CSX Transportation, Inc. v. Alabama Department of Revenue

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-11705
________________________
D.C. Docket No. 2:08-cv-00655-AKK
CSX TRANSPORTATION, INC.,
Plaintiff-Appellant,
versus
ALABAMA DEPARTMENT OF REVENUE,
COMMISSIONER OF THE ALABAMA DEPARTMENT OF REVENUE,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
________________________
(April 25, 2018)
ON PETITION FOR REHEARING
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Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY, * District
Judge.
ED CARNES, Chief Judge:
We grant the State of Alabama’s petition for rehearing in the nature of a
request for clarification and extension of opinion and issue this opinion with
modest revisions as a substitute for the one we issued initially. See CSX Transp.,
Inc. v. Ala. Dep’t of Revenue, 886 F.3d 974 (11th Cir. 2018).
The Railroad Revitalization and Regulatory Reform Act prohibits states
from imposing a tax “that discriminates against a rail carrier.” 49 U.S.C.
§ 11501(b)(4). The question before us is whether Alabama’s tax scheme, which
imposes either a sales or use tax on rail carriers when they buy or consume diesel
fuel but exempts competing motor and water carriers from those taxes, violates the
Act. Our answer is “no” as to motor carriers, “yes” as to water carriers.
I. BACKGROUND
A. Facts
CSX Transportation, Inc. is an interstate rail carrier that does business and
pays taxes in a number of states including Alabama. In the shipment of freight
interstate it and other rail carriers compete against trucking transport companies
(motor carriers) and commercial ships, vessels, and barges (water carriers). Yet
*
Honorable Leigh Martin May, United States District Judge for the Northern District of
Georgia, sitting by designation.
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Alabama taxes each type of carrier differently on the purchase or use of diesel fuel
inside the state. Rail carriers pay a 4% sales and use tax on diesel fuel,1 while
motor carriers and water carriers are exempt from that tax, see Ala. Code §§ 40-17-
325(b) (motor carriers), 40-23-4(a)(10) (water carriers). Motor carriers do pay a
Motor Fuels Excise Tax of $0.19 per gallon of diesel.2 Id. § 40-17-325(a). But
water carriers pay no tax of any kind to Alabama for diesel fuel they purchase or
use in Alabama to transport freight interstate. Id. §§ 40-23-4(a)(10) (sales tax
exemption), 40-23-62(12) (use tax exemption).
The State deposits revenue from the sales and use tax that rail carriers pay
into the general fund and earmarks it for education purposes. Id. § 40-23-35(f). Of
the $0.19 per gallon excise tax that motor carriers pay, $0.13 goes to the Alabama
Department of Transportation for the construction and maintenance of roads and
bridges and for the payment of highway bonds. Id. § 40-17-361(a). The remaining
1
The “sales and use tax” is actually two separate taxes on tangible personal property
(including diesel fuel): a 4% sales tax on it if purchased in Alabama, and a 4% use tax on it if
purchased outside Alabama but used inside the state. Ala. Code §§ 40-23-2(1) (sales tax), 40-23-
61(a) (use tax). The rate is the same regardless of which of the two taxes is applied and it is
stylistically simpler to refer to the taxes as though they were one. For those reasons, we will use
the term “the sales and use tax” to refer to either or both taxes (unless we are quoting part of a
district court or Supreme Court opinion that refers to them separately).
2
For the first half of this litigation, the Motor Fuels Excise Tax was codified at Alabama
Code § 40-17-2. The State modified its motor fuels tax scheme in October 2012, and the excise
tax is now codified at § 40-17-325(a)(2), (b). The modification did not alter the amount of the
tax, only the time at which it is imposed, a change that does not affect the outcome of this case.
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$0.06 per gallon goes to counties, towns, and cities for the construction and
maintenance of roads and bridges. Id. § 40-17-361(b).
In 2008 CSX sued the Alabama Department of Revenue, seeking to enjoin
the Department from collecting the sales and use tax on the railroad’s purchase or
consumption of diesel fuel in the state. It also sought a declaratory judgment that
the imposition of that tax violates the Railroad Revitalization and Regulatory
Reform Act, 49 U.S.C. § 11501, often called “the 4-R Act.”
Congress enacted the 4-R Act to “restore the financial stability of the
railway system of the United States” and to “foster competition among all carriers
by railroad and other modes of transportation.” 45 U.S.C. § 801(a), (b)(2). The 4-
R Act forbids states from discriminating against rail carriers in assessing property
or imposing taxes. 49 U.S.C. § 11501(b). It specifies that states and their
subdivisions may not:
(1) Assess rail transportation property at a value that has a higher
ratio to the true market value of the rail transportation property
than the ratio that the assessed value of other commercial and
industrial property in the same assessment jurisdiction has to the
true market value of the other commercial and industrial property.
(2) Levy or collect a tax on an assessment that may not be made
under paragraph (1) of this subsection.
(3) Levy or collect an ad valorem property tax on rail transportation
property at a tax rate that exceeds the tax rate applicable to
commercial and industrial property in the same assessment
jurisdiction.
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(4) Impose another tax that discriminates against a rail carrier.
Id. The first three paragraphs address property taxes, not sales and use taxes, and
are not at issue here. The fourth paragraph is a catchall that applies to taxes
generally and provides the basis for CSX’s claim about the sales and use tax
imposed on it but not on the other types of carriers.
B. Procedural History
Over the past decade, this case has made two trips to the Supreme Court,
stopping along the way three times at the district court and five times here.
Because it is all pretty much relevant, we will set out that procedural history in
some detail.
In doing so, we will begin with a discussion of the first district court order,
which dismissed CSX’s complaint, and from there we will recount our decision on
appeal and the Supreme Court’s first decision. We will then discuss the district
court’s second opinion, our second decision on appeal, and the Supreme Court’s
second decision. Finally, we will discuss the third leg of the journey to date,
starting with our second remand order and ending with the district court judgment
from which CSX now appeals.
1. First Round of Proceedings
In round one of this case, the district court dismissed CSX’s complaint and
we affirmed. CSX Transp., Inc. v. Ala. Dep’t of Revenue, 350 F. App’x 318 (11th
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Cir. 2009), rev’d, 562 U.S. 277, 131 S. Ct. 1101 (2011), vacated, 639 F.3d 1040
(11th Cir. 2011). In doing so, we relied on one of our earlier decisions involving a
nearly identical challenge to Alabama’s tax scheme. See Norfolk S. Ry. v. Ala.
Dep’t of Revenue, 550 F.3d 1306 (11th Cir. 2008), abrogated by 562 U.S. 277, 131
S. Ct. 1101. Based on Norfolk we held that discrimination in the granting of tax
exemptions does not amount to tax discrimination for purposes of the 4-R Act. See
350 F. App’x at 319.
The Supreme Court reversed our decision and held that denying rail carriers
exemptions provided to other carriers can be a form of discrimination under the 4-
R Act. CSX Transp., Inc. v. Ala. Dep’t of Revenue (“CSX I”), 562 U.S. 277, 280,
131 S. Ct. 1101, 1105 (2011). The Court explained that a tax discriminates when it
treats “groups [that] are similarly situated” differently without “justification for the
difference in treatment.” Id. at 287, 131 S. Ct. at 1109. As a result, “a state excise
tax that applies to railroads but exempts their interstate competitors is subject to
challenge under subsection (b)(4) as a ‘tax that discriminates against a rail
carrier.’” Id. at 288, 131 S. Ct. at 1109. The Court did not decide whether the
different tax treatment violated the 4-R Act, but it did decide that the outcome
“depends on whether the State offers a sufficient justification for declining to
provide the exemption at issue to rail carriers.” Id. at n.8, 131 S. Ct. at 1109 n.8.
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2. Second Round of Proceedings
On remand, after holding a bench trial the district court ruled that Alabama’s
sales and use tax scheme does not discriminate against CSX. CSX Transp., Inc. v.
Ala. Dep’t of Revenue, 892 F. Supp. 2d 1300 (N.D. Ala. 2012), rev’d and
remanded, 720 F.3d 863 (11th Cir. 2013), rev’d and remanded, 575 U.S. __, 135 S.
Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). The
district court concluded that the motor carrier exemption to the sales and use tax is
justified because motor carriers pay a “substantially similar” amount under the
excise tax that applies to them. Id. at 1313. As to water carriers, which pay neither
tax when they purchase or use diesel fuel to haul freight interstate, the district court
concluded that international commerce clause concerns do provide a rational basis
for exempting them and also that CSX had failed to show that it had suffered a
discriminatory effect. Id. at 1316–17.
