The U.S. Supreme Court rarely agrees to hear state tax cases. This has been the case for many years. For that reason, it was a bit surprising last week when the high court agreed to hear two different state tax cases in the same day. In addition to a case challenging Colorado's use tax reporting requirements, the Supreme Court has agreed to hear arguments in Alabama Department of Revenue v. CSX Transportation, Inc.
In CSX Transportation, the issues are (1) whether a state “discriminates against a rail carrier” in violation of the Federal Railroad Revitalization and Regulatory Reform (“4-R”) Act when the state generally requires commercial and industrial businesses, including rail carriers, to pay a sales-and-use tax but grants exemptions from the tax to the railroads’ competitors; and (2) whether, in resolving a claim of unlawful tax discrimination under the 4-R Act, a court should consider other aspects of the state’s tax scheme rather than focusing solely on the challenged tax provision.
In the present case, the Alabama Department of Revenue is challenging a July 2013 ruling by the 11th U.S. Circuit Court of Appeals, which states that a state tax on fuel purchased in the state is discriminatory because rail carriers have to pay it but companies that transport freight by water and road do not have to do so.
This will allow the Supreme Court to revisit its previous decision on February 22, 2011, in which the Court decided CSX Transportation, Inc. v. Alabama Department of Revenue, and held that interstate rail carriers may challenge state sales and use taxes on railroads as discriminatory under the “catch-all” provision of the 4-R Act. The case was remanded for further proceedings. The current appeal is regarding the lower court decision rendered on remand.
Both the Alabama and Colorado tax cases will be argued and decided in the Supreme Court’s next term, which begins in October 2014 and ends in June 2015.