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March 4, 2015 5:10 PM, EST

Supreme Court Reverses Railroads' Appeals Court Win

Luke Sharrett/Bloomberg News
The U.S. Supreme Court reversed a ruling that offered railroads the prospect of a multimillion-dollar victory in a dispute over the different fuel taxes the states impose on trains, trucks and cargo ships.  

The justices, voting 7-2 on March 4 in a case involving CSX Corp., told a federal appeals court to reconsider its conclusion that Alabama is illegally discriminating against railroads by forcing them to pay higher fuel taxes than their competitors.

Justice Antonin Scalia, writing for the court, instructed the appeals court to consider whether a separate Alabama tax on diesel fuel used by trucking companies is the “rough equivalent” of the tax paid by railroads. The lower court also must weigh whether the state has a valid justification for exempting cargo ships from either tax, Scalia wrote.

The state said the appeals court ruling would have cost it $5 million a year in revenue and forced it to pay more than $10 million in refunds. One of Alabama’s allies in the litigation, the Multistate Tax Commission, said dozens of states have tax systems that bear similarities.

The case centers on the reach of the Railroad Revitalization and Regulatory Reform Act, a 1976 law that protects railroads from tax discrimination.

CSX says that in some parts of the state it pays diesel fuel taxes of as much as 10% — or 30 cents per gallon on fuel costing $3. Motor carriers pay a flat rate of 19 cents per gallon, while water carriers are exempt from sales and use taxes if they travel in interstate or foreign commerce, CSX says.

Justices Clarence Thomas and Ruth Bader Ginsburg dissented from the decision.