We reversed. CSX Transp., Inc. v. Ala. Dep’t of Revenue, 720 F.3d 863,
865 (11th Cir. 2013), rev’d and remanded, 575 U.S.__. 135 S. Ct. 1136 (2015),
vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). We first decided whether
to apply the “functional approach” or the “competitive approach” to identify a
comparison class of taxpayers for 4-R Act claims. Id. at 867–69. The functional
approach compares rail carriers to all other “commercial and industrial” taxpayers,
thereby importing into § 11501(b)(4) the “commercial and industrial” limitation
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from the three preceding paragraphs. Id. at 867 (citing Kansas City S. Ry. v.
Koeller, 653 F.3d 496, 508 (7th Cir. 2011)). The competitive approach, by
contrast, compares rail carriers only to their competitors. Id. at 867–68.
We chose the competitive approach, reasoning that the functional approach
disadvantages rail carriers by applying too broad a comparison class and that the
competitive approach better accords with the 4-R Act’s purpose. Id. at 869.
Applying the competitive approach, we held that motor carriers and water carriers
are competitors of, and as a result proper comparators to, rail carriers. Id. at 867.
Because those two competitors are exempt from the sales and use tax, we reasoned
that CSX had established a “prima facie case of discrimination,” shifting the
burden to the State to justify its facially discriminatory tax. Id. at 869.
We rejected the argument that the motor carrier exemption to the sales and
use tax would be justified if motor carriers paid excise taxes in amounts
substantially similar to the sales and use tax that the rail carriers paid. Id. We
held, instead, that a court should look “only at the sales and use tax with respect to
fuel to see if discrimination has occurred.” Id. (quotation marks omitted). We
reasoned that focusing solely on the specific tax that is allegedly discriminatory
would avoid the “Sisyphean burden of evaluating the fairness of the State’s overall
tax structure in order to determine whether a single tax exemption causes a state’s
sales tax to be discriminatory.” Id. at 871. Because the State failed to justify the
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motor carrier exemption, and because “no one can seriously dispute that the water
carriers, who pay not a cent of tax on diesel fuel, are the beneficiaries of a
discriminatory tax regime,” we reversed and remanded with instructions to enter
declaratory and injunctive relief for CSX. Id.
The Supreme Court granted certiorari on two questions: “whether the
Eleventh Circuit properly regarded CSX’s competitors as an appropriate
comparison class for its subsection (b)(4) claim,” and “whether, when resolving a
claim of unlawful tax discrimination, a court should consider aspects of a State’s
tax scheme apart from the challenged provision.” Ala. Dep’t of Revenue v. CSX
Transp., Inc. (“CSX II”), 575 U.S. __, 135 S. Ct. 1136, 1140 (2015).
On the first question, the Court agreed with us that, “in light of [CSX’s]
complaint and the parties’ stipulation, a comparison class of competitors consisting
of motor carriers and water carriers was appropriate, and differential treatment vis-
à-vis that class would constitute discrimination.” Id. at 1143. The Court rejected
Alabama’s argument that the proper comparison class is all commercial and
industrial taxpayers, deciding that the “commercial and industrial” limitation from
49 U.S.C. § 11501(b)(1)–(3) does not carry over to (b)(4). Id. at 1142–43. Given
the 4-R Act’s purpose of “restor[ing] the financial stability of the railway system”
while “foster[ing] competition among all carriers by railroad and other modes of
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transportation,” the Court held that competitors “can be another ‘similarly situated’
comparison class.” Id. at 1142 (quoting 45 U.S.C. § 801(a), (b)(2)).
On the second question, about whether a state’s other taxes should be
considered in the analysis, the Court held that “an alternative, roughly equivalent
tax is one possible justification that renders a tax disparity nondiscriminatory.” Id.
at 1143. The Court reasoned that “[i]t does not accord with ordinary English usage
to say that a tax discriminates against a rail carrier if a rival who is exempt from
that tax must pay another comparable tax from which the rail carrier is exempt.”
Id. As a result, the Court held that this Court should have let the State “justify its
decision to exempt motor carriers from its sales and use tax through its decision to
subject motor carriers to a fuel-excise tax” (which the rail carriers do not pay). Id.
The Court remanded for us to consider “whether Alabama’s fuel-excise tax
is the rough equivalent of Alabama’s sales [and use] tax as applied to diesel fuel,
and therefore justifies the motor carrier sales-tax exemption.” Id. at 1144. It did
not specify a standard for determining whether those taxes are “roughly
equivalent.” See id. As to water carriers, which pay no state tax when they
purchase or use diesel fuel to transport freight interstate, the Court noted that “[t]he
State . . . offer[ed] other justifications for the water carrier exemption — for
example, that such an exemption is compelled by federal law,” and directed us to
consider those “alternative rationales” on remand. Id.
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3. Third Round of Proceedings
We vacated the district court’s judgment and remanded for proceedings
“consistent with the Supreme Court’s opinion.” CSX Transp., Inc. v. Ala. Dep’t of
Revenue, 797 F.3d 1293, 1294 (11th Cir. 2015). On remand, the district court
again ruled that Alabama’s tax scheme does not violate the 4-R Act. CSX Transp.,
Inc. v. Ala. Dep’t of Revenue, 247 F. Supp. 3d 1240, 1242–43 (N.D. Ala. 2017).
The district court concluded that the motor carrier exemption does not
violate the 4-R Act for two reasons. First, the court found that CSX’s trains can
operate on either clear diesel or dyed diesel, and that if CSX opted to purchase
clear diesel, it would be subject to the excise tax, just like motor carriers, instead of
the sales and use tax.3 Id. at 1245. For that reason, the court ruled that any alleged
discrimination is “self-imposed,” and as a result, “the State has established that its
tax schemes for dyed diesel and clear diesel do not discriminate against rail
carriers.” Id. at 1247. Alternatively, the court ruled that the motor carrier
exemption is justified because the excise tax that motor carriers pay is “roughly
equivalent” to the sales and use tax. Id.
3
Under federal law, tax-exempt fuel must be “indelibly dyed.” 26 U.S.C. § 4082(a)(2).
Federal law prohibits using dyed diesel for travel on highways. Id. § 4041(a)(1)(A). Trains can
run on clear diesel, but CSX and its peer rail carriers buy dyed diesel to avoid paying federal and
state motor fuels taxes at the pump. If as the State suggests CSX were to switch between clear
and dyed diesel depending on tax implications, CSX says it would incur operational disruptions
and costs, including “a $9 million per year increase in up-front fuel costs due to the time lag
necessary to secure federal highway tax refunds, and the costs to put in a specialized system to
track fuel usage to secure those refunds.” Appellant’s Br. at 15.
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The court also determined that there were two reasons why the water carrier
exemption does not violate the 4-R Act. First, it concluded that the exemption
“does not violate the 4-R Act” because “CSX has suffered no competitive injury”
from that exemption. Id. at 1255. Second, it found that because “imposition of a
state sales [and use] tax on interstate water carriers would expose the State to
liability under the negative Commerce Clause,” their exemption “is compelled by
federal law.” Id. at 1252 (citing CSX II, 135 S. Ct. at 1144). This is CSX’s
appeal.
II. STANDARD OF REVIEW
We review de novo the district court’s interpretation of the Supreme Court’s
rulings and the scope of the mandate. Cox. Enters., Inc. v. News-Journal Corp.,
794 F.3d 1259, 1271–72 (11th Cir. 2015). We also review de novo questions of
statutory interpretation. Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d
235, 237 (11th Cir. 1995). The district court’s factual findings we review only for
clear error. United States v. Magluta, 418 F.3d 1166, 1182 (11th Cir. 2005).
III. STANDING
The State contends that CSX lacks standing. It raises that issue for the first
time in this appeal, but because standing goes to Article III jurisdiction a party can
contest it “at any point in the litigation.” Fla. Wildlife Fed’n, Inc. v. S. Fla. Water
Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011). To have standing, CSX “must
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have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged
conduct of the defendant, and (3) that is likely to be redressed by a favorable
judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. __, 136 S. Ct. 1540, 1547
(2016).
