National Academies Press: OpenBook

Railroad Legal Issues and Resources (2015)

Chapter: XXXVI. Railroad Revitalization and Regulatory Reform Act and Other Railroad Taxation Issues

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Suggested Citation:"XXXVI. Railroad Revitalization and Regulatory Reform Act and Other Railroad Taxation Issues." National Academies of Sciences, Engineering, and Medicine. 2015. Railroad Legal Issues and Resources. Washington, DC: The National Academies Press. doi: 10.17226/22093.
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Suggested Citation:"XXXVI. Railroad Revitalization and Regulatory Reform Act and Other Railroad Taxation Issues." National Academies of Sciences, Engineering, and Medicine. 2015. Railroad Legal Issues and Resources. Washington, DC: The National Academies Press. doi: 10.17226/22093.
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Page 147
Page 148
Suggested Citation:"XXXVI. Railroad Revitalization and Regulatory Reform Act and Other Railroad Taxation Issues." National Academies of Sciences, Engineering, and Medicine. 2015. Railroad Legal Issues and Resources. Washington, DC: The National Academies Press. doi: 10.17226/22093.
×
Page 148
Page 149
Suggested Citation:"XXXVI. Railroad Revitalization and Regulatory Reform Act and Other Railroad Taxation Issues." National Academies of Sciences, Engineering, and Medicine. 2015. Railroad Legal Issues and Resources. Washington, DC: The National Academies Press. doi: 10.17226/22093.
×
Page 149

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

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 “most other employers.”692 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 § 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 trustees’ 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 “rail transportation property” and “commercial and industrial property.”693 691 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. § 11501(a)(4) (2014).

147 2. The 4R Act’s Prohibition on Taxes that Discriminate 764 Against Railroads Section 11501(b) of the 4R Act describes “acts [that] unreasonably burden and discriminate against interstate commerce” 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 “[i]mpose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under this part.”695 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 “competitive mode class” and the commercial and industrial class and that “the comparison class should be appropriate to the type of tax and discrimination challenged in a particular case.”698 694 49 U.S.C. § 11501(b) (2014). 695 49 U.S.C. § 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)’s Prohibition on 770 Discriminatory Taxes 1. Whether State Ad Valorem Tax that Exempted Certain Classes 770 of Business Property Applied to Railroad Cars Dep’t of Revenue v. ACF Industries, Inc.699 involved Oregon’s ad valorem tax that was imposed on all property except for certain “classes of business personal property [that were] exempt.”700 The Supreme Court held that that “[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).”701 2. Whether a State’s Exemption of a Railroad’s Competitors 771 from the State’s 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 Dep’t 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 “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.”704 However, the Court held that it was improper for the Eleventh Circuit to refuse to consider Alabama’s 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. Dep’t of Revenue, 131 S. Ct. 1101, 179 L. Ed. 2d 37 (2011), reversed and remanded, Ala. Dep’t 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. Dep’t 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 “that court to consider whether Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption.”706 E. Privately Owned, Unaffiliated Companies Are Not Protected by 774 the 4R Act In Midwest Railcar Repair, Inc. v. South Dakota Dep’t of Revenue & Regulation,707 the Eighth Circuit held that entities protected by the 4R Act may include adjuncts or corporate subsidiaries but not “unaffiliated enterprises that merely provide [] railcar repair services.”708 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 “outside the scope of [its broad] power when it preempts a state tax that does not reflect economic protectionism,” but concludes that Congress’s treatment of railroads under the 4R Act is more consistent with the 705 Id., 135 S. Ct. at 1143–44, 191 L. Ed. 2d at 122–23, 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. § 794(a) (2014). 710 See 28 U.S.C. § 960(a) (2014); Lyford v. New York, 140 F.2d 840 (2d Cir. 1944).

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TRB’s National Cooperative Rail Research Program (NCRRP) Legal Research Digest 2: Railroad Legal Issues and Resources presents legal issues of importance that attorneys may encounter when representing both freight and passenger railroad owners, and operators involved in railroad-related transactions. Issues explored in the report range from abandonment and discontinuance to constitutional law, construction, contracts, interaction with regulatory agencies, safety, retirement, and numerous other subjects.

The electronic version of the digest includes more than 700 pages of case law presenting detailed summaries of statutes, regulations, cases, and relevant articles as a fundamental resource for use in understanding the background and broad ramifications of railroad-related law reflected in each category. To access the case law, click the Roman numeral headings, which are linked to the legal topics. A search for the legal topic will also result in finding it. The printed digest includes an annotated index of the case law and a bound-in CD-ROM with the case law reference materials.

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