U.S. District Court Judge Abdul Kallon has ruled the state of Alabama did not violate the Railroad Revitalization and Regulatory Reform Act of 1976 by requiring railroads to pay a diesel fuel sales tax from which trucking and barge companies are exempt.
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A federal judge in Alabama has ruled the state did not discriminate against CSX and other railroads by requiring them to pay a diesel fuel sales tax from which trucking and barge companies are exempt.
A federal judge has ruled in favor of the state of Alabama in a lawsuit surrounding the state’s use of a fuel tax on railroad operators.
The suit, brought initially in 2008 by Jacksonville, Fla.-based Class I freight railroad CSX Corp. and three other railroads, alleged that Alabama discriminated against railroads by requiring them to pay a 4 percent diesel fuel tax while exempting trucking and barge carriers.
U.S. District Court Judge Abdul Kallon, however, ruled last week the state did not violate the Railroad Revitalization and Regulatory Reform Act of 1976 in its application of the tax. As such, Kallon dismissed the nearly 10-year-old lawsuit, although CSX could potentially appeal the decision.
In his ruling, Kallon found that any “purported discrimination” resulting from the Alabama diesel tax is actually the result of CSX’s business practices, not state law. Railroads pay a 4 percent sales tax when purchasing dyed diesel fuel, but a $0.19 per gallon fuel-excise tax for clear diesel, the same as motor carriers, while the federal Commerce Clause prohibits the state from taxing water carriers for the fuel they purchase in Alabama.
Further, the judge ruled that CSX has suffered no competitive injury from the state’s exemption of water carriers from the sales tax.
“Because the court finds that: (1) the State does not force rail carriers to use dyed diesel (and thus, any ‘discrimination’ results from CSX’s business practices rather than State law) or alternatively, the sales tax and fuel-excise tax are roughly equivalent; (2) a failure to exempt water carriers from the sales tax could violate the Commerce Clause; and (3) CSX has suffered no competitive injury from the State’s exemption of water carriers from the sales tax, the court concludes that Alabama’s tax scheme does not violate the 4–R Act,” Kallon wrote. “The court will enter an order contemporaneously herewith dismissing CSX’s claims with prejudice”
Laura Phelps, manager of Media Relations for CSX, reportedly told the Birmingham News the company is “reviewing the court’s decision and considering further options.”
Alabama Attorney General Steven T. Marshall and Revenue Commissioner Julie P. Magee applauded the decision, saying the state would seek to return more than $10 million in unpaid taxes to the state’s Education Trust Fund. CSX had been withholding payment of said taxes since filing the lawsuit nearly a decade ago.
“I hope that Wednesday’s opinion signals the end of nine years of litigation that has resulted in millions of dollars being withheld from Alabama’s public schools,” Marshall said in a statement. “Everyone in this state benefits from stronger schools, so everyone, including railroad companies, needs to pay their fair share of taxes to support our schools.”
“The court’s decision vindicates the state’s imposition of sales tax on the railroad’s purchase of fuel and clearly shows that the state never discriminated against CSX,” added Magee.
