Bnsf Railway Company v. Oregon Department of Revenue

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BNSF RAILWAY COMPANY, a No. 19-35184
Delaware corporation,
Plaintiff-Appellee, D.C. No.
3:17-cv-01716-JE
v.
OREGON DEPARTMENT OF OPINION
REVENUE; SATISH UPADHYAY, in
his official capacity as Acting
Director of the Oregon
Department of Revenue,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Oregon
Michael H. Simon, District Judge, Presiding
Argued and Submitted May 15, 2020
Portland, Oregon
Filed July 8, 2020
Before: Jay S. Bybee and Lawrence VanDyke, Circuit
Judges, and Vince Chhabria, * District Judge.
*
The Honorable Vince Chhabria, United States District Judge for
the Northern District of California, sitting by designation.
2 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
Opinion by Judge VanDyke;
Concurrence by Judge Chhabria
SUMMARY **
Rail Carriers
The panel affirmed the district court’s grant of summary
judgment in favor of BNSF Railway Co., a rail carrier that
challenged the Oregon Department of Revenue’s imposition
of a tax on its intangible personal property, such as
accounting goodwill.
Agreeing with other circuits, the panel held that BNSF
could challenge the property tax under the Railroad
Revitalization and Regulatory Reform Act, known as the 4-
R Act, which prohibits taxes that discriminate against rail
carriers. The panel rejected the argument that tax was
generally applicable and that BNSF’s challenge was no more
than a demand for exemptions offered to other taxpayers.
The panel held that the proper comparison class for BNSF
was Oregon’s commercial and industrial taxpayers, and the
intangible personal property tax assessment discriminated
against BNSF in violation of the 4-R Act, 49 U.S.C.
§ 11501(b)(4).
Concurring, District Judge Chhabria wrote that he joined
the opinion in full. He wrote separately to emphasize the
point that the Oregon Department of Revenue failed to argue
that the tax was not discriminatory, either by contesting that
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 3
locally assessed taxpayers are similarly situated with respect
to intangible personal property or by offering a justification
for taxing the intangible personal property of one group and
not the other.
COUNSEL
Paul L. Smith (argued), Deputy Solicitor General; Benjamin
Gutman, Solicitor General; Ellen F. Rosenblum, Attorney
General; Office of the Attorney General, Salem, Oregon; for
Defendants-Appellants.
Benjamin J. Horwich (argued) and Teresa A. Reed Dippo,
Munger Tolles & Olson LLP, San Francisco, California, for
Plaintiff-Appellee.
OPINION
VANDYKE, Circuit Judge:
Oregon law generally taxes real and tangible personal
property situated within its borders. But certain commercial
and industrial entities, including railroads and other
interstate concerns, must also pay taxes on their intangible
personal property. For the first time in 2017, Oregon’s
Department of Revenue began including BNSF Railway
Company’s (BNSF) intangible personal property in the
railway’s property value assessments, which resulted in a tax
liability thirty percent higher than the previous year. BNSF
filed suit under the Railroad Revitalization and Regulatory
Reform Act of 1976, Pub. L. No. 94-210, § 306, 90 Stat. 31
(“4-R Act”), alleging the tax on its intangible personal
4 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
property is “another tax that discriminates against a rail
carrier.” 49 U.S.C. § 11501(b)(4).
The district court ruled that BNSF could challenge the
property tax under 49 U.S.C. § 11501(b)(4), that the proper
comparison class for BNSF was Oregon’s commercial and
industrial taxpayers, and that the intangible personal
property tax assessment discriminated against BNSF in
violation of the 4-R Act. For the reasons below, we affirm.
I.
A.
Congress adopted the 4-R Act to restore railroads’
financial stability, harmed at least in part by states’ and
localities’ abusive tax practices. Dep’t of Revenue of Or. v.
ACF Indus., Inc., 510 U.S. 332, 336 (1994). Railroads have
long been “attractive targets for state and local taxing
authorities . . . [because] it is very difficult for railroads to
escape . . . political[ly] exploit[ive]” tax schemes that
capitalize upon their nonvoting, nonresident, immobile
presence in their jurisdictions. Burlington N. R.R. Co. v. City
of Superior, 932 F.2d 1185, 1186 (7th Cir. 1991). The 4-R
Act was “an effort to lift from their backs some of the heavy
hand of state and local taxation.” Id. Under the Act, States
may not “unreasonably burden and discriminate against
interstate commerce” by doing any of the following things:
(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
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 5
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.
(4) Impose another tax that discriminates
against a rail carrier providing transportation
subject to the jurisdiction of the Board under
this part.
49 U.S.C. § 11501(b). BNSF brings this challenge under
§ 11501(b)(4).
B.
All real and tangible personal property—but not
intangible personal property—situated within Oregon is
subject to assessment and taxation by county assessors. Or.
