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Court Strikes Down Diesel Tax on Railroads

July 10, 2013

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Railroads have gotten a break in Alabama when it comes to competing with trucking.

A ruling by the U.S. 11th Circuit Court of Appeals found that Alabama's imposition of a 4% sales and use tax on diesel fuel purchased by rail carriers violates the Railroad Revitalization and Regulatory Reform Act of 1976, commonly know as the 4-R Act.

This is the second time that the case has been before the court. An earlier decision holding that a rail carrier could not challenge its competitors' exemptions from sales and use tax under the 4-R Act was reversed by the U.S. Supreme Court on Feb. 22, 2011, sending it back to lower courts.

Citing the 4-R Act, CSX Transportation challenged Alabama's imposition of sales and use tax on diesel fuel purchased by rail carriers. CSX said the tax is discriminatory because fuel purchased by interstate motor and water carriers is exempt from the tax.

The court held that this established a showing of discrimination under the 4-R Act, shifting the burden to the state to prove a "sufficient justification" for taxing rail carriers differently. Because Alabama failed to do so, the court held that the tax on diesel fuel purchased by rail carriers is discriminatory in violation of the 4-R Act.

Trucking operations in Alabama pay a 19 cents per gallon tax at the pump, while railroads do not.

The circuit court remanded the case to the U.S. District Court for the Northern District of Alabama, directing it to enter declaratory and injunctive relief in favor of CSX.

In 2010 the American Trucking Associations filed a brief with the U.S. Supreme Court supporting Alabama’s contention the railroad diesel tax was valid.

CSX first filed suit against Alabama in 2008.

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