CSX Transp. Inc. v. Alabama Dep't of Revenue - Amicus (Invitation)

No. 09-520

In the Supreme Court of the United States

CSX TRANSPORTATION INC., PETITIONER

v.

ALABAMA DEPARTMENT OF REVENUE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

NEAL KUMAR KATYAL
Acting Solicitor General
Counsel of Record
TONY WEST
Assistant Attorney General
MALCOLM L. STEWART
Deputy Solicitor General
BENJAMIN J. HORWICH
Assistant to the Solicitor
General
ANTHONY J. STEINMEYER
MARK W. PENNAK
Attorneys
Department of Justice
Washington, D.C. 20530-0001
SupremeCtBriefs@usdoj.gov
(202) 514-2217

ROBERT S. RIVKIN
General Counsel
PAUL M. GEIER
Assistant General Counsel
for Litigation
PETER J. PLOCKI
Deputy Assistant General
Counsel for Litigation
JOY K. PARK
Trial Attorney
Department of Transportation
Washington, D.C. 20590
S. MARK LINDSEY
Chief Counsel
MICHAEL T. HALEY
Deputy Chief Counsel
Federal Railroad
Administration
Washington, D.C. 20590

QUESTION PRESENTED

Whether a State's exemptions of rail carrier competi tors, but not rail carriers, from generally applicable sales and use taxes on fuel subject the taxes to challenge under 49 U.S.C. 11501(b)(4) as "another tax that dis criminates against a rail carrier."

In the Supreme Court of the United States

No. 09-520

CSX TRANSPORTATION INC., PETITIONER

v.

ALABAMA DEPARTMENT OF REVENUE, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

This brief is submitted in response to the order of this Court inviting the Solicitor General to express the views of the United States. In the view of the United States, the petition for a writ of certiorari should be granted, limited to the following question:

Whether a State's exemptions of rail carrier competi tors, but not rail carriers, from generally applicable sales and use taxes on fuel subject the taxes to chal lenge under 49 U.S.C. 11501(b)(4) as "another tax that discriminates against a rail carrier."

STATEMENT

1. Facing the physical and economic decline of the do mestic rail industry, Congress enacted the Railroad Revi talization and Regulatory Reform Act of 1976, Pub. L. No. 94-210, 90 Stat. 31 (4-R Act), to "provide the means to reha bilitate and maintain the physical facilities, improve the operations and structure, and restore the financial stability of the railway system of the United States." Id. § 101(a), 90 Stat. 33; see Burlington N. R.R. v. Oklahoma Tax Comm'n, 481 U.S. 454, 457 (1987).

a. The Act targets discriminatory state taxation as a particular cause of decline in the rail industry. See 4-R Act § 306, 90 Stat. 54; H.R. Rep. No. 725, 94th Cong., 1st Sess. 78 (1975); CSX Transp., Inc. v. Georgia State Bd. of Equal ization, 552 U.S. 9, 12 (2007).1 After long study, Congress found that certain forms of state taxation of rail carriers "unreasonably burden and discriminate against interstate commerce." 49 U.S.C. 11501(b). To protect those impor tant channels of interstate commerce, Congress created an exception to the Tax Injunction Act, 28 U.S.C. 1341, em powering federal courts to enjoin prohibited forms of state taxation. 49 U.S.C. 11501(c).

Section 11501(b) describes several types of prohibited taxation. Subsections (b)(1)-(3) address ad valorem prop erty taxes; those provisions bar States from making dispro portionately high assessments of, or imposing higher ad valorem tax rates upon, rail transportation property rela tive to "other commercial and industrial property." Where they apply, Subsections (b)(1)-(3) establish per se prohibi tions based on explicit objective criteria. See CSX Transp., 552 U.S. at 16, 18 (referring to "objective benchmark[s]" underlying "the comparison of ratios the statute requires" in Subsections (b)(1)-(3)); Burlington N. R.R., 481 U.S. at 461 (rejecting as "untenable" the view that a claim under Subsection (b)(1) requires proof of intentional discrimina tion).