Rev. Stat. §§ 307.030 & 308.210(1). The property of
railroads and thirteen other industries, however, is centrally
taxed by the Oregon Department of Revenue (Department).
Id. § 308.515(1)(a). 1 Unlike all other commercial and
1
All fourteen generally assessed taxpayer categories relate to
transportation, energy, and utilities; six of the fourteen specifically
mention the rail industry. OR. REV. STAT. § 308.515(1). For tax year
2017-2018, there were approximately 513 centrally assessed companies
6 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
industrial Oregon taxpayers, these industries pay taxes on
their intangible personal property in addition to their
tangible property. Id. § 308.505(14)(a). To “arriv[e] at the
assessed value of the [centrally assessed] property,” the
Department “value[s] the entire property, both within and
without the State of Oregon, as a unit.” Id. § 308.555. The
Department uses two different methods to valuate property:
Real Market Value (RMV) and Maximum Assessed Value
(MAV), which is limited to 100 percent of the previous
year’s MAV or 103 percent of the property’s assessed value
from the previous year. Id. § 308.146(1). The assessed
value of the property and the basis for the taxpayers’ liability
is the lesser of the RMV and MAV. Id. § 308.146(2). The
Department then evaluates several factors to determine what
percentage of the total valuated property is taxable in
Oregon. Id. § 308.555; Or. Admin. R. 150-308-0670.
Finally, the Department apportions that taxable value to the
pertinent Oregon counties, which collect the tax payments.
Or. Admin. R. 150-308-0670.
C.
Intangible personal property includes accounting
goodwill, see Or. Admin. R. 150-307-0020, and in 2010,
BNSF acquired a lot of it—about $14.8 billion—when
Berkshire Hathaway overpaid for all of BNSF’s remaining
shares. From 2011 to 2016, the Department did not include
the accounting goodwill in its calculation of BNSF’s MAV.
But in 2017, the Department included the $14.8 billion
goodwill, as well as $637 million of other intangible
in Oregon, compared to more than 400,000 locally assessed companies.
See Or. Sec’y of State, Business Report (Jan. 2018),
https://sos.oregon.gov/business/Documents/business-reports-past/2018.
pdf.
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 7
personal property, in its calculation of BNSF’s RMV and
MAV, which increased BNSF’s assessed value and tax
liability by approximately 30 percent.
Railroaded by this unforeseen tax liability, BNSF filed
suit on October 27, 2017. It sought a declaratory judgment
that Oregon’s property tax on its intangible personal
property violated 49 U.S.C. § 11501(b)(4) and injunctive
relief barring the Department from assessing and collecting
taxes on BNSF’s intangible personal property.
The case was assigned to a magistrate judge, and the
parties stipulated to the facts, agreeing that no material facts
remained in dispute. They then filed cross motions for
summary judgment. After a hearing, the magistrate issued
Findings and Recommendations that the Department’s
summary judgment motion should be granted and BNSF’s
denied. Reversing course, the district court declined to adopt
the magistrate’s Findings and Recommendations, instead
granting BNSF’s motion and denying the Department’s.
The district court held that “[b]ecause the Oregon tax
statute here . . . singles out railroads as part of a small group
for different and unfavorable tax treatments compared to all
other commercial and industrial taxpayers, . . . [t]his
constitutes discrimination against railroads that is prohibited
by the 4-R Act.” Specifically, the district court found “there
is no generally applicable intangible property tax in
Oregon.” On that basis, it concluded that BNSF’s challenge
to the Oregon tax scheme under 49 U.S.C. § 11501(b)(4)
was not barred by ACF. See ACF, 510 U.S. at 335 (holding
railroads could not challenge as discriminatory a generally
applicable property tax to which some non-railroad property,
but not railroad property, was exempted). In so doing, the
district court rejected an argument peddled by the
Department for nearly three decades—that railroads may not
8 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
challenge property taxes under § 11501(b)(4). See id. at 339.
Finally, the district court rejected an argument the
Department raised for the first time at oral argument: that
BNSF failed to establish Oregon’s centrally assessed
taxpayers are isolated and targeted enough to show
discrimination. Essentially, the Department was requesting
further factual development after both parties had repeatedly
averred to the absence of disputed material facts. The
district court found that the argument was waived and lacked
merit. On February 12, 2019, the district court entered
judgment granting BNSF’s requested declaratory and
injunctive relief but stayed the judgment pending appeal
pursuant to the parties’ stipulation. The Department timely
appealed.
II.
The district court had jurisdiction pursuant to 49 U.S.C.
§ 11501(c), and this Court has jurisdiction under 28 U.S.C.
§ 1291. We review de novo “the district court’s decision on
cross-motions for summary judgment,” U.S. Sec. & Exch.