CSX meets those three requirements. Without a favorable decision it will
suffer an injury in fact because it will continue to be liable for roughly $5 million
per year in sales and use tax on diesel fuel. See Hein v. Freedom From Religion
Found., Inc., 551 U.S. 587, 599, 127 S. Ct. 2553, 2653 (2007) (“[B]eing forced to
pay . . . a tax causes a real and immediate economic injury to the individual
taxpayer.”). CSX’s claimed injury is fairly traceable to the Department, which the
parties stipulate is responsible for “administer[ing] and collect[ing] taxes within
Alabama, including the administration of sales and use taxes.” And that injury
would be redressed by a declaratory judgment that the sales and use tax violates
the 4-R Act and an injunction prohibiting the Department from collecting that tax
on CSX’s purchase and consumption of diesel.
The State does not, of course, contest that CSX has paid, and unless it
prevails here will continue to be liable for paying, the sales and use tax. It argues
instead that CSX has not suffered an injury in fact because it failed to prove “that
Alabama’s exemption for water carriers actually injures CSX.” But CSX’s
challenge seeks to prevent application of the sales and use tax on it, not an end to
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the exemption of the water carriers from the tax. CSX I, 562 U.S. at 286, 131
S. Ct. at 1108 (“What the complaint protests is Alabama’s imposition of taxes on
the fuel CSX uses; what the complaint requests is that Alabama cease to collect
those taxes from CSX. . . . The exemptions, no doubt, play a central role in CSX’s
argument . . . . But the essential subject of the complaint remains the taxes
Alabama levies on CSX.”) (citations omitted). The only injury CSX must prove
for standing purposes is liability for the sales and use tax that it claims is
discriminatory in violation of the 4-R Act. CSX has standing.
IV. THE MOTOR CARRIER EXEMPTION
The Supreme Court remanded this case for us to consider “whether
Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales [and use] tax
as applied to diesel fuel, and therefore justifies the motor carrier sales [and use] tax
exemption.” CSX II, 135 S. Ct. at 1144. We in turn remanded it to the district
court for proceedings “consistent with the Supreme Court’s opinion.” CSX
Transp., 797 F.3d at 1294. The district court in turn decided that the motor carrier
exemption does not violate the 4-R Act for two reasons: (1) CSX’s trains can
operate on either clear or dyed diesel, so any alleged discrimination is “self-
imposed,” and (2) the excise tax is “roughly equivalent” to the sales and use tax.
CSX Transp., 247 F. Supp. 3d at 1247, 1255. We address each ruling in turn.
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A. The District Court’s Clear Fuel Ruling
The district court found that CSX’s trains can operate on clear diesel and
that if CSX chose to do so, it could avoid the sales and use tax and instead pay the
excise tax, just like motor carriers, which would be perfectly nondiscriminatory.
Id. For that reason, the court ruled that any alleged discrimination is “self-
imposed,” and “the State has established that its tax schemes for dyed diesel and
clear diesel do not discriminate against rail carriers.” Id. at 1247. That ruling
violates the mandate rule.
“The mandate rule is a specific application of the ‘law of the case’ doctrine
which provides that subsequent courts are bound by any findings of fact or
conclusions of law made by the court of appeals in a prior appeal of the same
case.” Friedman v. Mkt. St. Mortg. Corp., 520 F.3d 1289, 1294 (11th Cir. 2008)
(quotation marks omitted). That rule “has its greatest force when a case is on
remand to the district court.” Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 881
F.3d 835, 843 (11th Cir. 2018). A district court “must implement both the letter
and the spirit of the mandate taking into account the appellate court’s opinion and
the circumstances it embraces.” Cox Enters., 794 F.3d at 1271 (quotation marks
and alterations omitted). Although a district court is “free to address, as a matter of
first impression, those issues not disposed of on appeal,” it is “bound to follow the
appellate court’s holdings, both expressed and implied.” Id. (quotation marks
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omitted). The scope of the mandate is informed by the scope of the issues
considered in the earlier appeal. Id.
The scope of the mandate that came out of our last decision was narrow. As
to motor carriers, the Supreme Court had instructed us to consider only “whether
Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales [and use] tax
as applied to diesel fuel, and therefore justifies the motor carrier sales [and use] tax
exemption.” CSX II, 135 S. Ct. at 1144. The district court noted that instruction
and acknowledged that the clear fuel argument is not a “justification,” but ruled
that it could be a basis for defeating CSX’s claim anyway. 247 F. Supp. 3d at 1244
(“[T]he State introduced evidence not only to show sufficient justification, but also
to prove: that any ‘discrimination’ is self-imposed through rail carriers’ practice of
purchasing dyed, rather than clear, fuel . . . .”) (emphasis added).
That ruling went beyond the scope of the mandate, which was limited to
whether the excise tax and the sales and use tax are roughly equivalent. CSX II,
135 S. Ct. at 1144. But because we agree with the district court’s alternative ruling
that the excise tax is roughly equivalent to the sales and use tax and, as a result, it
justifies the motor carrier exemption, CSX Transp., 247 F. Supp. 3d at 1247–48,
any error in the district court’s clear fuel ruling is harmless.
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B. The District Court’s “Roughly Equivalent” Ruling
The district court decided that the motor carrier exemption is justified
because the sales and use tax is “roughly equivalent” to the excise tax. Id. The
Supreme Court did not specify how to decide whether those two taxes are roughly
equivalent. See CSX II, 135 S. Ct. at 1144. So we have to decide the proper test
for determining whether those taxes are roughly equivalent before we can evaluate
if the district court was correct in deciding that they are.
The district court interpreted “roughly equivalent” to carry its ordinary
meaning and limited its inquiry to whether the “fuel-excise tax approximates the
sales [and use] tax.” CSX Transp., 247 F. Supp. 3d at 1247. Applying that
standard, the court found that over a recent nine-year period, the average rates rail
carriers and motor carriers paid on diesel fuel differed “by some quantity between
less-than-half-of-one cent and 3.5 cents” per gallon.4 Id. at 1250–51. That led the
court to conclude that “the fuel-excise tax motor carriers pay is ‘roughly
equivalent’ to the sales [and use] tax CSX pays.” Id. at 1251. In reaching that
conclusion the court declined to consider how the State spends revenues from
those different taxes. Id. at 1251 n.16.
4
The difference fluctuates because the excise tax that motor carriers pay is assessed as a
flat rate per gallon of fuel consumed regardless of the price of the fuel, while the sales and use
tax that rail carriers pay is assessed ad valorem and depends on the price of fuel. Compare Ala.
Code § 40-17-325(a)(2) (excise tax), with Ala. Code §§ 40-23-2(1) (sales tax), 40-23-61(a) (use
tax).
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CSX doesn’t question the district court’s math. Instead, it questions the test
that the district court applied. CSX argues that the proper test is the compensatory
tax doctrine — a three-part dormant Commerce Clause test that would require us to
compare not only the rate that rail carriers and motor carriers pay under the sales
and use tax and the excise tax, but also how the State allocates revenue from those
taxes. Appellant’s Br. at 38–39 (citing West Lynn Creamery, Inc. v. Healy, 512
U.S. 186, 201, 114 S. Ct. 2205, 2215 (1994) (examining revenue expenditures to
determine whether a facially discriminatory tax violates the dormant Commerce
Clause)).
The crux of CSX’s argument is that the excise tax is not roughly equivalent
to the sales and use tax because the excise tax “is used exclusively to fund public
highways,” effectively subsidizing the infrastructure on which motor carriers
travel, while “the railroad sales [and use] tax is deposited in the State’s general
fund, earmarked primarily for education.” Compare Ala. Code § 40-17-361(a),
(b), with id. § 40-23-35(f). Because excise tax revenues directly benefit motor
carriers while sales and use tax revenues do not directly benefit rail carriers, CSX
asserts that the excise tax “cannot possibly be ‘roughly equivalent’” to the sales
and use tax.
CSX does not pretend that the 4-R Act’s text supports its contention that a
state’s revenue expenditures control a claim under that statute. It argues instead
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that the Supreme Court in its decision implicitly guided us toward the
compensatory tax doctrine and examining revenue expenditures in two ways. The
first was by using the phrase “roughly equivalent,” some variation of which
appears in all compensatory tax doctrine cases, and the second was by citing the
“foundational” compensatory tax doctrine case of Gregg Dyeing Co. v. Query, 286
U.S. 472, 52 S. Ct. 631 (1932).
1. The 4-R Act Is Concerned with the Imposition of Taxes,
Not with the Expenditure of Revenue from Taxes
“We begin, as in any case of statutory interpretation, with the language of
the statute.” CSX I, 562 U.S. at 283, 131 S. Ct. at 1107. And the plain language of
§ 11501(b)(4) stops in its tracks CSX’s argument that we must consider how the
State allocates revenue raised by the taxes in question.
