DEPARTMENT OF REVENUE OF OREGON v. ACF INDUSTRIES, INC.
Legal provision: 49 U.S.C. 1150
Argument of Virginia L. Linder
Chief Justice Rehnquist: We'll hear argument next in No. 92-74, Department of Revenue of Oregon v. ACF Industries.
Ms. Linder, you may proceed.
Mr. Linder: Mr. Chief Justice, and may it please the Court:
This case, like the one that precedes it, turns on a question of statutory interpretation.
It involves a single statute.
Section 11503 of the 4R Act prohibits certain state practices that Congress has decided unreasonably burden and discriminate against the railroad industry.
The plaintiffs in this case claim that the Oregon property tax system discriminates against them because it exempts certain categories of property from its general property tax system without giving the same exemption to the property that they own.
The question here is whether Oregon's exemption policies discriminate against railroads in any way that Congress acted to prohibit.
Unknown Speaker: Now, Ms. Linder, we are concerned here only with subsection (4), is that correct?
That's the only issue before us, the meaning of that subsection (4)?
Mr. Linder: Justice O'Connor, the precise question is the meaning of subsection (4).
That is the only subsection under which they proceeded.
Unknown Speaker: All right.
And it says that a state may not impose another tax that discriminates against rail carrier.
Mr. Linder: Yes, Your Honor.
Unknown Speaker: All right, now, what other tax does that mean?
I mean, what's the meaning of that?
Is that other than an ad valorem property tax?
Mr. Linder: Our position is that's exactly what it means.
Unknown Speaker: That's how you read it?
Mr. Linder: Yes.
Unknown Speaker: So it would cover sales taxes and gross receipts taxes and income taxes?
Mr. Linder: That, the question of--
Unknown Speaker: Yes?
Under your theory.
Mr. Linder: --Your Honor, that's an open question.
Unknown Speaker: Well, why wouldn't it?
I mean, if it means any other tax other than ad valorem, why doesn't it pick up all those other taxes?
Mr. Linder: Taken as a matter of plain language it certainly suggests that.
Taken as a matter of structure from the act as a whole, a more narrowing definition can be given to it.
And as a result lower courts--
Unknown Speaker: But you agree that the plain language would suggest it would cover all these other taxes?
Mr. Linder: --As a matter of pure plain language, sitting along in that section, yes, Your Honor, we would agree with that.
When you look at it in the context of the statute as a whole, what you end up with with the any other tax that discriminates are five words in the context of a statute that is otherwise wholly dedicated to the proposition or to tests on ad valorem property taxes.
Unknown Speaker: Well, but there was certainly some indication in the legislative history that gross receipts taxes and so forth were in the minds of the drafters of that provision.
Mr. Linder: And we believe that's exactly what that provision was intended to reach.
We agree that it would reach a gross receipts tax.
Unknown Speaker: But the language would certainly reach sales and income and other taxes.
Mr. Linder: The language would seem to sweep more broadly in the provision itself.
Unknown Speaker: Well, if it did then how do you view the discrimination?
No exemptions allowed for these other taxes?
Mr. Linder: I believe that's our opponent's argument, Your Honor.
It is certainly not ours.
Unknown Speaker: But if it doesn't reach that far, if the and other language is qualified, and if it's qualified in terms of the statute, then doesn't that mean that it's plausible that another tax means a property tax that is equalized so far as assessment and rate but has differential exemptions?
The minute you say another... the point of the question was the minute you say that another tax is more narrow than the language would suggest and it's qualified by the rest of the act, it seems to me that that is consistent with the proposal of the railroads in this case.
Mr. Linder: Justice Kennedy, if I understand the point of the question correctly, I think my answer is that if we were looking at some other tax on property, other than a generally applicable ad valorem property tax, that was reached under subsection (b)(4), you might, the question then would be other exemptions from that tax, I would think, and what Congress would mean in terms of exemptions from that same tax.
I don't think that would create license to go back up and revisit the judgment that was made in the first three subsections of the act about exempt property.
Our basic view of the statute is this.
It is a statutory hole.
The first three subsections of the statute are addressed to a generally applicable ad valorem property tax system, and what you get if you want to sue a state for its application of that tax to your property, is you get what those first three sections provide for.
Subsection (b)(4) does not go back up and revisit the grounds on which you may sue the state.
Subsection (4) provides exactly what, it means what it says.
Unknown Speaker: That's because it says another tax.
Mr. Linder: --That's right.
Unknown Speaker: But then why do you shy away from the logical, what seems to me logical definition of another tax in your response to Justice O'Connor's question, which was some other tax other than an ad valorem property tax?