Comm’n v. Hui Feng, 935 F.3d 721, 728 (9th Cir. 2019), as
well as its interpretation of a statute. PhotoMedex, Inc. v.
Irwin, 601 F.3d 919, 923 (9th Cir. 2010). Here, the parties
agree no material facts are disputed, so we “ask only whether
the district court correctly applied the relevant substantive
law.” CHoPP Comput. Corp. v. U.S., 5 F.3d 1344, 1346 (9th
Cir. 1993).
III.
On appeal, the Department levies three principal
arguments: first, that Supreme Court precedent forecloses
railroads’ ability to challenge any property tax scheme under
49 U.S.C. § 11501(b)(4); second, that this dispute is similar
to and resolved by ACF because Oregon’s tax on BNSF’s
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 9
intangible personal property is, in reality, a generally
applicable tax on intangible personal property from which
all but centrally assessed taxpayers are exempted; and third,
that BNSF has not otherwise proven discrimination. We
consider each of these arguments in turn.
A.
We begin by examining ACF, for, as the district court
noted, each party attempts to ride that case to its desired
terminus. In ACF, a group of railway car leasing companies
sued under 49 U.S.C. § 11501(b)(4) to challenge Oregon’s
assessment of taxes upon their railroad cars, considered
tangible personal property in Oregon. 510 U.S. at 335–36.
The ACF plaintiffs complained the tax was discriminatory
“because it exempts certain classes of commercial and
industrial property while taxing railroad cars in full.” Id. at
337. Essentially, the ACF plaintiffs believed anything less
than most-favored taxpayer status amounted to unlawful
discrimination under § 11501(b)(4). Id. at 338–39. The
Department—then as now—argued the structure of
§ 11501(b) eliminated the ability to challenge any property
tax under § 11501(b)(4). Id. at 339. Because subsections
(b)(1)–(3) prohibit certain types of discriminatory property
tax practices, the Department reasoned that Congress must
have intended subsection (b)(4)’s “another tax” to refer to
non-property taxes. Id. at 339. Though “defensible if . . .
read in isolation,” the Supreme Court rejected the
Department’s preferred statutory construction and upheld
the tax on other grounds. Id. at 339–40.
First, the ACF Court reasoned that “commercial and
industrial property” was the proper comparison class for
purposes of determining whether tax treatment is
discriminatory. Id. at 335. The statute defines “commercial
and industrial property” to be “property . . . devoted to a
10 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
commercial or industrial use and subject to a property tax
levy.” 49 U.S.C. § 11501(a)(4). The Court reasoned that
“property ‘subject to a property tax levy’ means property
that is taxed [as opposed to taxable, so] the definition of
‘commercial and industrial property’ excludes property that
is exempt.” ACF, 510 U.S. at 342 (emphasis added). In
other words, a railroad cannot generally claim discrimination
if it is forced to pay a generally applicable tax from which
some of its comparators are exempted. Id. at 340–42.
Federalism principles supported the Court’s interpretation,
for States have long enjoyed the power to effectuate policy
by means of granting or withholding tax exemptions. Id. at
345. The Court therefore held that § 11501(b)(4) “does not
limit the States’ discretion to exempt nonrailroad property,
but not railroad property, from ad valorem property taxes of
general application.” Id. at 347–48.
The ACF Court acknowledged “that tax exemptions, as
an abstract matter, could be a variant of tax discrimination,”
id. at 343, yet presciently observed:
this is not a case in which the railroads—
either alone or as part of some isolated and
targeted group—are the only commercial
entities subject to an ad valorem property tax.
If such a case were to arise, it might be
incorrect to say that the State “exempted” the
nontaxed property. Rather, one could say
that the State had singled out railroad
property for discriminatory treatment.
Id. at 346–47 (citation omitted). BNSF contends this is just
“such a case.” Id. at 346.
The Department insists that railroads may not challenge
any property taxes under 49 U.S.C. § 11501(b)(4) and
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 11
believes a subsequent 4-R Act case supports its position. In
CSX Transportation, Inc. v. Alabama Department of
Revenue (CSX I), 562 U.S. 277 (2011), the Supreme Court
permitted a railroad to challenge under § 11501(b)(4)
Alabama’s sales and use taxes from which the railroad’s
main competitors were exempted. Id. at 280–82. Alabama
argued, per ACF, that railroads could not challenge any
discriminatory tax exemptions under § 11501(b)(4). Id.
at 289. The CSX I Court rejected that argument, id. at 290,
but elsewhere used language the Department attempts to rely
upon here.