Section 11501(b)(4) provides that no state shall “[i]mpose another tax that
discriminates against a rail carrier.” The syntax of the sentence makes clear that
the source of discrimination must be the state’s imposition of a tax. The relative
pronoun “that” introduces the subordinate clause “that discriminates against a rail
carrier.” The subordinate clause modifies the antecedent “tax” and describes the
kinds of taxes states may not impose. All of which is a fancy way of saying that
§ 11501(b)(4) doesn’t prohibit all anti-railroad discrimination, but only that which
occurs in the state’s imposition of a tax. Which is, after all, what the provision
says.
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In spite of that, CSX would have us read that provision to require revenue
from the sales and use tax paid by rail carriers to benefit them as much as revenue
from the excise tax paid by motor carriers benefits those carriers. That reading of
§ 11501(b)(4) does not fit the meaning of “impose.” Impose, Black’s Law
Dictionary (10th ed. 2014) (“To levy or exact (a tax or duty).”). States cannot
“levy or exact” a revenue expenditure. CSX’s proposed reading of §11501(b)(4)
also equates “tax” with revenue, even though “tax” by definition distinguishes the
“charge . . . imposed by the government” from the “revenue” it seeks to yield.
Tax, Black’s Law Dictionary (10th ed. 2014). Stripped to the rails, CSX’s
argument depends on calling revenues taxes. And “an argument that depends on
calling a duck a donkey is not much of an argument.” Gilbert v. United States, 640
F.3d 1293, 1320 (11th Cir. 2011).
CSX’s interpretative remodeling of § 11501(b)(4)’s restriction on states
would require us to rewrite the “[i]mpose another tax that discriminates against a
rail carrier” language in one of two ways. The first way would be to add words to
the provision so that no state could:
Impose another tax or appropriate revenue in a way that discriminates
against a rail carrier.
Or subtract some language and add other language so that no state could:
Impose another tax that discriminate[ ] against a rail carrier in any
other way.
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“But we are not allowed to add or subtract words from a statute.” Friends of the
Everglades v. S. Fla. Water Mgmt. Dist., 570 F.3d 1210, 1224 (11th Cir. 2009);
accord T-Mobile South, LLC v. City of Milton, 728 F.3d 1274, 1284 (11th Cir.
2013) (“Although we, like most judges, have enough ego to believe that we could
improve a good many statutes if given the chance, statutory construction does not
give us that chance if we are true to the judicial function.”); Myers v. TooJay’s
Mgmt. Corp., 640 F.3d 1278, 1286 (11th Cir. 2011) (“[W]e are not licensed to
practice statutory remodeling.”). If Congress had intended for § 11501(b)(4) to
cover a state’s revenue expenditures, it easily could have written it to say so. It
didn’t. And we assume that “Congress does not generally ‘hide elephants in
mouseholes.’” Rambaran v. Sec’y, Dep’t of Corr., 821 F.3d 1325, 1333 (11th Cir.
2016) (quoting Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468, 121 S. Ct.
903, 909–10 (2001)).
Reading § 11501(b)(4) in context adds another layer of conviction to our
conclusion. See Wachovia Bank, N.A. v. United States, 455 F.3d 1261, 1267 (11th
Cir. 2007) (explaining that in statutory interpretation, “context is king”); accord
Dolan v. U.S. Postal Serv., 546 U.S. 481, 486, 126 S. Ct. 1252, 1257 (2006) (The
proper “[i]nterpretation of a word or phrase depends upon reading the whole
statutory text . . . .”). The three paragraphs preceding the more general
§ 11501(b)(4) prohibit discrimination against rail carriers in the assessment of, or
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rates applicable to, property for purposes of taxation. 49 U.S.C. § 11501(b)(1)–
(3).5 They say nothing about revenue allocation or spending that discriminates
against rail carriers. Because none of the four paragraphs comprising § 11501(b)
mention revenue, it is evident that Congress did not intend (assuming it had any
collective intent) for us to consider revenue expenditures in deciding whether a tax
discriminates for purposes of subsection (b)(4).
For all of those reasons, we hold that how the State allocates its tax revenues
is irrelevant to whether it “[i]mposes [a] tax that discriminates against a rail
carrier.” Id. § 11501(b)(4).
2. The Supreme Court Did Not Tell Us to Apply the Compensatory Tax Doctrine
Undeterred by the plain text or by context, CSX contends that in deciding
whether there is discrimination in violation of § 11501(b)(4) we must give weight
to discriminatory revenue expenditures because the Supreme Court in CSX II told
us to apply the compensatory tax doctrine. But the Court didn’t tell us to do that.
In fact, its opinion does not once use “compensatory” or any other derivative of the
word “compensate.” The Court has told us that it usually (almost always, we
hope) says what it means and means what it says: “[A] good rule of thumb for
5
In the order in which they appear, those paragraphs forbid states or their subdivisons
from assessing rail transportation property at a higher ratio to true market value than other
commercial and industrial property, id. § 11501(b)(1); from levying property taxes based on such
an assessment, id. § 11501(b)(2); and from levying ad valorem taxes on rail transportation
property at a higher rate than for commercial and industrial property generally, id. § 11501(b)(3).
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reading our decisions is that what they say and what they mean are one and the
same.” Mathis v. United States, 579 U.S. __, 136 S. Ct. 2243, 2254 (2016).
Another good rule of thumb is that when the Supreme Court means to require
something on remand, the Court will say that it is required. The Court did not say
that we were to use the compensatory tax doctrine to determine if a tax scheme
violates § 11501(b)(4).
Not to be derailed by the Supreme Court’s failure to mention the
compensatory tax doctrine, CSX argues that we still must apply that doctrine
because the Court did use the term “rough equivalent,” some variation of which
appears in all compensatory tax doctrine cases.6 CSX’s argument is a fine example
of a terminal logical fallacy known to logicians as an “illicit conversion” and to
LSAT students as a “mistaken reversal.” See, e.g., Patrick J. Hurley and Lori
Watson, A Concise Introduction to Logic 230–31 (13th ed. 2016); Steve Schwartz,
Conditional Reasoning: Contrapositive, Mistaken Reversal, Mistaken Negation,
LSAT Blog, April 10, 2009, http://lsatblog.blogspot.com/2009/04/conditional-
reasoning-contrapositive.html. That all compensatory tax doctrine decisions
6
Some of CSX’s cited decisions feature a variation of “rough equivalent” or “rough
approximate.” See, e.g., S. Cent. Bell Tel. Co. v. Alabama, 526 U.S. 160, 169, 119 S. Ct. 1180,
1186 (1999) (compensatory tax burden must “roughly approximate” the allegedly discriminatory
tax burden) (alterations omitted); Fulton Corp. v. Faulkner, 516 U.S. 325, 332–33, 116 S. Ct.
848, 854 (1996) (The compensatory tax “must be shown roughly to approximate — but not
exceed the amount of the tax on intrastate commerce.”); Or. Waste Sys. v. Dep’t of Envtl.
Quality, 511 U.S. 93, 103, 114 S. Ct. 1345, 1352 (1994) (noting that a compensatory tax is the
“rough equivalent” of a “substantially similar” discriminatory tax).
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feature the words “rough equivalent” does not mean that all decisions featuring
those words are compensatory tax doctrine cases. Just as the fact that all birds are
animals does not mean that all animals are birds.
As it happens, the Supreme Court has used the phrase “rough equivalent” in
all sorts of contexts. It has used the term when talking about taxes in the due
process and Commerce Clause contexts (to which the compensatory tax doctrine
does not apply). See Moorman Mfg. Co. v. Bair, 437 U.S. 267, 280, 98 S. Ct.
2340, 2348 (1978) (“In this case appellant’s actual income tax obligation was the
rough equivalent of a 1% tax on the entire gross receipts from its Iowa sales.”)
(emphasis added). It has used the phrase when talking about extortion. See Ocasio
v. United States, 578 U.S. __, 136 S. Ct. 1423, 1428 (2016) (“[T]he type of
extortion for which petitioner was convicted — obtaining property from another
with his consent and under color of official right — is the rough equivalent of what
we would now describe as ‘taking a bribe.’”) (emphasis added). It has even used
the phrase when talking about usufructs of all things. See Boggs v. Boggs, 520
U.S. 833, 836, 117 S. Ct. 1754, 1758 (1997) (“A lifetime usufruct is the rough
equivalent of a common-law life estate.”) (emphasis added). The term “rough
equivalent” is not a magical incantation that spellbinds us to apply the
compensatory tax doctrine. It is, instead, a term whose meaning must be
determined in context. See Towne v. Eisner, 245 U.S. 418, 425, 38 S. Ct. 158, 159
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(1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged, it is the
skin of a living thought and may vary greatly in color and content according to the
circumstances and the time in which it is used.”).
