Inc. v. Ala. Dep't of Revenue, 892 F.Supp.2d 1300 (N.D. Ala. 2012), rev'd and remanded, 720 F.3d 863 (11th Cir. 2013), rev'd and remanded, 575 U.S.__, 135 S.Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). The district court concluded that the motor carrier exemption to the sales and use tax is justified because motor carriers pay a "substantially similar" amount under the excise tax that applies to them. Id. at 1313. As to water carriers, which pay neither tax, the district court concluded that international commerce clause concerns do provide a rational basis for exempting them and also that CSX had failed to show that it had suffered a discriminatory effect. Id. at 1316-17.
We reversed. CSX Transp. Inc. v. Ala. Dep't of Revenue, 720 F.3d 863, 865 (11th Cir. 2013), rev'd and remanded, 575 U.S.. 135 S.Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). We first decided whether to apply the "functional approach" or the "competitive approach" to identify a comparison class of taxpayers for 4-R Act claims. Id. at 867-69. The functional approach compares rail carriers to all other "commercial and industrial" taxpayers, thereby importing into § 11501(b)(4) the "commercial and industrial" limitation from the three preceding paragraphs. Id. at 867 (citing Kansas City S. Ry. v. Koeller, 653 F.3d 496, 508 (7th Cir. 2011)). The competitive approach, by contrast, compares rail carriers only to their competitors. Id. at 867-68.
We chose the competitive approach, reasoning that the functional approach disadvantages rail carriers by applying too broad a comparison class and that the competitive approach better accords with the 4-R Act's purpose. Id. at 869. Applying the competitive approach, we held that motor carriers and water carriers are competitors of, and as a result proper comparators to, rail carriers. Id. at 867. Because those two competitors are exempt from the sales and use tax, we reasoned that CSX had established a "prima facie case of discrimination, " shifting the burden to the State to justify its facially discriminatory tax. Id. at 869.
We rejected the argument that the motor carrier exemption to the sales and use tax would be justified if motor carriers paid excise taxes in amounts substantially similar to the sales and use tax that the rail carriers paid. Id. We held, instead, that a court should look "only at the sales and use tax with respect to fuel to see if discrimination has occurred." Id. (quotation marks omitted). We reasoned that focusing solely on the specific tax that is allegedly discriminatory would avoid 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." Id. at 871. Because the State failed to justify the motor carrier exemption, and because "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, " we reversed and remanded with instructions to enter declaratory and injunctive relief for CSX. Id.
The Supreme Court granted certiorari on two questions: "whether the Eleventh Circuit properly regarded CSX's competitors as an appropriate comparison class for its subsection (b)(4) claim, " and "whether, when resolving a claim of unlawful tax discrimination, a court should consider aspects of a State's tax scheme apart from the challenged provision." Ala. Dep't of Rev. v. CSX Transp., Inc. ("CSX II"), 575 U.S., 135 S.Ct. 1136, 1140 (2015).
On the first question, the Court agreed with us that, "in light of [CSX's] complaint and the parties' stipulation, a comparison class of competitors consisting of motor carriers and water carriers was appropriate, and differential treatment vis-à-vis that class would constitute discrimination." Id. at 1143. The Court rejected Alabama's argument that the proper comparison class is all commercial and industrial taxpayers, deciding that the "commercial and industrial" limitation from 49 U.S.C. § 11501(b)(1)-(3) does not carry over to (b)(4). Id. at 1142-43. Given the 4-R Act's purpose of "restor[ing] the financial stability of the railway system" while "foster[ing] competition among all carriers by railroad and other modes of transportation, " the Court held that competitors "can be another 'similarly situated' comparison class." Id. at 1142 (quoting 45 U.S.C. § 801(a), (b)(2)).
