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146 M. Railroad Retirement Tax Act and Role of Railroad 761 Retirement Board According to the Internal Revenue Service (IRS) Railroad Retirement Tax Act Desk Guide,691 the Railroad Retirement Tax Act (RRTA) is the responsibility of the IRS and the RRB. Railroad employers are subject to a system of employment taxes that is separate from the Federal Insurance Contributions Act and the Federal Unemployment Tax Act that cover âmost other employers.â692 XXXVI. RAILROAD REVITALIZATION AND REGULATORY 763 REFORM ACT AND OTHER RAILROAD TAXATION ISSUES A. Introduction 763 The Railroad Revitalization and Regulatory Act (4R Act) prohibits the imposition of discriminatory taxes on rail carriers at the state level. Section B discusses some of the provisions of the 4R Act. Section C discusses judicial approaches to determining the proper class of property or proper taxpayer to use to compare to railroad property or railroad companies being assessed. Sections D discusses cases involving the scope of Â§ 11501(b)(4) of the 4R Act. Sections F and G, respectively, cover statutes applicable to reorganizing railroads and state taxes that are due and trusteesâ tax liability for railroads undergoing reorganization. Section H discusses an article on the 4R Act within the context of the Commerce Clause of the U.S. Constitution. B. The Railroad Revitalization and Regulatory Reform Act 764 Statute 764 1. Definition of Rail Transportation and of Commercial and 764 Industrial Property The 4R Act defines key terms such as ârail transportation propertyâ and âcommercial and industrial property.â693 691 Available at http://www.irs.gov/Businesses/Railroad-Retirement-Tax--Act-%28RRTA%29-Desk- Guide-%28January-2009%29#2 (Jan. 2009) (last accessed Mar. 31, 2015). 692 Id. 693 49 U.S.C. Â§ 11501(a)(4) (2014).
147 2. The 4R Actâs Prohibition on Taxes that Discriminate 764 Against Railroads Section 11501(b) of the 4R Act describes âacts [that] unreasonably burden and discriminate against interstate commerceâ that the 4R Act prohibits.694 Under subsection (b)(4) of the 4R Act, a state, subdivision of a state, or an authority acting for a state or subdivision of a state may not â[i]mpose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under this part.â695 Cases 765 C. Judicial Approaches to Determining the Proper Class of a 765 Property or Taxpayer for Comparison to Railroad Property or a Railroad Company 1. The Functional Approach 765 In Kansas City S. Ry. Co. v. Koeller,696 involving the 4R Act, the Seventh Circuit held that a tax was discriminatory that was applied to railroad property located in a flood zone that was taxed in a manner that differed from other commercial and industrial properties in the same zone. 2. The Competitive Approach 768 In Burlington N. Santa Fe Ry. Co. v. Lohman,697 the Eighth Circuit stated that under the 4R Act there are two possible classes from which to choose to compare railroad property and the property of other taxpayers: the âcompetitive mode classâ and the commercial and industrial class and that âthe comparison class should be appropriate to the type of tax and discrimination challenged in a particular case.â698 694 49 U.S.C. Â§ 11501(b) (2014). 695 49 U.S.C. Â§ 11501(b)(4) (2014). 696 653 F.3d 496, 511 (7th Cir. 2011). 697 193 F.3d 984 (8th Cir. 1999). 698 Id. at 986.