CSX’s next argument for applying the compensatory tax doctrine is that the
Supreme Court signaled that we should do so by citing Gregg Dyeing, which CSX
characterizes as the “foundational building block of the compensatory tax
analysis.” According to CSX, Gregg Dyeing is cited “as shorthand for the
Compensatory Tax Doctrine” by many courts, and it points to the Alabama
Supreme Court’s opinion in White v. Reynolds Metals Co., 558 So. 2d 373 (Ala.
1989), as an example.
That is not a good example for CSX because in White the Alabama Supreme
Court did not use Gregg Dyeing as “shorthand for the Compensatory Tax
Doctrine,” but simply cited it along with two other decisions for the proposition
that the “United States Supreme Court has upheld taxing statutes that appeared to
discriminate against interstate commerce by holding that the state’s tax scheme
compensated for the tax by a substantially equivalent tax on intrastate commerce.”
Id. at 387. And even if the Alabama Supreme Court had used Gregg Dyeing as
code for the compensatory tax doctrine, that would not mean the United States
Supreme Court used it that way in this case. We apply to the Supreme Court’s
opinions some of the same interpretative principles that it applies to congressional
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enactments, including the one about elephants and mouseholes. Whitman, 531
U.S. at 468, 121 S. Ct. at 909–10. We don’t read the citation to Gregg Dyeing in
the CSX II opinion as code but as simply a reference to the general principle that
courts should consider other taxes a state imposes when assessing a facially
discriminatory tax for 4-R Act purposes. See CSX II, 135 S. Ct. at 1143–44.
Third, CSX argues that failure to apply the compensatory tax doctrine would
“lead[ ] to absurd results.” We may deviate from the plain meaning of a statute
only if “the result produced by the plain meaning” is “truly absurd.” Merritt v.
Dillard Paper Co., 120 F.3d 1181, 1188 (11th Cir. 1997). According to CSX,
because the dormant Commerce Clause “aris[es] from a negative implication
imposed by case law” instead of “an express statutory prohibition” like the 4-R
Act, we should scrutinize taxes that might violate the 4-R Act more rigorously than
taxes that might violate the dormant Commerce Clause. Absurdity ensues, CSX
asserts, if it is “easier to justify a facially discriminatory tax that violates a federal
statute than it is to justify a facially discriminatory tax that violates the dormant
Commerce Clause.” What?
The posited result does not strike us as “truly absurd” –– or even absurd
without an adverb, for that matter. Id. Although the dormant Commerce Clause
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has been criticized, 7 the Supreme Court has held that it is grounded in the
Constitution. See Fulton Corp., 516 U.S. at 330, 116 S. Ct. at 853 (“The
constitutional provision of power ‘[t]o regulate Commerce’ . . . has long been seen
as a limitation on state regulatory powers, as well as an affirmative grant of
congressional authority.”). The economic protectionism that doctrine seeks to curb
is a problem that “plagued relations among the Colonies and later among the States
under the Articles of Confederation.” Dep’t of Revenue v. Davis, 553 U.S. 328,
338, 128 S. Ct. 1801, 1808 (2008). What seems truly absurd to us is the premise of
CSX’s assertion, which is that a constitutional doctrine is inherently less important
than a statutory provision.
3. The Excise Tax Is Roughly Equivalent to the Sales and Use Tax
Having established that how a state allocates tax revenue is immaterial to
whether two taxes are roughly equivalent under § 11501(b)(4), and that the
Supreme Court did not direct us to apply the compensatory tax doctrine, we turn to
the district court’s ruling that the sales and use tax and the excise tax are roughly
equivalent.
7
See, e.g., Comptroller of the Treasury of Md. v. Wynne, 575 U.S. __, 135 S. Ct. 1787,
1808 (2015) (Scalia, J., dissenting) (“[T]he negative Commerce Clause is a judicial fraud . . . .”);
United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 349,
127 S. Ct. 1786, 1799 (2007) (Thomas, J., dissenting) (“The negative Commerce Clause has no
basis in the Constitution and has proved unworkable in practice.”).
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As an initial matter, the parties contest whether we should compare the rates
that rail carriers and motor carriers pay in state taxes, or the combined rate they
pay under state plus local taxes. We need not answer that question because the
sales and use tax and the excise tax are roughly equivalent regardless of whether
we consider local taxes. Considering only state taxes, over a recent nine-year
period, rail carriers paid $0.0985 per gallon for dyed diesel while motor carriers
paid $0.19 per gallon for clear diesel. CSX Transp., 247 F. Supp. 3d at 1250.
Accounting for both state and local taxes, rail carriers paid $0.2348 per gallon
while motor carriers paid between $0.20 and $0.23 per gallon. Id. During that
same period, rail carriers and motor carriers each had a higher state plus local tax
burden than the other one did an equal number of times (fifty-seven). Id. at 1246.
We agree with the district court that “roughly equivalent” bears its ordinary
meaning and that two taxes are roughly equivalent if the rates they impose
approximate one another. See id. at 1248. It does not mean “perfectly equivalent.”
Because the average rates that rail carriers and motor carriers paid differed only
“by some quantity between less-than-half-of-one cent and 3.5 cents” per gallon,
favoring one as many times as the other, id. at 1250–51, the district court correctly
concluded that the excise tax is roughly equivalent to the sales and use tax. As a
result, the excise tax “justifies the motor carrier sales-tax exemption.” CSX II, 135
S. Ct. at 1144.
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V. THE WATER CARRIER EXEMPTION
We now move from the roads to the waters. The Supreme Court recognized
that, unlike the motor carrier exemption, the State could offer no rough
equivalency justification for the water carrier exemption because water carriers pay
no state taxes at all when they buy or consume diesel to haul freight interstate.
Ala. Code §§ 40-23-4(a)(10) (sales tax exemption), 40-23-62(12) (use tax
exemption). The State did, however, offer “other justifications for the water carrier
exemption — for example, that such an exemption is compelled by federal law” ––
and the Court remanded for consideration of those “alternative rationales.” CSX
II, 135 S. Ct. at 1144.
The district court ruled that the water carrier exemption for interstate
shipments does not violate the 4-R Act for two independent reasons. First, the
court found that there was no violation because “CSX has suffered no competitive
injury from the State’s exemption of water carriers from the sales [and use] tax.”
CSX Transp., 247 F. Supp. 3d at 1255. Second, the court found that because
“imposition of a state sales [and use] tax on interstate water carriers would expose
the State to liability under the negative Commerce Clause,” the exemption for
water carriers “is compelled by federal law.” Id. at 1252 (citing CSX II, 135 S. Ct.
at 1144). We will take those two up in that order.
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A. The District Court’s Competitive Injury Ruling
There are two problems with the district court’s ruling that the water carrier
exemption does not violate the 4-R Act because CSX has not shown that the
exemption causes it competitive injury. The first problem is that the parties
stipulated that water carriers are among “[t]he principal competitors to rail carriers
in the transportation of property in interstate commerce in the State of Alabama.”
Although a district court may set aside an erroneous stipulation where justice
requires, see, e.g., Morrison v. Genuine Parts Co., 828 F.2d 708, 709 (11th Cir.
1987), the district court did not suggest that it thought justice required doing so.
Instead, its rationale was that the “stipulation does not equate to a concession that
the competition between CSX and water carriers is substantial.” CSX Transp., 247
F. Supp. 3d at 1245. We are hard pressed to square a finding that competition
between CSX and water carriers is insubstantial with a stipulation that they are
“principal competitors,” especially where the stipulation distinguishes “[a]ir
carriers,” which “also are engaged in the transportation of property in interstate
commerce in the State of Alabama, but only marginally compete with rail
carriers.”
And we are supremely reluctant to allow a district court to relitigate a
stipulated fact that the Supreme Court relied on for one of its holdings, which is
that rail carriers and water carriers are a similarly situated comparison class. CSX
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II, 135 S. Ct. at 1143 (“[I]n light of [CSX’s] complaint and the parties’ stipulation,
a comparison class of competitors consisting of motor carriers and water carriers
was appropriate . . . .”) (emphasis added).
