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

Heading: The Choice of Comparison Class

Text: 21 In determining whether the Arizona taxes discriminate against the railroads, the district court compared the treatment of the railroads with the treatment of their major competitors, motor carriers. The district court erred in its choice of a comparison class. We hold that the proper comparison class to use in analyzing discriminatory taxation of the railroads under the 4-R Act is all other commercial and industrial taxpayers subject to the taxes. 22 Many courts have already employed the comparison class of other commercial and industrial taxpayers subject to the tax in analyzing subsection (b)(4) of the 4-R Act. In Kansas City S. Ry. v. McNamara, 817 F.2d 368 (5th Cir.1987), the court stated: 23 The only simple way to prevent tax discrimination against the railroads is to tie their tax fate to the fate of a large and local group of taxpayers.... We think the best course is to require that the railroads be taxed only under taxes applicable to 'other commercial and industrial' taxpayers. 24 Id. at 375 (emphasis added). Similarly, the Seventh Circuit held that a tax is 'discriminatory' within the meaning of the fourth subsection of the 4-R Act if it imposes a proportionately heavier tax on railroading than on other activites. Burlington N. R.R. v. City of Superior, 932 F.2d 1185, 1187 (7th Cir.1991) (emphasis added). Following the logic of the Fifth and Seventh Circuits, the proper comparison class for determining whether the Arizona transaction privilege tax and use tax violate subsection (b)(4) of the 4-R Act is all industrial and commercial taxpayers who are subject to the tax. 25 Moreover, the purpose of the 4-R Act was not to grant railroads preferential treatment. CSX Transp., Inc. v. Tennessee State Bd. of Equalization, 801 F.Supp. 28, 35-36 (M.D.Tenn.1992). Rather, in adopting the 4-R Act, Congress' purpose was to remedy discrimination against the railroads and place them on an even playing field with other state taxpayers. Ogilvie v. State Bd. of Equalization, 657 F.2d 204, 207 (8th Cir.), cert. denied, 454 U.S. 1086, 102 S.Ct. 644, 70 L.Ed.2d 621 (1981). This goal was reflected in the Association of American Railroads' proposed antidiscrimination tax bill which later served as the basis for the 4-R Act: 26 This proposed antidiscrimination tax bill, ... has the obvious merit of insuring that such carriers would receive equal treatment with other taxpayers subject to the same tax rates in accordance with applicable State law. The proposal in no way alters the freedom of the State to tax its taxpayers as in its discretion it deems best, so long as such carriers are accorded equal tax treatment with other taxpayers. 27 Ogilvie, 657 F.2d at 207 n. 3 (emphasis added) (quoting S.Rep. No. 445, 87th Cong., 1st Sess. 465-66 (1961)). But cf. Burlington Northern R.R. Co. v. Triplett, 682 F.Supp. 443, 446 (D.Minn.1988); National R.R. Passenger Corp. v. State Bd. of Equalization of Cal., 652 F.Supp. 923, 926-27 (N.D.Cal.1986); Burlington Northern R.R. Co. v. Commissioner of Revenue, 509 N.W.2d 551, 553-54 (Minn.1993); Atchison, Topeka & Santa Fe Ry. v. Bair, 338 N.W.2d 338, 346 (Iowa 1983). 28 The comparison class of commercial and industrial taxpayers subject to the tax must be used in analyzing the Arizona tax scheme because a narrow comparison class, comprised only of motor carriers, would result in preferential treatment for the railroads. In order for railroad carriers to receive equal treatment with other taxpayers subject to the same tax law, they must be compared to all others subject to the tax in question, not just compared to motor carriers. Although subsection (b)(4) is silent as to the proper comparison class, congressional intent behind the 4-R Act dictates that the comparison class of other commercial and industrial taxpayers subject to the tax be used. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51, 107 S.Ct. 1549, 1555, 95 L.Ed.2d 39 (1987) (holding that in interpreting statutes, courts must not be guided by a single sentence, but must look to the provisions of the whole law and to its object and policy).