The Department first directs us to the CSX I Court’s
explanation that the Alabama sales and uses taxes could be
challenged under § 11501(b)(4): “[A]nother tax,” as used in
subsection (b)(4), “is best understood to . . . encompass any
form of tax a State might impose, on any asset or transaction,
except the taxes on property previously addressed in
subsections (b)(1)–(3).” Id. at 285 (emphasis added). Next,
the Department points to CSX I’s description of ACF’s
holding: “The structure of § 11501 thus compelled our
conclusion [in ACF] that property tax exemptions—even if
a variant of tax discrimination—fell outside subsection
(b)(4)’s reach.” Id. at 291 (internal citation and quotation
marks omitted). From these statements the Department
gleans a rule: that the Supreme Court has concluded
Congress fully defined all available property tax challenges
in §§ 11501(b)(1)–(3) and has therefore definitively
foreclosed any challenges to discriminatory property taxes
under § 11501(b)(4).
But that’s not what CSX I held or said; nor does it follow
logically from the two excerpted passages above. CSX I (and
ACF) focused on whether the 4-R Act allowed challenges to
States’ discriminatory tax exemption arrangements. CSX I’s
12 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
description of “another tax” encompassing virtually
anything “except the taxes on property previously addressed
in subsections (b)(1)–(3),” 562 U.S. at 285, unremarkably
states the obvious: “another tax” must mean some form of
tax treatment other than the specific “discriminatory tax rates
and assessment ratios” prohibited by subsections (b)(1)–(3).
ACF, 510 U.S. at 343. Nothing in the CSX I Court’s opinion
suggests that § 11501(b)(4)’s “another tax” excludes other
species of discriminatory property taxes not covered by the
previous subsections. In fact, the immediate context of the
CSX I language invoked by the Department clearly states
otherwise: “‘[A]nother tax,’ as used in subsection (b)(4), is
best understood to refer to all of these” “forms of taxation on
property, income, transactions, or activities.” CSX I,
562 U.S. at 285 (emphasis added). CSX I rather explicitly
acknowledged that discriminatory property taxes were
reachable under § 11501(b)(4).
The Department’s second CSX I excerpt reaffirms this
point and merely restates ACF’s holding—that “property tax
exemptions . . . fell outside subsection (b)(4)’s reach.” Id.
at 291 (emphasis added) (quoting ACF, 510 U.S. at 343). As
explained above, ACF acknowledged property tax
exemptions were, by nature, discriminatory tax practices; but
the Court deemed them permissible due to “[t]he structure of
[§ 11501] as a whole.” 510 U.S. at 340. Because tax-exempt
property could not be a proper comparison class for
measuring discrimination under § 11501(b)(1)–(3), it
likewise could not constitute the discrimination
§ 11501(b)(4) prohibits. See id. (“[S]ubsection (b)(4)
[cannot be read] to prohibit what subsection (b)(3), in
conjunction with subsection (a)(4), was designed to allow.”).
The Department fixates upon the word “property” in the
above CSX I excerpt and asks us to ignore the word
“exception.” Unfortunately for the Department, we cannot
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 13
unsee it. Nothing in CSX I closed the door ACF left open.
Under § 11501(b)(4), railroads may challenge
discriminatory property taxes—even those masquerading as
tax exemptions. 2 ACF, 510 U.S. at 346–47.
Every other federal court that has faced this issue agrees.
In Burlington Northern Railroad Co. v. Bair, 60 F.3d 410,
413 (8th Cir. 1995), the Eighth Circuit treated an Iowa tax
that “fit[] within the narrow exception left open by the
Supreme Court in ACF.” There, Iowa repealed its generally
applicable personal property tax and retained its real
property tax; the State, however, “denominated as real
property all property of railroads and certain utilities,
whether that property is in fact real or personal, tangible or
intangible.” Id. at 411. The tax “singled out for taxation all
the personal property of railroads and a handful of interstate
utilities, while leaving untaxed most personal property of
every kind, and all intangible personal property, of the vast
majority of commercial and industrial enterprises in the
state.” Id. at 413. The Eight Circuit rejected Iowa’s attempt
to cast the railroad’s challenge as “an exemption
discrimination claim” foreclosed by ACF. Id. at 412; see
also id. at 413 (“Iowa’s scheme does not even impose a
generally applicable tax on personal property.”). Bair
2
We concluded as much in Atchison, Topeka & Santa Fe Ry. Co. v.
Arizona, 78 F.3d 438, 441 (9th Cir. 1996) (“We hold that subsection
(b)(4) of the 4-R Act is designed to encompass all discriminatory state
taxes, not just discriminatory property taxes or in lieu taxes.”). But our
negatively phrased holding—as it relates to property taxes—is probably
dicta, for Atchison fielded a challenge to privilege and use taxes, not a
property tax. Plus, Atchison only got it half right, concluding that
property taxes were challengeable under 49 U.S.C. § 11501(b)(4), but
overreading ACF to permit all exemption-based discrimination, even that
arising in non-property tax contexts. Id. at 443. As discussed, CSX I
rejected this misapplication of ACF. 562 U.S. at 289–91.