A separate catch-all provision, 49 U.S.C. 11501(b)(4), broadly prohibits States from imposing "another tax that discriminates against a rail carrier." By its terms, Subsec tion (b)(4) reaches beyond the ad valorem property taxes addressed in the preceding provisions "to prevent discrimi natory taxation of a railroad carrier by any means." Ala bama Great S. R.R. v. Eagerton, 663 F.2d 1036, 1040 (11th Cir. 1981).

b. In Department of Revenue of Oregon v. ACF Indus tries, Inc., 510 U.S. 332 (1994) (ACF), this Court addressed the application of Subsection (b)(4) to allegedly discrimina tory state property taxes. In particular, the Court consid ered "[w]hether a tax upon railroad property is even sub ject to challenge under [S]ubsection (b)(4) on the ground that certain other classes of commercial and industrial property are exempt" from the property tax. Id. at 338- 339. Ruling against the challenger, the Court concluded that Subsection (b)(4) does not limit States' authority to exempt non-railroad property from taxes that rail carriers are required to pay. See id. at 338-348. Accordingly, the Court held that "a State may grant exemptions from a gen erally applicable ad valorem property tax without exposing the taxation of railroad property to invalidation under [S]ubsection (b)(4)." Id. at 340.

This Court explained that "central to the interpretation of [S]ubsection (b)(4)" are the neighboring provisions of Subsections (b)(1)-(3), along with the definition of "other commercial and industrial property" contained in Subsec tion (a)(4). ACF, 510 U.S. at 340. Subsections (b)(1)-(3), which are specific to property taxes, require a comparison between the rate imposed on railroad property and the rate imposed on other "commercial and industrial property." Ibid. Subsection (a)(4) identifies the reference point for the inquiries prescribed in Subsections (b)(1)-(3) by defining the term "commercial and industrial property" as "prop erty, other than transportation property and land used pri marily for agricultural purposes or timber growing, de voted to a commercial or industrial use and subject to a property tax levy." See ibid. In light of that statutory structure, the Court explained, a plaintiff may establish a violation of Subsections (b)(1)-(3) only by showing that rail road property is taxed at a higher rate than non-railroad commercial- or industrial-use property that is actually "subject to a property tax levy" (i.e., not exempt). Id. at 340-342. The Court further explained that, because any property that is exempt from state taxation falls outside the 4-R Act's definition of "commercial and industrial prop erty," such "[e]xempt property * * * is not part of the comparison class against which discrimination is measured under subsections (b)(1)-(3), and it follows that railroads may not challenge property tax exemptions under those provisions." Id. at 342.

Having concluded that Subsections (b)(1)-(3) do not pre vent States from taxing railroad property while exempting particular categories of non-railroad property, the ACF Court then addressed the question whether such differen tial taxation is prohibited by Subsection (b)(4). The Court stated that "[i]t would be illogical to conclude that Con gress, having allowed the States to grant property tax ex emptions in [S]ubsections (b)(1)-(3), would turn around and nullify its own choice in [S]ubsection (b)(4)." 510 U.S. at 343. The Court explained that such a "result would contra vene the 'elementary cannon of construction that a statute should be interpreted so as not to render one part inopera tive.'" Id. at 340 (quoting Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249 (1985)).

This Court further explained that "[o]ther consider ations reinforce[d] [this] construction of the statute." ACF, 510 U.S. at 343. Because "[p]roperty tax exemptions are an important aspect of state and local tax policy," the Court found that the 4-R Act's "silence on the subject-in [con trast to] the explicit prohibition on tax rate and assessment ratio discrimination-reflects a determination to permit the States to leave their exemptions in place." Id. at 344. The Court also stated that "[p]rinciples of federalism" counseled against reading Subsection (b)(4) as a "prohibition of prop erty tax exemptions," id. at 345, and that the legislative history of the 4-R Act did not support the challenger's posi tion, id. at 345-346. The Court therefore sustained Ore gon's property tax and exemption scheme.

2. Alabama imposes four-percent sales and use taxes on the retail sale, storage, use, or consumption in Alabama of tangible personal property, including motor fuel. Ala. Code § 40-23-2(1) (LexisNexis Supp. 2009) (sales tax), § 40-23-61(a) (LexisNexis 2003) (use tax). Although the sales and use taxes are generally applicable, state law ex pressly exempts fuel for use by vessels engaged in inter state or foreign commerce. Id. § 40-23-4(a)(10) (LexisNexis Supp. 2009) (exemption from sales tax), § 40-23-62(12) (LexisNexis Supp. 2009) (exemption from use tax). Conse quently, water carriers engaged in interstate or foreign commerce typically do not pay tax to respondents on their motor fuel.

Alabama also imposes primary and additional excise taxes totaling 19 cents per gallon on the receipt of motor fuels, including diesel fuel. Ala. Code § 40-17-2(1) (Lexis Nexis 2003) (primary motor fuel excise tax), § 40-17-220(e) (LexisNexis Supp. 2009) (additional motor fuel excise tax). Motor fuel subject to the primary excise tax is exempt from the sales and use taxes. Id. § 40-17-2(1) (LexisNexis 2003). On-road motor carriers therefore typically pay an excise tax of 19 cents per gallon of fuel to respondents, and they do not pay a sales or use tax on their fuel.