Mr. Linder: Mr. Chief Justice, I don't mean to shy away from that at all.
We think it does mean that.
The question may be, and it's not a question you need to answer in this case we don't believe, how much broader it is, how far beyond an ad valorem property tax it goes.
For instance, would it extend to a corporate income tax?
That question has never been answered and lower courts have divided somewhat on those things.
Unknown Speaker: And you say we don't have to answer it here because what you're talking about is an ad valorem property tax?
Mr. Linder: Precisely.
The tax that Oregon levies on the railroad cars in this case is a tax derived from our general ad valorem property tax system that applies to everyone.
And for that reason, if it is to be tested it needs to be tested under subsections (1) through (3).
It is not a tax that can be tested under subsection (b)(4).
Unknown Speaker: Ms. Linder, you use the word general ad valorem property tax.
Does the statute contain the word general?
Mr. Linder: It does not.
Unknown Speaker: What would the situation be in your view if all other taxpayers in the state paid a gross receipts tax, an income tax, a sales tax, several taxes, but none of them paid an ad valorem tax except the railroads, so it was a special ad valorem tax?
Would that violate the statute or not?
Mr. Linder: Justice Stevens, my first answer to it is you could test it under subsection (b)(4).
Whether it would violate the statute is a far more difficult question, but we would agree you may challenge that under subsection (b)(4).
The difficulty is for purposes of that section we have absolutely no test to apply--
Unknown Speaker: There would be no discrimination because everybody who is assessed an ad valorem tax would pay at the same rate and the same amount.
All railroads would pay the same tax.
Mr. Linder: --But at that point--
Unknown Speaker: But you don't know whether you think that would violate the statute or not?
Mr. Linder: --I do not know whether it is a discriminatory tax at that point.
I believe that it is not an ad valorem property tax in the sense that Congress intended it.
Unknown Speaker: You think Congress intended to include the word general even though it doesn't appear in the statute?
Mr. Linder: Yes.
Unknown Speaker: But you say that that hypothetical tax would not violate subsections (1) through (3) because of the definition that allows exemptions?
Mr. Linder: Justice O'Connor, that hypothetical tax simply doesn't fit the model contained in subsections (1) through (3).
The reference to an ad valorem tax, granted one that does not have the word general in it, is, we think the basic understanding there is a broad, generally applied tax that extends to real and personal property with a host of taxpayers in that group, and that's certainly consistent with the history if it's necessary to resort to that to see what Congress was thinking about when it used the terms.
It's also very much the kind of property tax that is contained within the structure and the model that is devised by virtue of the assumption that we are going to test the rates and the assessments that are levied on railroad property against some other group of comparisons and seek an average.
Unknown Speaker: Is it typical that all states have personal property taxes on commercial and industrial property?
Mr. Linder: Justice O'Connor, it is typical, yes.
Unknown Speaker: And is it typical that these schemes have exemptions?
Mr. Linder: Justice O'Connor, I know of no state that does not.
Under our approach in that case what the carlines must do is they must bring their challenge under subsections (1) through (3), and if the challenge is brought there then the immediate result is that they have no cause of action.
Unknown Speaker: Ms. Linder, how do you answer the argument that under your view you couldn't have property B taxed at a lower rate than railroad property, that would be barred, but you could have a total exemption of property B, and that would be okay?
Under your reading of the statute I take it that that would follow, that you couldn't tax property B a little less, but the state could exempt it altogether.
Mr. Linder: Justice Ginsburg, that is exactly our reading of the statute.
Our view of what Congress both said and did and intended is that this was essentially an equalization formula for railroad property.
Congress intended railroad property to get the benefit of the average taxed property in the jurisdiction.
It is a very different proposition, states raise and lower taxes on different taxpayers and different items of property, as does the Federal Government, for a host of reasons, drawing distinctions between types of property and owners.
But when governments exempt you are usually dealing with a very powerful policy choice on a government's part that suggests that perhaps a very different policy is at work, and that is exactly the kind of policy choice that drove the wording of the comparison class and caused it to be limited to property subject to a property tax levy.
So it is not the illogical result in any sense to say that if we want to equalize railroad property and insure that they are not taxed higher than some average, we will look to some comparison that consists of taxed property.
Typically in equalization formulas, which were expressly contemplated as Congress crafted the act, you do not look to exempt property to equalize because as a policy matter something different is going on when states take the property out of its tax base altogether.
Unknown Speaker: And you say that's reflected in 11503(a)(4) which defines property to be only property that is subject to a property tax?
Mr. Linder: Justice Scalia, yes.
That, we believe that's exactly what it means.