148 D. Scope of Section 11501(b)(4)âs Prohibition on 770 Discriminatory Taxes 1. Whether State Ad Valorem Tax that Exempted Certain Classes 770 of Business Property Applied to Railroad Cars Depât of Revenue v. ACF Industries, Inc.699 involved Oregonâs ad valorem tax that was imposed on all property except for certain âclasses of business personal property [that were] exempt.â700 The Supreme Court held that that â[i]t would be illogical to conclude that Congress, having allowed the State to grant property tax exemptions in subsections (b)(1)-(3), would turn around and nullify its own choice in subsection (b)(4).â701 2. Whether a Stateâs Exemption of a Railroadâs Competitors 771 from the Stateâs Sales Tax Is Discriminatory Under Section 11501(b)(4) of the 4R Act a. Decision by the Eleventh Circuit 771 In CSX Transportation v. Alabama Depât of Revenue,702 the Eleventh Circuit, in ruling that an Alabama diesel fuel tax discriminated against rail carriers, held that rail carriers had to be compared to their competitors that offer freight transportation within the state of Alabama rather than to all taxpayers in the state. 2. Second Reversal and Remand by the Supreme Court 773 On March 4, 2015, in an opinion by Justice Scalia, the Supreme Court reversed and remanded the case for the second time.703 The Court agreed with the Eleventh Circuit that âa comparison class of competitors consisting of motor carriers and water carriers was appropriate, and differential treatment vis-Ã -vis that class would constitute discrimination.â704 However, the Court held that it was improper for the Eleventh Circuit to refuse to consider Alabamaâs 699 510 U.S. 332, 114 S. Ct. 843, 127 L. Ed. 2d 165 (1993). 700 Id., 510 U.S. at 335, 114 S. Ct. at 846, 127 L. Ed. 2d at 170. 701 Id., 510 U.S. at 343, 114 S. Ct. at 849, 127 L. Ed. 2d at 175. 702 720 F.3d 863 (11th Cir. 2013), reversed, remanded, CSX Transportation, Inc. v. Ala. Depât of Revenue, 131 S. Ct. 1101, 179 L. Ed. 2d 37 (2011), reversed and remanded, Ala. Depât of Revenue v. CSX Transp., 135 S. Ct. 1136, 191 L. Ed. 2d 113, 2015 U.S. LEXIS 1739 (U.S., Mar. 4, 2015). 703 Ala. Depât of Revenue v. CSX Transp., 135 S. Ct. 1136, 191 L. Ed. 2d 113, 2015 U.S. LEXIS 1739, at *1 (U.S., Mar. 4, 2015). 704 Id., 135 S. Ct. at 1143, 191 L. Ed. 2d at 122, 2015 U.S. LEXIS 1739, at *14.
149 alternative tax justifications.705 The Court remanded the case for âthat court to consider whether Alabamaâs fuel-excise tax is the rough equivalent of Alabamaâs sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption.â706 E. Privately Owned, Unaffiliated Companies Are Not Protected by 774 the 4R Act In Midwest Railcar Repair, Inc. v. South Dakota Depât of Revenue & Regulation,707 the Eighth Circuit held that entities protected by the 4R Act may include adjuncts or corporate subsidiaries but not âunaffiliated enterprises that merely provide  railcar repair services.â708 Statutes 775 F. Reorganizing Railroads Required to Pay Taxes Due to the State 775 Railroads undergoing reorganization due to bankruptcy are barred from withholding taxes owed to any state or political subdivision thereof.709 G. Tax Liability for Trustees of Railroads 776 Undergoing Reorganization Although there are exceptions for specific situations, receivers or trustees of railroads undergoing reorganization must pay taxes when the railroad is still being operated as though it were conducted by an individual or corporation.710 Article 776 H. The 4R Act Within the Context of the Commerce Clause 776 An article in the Michigan State Law Review argues that Congress acts âoutside the scope of [its broad] power when it preempts a state tax that does not reflect economic protectionism,â but concludes that Congressâs treatment of railroads under the 4R Act is more consistent with the 705 Id., 135 S. Ct. at 1143â44, 191 L. Ed. 2d at 122â23, 2015 U.S. LEXIS 1739, at *15, 16. 706 Id., 135 S. Ct. at 1144, 191 L. Ed. 2d at 123, 2015 U.S. LEXIS 1739, at *16. 707 659 F.3d 664 (8th Cir. 2011). 708 Id. at 670. 709 45 U.S.C. Â§ 794(a) (2014). 710 See 28 U.S.C. Â§ 960(a) (2014); Lyford v. New York, 140 F.2d 840 (2d Cir. 1944).