The second problem with the district court’s ruling is that it is contrary to the
Supreme Court decisions in CSX I and CSX II. While neither of those decisions
explicitly held that competitive injury was not required, the two of them combined
decided that discriminatory taxation had been shown and that the remaining
question to be answered on remand was whether there was sufficient justification
for it. CSX I, 562 U.S. at 288 & n.8, 131 S. Ct. at 1109 & n.8 (“[A] state excise
tax that applies to railroads but exempts their interstate competitors is subject to
challenge under subsection (b)(4)[,]” but the State may “offer[ ] a sufficient
justification for declining to provide the exemption at issue to rail carriers.”); CSX
II, 135 S. Ct. at 1143–44 (holding that rail carriers and water carriers are similarly
situated competitors and remanding for us to determine “whether Alabama’s
alternative rationales justify its exemption”). Competitive injury may play an
important role in antitrust law but under the 4-R Act the lack of it is not a
justification for discriminatory taxes.
Instead of putting the burden on the State to justify the difference in
taxation, the district court put the burden on CSX to prove “discriminatory effect”
or “competitive injury.” CSX Transp., 247 F. Supp. 3d at 1255. While the district
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court was “free to address, as a matter of first impression, those issues not disposed
of on appeal,” Cox Enters., 794 F.3d at 1271, it was not free to add another
element for CSX to prove in order to establish a violation of the Act. 8
B. The District Court’s “Compelled by Federal Law” Ruling
In remanding the case the Supreme Court recognized that if the water carrier
exemption were “compelled by federal law,” that might be sufficient justification.
CSX II, 135 S. Ct. at 1144. The district court concluded that “imposition of a state
sales [and use] tax on interstate water carriers would expose the State to liability
under the negative Commerce Clause,” and for that reason, “the exemption for
water carriers ‘is compelled by federal law.’” CSX Transp., 247 F. Supp. 3d at
1252 (citing CSX II, 135 S. Ct. at 1144).
As an initial matter, we disagree with the district court that the water carrier
exemption is “compelled by federal law” merely because the “imposition of a state
sales [and use] tax on water carriers would expose the State to liability” under the
8
The State contends that even if proof of injury is unnecessary to establish a violation of
the 4-R Act, it is necessary for injunctive relief. That argument goes against the decisions of five
of our sister circuits that have held the “irreparable injury” requirement does not apply to 4-R
Act claims because the Act authorizes injunctive relief without it where the statutory conditions
are satisfied. 49 U.S.C. § 11501(c). See Consol. Rail v. Town of Hyde Park, 47 F.3d 473, 479
(2d Cir. 1995); CSX Transp., Inc. v. Tenn. State Bd. of Equalization, 964 F.2d 548, 551 (6th Cir.
1992); Burlington N. R.R. v. Bair, 957 F.2d 599, 601–02 (8th Cir. 1992); Burlington N. R.R. v.
Dep’t of Revenue, 934 F.2d 1064, 1074–75 (9th Cir. 1991); Atchison, T. & S.F. Ry. v. Lennen,
640 F.2d 255, 259 (10th Cir. 1981). Although we have not addressed this issue in the 4-R Act
context, we follow the principle that when “an injunction is authorized by statute and the
statutory conditions are satisfied the usual prerequisite of irreparable injury need not be
established.” Gresham v. Windrush Partners, 730 F.2d 1417, 1423 (11th Cir. 1984) (citations
and alteration omitted).
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Commerce Clause. Id. (emphases added). For 4-R Act justification purposes
exposure to a risk is not compulsion; compulsion requires legal obligation.
1. The Negative Commerce Clause
The Supreme Court applies a four-prong test to determine whether a state
tax violates the Commerce Clause. See Complete Auto Transit, Inc. v. Brady, 430
U.S. 274, 279, 97 S. Ct. 1076, 1079 (1977). A state tax survives Commerce Clause
scrutiny if it “[1] is applied to an activity with a substantial nexus with the taxing
State, [2] is fairly apportioned, [3] does not discriminate against interstate
commerce, and [4] is fairly related to services provided by the State.” Id. All four
requirements must be met. The district court’s ruling that the Commerce Clause
compels the water carrier exemption was based on the fourth requirement alone,
CSX Transp., 247 F. Supp. 3d at 1251–52, and the State does not contend that any
of the first three were not met. As a result, we consider only the “fairly related” or
fourth requirement.9
9
We have not previously applied the Complete Auto test because the Eleventh
Amendment and the Tax Injunction Act ordinarily prevent lower federal courts from deciding
constitutional challenges to state taxes. See Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S.
356, 363, 121 S. Ct. 955, 962 (2001) (“The ultimate guarantee of the Eleventh Amendment is
that nonconsenting States may not be sued by private individuals in federal court.”); 28 U.S.C.
§ 1341 (“The district courts shall not enjoin . . . collection of any tax under State law where a
plain, speedy and efficient remedy may be had in the courts of such State.”). But neither the
Eleventh Amendment nor the Tax Injunction Act forbids us from deciding whether imposing the
sales and use tax on water carriers would violate the Commerce Clause. The Supreme Court’s
remand instructions require us to decide that hypothetical case within this case to determine
whether the water carrier exemption is “compelled by federal law.” CSX II, 135 S. Ct. at 1144.
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The district court ruled that if imposed on water carriers the sales and use tax
would not be fairly related to services that the State provides them because
Alabama “provides virtually no services to interstate water carriers.” Id. at 1252.
It found that Alabama “spends no tax dollars on river maintenance projects” or
“commercial water traffic regulation or enforcement.” Id. It is, instead, the federal
government that “funds all river dredging and lock and dam maintenance” and
“spends monies licensing, policing, and maintaining commercial water traffic.” Id.
Because “water carriers impose virtually no financial burden on the State” and
“may never contact state land,” the district court concluded that water carriers
could challenge the sales and use tax as not “fairly related to services provided
[them] by the State.” Id. at 1251–52. Because imposition of the sales and use tax
“would expose the State to liability under the negative Commerce Clause,” the
district court ruled the water carrier exemption is “compelled by federal law” under
the CSX II decision. Id. at 1252.
That ruling doesn’t hold water. The Supreme Court rejected similar
reasoning in Commonwealth Edison Co. v. Montana, 453 U.S. 609, 620–21, 101 S.
Ct. 2946, 2955 (1981). That decision involved a Montana severance tax of up to
30% imposed on coal extracted in the state for use outside it. Id. at 612–13, 101
S. Ct. 2951. The coal producers argued that the “amount collected under the
Montana tax is not fairly related to the additional costs the State incurs because of
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coal mining.”10 Id. at 620, 101 S. Ct. at 2955. The Court was not persuaded,
explaining that the fourth prong of the Complete Auto test does not require “that
the amount of general revenue taxes collected from a particular activity . . . be
reasonably related to the value of services provided to the activity.” Id. at 622, 101
S. Ct. at 2956. “Nothing is more familiar in taxation than the imposition of a tax
upon a class or upon individuals who enjoy no direct benefit from its expenditure,
and who are not responsible for the condition to be remedied.” Id. (internal
citations omitted); see also Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S.
175, 199, 115 S. Ct. 1331, 1345 (1995) (“The fair relation prong of Complete Auto
requires no detailed accounting of the services provided to the taxpayer on account
of the activity being taxed, nor, indeed, is a State limited to offsetting the public
costs created by the taxed activity.”).
Instead, the fourth prong requires only that “the measure of a tax [be]
reasonably related to the taxpayer’s activities or presence in the State,” in which
case “the taxpayer will realize, in proper proportion to the taxes it pays, the only
benefit to which the taxpayer is constitutionally entitled: that derived from his
enjoyment of the privileges of living in an organized society.” Commonwealth
Edison, 453 U.S. at 628–29, 101 S. Ct. at 2959 (quotation marks and alterations
10
The coal producers asserted that the “legitimate local impact costs [of coal mining] . . .
might amount to approximately 2 [cents] per ton, compared to present average revenues from the
severance tax alone of over $2.00 per ton.” Id. at 620 n.10, 101 S. Ct. at 2955 n.10.
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omitted). Those privileges are the “services” to which a tax must be “fairly
related” for Commerce Clause purposes, and they include “police and fire
protection,” public roads and mass transit, and other “advantages of a civilized
society.” Id. at 624, 101 S. Ct. at 2957. Applying that analysis, the Court had
“little difficulty” upholding the Montana tax. Id. at 626, 101 S. Ct. at 2958
(“Because [the tax] is measured as a percentage of the value of the coal taken, the
Montana tax is in proper proportion to appellants’ activity within the State and,
therefore, to their consequent enjoyment of the opportunities and protections which
the State has afforded in connection with those activities.”) (quotation marks
omitted).