None of the parties in this case seem to have squared off with us very directly on that issue.
Every lower court that has examined it has so concluded, and we think for sound policy reasons or sound text-based reasons.
Unknown Speaker: You said that every state has some exemptions.
Tell me, what is the pattern so far as equalization?
Do most states have different classifications of property so far as both assessment and rate, or is that unusual?
Mr. Linder: Justice Kennedy, my understanding is that the more common model is that there is not a broad classification system in most states.
There are some states, I believe I have heard of one that has as many as 21 different classes of property, but my understanding is that the common model in the states is to have a fairly uniform system between real and personal property alike.
If we are correct that subsection (b)(4) has no application to a general, to the levy of a generally applicable property tax, and certainly even if there is some application that you can bring for purposes of subsection (b)(4), it should not be used to test a state's exemption policies because those were expressly contemplated in the first three sections and Congress adopted an unqualified position on that matter.
Then we think this case is emend.
At that point the carlines do not state a claim under the statute.
There are other questions if we're wrong concerning the remedy that would, the test that you would apply and the remedy that you would attach, and those questions become increasingly difficult once you begin to try to take subsection (b)(4), which was not at all tailored to the kind of challenge that they bring, and determine how it is you would even challenge the very thing that Congress contemplated in the first three subsections.
The difficult with coming up with a test is another reason that we think it demonstrates that neither the language nor the structure nor anything Congress intended, expected that we would be in subsection (b)(4).
Unknown Speaker: Ms. Linder, what is your view of the district court, the district court held for Oregon but it recognized the possibility of de facto discrimination, which I took to mean if it turned out that they were really exempting everything except railroad property?
Mr. Linder: That is, Justice Ginsburg, that is what the district court assumed was one of the possible things it might have to test for under subsection (b)(4).
Unknown Speaker: But I take it that your reading of subsection (b)(4) wouldn't even leave room for that because you say it just has no office with respect to this very same tax.
Mr. Linder: That is correct to a point.
That is our reading, and I have to say to a point.
There seems clearly to be a point at which if you carve away everything out of your tax system except the thing that looks like a railroad, at that point you do not have the broadly applicable tax system that Congress envisioned.
The problem with both what the district court then examined, it found no violation even if it were to use that kind of an inquiry, but the problem with the way the examination gets made, and it's the problem with the way the carlines want to make it in this case with their persistent use of the number 67 percent of exempt property, the point of talking about those kinds of percentages is to suggest that the state is moving towards a system that is no longer broadly applicable.
If you're going to test for that, you do not look at the kinds of numbers certainly that the carlines have used in this case.
They don't tell you anything about how much property you are taxing.
They tell you something about how valuable that property is, but it can be one exemption and in this case it largely is.
It is business inventory.
Unknown Speaker: Ms. Linder, I don't understand where you get this up to a point.
You don't seem to have the courage of your convictions on this.
Mr. Linder: Justice Scalia--
Unknown Speaker: Is it up to a point, past a certain point it will not, no longer be the general system that Congress had in mind?
I mean, we're supposed to intuit what Congress... you come to us with a textual argument and your textual argument is simply that by reason of 1105(a)(4) it is, you have simply not, there is no rate applicable to commercial and industrial property that is not taxed, and therefore you can't possibly be discriminating against that property.
I don't know why you don't take it the way it's written, and say that the safeguard against what Justice Ginsburg is worried about is simply that no state is going to cut off its nose to spite its face and exempt everybody except railroads.
But I don't see how you get to some limitation.
I know it's a feel good limitation, we all would like to have it there, but how do you get it out of the text as you have read the text to us?
Mr. Linder: --I do get it out of the text, but I want to emphasize that we are talking about something so different than what we were talking about in Oregon, that it wouldn't look anything like what Oregon is.
Unknown Speaker: Let's concede that, but how do you get it out of the text?
Suppose I have a system in which I exempt everything except railroads, an ad valorem property tax that exempts everything except railroads.
Don't you have to say under your theory of the statute that that's okay, if the state wants to be that nutty and collect no other money?
Mr. Linder: I would agree I should adopt that position wholeheartedly--
Unknown Speaker: But you can't bring yourself to do it.
Mr. Linder: --I have difficulty bringing myself to do it, Your Honor, because... and again this is text-based.
If you look to what is going on in subsections (1) through (3), the very expectation of the language of those sections and the model that is created in them is that you are dealing with a property tax system that includes on some basis multiple property tax owners and multiple kinds of property.
And I think, for better or for worse, that that's exactly what Congress intended, and if you have a target tax that is levied on one property tax owner or one piece of property, that is not what was contemplated there.