Fuel used in railroad locomotives is generally not sub ject to Alabama's motor fuel excise taxes. That is because dyed diesel fuel designated for off-road use under 26 U.S.C. 4082-which is what locomotives burn-is exempt from Ala bama's primary motor fuels excise tax. Ala. Code § 40-17-2(1) (LexisNexis 2003). In addition, railroad loco motive fuel is expressly exempted from Alabama's addi tional motor fuels excise tax. Id. § 40-17-220(d)(2) (LexisNexis Supp. 2009). Consequently, railroads (along with other off-road diesel users and intrastate water carri ers covered by similar excise tax exemptions) typically pay sales or use taxes of four percent to the State, and they do not pay an excise tax on their fuel.2

3. Petitioner, a rail carrier providing transportation subject to the jurisdiction of the Surface Transportation Board, sued respondent Alabama Department of Revenue in federal district court under the 4-R Act. Petitioner con tended that, by requiring rail carriers to pay sales and use taxes from which motor carriers are exempt, respondents had discriminated against petitioner in violation of 49 U.S.C. 11501(b)(4).

a. In July 2008, the district court granted petitioner's motion for a preliminary injunction against collection of the sales and use taxes. The court held that "[b]ecause the di rect competitors of the railroads do not pay diesel fuel taxes under Alabama law, * * * there is reasonable cause to believe that the [4-R] Act has been violated." Pet. App. 12a. The district court also granted respondents' motion to stay further proceedings pending the Eleventh Circuit's decision in Norfolk Southern Railway Co. v. Alabama Department of Revenue, No. 08-12712, in which a different rail carrier had brought a materially identical challenge to Alabama's sales and use taxes. Dkt. 19 (July 23, 2008).

b. In December 2008, the Eleventh Circuit announced its decision in Norfolk Southern, rejecting the rail carrier's challenge there. Pet. App. 13a-38a. The court of appeals in Norfolk Southern found this Court's decision in ACF con trolling. Id. at 26a-32a. The court acknowledged that ACF involved property taxes rather than use or sales taxes. Id. at 29a. The court concluded, however, that this Court's analysis was "equally applicable" to the exemptions from sales and use tax that were at issue in Norfolk Southern. Ibid.

In discussing ACF, the court of appeals did not address whether this Court's structural inference from Subsections (b)(1)-(3) translated from property taxes to sales and use taxes. Rather, it focused on the Court's observations that Subsection (b)(4) does not speak in terms to property tax exemptions; that property tax exemptions were ubiquitous when the 4-R Act was passed; and that "concerns for state sovereignty" disfavored federal constraints on a State's tax exemptions. Pet. App. 29a-31a. The court of appeals con cluded that, because those observations were also applica ble to sales and use tax exemptions, such exemptions could not be the basis for a discrimination claim under Subsection (b)(4). Ibid. The court stated that its holding aligned it with "other courts that also have applied [ACF] to state and local taxes analogous to Alabama's." Id. at 31a; see id. at 31a n.14 (citing cases). The court of appeals acknowledged, however, that other courts have "scrutinized exceptions to generally applicable non-property taxes." Id. at 31a; see id. at 31a n.15 (citing cases).3

c. After the Eleventh Circuit issued its decision in Nor folk Southern, the district court in this case sua sponte en tered an order dissolving its preliminary injunction and dismissing petitioner's suit. Pet. App. 3a. Petitioner ap pealed and, acknowledging that Norfolk Southern was con trolling, sought initial hearing en banc. Id. at 2a & n.1. The court of appeals denied initial hearing en banc, id. at 39a, and a panel subsequently affirmed the district court's dismissal order in a per curiam decision resting on Norfolk Southern, id. at 1a-2a.

DISCUSSION

In Department of Revenue of Oregon v. ACF Indus tries, Inc., 510 U.S. 332 (1994) (ACF), this Court addressed the application of Subsection (b)(4) to a state taxing regime under which rail carriers (and related entities) paid a prop erty tax, while certain other persons were exempt. The Court held that Subsection (b)(4) does not provide a basis for challenging that form of differential taxation. This case concerns the application of Subsection (b)(4) to a non-prop erty tax scheme under which rail carriers pay a tax, while certain other persons are exempt. The petition presents the threshold question whether such a disparity can ever render a non-property tax invalid under Subsection (b)(4)-or, as this Court put it in ACF, whether a taxing decision of this sort is "even subject to challenge" under the 4-R Act, 510 U.S. at 338.4