On the second question, about whether a state's other taxes should be considered in the analysis, the Court held that "an alternative, roughly equivalent tax is one possible justification that renders a tax disparity nondiscriminatory." Id. at 1143. The Court reasoned that "[i]t does not accord with ordinary English usage to say that a tax discriminates against a rail carrier if a rival who is exempt from that tax must pay another comparable tax from which the rail carrier is exempt." Id. As a result, the Court held that this Court should have let the State "justify its decision to exempt motor carriers from its sales and use tax through its decision to subject motor carriers to a fuel-excise tax" (which the rail carriers do not pay). Id.
The Court remanded for us to consider "whether Alabama's fuel-excise tax is the rough equivalent of Alabama's sales [and use] tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption." Id. at 1144. It did not specify a standard for determining whether those taxes are "roughly equivalent." See id. As to water carriers, which pay no state tax on diesel fuel, the Court noted that "[t]he State . . . offer[ed] other justifications for the water carrier exemption - for example, that such an exemption is compelled by federal law, " and directed us to consider those "alternative rationales" on remand. Id.
We vacated the district court's judgment and remanded for proceedings "consistent with the Supreme Court's opinion." CSX Transp., Inc. v. Ala. Dep't of Revenue, 797 F.3d 1293, 1294 (11th Cir. 2015). On remand, the district court again ruled that Alabama's tax scheme does not violate the 4-R Act. CSX Transp., Inc. v. Ala. Dep't of Revenue, 247 F.Supp.3d 1240, 1242-43 (N.D. Ala. 2017).
The district court concluded that the motor carrier exemption does not violate the 4-R Act for two reasons. First, the court found that CSX's trains can operate on either clear diesel or dyed diesel, and that if CSX opted to purchase clear diesel, it would be subject to the excise tax, just like motor carriers, instead of the sales and use tax. Id. at 1245. For that reason, the court ruled that any alleged discrimination is "self-imposed, " and as a result, "the State has established that its tax schemes for dyed diesel and clear diesel do not discriminate against rail carriers." Id. at 1247. Alternatively, the court ruled that the motor carrier exemption is justified because the excise tax that motor carriers pay is "roughly equivalent" to the sales and use tax. Id.
The court also determined that there were two reasons why the water carrier exemption does not violate the 4-R Act. First, it concluded that the exemption "does not violate the 4-R Act" because "CSX has suffered no competitive injury" from that exemption. Id. at 1255. Second, it found that because "imposition of a state sales [and use] tax on interstate water carriers would expose the State to liability under the negative Commerce Clause, " their exemption "is compelled by federal law." Id. at 1252 (citing CSX II, 135 S.Ct. at 1144). This is CSX's appeal.
We review de novo the district court's interpretation of the Supreme Court's rulings and the scope of the mandate. Cox. Enters., Inc. v. News-Journal Corp., 794 F.3d 1259, 1271-72 (11th Cir. 2015). We also review de novo questions of statutory interpretation. Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d 235, 237 (11th Cir. 1995). The district court's factual findings we review only for clear error. United States v. Magluta, 418 F.3d 1166, 1182 (11th Cir. 2005).
The State contends that CSX lacks standing. It raises that issue for the first time in this appeal, but because standing goes to Article III jurisdiction a party can contest it "at any point in the litigation." Fla. Wildlife Fed'n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011). To have standing, CSX "must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 578 U.S.__, 136 S.Ct. 1540, 1547 (2016).
CSX meets those three requirements. Without a favorable decision it will suffer an injury in fact because it will continue to be liable for roughly $5 million per year in sales and use tax on diesel fuel. See Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 599, 127 S.Ct. 2553, 2653 (2007) ("[B]eing forced to pay . . . a tax causes a real and immediate economic injury to the individual taxpayer."). CSX's claimed injury is fairly traceable to the Department, which the parties stipulate is responsible for "administer[ing] and collect[ing] taxes within Alabama, including the administration of sales and use taxes." And that injury would be redressed by a declaratory judgment that the sales and use tax violates the 4-R Act and an injunction prohibiting the Department from collecting that tax on CSX's purchase and consumption of diesel.

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