You're also correct, it's not contemplated there because it never happens.
Unknown Speaker: I don't care what was contemplated.
I care what was legislated against--
Mr. Linder: And I'm talking about text and structure when I say that.
Unknown Speaker: --Okay.
Would you refresh my recollection as to your position in the district court?
Did both parties agree on a 50 percent rule there?
Mr. Linder: Justice Stevens, no.
The Ninth Circuit... if the question is did we take the position that the test was some majority kind of test--
Unknown Speaker: You get the impression from the court of appeals description of what went on in the district court that you would have agreed that if there had been an exemption of over 50 percent of property in the state that then there would have been a violation, and you in fact argue it was only 30 percent whereas they said it was 67 percent.
Mr. Linder: --Justice Stevens, the Ninth Circuit statement on that was incorrect.
Unknown Speaker: I see.
Mr. Linder: What we said to the Ninth Circuit about that was even assuming that the test is what they say it is, if you put the numbers together the way we thought was accurate they didn't get to 50 percent.
Unknown Speaker: And that was to put personal property tax and real property tax in different categories for purposes of the comparison?
Mr. Linder: That's right.
That's how carlines get to their 67 percent.
They have to do that or they don't get to--
Unknown Speaker: Do you agree that that is a correct methodology?
Mr. Linder: --No, we don't.
We think that is dramatically--
Unknown Speaker: You think personal and real property should be lumped together in one category?
Mr. Linder: --Yes.
Unknown Speaker: What is your textual basis for that in this case?
Mr. Linder: There are two.
The first is in the comparison class itself which refers to real or personal property and doesn't suggest that you have to draw a line between them and not put them both together.
There is another base as well.
If you look to subsection (c) which refers to the assessment methodology that a state would use, there is a potential for the assessment method to not have a sufficient number of properties in the comparison so that you, if the district court is dissatisfied that it is a reasonable sample of properties from the comparison class, the district court may then pull a new sample from the entire property tax base in the taxing jurisdiction.
And at that point the language is quite clear, you go to all of the property.
The point of distinguishing in the statute between real and personal, there is some doubt about what Congress would intend if you had a state that distinguished for purposes of rates or assessments between real and personal property, and there is legislative history, if you resort to it, to suggest that in a state that drew a distinction that you shouldn't then look, cross those boundaries and look at the rates or the assessments that apply to the different kinds.
Unknown Speaker: Of course even in that case your language of the fourth, article (d) here refers simply to discrimination against a carrier, which would imply that in effect it's the composite bottom line that you're concerned with on discrimination.
Would you agree?
Mr. Linder: I would agree.
Unknown Speaker: That subsection (c) you referred to, it demonstrates that this is not a finely crafted piece of legislation, doesn't it?
Mr. Linder: Justice Scalia, it demonstrates that very well.
Unknown Speaker: Because it says you can't get relief for anything except discrimination by variable assessment.
Mr. Linder: That's exactly what it says.
It came into the statute at a time that the statute addressed only assessments.
It was never changed even though the statute evolved after that point.
I'll reserve the remainder of my time.
Unknown Speaker: Very well, Ms. Linder.
Mr. Jones, we'll hear from you.
Argument of Kent L. Jones
Mr. Jones: Mr. Chief Justice, and may it please the Court:
Under the state's reading of the statute the 4R Act would literally prohibit every imaginable form of state tax discrimination other than discriminatory property tax exemptions.
If there is an eye in this needle it would be large enough to drive the entire camel through.
The state, instead of simply preferentially taxing non-railroad property, could not tax it at all, exempting it entirely from the tax.
The courts of appeals have unanimously concluded that that interpretation of the act is not sensible and doesn't respond to either its language or its history.
In the view of the courts of appeals subsection (b)(4) prohibits a discriminatory tax by any means other than those already prohibited in the prior subsections.
This is, after all, national legislation.
For example, Ohio could enact a tax that discriminates by assessment rates and that tax would violate (b)(1) and (2).
Oklahoma could enact a tax that discriminates by tax rates and that tax would violate (b)(3).
If Oregon enacts a tax that has discriminatory exemptions that tax in the language of the statute is another tax that results in discrimination against railroads.
Unknown Speaker: Mr. Jones, the Government, as I understand it, agrees with the railroads on the scope of section (4), but says, contrary to the railroads, that every differentiation is not a discrimination.
How does that give the railroads anything more than the Equal Protection Clause already gives them?
Mr. Jones: Well, the Equal Protection Clause under this Court's decision in Lehnhausen in 1972 doesn't give the railroads very much at all.