The Ninth and Eleventh Circuits have held that such schemes are not subject to challenge under Subsection (b)(4). By contrast, the Eighth Circuit and two state su preme courts have permitted such challenges (and indeed, have concluded that the taxes in question were invalid). The Eighth Circuit's view of the threshold issue is correct. The text of Subsection (b)(4) encompasses without qualifi cation any "tax that discriminates against a rail carrier." As this Court recognized in ACF, 510 U.S. at 343, a State's requirement that rail carriers pay a tax from which others are exempt can be a form of tax discrimination. And al though the Court in ACF held that property tax schemes involving exemptions are not subject to challenge under Subsection (b)(4), the Court's reasoning in that case does not carry over to non-property tax regimes.

Although the state taxing regime at issue here is subject to challenge under Subsection (b)(4), that scheme is not necessarily invalid. Respondents may be able to demon strate, for example, that the challenged sales and use taxes are not discriminatory because persons exempt from those taxes must pay corresponding motor fuel taxes in equal or greater amounts. See Br. in Opp. 8-10. Respondents frame the question presented in such a way as to encompass not only the threshold issue of Subsection (b)(4)'s applicability, but also the ultimate validity of "the State's overall excise tax structure." See id. at i.

That ultimate issue, however, is not presently suitable for this Court's review. The factual record is limited be cause it was developed on a motion for a preliminary injunc tion and no discovery has yet occurred. Moreover, further consideration by lower courts of the standards for deter mining whether a tax "discriminates against a rail carrier," 49 U.S.C. 11501(b)(4), would likely assist this Court, espe cially because courts rejecting Subsection (b)(4) claims at the threshold have had no opportunity to decide those is sues.

Accordingly, to resolve the clear split on a threshold issue of the 4-R Act's application, the Court should grant the petition for a writ of certiorari limited to the following question:

Whether a State's exemptions of rail carrier competi tors, but not rail carriers, from generally applicable sales and use taxes on fuel subject the taxes to chal lenge under 49 U.S.C. 11501(b)(4) as "another tax that discriminates against a rail carrier."

A. The Court Of Appeals' Decision Is Incorrect

This Court held in ACF that "a tax upon railroad prop erty is [not] even subject to challenge under [49 U.S.C. 11501(b)(4)] on the ground that certain other classes of commercial and industrial property are exempt." 510 U.S. at 338-339. In Norfolk Southern (see Pet. App. 28a-32a) and in this case (id. at 1a-2a), the Eleventh Circuit ex tended that rule to encompass non-property taxes, such as the sales and use taxes at issue here. That threshold rejec tion of petitioner's challenge was incorrect.

1. Contrary to the court of appeals' analysis, ACF's reasoning does not support the decision below. The Court in ACF addressed the application of Subsection (b)(4) to property tax exemptions, see 510 U.S. at 338-339, and did not comment on any other form of tax.5 Moreover, the ACF Court's reasoning does not logically encompass the sales and use taxes at issue here because the Court's struc tural analysis relied on adjacent 4-R Act provisions that apply solely to property taxes.

The Court in ACF relied on the facts that Subsections (b)(1)-(3) establish specific non-discrimination requirements for property taxes, and that those Subsections require a comparison between taxes on rail transportation property and taxes on other "commercial and industrial property." 510 U.S. at 340. Because the term "commercial and indus trial property" is limited to specified categories of "prop erty * * * subject to a property tax levy," id. at 341, a phrase the Court construed to mean "taxed property," id. at 342, a rail carrier cannot establish a violation of Subsec tions (b)(1)-(3) by showing that its property is taxed while other property is exempt, see ibid. The Court in ACF held that such challenges to property-tax exemptions could not go forward under Subsection (b)(4) because "[i]t would be illogical to conclude that Congress, having allowed the States to grant property tax exemptions in [S]ubsections (b)(1)-(3), would turn around and nullify its own choice in [S]ubsection (b)(4)." Id. at 343.

The ACF Court's structural analysis does not logically apply to the sales and use taxes at issue here. Neither Sub sections (b)(1)-(3) nor any other 4-R Act provision estab lishes specific non-discrimination requirements for non- property taxes. Nor does any 4-R Act provision otherwise suggest that, with respect to allegedly discriminatory sales or use taxes, the only appropriate point of comparison is other taxed transactions or activities. Treating petitioner's current challenge as cognizable under Subsection (b)(4) therefore poses no threat of "nullify[ing]" (ACF, 510 U.S. at 343) any congressional policy choice reflected in more spe cific 4-R Act provisions.

