Opinion ID: 221976
Heading Depth: 3
Heading Rank: 1

Heading: The comparison class.

Text: The proper approach toward defining the appropriate class for comparison under subsection (b)(4) has divided the circuits, and the Supreme Court's most recent decision in this area, CSX Transportation, declined to resolve the split. 131 S.Ct. at 1107 n. 5; see id. at 1115, 1118 n. 3 (Thomas, J., dissenting) (noting the division of authority); Norfolk S. Ry. Co. v. Alabama Dep't of Rev., 550 F.3d 1306, 1308 n. 3 (11th Cir.2008) (collecting cases), abrogated on other grounds by CSX Transp., 131 S.Ct. 1101. The critical question appears to be the proper level of generality for analysis: as applied to our case, should one take (1) a universal approach, looking at all property owners within the District; (2) a functional approach, looking at other commercial and industrial property; or (3) a competitive approach, focusing on a railroad's chief competitors as a baseline for finding discrimination? Compare, e.g., Burlington N. Santa Fe Ry. Co. v. Lohman, 193 F.3d 984, 985 (8th Cir.1999) (adopting the competitive option), with Atchison, Topeka, and Santa Fe Ry. Co. v. Arizona, 78 F.3d 438, 441-42 (9th Cir.1996) (applying a functional approach), and Kansas City S. R.R. Co. v. McNamara, 817 F.2d 368, 375-76 (5th Cir.1987) (same). We can easily reject the universal approach, which the Railroads have advocated. No appellate court has gone this far, and we think this interpretation was foreclosed by Department of Rev. v. ACF Industries, 510 U.S. 332, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994). Cf. CSX Transp., 131 S.Ct. at 1119 n. 4 (Thomas, J., dissenting) (A comparison class of `anyone' is broader than either of the sides in the lower courts' split on this issue.). In ACF Industries, the court explained that the interplay between subsections (b)(1)-(3) and the definition of `commercial and industrial property' in subsection (a)(4) is central to interpretation of subsection (b)(4). 510 U.S. at 340, 114 S.Ct. 843. Subsection (a)(4) defines commercial and industrial property to exclude land used primarily for agricultural purposes, 49 U.S.C. § 11501(a)(4), which perfectly describes 99.5% of the land encompassed by Sny Island. Under ACF Industries, the fact that Congress made this particular exclusion demonstrates its intent to permit the States to tax railroad property at a higher rate than agricultural land, not withstanding subsection (b)(3)'s general prohibition of rate discrimination. 510 U.S. at 340, 114 S.Ct. 843. The rationale supporting ACF Industries, under which states are allowed to distinguish between agricultural land and other land, even to the extent of exempting the former, is applicable here as well. To hold otherwise, would prevent the same type of basic disparities allowed by the structure of subsection (b). The more difficult choice is between a functional approach and a competitive approach. Of the two, the one more favorable to Sny Island is the functional approach; indeed, it urges us to compare its treatment of the Railroads to that of other commercial and industrial taxpayers. This finds some support in our earlier decision in Superior, where we said that a state is confined to taxing railroads as members of larger taxpayer groups  owners of commercial or industrial property, recipients of gross income, recipients of net income, whatever. 932 F.2d at 1188. In so holding, we drew on the Fifth Circuit's opinion in McNamara, supra , which set out the rationale for adopting the comparison class of other commercial and industrial taxpayers: The only simple way to prevent tax discrimination against the railroads is to tie their fate to the fate of a large and local group of taxpayers. A large group of local taxpayers will have the political and economic power to protect itself against an unfair distribution of the tax burden. 817 F.2d at 375. A smaller comparison class, McNamara worried, might be too small and too foreign to fulfill this function. Id. In addition, the smaller class might result in preferential treatment for the railroads, which Congress certainly did not intend. Atchison, 78 F.3d at 442; see also CSX Transp., 131 S.Ct. at 1109 n. 8; id. at 1119 (Thomas, J., dissenting). On the other hand, if too broad a comparison class is chosen, the railroads will be placed at a competitive disadvantage that would defeat the purpose of the statute. Lohman, 193 F.3d at 986. Perhaps this is just another illustration of Aristotle's golden mean, or more familiarly the story of the Three Bears. Either way, it seems to us that the appropriate comparison class for subsection (b)(4) does not lie at either extreme on the continuum of generality to particularity. It is the functional, middle group of all other commercial and industrial taxpayers. This conclusion is supported by 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. Superior, 932 F.2d at 1188; see also Atchison, 78 F.3d at 442; Eagerton, 541 F.Supp. at 1086 (relying on the clear indication found in the body of § 1150[1](b) that commercial and industrial taxpayers are to be considered). Thus, while many different types of taxes fall within the broad catchall provision beyond those specified in subsections (b)(1)(3), CSX Transp., 131 S.Ct. at 1107, the risk of discrimination that Congress was addressing remains constant. We do not regard this conclusion as incompatible with the Eighth Circuit's Lohman decision, which compared the railroads to their direct competitors but which also commented that the comparison class should be appropriate to the type of tax and discrimination challenged in a particular case. 193 F.3d at 986. 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. If, as we contemplated in Superior, rail carriers in a later case so dominate the economy that the group of all commercial and industrial taxpayers would overlap almost entirely with that of railroads, it is possible that the statute would require a broader perspective. 932 F.2d at 1188. That is not our problem, however, and so we are content to leave that hypothetical for another day. For the sake of completeness, we add a word or two to explain why we reject the competitive approach. In this case, there are no competitors of the railroads  motor carriers, air carriers, barges, [or] Great Lakes ships  that Sny Island is trying to tax. Compare Minnesota Dep't of Rev., 507 F.3d at 695. The District's effort to gerrymander a competitive class by grouping the Railroads with pipelines and utilities is unpersuasive, largely because the individual members are not competitors in any meaningful sense of the term. Expanding the comparison class to include the 14 additional commercial and industrial taxpayers helps both by creating a pool large enough for meaningful analysis and by providing a group that includes (as the statute contemplated) taxpayers with local political representation (which is perhaps why those within city limits were exempt, and those outside of the city limits were inadvertently treated like the agricultural taxpayers).