Lehnhausen built upon what I think we can call the pigeon hole rule, which was adopted in an opinion by Justice Frankfurter in 1940 in the Chesapeake and, I'm sorry, in the Nashville and Chattanooga case.
Putting those two rules together, what this Court has held is that the Constitution doesn't bar the states from treating railroad property differently from all other kinds of property.
It was those constitutional holdings that were the impetus for this legislation, so to suggest or to conclude that only constitutional limits need apply to discriminatory exemptions is to say Congress didn't change the law.
Unknown Speaker: So you think Congress set up kind of a new kind of equal protection analysis different from the courts, the Constitution, and it was just to be developed on a case-by-case basis?
Mr. Jones: They set up a standard.
The standard that they adopted was discrimination.
It's a statutory standard, it's not the equal protection standard.
Unknown Speaker: As strict scrutiny for railroads.
Mr. Jones: No, sir, I don't think it's strict scrutiny, but I do think that it's statutory specific scrutiny.
Unknown Speaker: Does it include disparate impact?
Mr. Jones: I'm not sure if I can answer that in the abstract, but I, let me see if I can answer your question this way.
It is a normal approach in transportation legislation to talk about discrimination, and in talking about discrimination the cases make the point that a difference in treatment is not necessarily a discriminatory treatment.
That here, like in other commercial contexts, a difference in treatment creates an inference of discrimination, but the states can rebut that inference by a showing of an appropriate justification.
Unknown Speaker: They certainly can't rebut it if it falls under (1) through (3).
Mr. Jones: If it falls under (1) through (3) you don't have to decide whether it's discriminatory.
Those are objective standards.
The court doesn't have to say it's discriminatory to have disparate assessment rates.
The statute says that.
But with respect to exemptions the court needs to decide whether the exemptions are discriminatory.
Unknown Speaker: What do you compare it to?
To get under (4), to find discrimination you have to compare A with B.
Mr. Jones: Yes.
Unknown Speaker: What is it you're comparing?
Mr. Jones: Well, what you're comparing is the difference in treatment between the two types of property.
In the, this Court's decision in Arizona Public Service Company v. Snead, which dealt with an analogous statute, different in many details but analogous, and in that case the Court indicated that the justifications have to be related to the type of the tax involved.
In our view there are at least three justifications that a state could claim to support a difference in treatment.
The first is to us the relatively obvious one of a compensatory tax where the exemption is with respect to property whose value is taxed under a different statutory scheme.
Because that exemption is so obvious to us it explains why Congress didn't try to deal with exemptions in (b)(1), (2), and (3).
Unknown Speaker: But as the railroads point out, the property, the motor vehicle tax may be $10 a vehicle, which is hardly comparable to the kind of tax rates that is imposed on the property tax generally.
Mr. Jones: I agree with your statement in the abstract.
Of course many states have motor vehicle taxes substantially higher.
Another example of a compensating tax might be a severance tax.
Severance tax is imposed once on the day of the production rather than every year prior to production.
There may be many valid reasons to treat the value, to tax the value of that property under that different method.
The key part of the compensating tax approach is that it is a tax to which the railroad property would not also be subject.
It is a different tax scheme on value that is not discriminatory in its character or in its application.
Unknown Speaker: Mr. Jones, I don't, I really have no idea what, how to measure the kind of discrimination you're talking about under the first three portions, and when I'm confronted with a statute like this I am inclined to give it the meaning that will least confuse the Federal courts for the next 50 years, and if Congress wants to be more precise they can.
Why isn't the state's interpretation just that kind of an interpretation?
You can exempt anything you want, and I'm not even worried about before.
I guess you could say well, you're going to have to do some fancy footwork on the before to figure out what discrimination was, but I wouldn't even have to do that because subsection (c) says you don't get relief under (4).
Mr. Jones: I'm not sure which part of that question you want me to address, Justice Scalia.
Unknown Speaker: Address why the state's solution isn't the simplest, the one that puts less strain on the Federal courts and less fosters litigation into the indefinite future.
Mr. Jones: With all respect, Justice Scalia--
Unknown Speaker: Whereas you come up with some test that I don't know how to figure out, when you decide there are too many exemptions or not.
Mr. Jones: --With all respect, Justice Scalia, I am not familiar with any canon of statutory interpretation whose objective is to avoid litigation of this kind of an issue.
But the statutory standard is discrimination.
Unknown Speaker: Well, we're certainly in the field of restricting state action.
We have a canon that says you have to be very clear when you're trying to impair traditional state action, and certainly the imposition of taxes is traditional state action.
Mr. Jones: In the Piedmont case in 1932 this Court said that national transportation legislation is remedial legislation which should be broadly interpreted.
