Opinion ID: 714197
Heading Depth: 2
Heading Rank: 1

Heading: Analysis Under the 4-R Act

Text: 10 The 4-R Act was enacted by Congress in 1976 to restore financial stability to the railroad system in the United States. Department of Revenue v. ACF Indus., Inc., --- U.S. ----, ----, 114 S.Ct. 843, 846, 127 L.Ed.2d 165 (1994). Congress' purpose was to revitalize the railroads and protect them from discriminatory taxation. Id. The applicability of subsection (b)(4) of the 4-R Act is at issue in the present case. 11 The provisions of the 4-R Act relevant to this case are as follows: 12 (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: 13 (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. 14 (2) levy or collect a tax on an assessment that may not be made under clause (1) of this subsection. 15 (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. 16 (4) impose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Commission under subchapter I of chapter 105 of this title. 17 49 U.S.C. § 11503(b)(1)-(4). 18 The State of Arizona argues that Section 11503(b)(4) of the 4-R Act is not applicable to the transaction privilege taxes and use taxes at issue in this litigation. Arizona asserts that Section 11503(b)(4) prohibits only in lieu taxes imposed on the railroads in place of discriminatory property taxes. Such discriminatory property taxes are prohibited by subsections (b)(1) through (b)(3) of Section 11503. 19 The State's narrow interpretation of subsection (b)(4) of the 4-R Act has been rejected by many Circuits. In Richmond, F. & P. R.R. v. Department of Taxation, 762 F.2d 375, 379-80 (4th Cir.1985), it was held that subsection (b)(4) was unambiguously intended to prohibit all discriminatory taxes imposed on rail carriers. The Fifth Circuit, Eighth Circuit, and Eleventh Circuit have reached similar conclusions regarding the scope of subsection (b)(4). Kansas City S. Ry. v. McNamara, 817 F.2d 368, 371-74 (5th Cir.1987) (holding that subsection (b)(4) applied to a state transportation and communications utilities tax imposed on gross receipts of intrastate business and rejecting the state's argument that subsection (b)(4) only applied to in lieu taxes); Trailer Train Co. v. State Tax Comm'n, 929 F.2d 1300, 1302 (8th Cir.) (holding that subsection (b)(4) forbids all taxes that discriminate against railroads, and not just discriminatory property taxes), cert. denied, 502 U.S. 856, 112 S.Ct. 169, 116 L.Ed.2d 133 (1991); Trailer Train Co. v. State Bd. of Equalization, 710 F.2d 468, 472 n. 6 (8th Cir.1983); Ogilvie v. State Bd. of Equalization, 657 F.2d 204, 210 (8th Cir.), cert. denied, 454 U.S. 1086, 102 S.Ct. 644, 70 L.Ed.2d 621 (1981); Alabama Great S. R.R. v. Eagerton, 663 F.2d 1036, 1040 (11th Cir.1981). 20 We hold that subsection (b)(4) of the 4-R Act is designed to encompass all discriminatory state taxes, not just discriminatory property taxes or in lieu taxes. Therefore, subsection (b)(4) is applicable to the analysis of Arizona's transaction privilege tax and use tax at issue in this case.