Although this Court in ACF described its structural analysis as "central to the interpretation of [S]ubsection (b)(4)," 510 U.S. at 340, the Eleventh Circuit did not discuss that analysis in Norfolk Southern. Instead, the court of appeals focused on what this Court described as "[o]ther considerations" that "reinforce[d]" the basic structural in ference. Id. at 343; see Pet. App. 28a-31a. None of those considerations warrants the weight the court of appeals gave it.

First, the court of appeals thought it significant that "Congress could clearly have prohibited * * * exemp tions, but did not." Pet. App. 28a. But this Court acknowl edged in ACF that exemptions can be a form of tax discrim ination. See 510 U.S. at 343. The absence of an express mention of one potential method of discrimination (selective exemptions) is of particularly little significance in a catch- all provision like Subsection (b)(4), whose very purpose is to avoid the impractical task of anticipating and enumerat ing every possible discriminatory mechanism. See, e.g., Southern Ry. v. State Bd. of Equalization, 715 F.2d 522, 528 (11th Cir. 1983) ("Congress possessed a general con cern with discrimination in all of its guises."), cert. denied, 465 U.S. 1100 (1984).

Second, the court of appeals observed that, "as with property tax exemptions, sales and use tax exemptions were ubiquitous at the time the 4-R Act was drafted." Pet. App. 30a. Although the Court in ACF viewed that state-law backdrop as confirming evidence of Congress's intent to leave property tax exemptions undisturbed, see 510 U.S. at 344, it does not bear the independent weight the court of appeals gave it. Indeed, the Court in ACF found preexist ing state tax practice relevant only "in light of the explicit prohibition of tax rate and assessment ratio discrimina tion," ibid.-a counterpoint notably absent here. More over, the ubiquity of a practice prior to the 4-R Act cannot be a defense to Section 11501's application, because it was precisely the prevalence of discriminatory taxation schemes that prompted Congress to enact the 4-R Act's prohibition.

The court of appeals' third concern-principles of fed eralism-also carries little weight in this specific context. The 4-R Act is preemptive in its design and by its broad, clear, and express terms. Cf. CSX Transp. Inc. v. Georgia State Bd. of Equalization, 552 U.S. 9, 20-21 (2007) ("[E]ven if important questions of state policy are [implicated], judi cial scrutiny * * * is authorized by the 4-R Act's clear command."); Burlington N. R.R. v. Oklahoma Tax Comm'n, 481 U.S. 454, 461 (1987) ("[T]he language of [Sec tion] 1150[1] plainly declares the congressional purpose."). Thus, any presumption against preemption is overcome by "the clear and manifest purpose of Congress" to preempt any discriminatory tax. ACF, 510 U.S. at 345 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). Ac cordingly, ACF does not support the court of appeals' deci sion.

2. The text, structure, and history of the 4-R Act sup port petitioner's view that a tax paid by rail carriers, but from which competing transportation providers are exempt, is subject to challenge under 49 U.S.C. 11501(b)(4). On its face, Subsection (b)(4) reaches beyond property taxes to forbid "another tax"-here, a sales or use tax-"that dis criminates against a rail carrier." A rail carrier's showing that it pays a tax, while competitors do not, is a proper basis for challenging the tax under Subsection (b)(4).6

The legislative history of the 4-R Act confirms that Sub section (b)(4) is not qualified in the way the court of appeals believed it to be. As the Fifth Circuit explained in connec tion with a Subsection (b)(4) challenge to Louisiana's gross receipts tax, Congress studied and debated discriminatory property taxation for 15 years before passing the 4-R Act, with its finely calibrated rules about property taxation. Kansas City S. Ry. v. McNamara, 817 F.2d 368, 372-373 (1987). But Congress "realized near the end [of the legisla tive process] that banning discriminatory property taxes was not enough to save the railroads from unfair state taxa tion. Congress therefore added [Subsection (b)(4)] to en sure that the statute would not fail of its broader purpose." Id. at 373. That history suggests that Congress developed and intended a nuanced scheme for identifying discrimina tory property taxes (as this Court recognized in ACF), while enacting a more general ban on "discriminat[ion] against a rail carrier" where "another tax" was concerned. 49 U.S.C. 11501(b)(4).