14 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
recognized that, “[p]ractically speaking, if a state exempts
sufficient property from a particular property tax, that tax no
longer can be said to be one of general application.” Id.
at 413 (reasoning that “the anti-discrimination purpose of the
4-R Act could utterly be eviscerated” if the States had
“unfettered discretion” “in the granting of tax exemptions”);
see also Ogilvie v. State Bd. of Equalization of State of N.D.,
893 F. Supp. 882, 886 (D.N.D. 1995) (holding that
subsection (b)(4) prohibited a North Dakota personal
property tax scheme that exempted all taxpayers “except . . .
centrally assessed businesses” including railroads and other
utilities (internal quotation marks omitted).
In Burlington Northern Railroad Co. v. Huddleston,
94 F.3d 1413, 1414 (10th Cir. 1996), the Tenth Circuit
considered a Colorado tax law that generally exempted the
value of intangible personal property for all taxpayers except
public utilities, which included railroads. Like the district
court in Ogilvie, the court “reject[ed Colorado’s] assertion
that no property tax exemption, regardless of its nature or
effect, is subject to challenge under” § 11501. Id. at 1417
(quotation marks omitted). Differentiating Huddleston from
ACF, the court stated, “[u]nlike the tax exemption at issue in
ACF, Colorado’s intangible property tax exemption applies
to all commercial and industrial taxpayers other than ‘public
utilities.’” Id. The court concluded such tax treatment
violated § 11501(b)(4). Id.
While the parties briefed this case on appeal, the Seventh
Circuit tracked the other federal courts, ruling that
“Wisconsin’s intangible property tax singles out railroads as
part of a targeted and isolated group in violation of
subsection (b)(4).” Union Pacific R.R. Co. v. Wis. Dep’t of
Revenue, 940 F.3d 336, 341 (7th Cir. 2019), cert. denied,
2020 WL 2105267 (May 4, 2020) (mem.). Wisconsin’s code
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 15
exempts from taxation “all intangible personal property.” Id.
at 338 (quoting Wis. Stat. § 70.112(1)). But railroads and
utilities do not qualify for the exemption, making them the
lone Wisconsin taxpayers whose intangible personal
property—including the railroad’s valuable custom
software—was subject to taxation. Id. Like the Department
here, Wisconsin likened its scheme to the one ACF upheld,
id. at 339–40, and simply asserted that railroads did not
qualify for an exemption from its “generally applicable
property tax.” Id. at 340. But the court refused to be
sidetracked: “Wisconsin does not simply exempt intangible
property from taxation; rather, it imposes an intangible
property tax only on railroad and utilities companies.” Id.
The court remarked that “ACF does not foreclose [the] claim
because,” in the Wisconsin situation, “the challenge is to the
same class of [intangible personal] property being taxed
differently based on the owner’s membership in a targeted
and isolated group.” Id. at 340–41. The court found that
ACF offers no protection “where the ‘exemption’ is just a
pretext for targeting railroads, either alone or as part of an
isolated group.” Id. at 341. In other words, States cannot
blow smoke when taxing those that do.
In two cases, the Fourth Circuit has reached the same
result. CSX Transp., Inc. v. S.C. Dep’t of Revenue, 851 F.3d
320, 324 (4th Cir. 2017) (holding that railroad could
challenge as “another tax” under § 11501(b)(4) the
deprivation due to its tax classification of an appraised value
increase cap); CSX Transp., Inc. v. S.C. Dep’t of Revenue,
959 F.3d 622, 633–34 (4th Cir. 2020) (holding that the
State’s withholding of the appraised value increase cap was
unjustifiably discriminatory per § 11501(b)(4)).
Bair, Ogilvie, Huddleston, Union Pacific, and South
Carolina Department of Revenue all travel in the same
16 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
direction, uniformly supporting BNSF’s position that it may
challenge a discriminatory property tax under 49 U.S.C.
§ 11501(b)(4). These cases also demonstrate that even if the
instant tax treatment could be fairly characterized as
discrimination-by-tax-exemption, BNSF’s § 11501(b)(4)
challenge would fit comfortably through the roundhouse
door ACF expressly propped open. See 510 U.S. at 346
(describing “a case in which the railroads—either alone or
as part of some isolated and targeted group—are the only
commercial entities subject to an ad valorem property tax”).
Such a tax scheme is not really an exemption at all, but
merely a discriminatory tax in disguise. 3 Id. at 346–47.
We join the Fourth, Seventh, Eighth, and Tenth Circuits
and hold that challenges to discriminatory property taxes
may proceed under 49 U.S.C. § 11501(b)(4).
B.
The Department doggedly insists its intangible personal
property tax is “generally applicable” and that BNSF’s
challenge is no more than a demand for exemptions offered
to other taxpayers, like the unsuccessful challengers in ACF.