Under the Commonwealth Edison standard, a tax on water carriers would be
“fairly related” to the services provided by the State. It makes no difference that
the federal government, instead of the State, foots the bill for barge-related services
like river maintenance projects and commercial water traffic. The standard is
unconcerned with “the services provided to the taxpayer on account of the activity
being taxed.” Jefferson Lines, 514 U.S. at 199, 115 S. Ct. at 1345. Instead, the
services to which a tax must be “fairly related” are the “privileges of living in an
organized society.” Commonwealth Edison, 453 U.S. at 629, 101 S. Ct. at 2959.
Water carriers purchasing or using diesel fuel in Alabama benefit from those
privileges. That is doubtless true for the two categories of water carriers that,
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according to the record, regularly make landfall in Alabama. For example, water
carriers engaged in “head-to-head competition” with CSX take product from feed
mills “located between Decatur[, Alabama] and Guntersville[, Alabama] directly
on the river system.” Water carriers engaged in “river-to-truck competition”
transport product from out of state to Albertville, Alabama and Ivalee, Alabama,
where they “transfer [the product] and then truck it into their facilities.” Those
water carriers benefit from the State’s provision of emergency services, access to
the judicial system, roads, and other “advantages of civilized society,” no matter
how often they use those services. See Jefferson Lines, 514 U.S. at 200, 115 S. Ct.
at 1346 (“The bus terminal may not catch fire during the sale, and no robbery there
may be foiled while the buyer is getting his ticket, but police and fire protection,
along with the usual and usually forgotten advantages conferred by the State’s
maintenance of a civilized society, are justifications enough for the imposition of a
tax.”).
Even for water carriers that “may never contact state land,” CSX Transp.,
247 F. Supp. 3d at 1252, the fact that they could call upon the State to render aid in
case of an emergency or use the state courts to vindicate their rights means that
they derive some benefit, however attenuated, from the State’s services. An
attenuated benefit is all the fourth requirement of the Complete Auto test requires,
which makes it unsurprising that the Supreme Court has never invalidated a state
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tax under that requirement. See, e.g., Jefferson Lines, 514 U.S. at 200, 115 S. Ct.
at 1346. Justice Blackmun may have been right when he said that Commonwealth
Edison had gone so far as to “emasculate” the fairly related requirement of the
Complete Auto test, 453 U.S. at 645, 101 S. Ct. at 2967–68 (Blackmun, J.,
dissenting), but whether it is an emasculator or not, Commonwealth Edison is the
law and we follow it.
The question then is whether the “measure of the tax [is] reasonably related
to the extent of [water carriers’] contact” with the state. Commonwealth Edison,
453 U.S. at 626, 101 S. Ct. at 2958. Because the severance tax in Commonwealth
Edison was “measured as a percentage of the value of the coal taken,” the Supreme
Court held that it was “in proper proportion to appellants’ activities within the
State.” Id. Likewise, if applied to water carriers hauling freight interstate
Alabama’s sales and use tax, which is proportionate to the amount of diesel fuel
bought or used in the state, would also be “in proper proportion to [the water
carrier’s] activities within the state.” Id.; see Ala. Code §§ 40-23-2(1), 40-23-
61(a). As a result, imposing the sales and use tax on water carriers would not
offend the Commerce Clause and exempting those carriers from the tax cannot be
justified on the basis that it would.11 See CSX Transp., 247 F. Supp. 3d at 1252.
11
The State and district court cite an Illinois appellate court decision that applied the
fourth requirement of Complete Auto more strictly. See CSX Transp., 247 F. Supp. 3d at 1252
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2. The Maritime Transportation Security Act
The State points to another federal law as compelling the water carrier
exemption, arguing that taxing them could expose it to suit under the Maritime
Transportation Security Act, 33 U.S.C. § 5(b). That statute provides:
No taxes . . . shall be levied upon or collected from any vessel or other
water craft, or from its passengers or crew, by any non-Federal
interest, if the vessel or water craft is operating on any navigable
waters subject to the authority of the United States, or under the right
to freedom of navigation on those waters[.]
33 U.S.C. § 5(b). Taxing water carriers would expose it to suit for violating § 5(b),
the State asserts, because the sales and use tax would be a “tax . . . collected from
any vessel or other water craft, or from its passengers or crew by [a] non-Federal
interest.” Id. But, as we have already explained, exposure to a lawsuit alone is not
compulsion under CSX II.
And any such a lawsuit would not, in our view, succeed. The State bases its
fears primarily on Kittatinny Canoes, Inc. v. Westfall Township, No. 183 CV
2013, 2013 WL 8563483 (Pa. Com. Pl. May 6, 2013), and Moscheo v. Polk
n.18 (citing Am. River Transp. Co. v. Bower, 813 N.E.2d 1090, 1094 (Ill. App. Ct. 2004)
(finding “no fair relation between the use tax and the benefits that [the tugboat company]
received from the state for the use by its line haul tugboats of the navigable waterways of the
United States”)). We are not bound by one decision of one state appellate court about whether
one tax imposed on one type of boat violates the Commerce Clause. See Lewis v. Casey, 518
U.S. 343, 379 n.7, 116 S. Ct. 2174, 2194 n.7. And for reasons we have discussed, we agree with
Judge Bowman’s dissenting observation in Bower, 813 N.E.2d at 1094–95, that the majority in
that case took too strict a view of the fourth requirement.
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County, No. E2008-01969-COA-R3-CV, 2009 WL 2868754 (Tenn. Ct. App. Sept.
2, 2009). Both decisions struck down under § 5(b) state taxes on recreational
activities on waterways. Kittatinny, 2013 WL 8563483, at *9; Moscheo, 2009 WL
2868754, at *1. The district court found those decisions “not helpful” because they
involved the taxation of passengers of vessels on navigable waters. CSX Transp.,
247 F. Supp. 3d at 1253. In rejecting this proffered justification for exempting the
water carriers from the sales and use tax, the district court ruled that § 5(b) does
not apply to taxes imposed on things other than “the vessel, its passengers, or
crew.” Id. We agree.
If as the State suggests § 5(b) of the Maritime Transportation Security Act
invalidates the sales and use tax — which applies to diesel fuel because it is
“tangible personal property,” see Ala. Code § 40-23-2(1) — it would forbid states
from taxing the purchase of any tangible property for use on or by a “vessel . . . its
passengers[,] or crew,” 33 U.S.C. § 5(b). Under that view states could not collect
sales or use taxes when a boat purchases porcelain pitchers for a dinner cruise or
mattresses for the berths or any other property for any other reason. Water carriers
would become floating tax free zones.
Properly construed, the Act forbids taxes imposed on the vessel itself, or on
its crew members themselves, or on the passengers themselves — not taxes
imposed on property purchased for use on or by a vessel, or by its crew, or by its
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passengers. See, e.g., Commercial Barge Line Co. v. Dir. of Revenue, 431 S.W.3d
479, 484 (Mo. 2014) (holding that there was no violation of the Act where the state
“assess[ed] sales and use tax on the goods and supplies delivered to the Taxpayers’
towboats while they [were] in Missouri”); Reel Hooker Sportfishing, Inc. v. Dep’t
of Taxation, 236 P.3d 1230, 1232 (Haw. Ct. App. 2010) (“33 U.S.C. § 5(b) does
not preempt the assessment of [Hawaii’s general excise tax] because [it] is a tax
assessed on gross business receipts for the privilege of doing business in Hawai’i,
and is not a tax on their vessels or passengers.”).
If exempting water carriers from the sales and use tax that rail carriers pay is
to be justified, it must be on some basis other than the Commerce Clause or the
Maritime Transportation Security Act. The State has some more possibilities.
C. Other Justifications
The State advances two more arguments to justify the water carrier
exemption: (1) “States can seek to avoid double taxation”; and (2) “States can
charge a higher tax on a party that imposes higher costs on the State than its
comparison class does.” Neither argument persuades us.
1. Double Taxation
The State argues that the water carrier exemption is justified because water
carriers pay $0.29 per gallon in federal tax in exchange for barge-related services.
26 U.S.C. § 4042(b). Because water carriers benefit from “federal, not state,
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services,” the State asserts that it is justified in “allowing water carriers to be taxed
solely by the federal government” to avoid “double taxation.”
