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December 9, 2014 5:50 PM, EST

Supreme Court Hears Arguments in Alabama Diesel Sales Tax Case

Luke Sharrett/Bloomberg News
The State of Alabama argued before the U.S. Supreme Court Dec. 9 that just because truckers are exempt from the state’s sales tax on diesel purchases does not mean that railroads are discriminated against because they must pay the tax when buying off-road diesel.

This is the second time the high court has heard the complicated tax case that was brought  initially by CSX Transportation Inc. and addresses the intersection where state tax codes meet the federal protections Congress has granted to railroads.

“What the Court should do is . . . put itself in the position of a state and local policy maker who is trying to impose a fair and nondiscriminatory tax scheme that does not discriminate against railroads but does actually require them to pay their fair share of taxes,” Andrew Brasher, Alabama’s solicitor general told the court.

In Alabama, truckers pay 19 cents a gallon for on-road diesel but are statutorily exempt from the state’s 4% sales tax, a practice CSX argued constitutes discrimination.

Railroads are not exempt from the 4% sales tax when they buy off-road diesel, often called red dye diesel. The railroads also have the choice to buy on-road diesel and pay the 19-cent per gallon tax just as truckers do.

The case is complicated in part by the state’s lack of any diesel tax on water carriers, which the railroads have said is also discriminatory. Legal experts watching the case have said it is possible the court will decide the case based only on the water carrier issue.

CSX has based this and other cases on the Railroad Revitalization and Regulatory Reform Act of 1976 in which Congress said it wanted to protect the railroads from predatory tax discrimination by states. The federal law, however, did not specify how to measure discrimination.

The Supreme Court first heard the CSX case in 2010 and in early 2011 decided to send it back to the lower courts for another look.

For the second time, the district court dismissed CSX’s complaint but the United States Court of Appeals for the 11th Circuit again affirmed the complaint, at which point Alabama, for the second time, took the case to the Supreme Court.

American Trucking Associations filed an amicus with the court that said Alabama exempts truckers from the sales tax when they buy fuel so as “to avoid double taxation” on them.

Unless the Supreme Court reverses the Court of Appeals ruling, railroads in Alabama will pay “significantly less for diesel fuel than their primary competitors,” ATA said.