I am not suggesting that a broad interpretation is necessary.
Unknown Speaker: What is not remedial legislation in your estimation?
Give me an example of non-remedial.
Mr. Jones: --I am not sure.
A non-remedial legislation--
Unknown Speaker: Why would Congress ever pass legislation that wasn't remedial, remedying something?
Mr. Jones: --I'm not sure if I can answer why they would ever do it.
I think they always have an objective in mind, but I think that the Court is aware of the distinctions it has drawn in its cases between different types of statutes and has addressed as remedial a statute such as this one that displaces pre-existing or non-existing law to achieve the objective of the statute.
Unknown Speaker: Don't all statutes displace pre-existing or non-existing law?
If not, why are they passed?
Mr. Jones: What these types of statutes do is they... well, there are two types.
There's the new regulatory scheme which this case does not involve.
This is not a preemption case.
This is a substantive remedial case.
So if that were a distinction that I believe that is appropriate to draw you could make, you could apply that distinction here.
But my point with respect to Justice Scalia is that the statute specifies the standard.
It says a tax that discriminates.
It is the Court's function to determine what that means.
And if I could return to what I was suggesting--
Unknown Speaker: Mr. Jones, you said it doesn't mean what it means in equal protection.
You're not willing to say it's fixed scrutiny or what the standard is.
You said you can't answer the question in the abstract so let me give you a concrete illustration, one category that's exempt is business inventory.
The railroad cars are not exempt, business inventory is.
How does that fit, is that discrimination or not?
How does one go about resolving that question?
Mr. Jones: --Business inventories would be exempt... if business inventories are exempt, if they are a type of property that railroads would normally own then it's not discriminatory to exempt it.
If it's a type of property that is taxed under a different ad valorem scheme then it's not discriminatory.
Unknown Speaker: Business inventory is exempt from this tax.
Railroad cars are not.
How does one determine if that is impermissible discrimination?
Mr. Jones: Absent a justification it is discriminatory.
That is what this Court has held under analogous statutes involving transportation.
It is the state's obligation to justify it.
If they cannot provide the justification it violates the statute.
Unknown Speaker: Thank you, Mr. Jones.
Mr. Phillips, we'll hear from you.
Argument of Carter G. Phillips
Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:
The stipulation in this case, Oregon fully taxes the personal property of every carline and railroad that does business in the state, while at the same time Oregon exempts from personal property taxes more than 67 percent of the personal business property in that state.
Unknown Speaker: Does the word Mr. Phillips?
Mr. Phillips: Only in the context of the stipulation, Mr. Chief Justice.
The stipulation says they fully tax to the full extent.
There is evidence in the record that indicates that there is under-assessment and under-reporting.
The railroads do not receive the benefits of that.
The role of under-assessing and under-reporting in this case, however, is not significant because with or without that particular component we find that there is a majority discrimination in any event.
Unknown Speaker: So nothing in this case turns upon the meaning of the word "fully" in the stipulation?
Mr. Phillips: Not as the case comes to this Court at this particular point.
In our view Oregon unquestionably treats the railroad property worse than it treats the majority of the other property within the state, and accordingly respondents urge the Court to hold that Oregon imposes a tax that results in discriminatory treatment against rail carriers as that language appeared in the original version of what is now 49 U.S.C. section 11503(b)(4), and therefore the tax is unlawful.
In turn respondents urge the Court to hold that the only appropriate remedy for that situation is to enjoin the state from imposing that personal property tax and thereby treat the railroad property just as it treats the majority of other property within the state.
In doing that there are essentially three issues in this case, although at this stage you might have lost sight of a couple of them because the state for its part focuses almost exclusively on the threshold question of whether or not (b)(4) applies to anything at all, almost in some respects, but certainly it raises the question of whether (b)(4) applies to ad valorem taxes and whether it challenges its exemption practices in this case.
Unknown Speaker: Mr. Phillips, in applying subsections 1 through 3 we look to the definition, do we, of commercial and industrial property?
Mr. Phillips: --Yes, Justice O'Connor.
Unknown Speaker: And the phrase subject to a property tax levy means that under (1) through (3) the state can have an exemption scheme?
Mr. Phillips: That is correct, Justice O'Connor.
All of the courts of appeals that have addressed that issue have permitted that.
Unknown Speaker: And that's why your clients did not bring their cause of action under (1) through (3)?
Mr. Phillips: That is correct, Justice O'Connor.
If the Ninth Circuit had not originally taken the position that there is no relief to be had for exemptions under (b)(1) through (b)(3) we might have pressed that argument.