The State cites only one decision in support of its avoiding double taxation
argument. See Lawrence v. State Tax Comm’n, 286 U.S. 276, 279, 52 S. Ct. 556,
556 (1932). The Lawrence decision upheld a Mississippi income tax that
exempted out-of-state income of corporations but not of individuals. The Court
held that “a rational basis for the distinction made[ ] is the fact that the state has
adopted generally a policy of avoiding double taxation of the same economic
interest in corporate income, by taxing either the income of the corporation or the
dividends of its stockholders, but not both.” Id. at 284, 52 S. Ct. at 558–59
(emphasis added). Notably, the State omitted the part of the quotation to which we
have added emphasis. With that important language out of mind, the State
suggests that Lawrence stands for the proposition that a state’s interest in
“avoiding double taxation” includes not taxing income or activities that the federal
government taxes. But the decision cannot stand for that proposition because the
case did not involve it.
Lawrence involved a state’s effort to avoid imposing two taxes on the same
corporate income –– once as the income comes into the corporation and again as
that same income goes out as dividends. Id. at 284, 52 S. Ct. at 558–59. It did not
involve, as this case does, a state tax and a federal tax that are of different types
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and serve different purposes. See 26 U.S.C. § 4042(b); Ala. Code § 40-23-2(1).
For that reason, imposing the sales and use tax on water carriers would not qualify
as “double taxation” under Lawrence or any of the three dictionary definitions of
that term. 12
And even if imposing a state tax and a federal tax that are measured in
different ways and used for different purposes did qualify as “double taxation,” the
State offers no evidence that it has “adopted generally a policy of avoiding double
taxation,” which is necessary for two taxes to fall under Lawrence. See 286 U.S. at
284, 52 S. Ct. at 558. Indications are that it does not have a policy of not taxing
what the federal government taxes. For example, the State imposes an excise tax
on diesel fuel that motor carriers purchase even though the federal government
does too. See Ala. Code § 40-17-325(a)(2); 26 U.S.C. § 4081. The State cannot
treat a federal and a state tax as one tax if by land, two if by sea. And, of course,
the federal income tax has not dissuaded the State from taxing income. See Ala.
Code § 40-18-2(a). For these reasons, the State’s reliance on Lawrence is
misplaced and the federal excise tax on diesel fuel does not justify the exemption
12
See Double taxation, Black’s Law Dictionary (10th ed. 2014) (“1. The imposition of
two taxes on the same property during the same period and for the same taxing purpose. 2. The
imposition of two taxes on one corporate profit . . . 3. Int’l law. The imposition of comparable
taxes in two or more states on the same taxpayer for the same subject matter or identical
goods.”).
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of water carriers from the State’s sales and use tax on diesel fuel used for the
interstate shipment of freight.
2. Disparate Burdens
The State also argues that the water carrier exemption is justified because
water carriers “impose virtually no financial burden on the State” while rail
carriers impose significant costs. The disparity in burdens, the State asserts,
justifies the disparity in taxation.
The State relies on Oregon Waste, 511 U.S. 93, 114 S. Ct. 1345. That is a
dormant Commerce Clause decision invalidating a regulatory scheme that imposed
a “purportedly cost-based surcharge” of $0.85 per ton on the disposal of waste
generated in-state and a $2.25 per ton surcharge on the disposal of waste from out
of state. Id. at 95–96, 114 S. Ct. at 1348. Oregon did not argue that out-of-state
waste imposed higher costs, nor did it contend it had considered any cost disparity
when it fixed the surcharge rates. Id. at 101 & n.5, 114 S. Ct. at 1351 & n.5. In a
footnote, the Supreme Court theorized that if out-of-state waste imposed higher
costs on the State, the scheme would pass muster because the surcharge disparity
would not be based impermissibly on the waste’s origin but would instead be
calibrated to cost. Id.
The Oregon Waste decision does not control here. The Court’s footnote
musing about what might have been if something were different is doubtless dicta.
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See Edwards v. Prime, Inc., 602 F.3d 1276, 1298 (11th Cir. 2010). And in any
event, Oregon Waste is oceans apart from this case. Because that case involved a
dormant Commerce Clause challenge, the issue was whether a state law
impermissibly discriminates against out-of-staters. See, e.g., Maine v. Taylor, 477
U.S. 131, 137–38, 106 S. Ct. 2440, 2446–47 (1986). Its holding does not apply to
a tax that does not discriminate against out-of-state economic interests.
Even if we could draw on dormant Commerce Clause decisions in deciding
this 4-R Act case, the Oregon Waste dicta does not shed light on the sales and use
tax at issue here. In that dicta the Court noted that evidence about disparate costs
might salvage a facially discriminatory “cost-based surcharge.” 511 U.S. at 95,
101 n.5, 114 S. Ct. at 1348, 1351 n.5. But a sales and use tax is not “cost-based”
— it is not calibrated to account for varying burdens. See CSX Transp., 247 F.
Supp. 3d at 1254. Instead, it is a flat-rate, 4% general tax imposed without
reference to burdens generated by the activity and borne by the State. There is no
evidence that the State accounted for disparate burdens when it set a tax rate of 4%
for rail carriers and 0% for water carriers. As a result, the Oregon Waste Court’s
conjecture that a cost disparity might justify a proportionally disparate “cost-based
surcharge” does not mean that one might justify exempting water carriers from a
flat-rate tax of general applicability.
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Because the sales and use tax does not account for the relative burdens
imposed by taxpayers, and because dicta from the dormant Commerce Clause
decision in Oregon Waste does not control the result in this 4-R Act case, the
State’s “disparate burdens” argument does not justify the water carrier exemption.
Having concluded that the water carrier exemption is not “compelled by federal
law” and that neither of the State’s “alternative rationales” justifies the water
carrier exemption, see CSX II, 135 S. Ct. at 1144, we hold that Alabama’s sales
and use tax violates the 4-R Act.
VI. CONCLUSION
As to motor carriers, we agree with the district court that the excise tax is
roughly equivalent to the sales and use tax because the average rates that rail
carriers and motor carriers have paid differed “by some quantity between less-than-
half-of-one cent and 3.5 cents” per gallon. CSX Transp., 247 F. Supp. 3d at 1250–
51. As a result, the excise tax justifies the motor carrier exemption from the sales
and use tax. See CSX II, 135 S. Ct. at 1144.
As to water carriers, their exemption is not “compelled by federal law.”
CSX Transp., 247 F. Supp. 3d at 1252. Although imposing the sales and use tax
on water carriers transporting freight interstate might “expose” the State to a
lawsuit under federal law, compulsion requires more than exposure. The water
carrier exemption is “compelled by federal law” only if imposition of the sales and
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use tax would violate federal law. In our view, it would not. And we are
unpersuaded by the State’s “alternative rationales” for the water carrier exemption.
See CSX II, 135 S. Ct. at 1144.
CSX is entitled to relief from the State’s discrimination that violates the 4-R
Act. The relief the district court fashions should leave the State some discretion in
remedying the tax discrimination. For example, the State could repeal the water
carrier exemption, in which case water carriers and rail carriers would both pay the
sales and use tax when they buy or use diesel fuel for interstate hauls. Or the State
could retain the water carrier exemption and exempt rail carriers when they buy or
use diesel fuel for interstate hauls. Either way, the State would not be imposing a
tax “that discriminates against a rail carrier.” 49 U.S.C. § 11501(b)(4). 13
We REVERSE the judgment of the district court, hold that the State’s sales
and use tax on the purchase or use of diesel fuel for interstate shipment of freight
violates the 4-R Act, and REMAND to the district court with instructions to enter
declaratory and injunctive relief in favor of CSX consistent with this opinion.14
13
The State’s rehearing petition noted that the day after it was filed would be “this
litigation’s Tenth Anniversary” and predicted that “[n]o one will celebrate” it. Perhaps there was
celebration by those attorneys who were paid by the hour. We have not been, so our celebration
is limited to the fact that we have done our duty of deciding an appeal involving this dispute
(once again). We have done so with the hope that this litigation is one step closer to the end of
the line. It’s time to put this one in the shed.
14
Given our revisions, the mandate in this appeal will not be issued for 21 days after the
issuance of this opinion, which will allow either party to file a new petition for rehearing, to the
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panel or for en banc review, if it wishes to do so. Cf. Cadet v. Fla. Dep’t of Corr., 853 F.3d
1216, 1248 (11th Cir. 2017).
48