Indeed, this approach appears to be the Department’s
principal litigation strategy. Yet the district court rejected it,
3
The Department continues to argue on appeal that ACF deemed
Oregon’s entire property tax “system” nondiscriminatory under the 4-R
Act. Yet ACF resolved a challenge to Oregon’s tax on railroad cars,
which Oregon law classifies as “tangible personal property.” 510 U.S.
at 335. This was the property tax the Court referenced when it
concluded: “On the record before us, Oregon’s ad valorem property tax
does not single out railroad property [for discriminatory treatment] . . . .”
Id. at 347. Obviously, the nature of the tax and challenge in ACF were
distinct from this case, and the Department cites no authority permitting
us to arbitrarily pluck ACF’s holding and couple it to this case.
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 17
instead describing Oregon’s “property tax law as two
systems: one that taxes intangible personal property and one
that does not tax intangible personal property.” We agree.
This is not a challenge to exemption-based discrimination.
Oregon generally taxes “[a]ll real property within this
state and all tangible personal property situated within this
state.” Or. Rev. Stat. § 307.030(1) (emphasis added). The
language fails to mention intangible personal property, nor
does it contain any catch-all language broad enough to
capture it (such as “all property”). As if to make this more
emphatic, subsection 2 reads: “Except as provided in [the
statutes governing centrally assessed taxpayers], intangible
personal property is not subject to assessment and taxation.”
Id. § 307.030(2). And we cannot infer from the interplay of
these two subsections that the Oregon Legislature cloaked
an exemption in unusual phrasing, for Oregon’s tax code
contains many, wide-ranging, explicit tax exemptions. Id.
§§ 307.040–.867. Clearly, the Legislature knows how to
grant tax exemptions.
This is ultimately why the Department’s exemption
characterization never leaves the station. Oregon’s statutory
scheme can’t create an intangible personal property tax
exemption because it never creates a generally applicable
intangible personal property tax, from which to grant
exemptions. Id. § 307.030. Instead, the statute creates a tax
on real and tangible (but not intangible) personal property
that is generally applicable to all Oregon taxpayers; a
separate rule applies to centrally assessed taxpayers, who in
addition to real and tangible personal property, must also pay
taxes on their intangible personal property. Id. The statute’s
plain language renders the Department’s endorsed
interpretation unnatural. Because there is no generally
applicable intangible personal property tax in Oregon, the
18 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
Department’s effort to make ACF’s holding control this case
fails.
Yet, as discussed above, BNSF’s challenge would lose
no steam even if we could accept the Department’s strained
statutory construction. 49 U.S.C. § 11501(b)(4) would
remain a proper vehicle because the practical effect of
providing this “exemption” to all except centrally assessed
taxpayers is to “target[] railroads, either alone or as part of
an isolated group.” Union Pac., 940 F.3d at 341; see also
Bair, 60 F.3d at 413; Huddleston, 94 F.3d at 1417. In other
words, the tax here is either a separate tax (not an unobtained
tax exemption) unaddressed by ACF, or it fits neatly within
ACF’s exception. See 510 U.S. at 346–47.
C.
We now consider whether BNSF has proven that its tax
treatment violates the 4-R Act. “[A] tax discriminates under
subsection (b)(4) when it treats ‘groups [that] are similarly
situated’ differently without sufficient ‘justification for the
difference in treatment.’” Ala. Dep’t of Revenue v. CSX
Transp., Inc. (CSX II), 575 U.S. 21, 26 (2015) (second
alteration in original) (quoting CSX I, 562 U.S. at 287).
Obviously, BNSF and its fellow centrally assessed taxpayers
are treated differently than Oregon’s locally assessed
commercial and industrial taxpayers, but we must determine
whether the latter are the appropriate comparison class.
Then, we will assess whether Oregon’s discriminatory
treatment is sufficiently justified. 4
4
The Department now also argues that BNSF has not adequately
shown it is similarly situated to the comparison class of locally assessed
commercial and industrial taxpayers. This argument was not raised or
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 19
1.
BNSF argues, and the district court agreed, that the
appropriate comparison class is “Oregon commercial and
industrial taxpayers.” In CSX II, the Supreme Court resolved
this question on the merits: “When a railroad alleges that a
tax targets it for worse treatment than local businesses, all
other commercial and industrial taxpayers are the
comparison class.” 575 U.S. at 27. While the Court
indicated that a railroad could narrow the comparison class
to “its competitors in the transportation industry . . . in that
jurisdiction,” it also said that “all general and commercial
taxpayers is an appropriate comparison class.” Id. at 26–27.