B. The Clear And Entrenched Split On The Question Pre sented Warrants Resolution By This Court

The courts of appeals and state supreme courts are squarely divided on the threshold question whether a rail carrier may invoke 49 U.S.C. 11501(b)(4) to challenge a state law under which rail carriers pay a non-property tax while certain other persons (typically competitors) are ex empt. The Ninth Circuit in Atchison, Topeka & Santa Fe Railway Co. v. Arizona, 78 F.3d 438, 443 (ATSF), cert. denied, 519 U.S. 1029 (1996), and the Eleventh Circuit in Norfolk Southern, Pet. App. 26a-32a, have held that such schemes cannot be challenged under Subsection (b)(4). Both courts concluded that this Court's reasoning in ACF applies equally to non-property taxes. See ATSF, 78 F.3d at 442-443 ("Although ACF specifically addressed property tax exemptions, the logic advanced by the Supreme Court is equally applicable to the context of transaction privilege tax and use tax exemptions."); Pet. App. 29a ("ACF Indus tries' construction of the 4-R Act guides our decision.").

By contrast, the Eighth Circuit has entertained rail car riers' challenges under Subsection (b)(4) to state sales and use taxes from which the carriers' direct competitors were exempt. See Union Pac. R.R. v. Minnesota Dep't of Reve nue, 507 F.3d 693 (2007) (UPRR); Burlington N., Santa Fe Ry. v. Lohman, 193 F.3d 984 (1999), cert. denied, 529 U.S. 1098 (2000). Two state supreme courts within the Eighth Circuit have likewise held that such challenges are cogniza ble under Subsection (b)(4). See Atchison, Topeka & Santa Fe Ry. v. Bair, 338 N.W.2d 338 (Iowa 1983), cert. denied, 465 U.S. 1071 (1984); Burlington N. R.R. v. Commissioner of Revenue, 606 N.W.2d 54 (Minn. 2000). The Eleventh Circuit in Norfolk Southern acknowledged that conflict in authority. See Pet. App. 31a & nn.14-15.

Although this Court has previously denied review of this issue, the Court's intervention is now warranted to resolve the split. When the Court last denied review of this issue, see Wilson v. Burlington N. Santa Fe Ry., 529 U.S. 1098 (2000), the Ninth Circuit alone had held challenges like this one to be non-cognizable under Subsection (b)(4), while the Eighth Circuit and the Supreme Courts of Iowa and Minne sota (the latter having ruled shortly after the petition in Wilson was filed) had held that such challenges could go forward. At that time, a reversal of course by the Ninth Circuit would have eliminated the split.

But the question presented has continued to arise in litigation,7 and two recent developments have entrenched the split and made it worthy of this Court's review. First, the Eleventh Circuit denied initial hearing en banc in this case, in full view of the split it had widened with its decision in Norfolk Southern. Pet. App. 39a. Second, the Eighth Circuit adhered to Lohman in UPRR, emphasizing that its "holding in Lohman is clear." 507 F.3d at 696. This Court's review is therefore now appropriate.

C. The Court Should Limit The Question Presented To The Threshold Issue Of Whether Alabama's Sales And Use Taxes Are Subject To Challenge Under Subsection (b)(4)

Respondents reframe the question presented so as to encompass not only the cognizability of petitioner's chal lenge under Subsection (b)(4), but also the ultimate validity of the State's sales and use taxes. Compare Pet. i with Br. in Opp. i. Respondents argue (id. at 8-10) that, even if peti tioner's challenge to the State's taxing regime may be brought under Subsection (b)(4), that challenge fails on the merits because petitioner's non-railroad competitors actu ally pay higher taxes, under a different provision of the Alabama Code, on their purchases of diesel fuel.

The government agrees with respondents that, in re solving a claim of unlawful tax discrimination under Subsec tion (b)(4), a court should consider the State's overall taxing regime rather than focusing solely on the tax provision that applies to rail carriers.8 This Court should not attempt to decide in the first instance, however, whether petitioner's rights under Subsection (b)(4) have been violated. The re cord in this case, which was developed in a preliminary in junction proceeding and without discovery, is insufficient to resolve issues beyond the threshold question framed in the petition. Moreover, assessing petitioner's claim on the mer its could require this Court to resolve a number of subsid iary legal questions that were not addressed (or were ad dressed only briefly) by the courts below.