We certainly have done so in the past.
Unknown Speaker: But it is a bit odd, then, when you come to (b)(4) to think that a state can't have exemptions.
Mr. Phillips: I think what you--
Unknown Speaker: It just seems anomalous at the bottom line.
Mr. Phillips: --Not if you put it in the context of the precise language of (b)(4).
(b)(4) says in the original language that it prohibits any other tax that results in discrimination.
That is extraordinarily broad language, Justice O'Connor.
Unknown Speaker: Well, now it says another tax that discriminates.
Mr. Phillips: I understand that, Justice O'Connor.
Unknown Speaker: Do you think that means something different than any other tax?
Mr. Phillips: No, it has to mean the exact same as any other tax because the change is not to have any substantive effect, but the actual language adopted by Congress is actually any other tax and that's the language that ought to control in terms of the--
Unknown Speaker: Well then where did impose another tax, where did that language come from?
Mr. Phillips: --That comes from the original language as well, Justice, Mr. Chief Justice.
Unknown Speaker: Well, surely if the language we're dealing with says impose another tax that doesn't mean exactly the same thing as if it said any other tax.
Mr. Phillips: Well, to the extent that it means something different from that, Mr. Chief Justice, you would apply the any other tax language because that's what this Court said in Burlington Northern and that's what Congress said it wanted to have happen.
But this recodification was not to implement any substantive changes in the way the statute ought to be applied, and therefore the extraordinarily expansive language of (b)(4) as originally enacted in the 1976 4R Act is the language that should guide this Court's interpretation of the meaning of that provision.
Unknown Speaker: Why did you say that was so in the Burlington case?
Mr. Phillips: Because that is what Congress indicated when it allowed the recodification in 1978.
It made it very clear that that recodification was not to change the substantive sweep of any of the language implemented through that recodification process.
Unknown Speaker: Mr. Phillips, why isn't the most natural reading of that language to refer to any tax other than an ad valorem property tax?
Mr. Phillips: I think the most natural reading of that language is to refer to any other tax that discriminates.
What we're talking about are other means, or means of discrimination in the first two provisions, and the language at the end both deals with additional discriminations and also deals more broadly than the earlier taxes.
They don't talk strictly about property or forms of property or railroad property.
They deal much more broadly with the question of discriminatory treatment of rail carriers.
And therefore that language, as the Solicitor General argues in his brief and with which we agree completely, encompasses a much broader prohibition on discriminations than any of the other language.
Unknown Speaker: So much so that it essentially eclipses the other.
I mean, why do you need (1), (2), (3) if you have (4)?
If (4) says no discrimination against railroad property, period, then (1) to (3) are superfluous.
Mr. Phillips: Well, except that (1) through (3) identify precise definitions of objectively identifiable discriminations that the statute prohibits.
The language results in discriminatory treatment doesn't self-define.
Unknown Speaker: But neither does it to say any other discrimination, which is the way you're using it.
Mr. Phillips: I think that's the most natural way to understand the particular language that Congress chose because--
Unknown Speaker: Well, certainly the easiest way to understand the language Congress chose is to take the indication of (1) through (3) as being examples of the discrimination that it referred to in the preamble sentence of (b) and to assume that indeed the discriminations that it is referring to are the same kinds of discriminations, in other words the statute in fact does define discrimination by example.
It is using that same sense of discrimination in (d), and that is inconsistent with the reading of any other kind of discrimination, in fact it's antithetical to it.
Mr. Phillips: --I would have understood the way you argued that, Justice Souther, for exactly the opposite proposition, which is that it clearly must mean that the state is not in a position where it can sit back and exempt all of the other property of the state, leaving only the railroads out there exposed to discrimination, and find a way to argue that that's nevertheless not a treatment that results in discrimination against the railroads.
Unknown Speaker: Well, that's not the point.
I mean, you clearly could so argue and you would probably have a very good policy ground for so arguing, but I don't see that as being the easiest way to read this text.
It's perfectly true that reading the text the way I do leaves a loophole there.
If some state really wants to go that far, in the reading I have suggested it could do so.
In which case I dare say you would be back across the street getting that one fixed.
Mr. Phillips: Well, I'm sure that's true as well, but it seems to me at least an odd approach to the language of the statute to guarantee that it will be self-defeating.
Unknown Speaker: Is it so odd when you start with the proposition that the statute is to begin with an exception to the Tax Injunction Act?
Mr. Phillips: Well, it's interesting in that regard because the states historically have now taken diametrically opposed views of what this language means precisely.