The scope of the comparison class “depends on the theory of
discrimination alleged.” Id. at 27. Here, BNSF alleges the
most conventional of discrimination claims—that it is
treated differently than all other commercial and industrial
taxpayers in Oregon. CSX II has therefore clearly highballed
BNSF’s proffered comparison class.
The Department suggests (for the first time in its reply
brief) that the proper comparison class must be “other
centrally assessed commercial and industrial taxpayers.” It
first points out that per 49 U.S.C. § 11501(a)(4),
“‘commercial and industrial property’ means property . . .
[that is] subject to a property tax levy.” From this—and
borrowing from ACF’s construction that “subject to a
property tax” means “not tax-exempt”—the Department
addressed below, so we decline to address it in the first instance. See
Vincent v. Trend W. Tech. Corp., 828 F.2d 563, 570 (9th Cir. 1987)
(“Generally, a party must present his contention to the district court to
preserve it for appeal . . . . obviat[ing] the strange result of . . .
transform[ing] the court of appeals into a court of first instance . . . .”).
We note, however, that this belated argument lacks merit for the reasons
set forth below.
20 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
next points out that only centrally assessed taxpayers are
subject to the tax on intangible personal property. And since
only centrally assessed companies are subject to this
intangible personal property tax, the Department urges that
centrally assessed companies—not locally assessed
companies—are the only appropriate comparison class. If
the defendants are right, this would derail BNSF’s ability to
prove discrimination in this case.
But the defendants are not right, for several reasons.
First, the argument rests on the erroneous premise that the
alleged discrimination is no more than BNSF’s complaint
about not obtaining an exemption from a generally
applicable tax granted to others. But as explained above, this
intangible personal property tax is “another tax,” see
§ 11501(b)(4), not an unobtained tax exemption. Second, it
altogether ignores CSX II’s holding that “[w]hen a railroad
alleges that a tax targets it for worse treatment than local
businesses, all other commercial and industrial taxpayers are
the comparison class.” 575 U.S. at 27; see also id. at 28
(“[T]he category of ‘similarly situated’ (b)(4) comparison
classes must include commercial and industrial
taxpayers.”). 5 Third, the defendants’ argument, if accepted,
would effectively wrest from § 11501(b)(4)’s coverage even
a state tax targeted only at railroads—an obviously
discriminatory tax—because the only similarly situated
comparators would be railroads also subject to the
5
Curiously, while Alabama in CSX II insisted the appropriate
comparison class must be “all commercial and industrial taxpayers,”
575 U.S. at 27, the Department here argues for a narrower comparison
class—which in other contexts nearly always makes it easier to prove
discrimination. Id. at 30. But the Department’s current argument
backtracks from its stipulation that “a proper comparison class for
BNSF’s claim of discrimination . . . is the class of commercial and
industrial taxpayers.”
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 21
discriminatory tax. Such a result would “prohibit[]
discrimination of a mild form, but permit[] it in the extreme.”
ACF, 510 U.S. at 346. In fact, Defendants’ reading “would
deprive subsection (b)(4) of all real-world effect.” CSX II,
575 U.S. at 28. As sure as death and taxes, we can be sure
Congress didn’t pass an anti-discrimination law under which
it is impossible to prove discrimination. Ultimately, we
stand by our sister circuits and decline to spurn ACF’s
acknowledgment that railroads may prove a tax
discriminates against them “either alone or as part of some
isolated and targeted group.” 510 U.S. at 346; see also S.C.
Dep’t of Revenue, 959 F.3d at 629–30 (rejecting the State’s
effort to restrict the comparison class to only those
businesses also subject to the discriminatory tax treatment).
Nor is there merit to the argument that centrally assessed
taxpayers include rail and non-rail companies too powerful
and wealthy to constitute a truly targeted, isolated group.
For our purposes, railroads’ perceived power (real or
imagined) does not change the fact that Congress passed the
4-R Act to protect them from tax discrimination. Connected
to that, six of the fourteen industries subject to central
assessment are rail industries, which undermines the notion
that railroads are only one discrete industry among many
more subject to this tax. See Or. Rev. Stat. § 308.515. And
Oregon commercial and industrial taxpayers—including
some ubiquitous commercial powerhouses—also carry, like
railroads, accounting goodwill and other intangible personal
property on their balance sheets, a fact to which the
defendants stipulated early in this litigation. Moreover,
other federal courts have consistently rejected the notion that
a group is insufficiently isolated and targeted simply because
railroads shoulder the discriminatory burden alongside other
large and powerful non-rail concerns. See Huddleston,
94 F.3d at 1414 (finding isolated, targeted utilities included,
22 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
inter alia, railroads, airlines, electricity companies, gas and
pipeline companies, telecommunications companies, and
water companies); Bair, 60 F.3d at 411, n.2 (same); Ogilvie,
893 F. Supp. at 886 (same); Union Pac., 940 F.3d at 338
(singling out railroads, airlines, pipeline companies, water
conservation and regulation companies, and some others).