As the government's amicus brief in ACF explained, the 4-R Act prohibits "[e]conomic 'discrimination,'" which "ex ists when [two classes of economic actors] are treated dif ferently without an acceptable justification." Gov't Br. at 17, ACF, supra (No. 92-74). That test implicates legal ques tions, such as how much differential treatment is necessary for a prima facie showing, and what justifications a State may advance in defense of its tax scheme. But the ultimate question of discrimination necessarily entails a factual in quiry. Cf. Pullman-Standard v. Swint, 456 U.S. 273, 293 (1982) (holding that discrimination under Section 703(h) of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-2(h), "is a factual matter subject to the clearly- erro neous standard of Rule 52(a)"). Thus, if this Court grants certiorari and holds that petitioner's challenge is cognizable under Subsection (b)(4), the lower courts may need to con sider on remand such factors as the nature of the distinc tions Alabama's tax laws draw among rail carriers and their competitors, the extent to which those competitors are sub ject to the motor fuel excise tax, the legal implications of the parallel tax scheme, and the relevance of any taxes im posed by Alabama's political subdivisions.9

Petitioner's formulation of the question presented, which asks whether "a State's exemption * * * is subject to challenge," Pet. i, is not entirely satisfactory either. That wording is imprecise because the relief in a successful Sec tion 11501(b)(4) challenge is not to undo the putatively fa vorable tax treatment accorded to non-rail carriers (here, the exemption of certain non-rail carriers from Alabama's sales and use taxes). As this Court has explained in connec tion with constitutional challenges to state taxes, a federal court may not "decree a valid tax for the invalid one which the State ha[s] attempted to exact"; rather, the appropriate decree is that the invalid tax "may not be exacted." Moses Lake Homes, Inc. v. Grant County, 365 U.S. 744, 752 (1961) (quoting Phillips Chem. Co. v. Dumas Indep. Sch. Dist., 361 U.S. 376, 387 (1960)). For that reason, petitioner's Sub section (b)(4) suit is properly viewed as challenging the al legedly discriminatory tax imposed on rail carriers, not the exemption granted to their competitors. See 49 U.S.C. 11501(b)(4) (providing that a State may not "[i]mpose a[] tax that discriminates against a rail carrier").10

The United States therefore respectfully suggests that, if this Court grants the petition for a writ of certiorari, it should limit the grant as described above. If this Court grants certiorari and ultimately reverses the judgment of the court of appeals, the lower courts on remand can deter mine whether Alabama's overall scheme of taxes on diesel fuel "discriminates against a rail carrier" within the mean ing of Subsection (b)(4). But an appropriately drawn ques tion presented would productively focus the briefing in this Court on the threshold issue that presently divides the lower courts and which this case is an appropriate vehicle to resolve.

CONCLUSION

The petition for a writ of certiorari should be granted limited to the following question:

Whether a State's exemptions of rail carrier competi tors, but not rail carriers, from generally applicable sales and use taxes on fuel subject the taxes to chal lenge under 49 U.S.C. 11501(b)(4) as "another tax that discriminates against a rail carrier."

Respectfully submitted.

NEAL KUMAR KATYAL
Acting Solicitor General
TONY WEST
Assistant Attorney General
MALCOLM L. STEWART
Deputy Solicitor General
BENJAMIN J. HORWICH
Assistant to the Solicitor
General
ANTHONY J. STEINMEYER
MARK W. PENNAK
Attorneys

ROBERT S. RIVKIN
General Counsel
PAUL M. GEIER
Assistant General Counsel
for Litigation
PETER J. PLOCKI
Deputy Assistant General
Counsel for Litigation
JOY K. PARK
Trial Attorney
Department of Transportation
Washington, D.C. 20590
S. MARK LINDSEY
Chief Counsel
MICHAEL T. HALEY
Deputy Chief Counsel
Federal Railroad
Administration

MAY 2010

1 Section 306 of the 4-R Act, 90 Stat. 54, has been repeatedly recodi fied and rephrased without substantive change. It was originally codi fied at 49 U.S.C. 26c (1976). It was then recodified in 1978, with a slight change in language, at 49 U.S.C. 11503 (1994) as part of the enactment into positive law of Title 49. See Act of Oct. 17, 1978, Pub. L. No. 95-473, 92 Stat. 1337. That restatement of prior law was "without substantive change." Id. § 3(a), 92 Stat. 1466; see Burlington N. R.R., 481 U.S. at 457 n.1. In 1995, the provisions of Section 11503 were again reenacted without substantive change but renumbered as Section 11501, as part of a general amendment of Subtitle IV of Title 49 that abolished the Interstate Commerce Commission and created the Sur face Transportation Board. ICC Termination Act of 1995, Pub. L. No. 104-88, § 102(a), 109 Stat. 843-844. Accordingly, this brief refers throughout to the current codification of Section 306 at 49 U.S.C. 11501. See Sup. Ct. R. 34.5.

2 The foregoing describes only the state-level tax scheme. Certain subdivisions of Alabama are authorized to levy taxes. See Ala. Code § 11-3-11(a)(2) (LexisNexis 2008) (powers of county commissions in cludes levying taxes); Pet. App. 15a; CSX C.A. Reply Br. 14 (discussing cumulative tax rates in Mobile, Birmingham, and Montgomery). The record in this case appears to contain relatively little evidence regard ing county or municipal taxes.

3 The Norfolk Southern court stated that, although "a tax with wide spread exemptions could indicate that a [S]tate has 'single[d] out' the railroad for discriminatory treatment," such was "not the case here." Pet. App. 32a (quoting ACF, 510 U.S. at 347) (second pair of brackets in original). The court also rejected the rail carrier's argument that re spondents had unlawfully discriminated against rail carriers by "us[ing] the proceeds of the taxes levied on motor carriers to maintain roads [while] railroads do not receive similar subsidies." Id. at 35a. The court refused to "compare the sales and use tax to the fuel excise tax, insofar as there are differences in the ways in which their respective proceeds are spent." Id. at 36a. The court found it inappropriate "to look past the particular tax at issue to analyze the overall state tax structure," ibid., or to scrutinize "the use to which a state puts its tax revenue," id. at 37a.

4 The court of appeals acknowledged, and the parties do not appear to dispute in this Court, that Section 11501(b)(4) would condemn a tax from which the so-called "exemptions" were so widespread that the tax effectively "singled out railroad[s] * * * for discriminatory treat ment," ACF, 510 U.S. at 347. That distinct and well-accepted principle is not implicated by the taxes at issue here. See Pet. App. 32a-34a.

5 Indeed, ACF's only discussion of tax exemptions in general-as a category broader than property tax exemptions-came in this Court's acknowledgment that "tax exemptions, as an abstract matter, could be a variant of tax discrimination," though "the statute does not speak with any degree of particularity to the question of tax exemptions." 510 U.S. at 343.

6 A prima facie showing that the rail carrier is subjected to differen tial taxation does not end the inquiry, because it does not conclusively establish that the "tax * * * discriminates against [the] rail carrier." 49 U.S.C. 11501(b)(4) (emphasis added). But neither the standards for resolving that ultimate question, nor their proper application in this case, is presently suitable for this Court's review. See p. 19, infra.

7 Norfolk Southern and this case, both brought in 2008, have involved challenges to Alabama's sales and use taxes on fuel. A 4-R Act suit brought earlier this year challenging Tennessee's sales and use taxes on fuel has been stayed pending disposition of the instant petition for a writ of certiorari (or the conclusion of this Term). See Illinois Cent. R.R. v. Tennessee Dep't of Revenue, No. 3:10-CV-197, Docket entry No. 12 (M.D. Tenn. Mar. 29, 2010). UPRR, brought in 2004, concerned Min nesota's sales and use taxes on fuel. In another case brought in 2004, the district court enjoined Louisiana's collection of its sales and use tax on fuel from the challenging rail carrier. See Kansas City S. Ry. v. Bridges, No. 5:04-cv-02547-SMH-MLH, Docket entry No. 33 (W.D. La. May 1, 2007).

8 The Eighth Circuit has held that, in resolving challenges to sales and use taxes under Subsection (b)(4), courts should look solely at the taxes that rail carriers are required to pay, and should find that unlaw ful discrimination has occurred if the rail carriers' competitors are ex empt from those taxes, without regard to the remainder of the state taxing scheme. See UPRR, 507 F.3d at 695; Lohman, 193 F.3d at 986. Although the Eighth Circuit was correct in its threshold determination that Subsection (b)(4) authorizes rail carriers to challenge taxes from which their competitors are exempt, that court used an unduly narrow inquiry to resolve the merits of the rail carriers' discrimination claims.

9 The court in Norfolk Southern did not resolve any of these issues in a way that would prevent petitioner from ultimately prevailing on remand. The Norfolk Southern court did, however, foreclose a claim of

discrimination based on the manner in which tax proceeds are used. See Pet. App. 36a-37a. This Court need not decide whether that hold ing is correct in order to hold that petitioner's challenge is cognizable under Subsection (b)(4).

10 In the 4-R Act, Congress prescribed a remedial approach some what different from this Court's approach in constitutional challenges. Under Moses Lake, a constitutionally invalid tax should be enjoined in toto. By contrast, the 4-R Act's legislative history specifically rejects the Moses Lake approach and indicates that, under the remedial pro visions of 49 U.S.C. 11501(c), "[t]here is no need for a Federal court to enjoin the tax in its entirety, only the discriminatory portion." S. Rep. No. 630, 91st Cong., 1st Sess. 13 (1969). This only underscores, how ever, that it is the tax, not the exemption, that a rail carrier must chal lenge.