The 513 centrally assessed companies in this case, like the
interstate utility groupings in Huddleston, Bair, Ogilvie, and
Union Pacific, constitute an isolated and targeted group
within the meaning of ACF’s exception. 510 U.S. at 346.
The proper comparison class here is Oregon commercial and
industrial taxpayers. CSX II, 575 U.S. at 27.
Compared to this class, railroads, as part of the small
group of centrally assessed taxpayers, “are the only
commercial entities subject to an ad valorem [intangible
personal] property tax” in violation of 49 U.S.C.
§ 11501(b)(4). ACF, 510 U.S. at 346. Absent a sufficient
justification, this discrimination violates the 4-R Act.
2.
As noted above, the Department’s primary strategy has
been to miscast Oregon’s intangible personal property tax as
generally applicable. Beyond that, the Department vaguely
suggests its differential treatment of railroads and other
centrally assessed companies is justified by the underlying
design and purpose of central assessment itself. In other
words, geographically sprawling concerns are easier to
assess at the state versus local level. Sure, but that
“justification” bears no logical relationship to the differential
treatment—Oregon’s decision to levy an additional
intangible personal property tax on centrally assessed
companies. At any rate, this general aside regarding
efficacious tax policy cannot justify the discriminatory
treatment BNSF challenges here. And if the Department is
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 23
arguing that it is more difficult to disentangle centrally
assessed companies’ intangible from tangible personal
property, this is belied by the fact that the Department
accomplished the feat with apparent ease from 2011 to
2016. 6 Even if it were true, such a “justification” is
tantamount to admitting that the State is discriminating
because it’s difficult not to. Administrative convenience
may justify discriminatory tax treatment in other contexts,
but not under the 4-R Act. See CSX II, 575 U.S. at 27–28.
IV.
Oregon’s tax on BNSF’s intangible personal property
unlawfully discriminates against a railroad in violation of
49 U.S.C. § 11501(b)(4).
AFFIRMED.
CHHABRIA, District Judge, concurring:
I join the opinion in full—even the cringy railroad puns!
I write separately to emphasize one point. In this case, the
Oregon Department of Revenue spent virtually all its energy
arguing that BNSF may not even challenge this type of tax
under 49 U.S.C. § 11501(b)(4). That argument, for the
reasons canvassed by our opinion and by every circuit to
consider the issue, is quite easy to reject. What I also
expected from the Department—but never saw—was an
6
The record doesn’t reveal why, after several years, the Department
chose to include BNSF’s intangible personal property in its assessment
valuations. But these facts make it very difficult for the Department to
credibly argue that its tax treatment does not discriminatorily target
BNSF.
24 BNSF RAILWAY V. OREGON DEP’T OF REVENUE
argument that including intangible personal property in the
taxation of these centrally assessed industries is necessary to
create a reasonably level playing field (from a tax
standpoint) with locally assessed industries whose intangible
personal property is not taxed (perhaps because it’s harder to
fully capture the value of tangible personal property through
a central assessment). Cf. CSX Transp., Inc. v. Georgia State
Bd. of Equalization, 552 U.S. 9, 20–21 (2007). Or an
argument that the activities of the centrally assessed
industries are a greater drain on Oregon’s resources than the
locally assessed industries, thus perhaps justifying the higher
overall taxation that results from assessing intangible
personal property.
If the Department had made a showing along one of these
lines, presumably it could have won—either the centrally
assessed industries would be differently situated from the
locally assessed ones for purposes of the tax on intangible
personal property, or the Department would have offered a
justification for treating them differently in any event. After
all, the 4-R Act does not absolutely bar states from treating
railroads (or a group of industries of which the railroads are
a part) differently from other industries (or from a group of
industries of which railroads are not a part). The Act merely
prevents states from treating railroads differently from
“similarly situated taxpayers without sufficient
justification.” Alabama Dept. of Revenue v. CSX Transp.,
Inc., 575 U.S. 21, 31 (2015). To be sure, the Department has
articulated a strong justification for centrally assessing rail
carriers like BNSF and other network industries in light of
the administrative obstacles to assessing these taxpayers on
a county-by-county basis. See MeadWestvaco Corp. v.
Illinois Dept. of Revenue, 553 U.S. 16, 26 (2008); Comcast
Corp. v. Dept. of Revenue, 337 P.3d 768, 772–73 (Or. 2014).
But the Department did not contest that locally assessed
BNSF RAILWAY V. OREGON DEP’T OF REVENUE 25
taxpayers are similarly situated with respect to intangible
personal property, nor did it offer any justification for taxing
the intangible personal property of one group and not the
other. The Department was thus destined to lose the case
before the train ever . . . oh wait, I think Judge VanDyke used
that one already.