On the one hand when they have non-ad valorem taxes they tell you that it only applies to ad valorem taxes, and when they have ad valorem taxes they tell you it applies to every other tax except ad valorem taxes.
And presumably if you were interpreting this with reference to the canon of construction under the Anti-Injunction Act, both of those positions would be equally supported in exactly the same way.
It seems to me the language is not so very plain on either side that you can tell what Congress precisely meant, but what you can tell is what Congress' objective was here which was to avoid allowing railroads to be treated more harshly than the majority of other property within the state.
And when you take that view, and to adopt a view that guarantees that the state, excuse me, that the railroads will have majority support, then it seems to me the only way you can do that is to find that (b)(4)'s very broad language is expansive enough to permit the interpretation that the railroads propose here.
Unknown Speaker: But you can't take that view, I take it you would agree, solely as an inference from the text itself.
You've got to go behind the text in order to find an intentional interpretive canon as broad as you propose.
Mr. Phillips: Every court of appeals that has addressed this issue--
Unknown Speaker: Do you agree with that?
Mr. Phillips: --Well, no, I have some difficulty with that, Justice Souter, because every court of appeals that has addressed this issue, has read that language, has inferred from that language that it is a catch-all provision and that it really means any additional taxes that discrimination over and above the ones that are objectively identified in (b)(1) through (b)(3).
And so I find it at least presumptuous of me to suggest that that's not a very natural and reasonable interpretation of that language because there are a whole host of very talented jurists who have reached that exact conclusion, indeed all of them have.
Unknown Speaker: Is your position essentially that this is a most favored taxpayer clause?
To the extent that there is business and industrial property, if any of that property is exempt then the railroad property must be exempt?
Mr. Phillips: No, Justice Ginsburg, that is not the position of the carlines in this case.
Our position on the proper interpretation of the term discrimination or discriminatory treatment has been, is the same here as it has been all along, which is that you must make the proper comparison between personal and personal properties and that exemption of more than 50 percent of the personal property is a triggering point.
And once the state exempts more than 50 percent of other business' personal property, other commercial and industrial property, then you have discrimination that is per se invalid under (b)(4) and ought to be set aside.
Unknown Speaker: Why not 33-1/3 percent or 66-2/3?
Mr. Phillips: I have no trouble with 66-2/3.
Unknown Speaker: I know that.
Pluck a number out of the air.
I mean, I am really reluctant to think that Congress wrote a statute in which it expected us to just pluck some number out.
Mr. Phillips: That is the exact same number, Justice Scalia, that Congress would have you pluck out of the air in applying the (b)(3) provision, because if you have 50 percent of the personal property taxed at one rate, or let's say 50 plus a little, and 49 percent taxed another rate, the statute requires that the railroad property be taxed at the lower rate, or whatever the majority rate is.
It could be favorable or unfavorable, but that 50 percent majority line is inherent in (b)(3) and makes sense in (b)(4).
Unknown Speaker: Well, it seems to me when they wanted numbers they stated numbers, as indicated in the later provision where they say there has to be a 5 percent differential.
Why isn't it reasonable to read (1), (2), and (3) as essentially reading out, well, you have to read (1), (2), and (3) as saying that an exemption doesn't count, an exemption at least for ad valorem taxes does not count as discrimination at least for purposes of (1), (2), and (3).
Why not read (4) as saying that exemption is not considered discrimination for purposes of (4) either, since it hasn't been for (1), (2), and (3)?
Mr. Phillips: Because--
Unknown Speaker: So that whatever constitutes discrimination on the part of another tax, total exemption of some category is not it.
Mr. Phillips: --There is no textual basis for that, Justice Scalia.
There is a textual basis for the (b)(1) through (b)(3)--
Unknown Speaker: There is a textual basis.
The textual basis is that your preamble to the whole section provides the following acts unreasonably burden and discriminate against interstate commerce.
They then give you three examples.
They then in subsection (4) use the word discriminate again, and there is a textual basis for saying that the definition of discriminate in (4) is simply the same as the definition by example of discriminate which is set out in (1), (2), and (3).
That's a textual basis.
Mr. Phillips: --Except that the comparison is that there's no language of discriminate that comes out of (b)(1) through (b)(3), first of all, and second of all--
Unknown Speaker: Isn't the structure of (1) through (3) to exemplify the discriminations?
Mr. Phillips: --But (b)(4) also exemplifies the discrimination.
I mean, it implements the discrimination.
Unknown Speaker: Well, it doesn't exemplify, it doesn't give an example.
It doesn't exemplify.
(1), (2), and (3) are examples, and they are examples that follow the use of a general word discriminate.
(4) is not an example section.
(4) simply uses the word discriminate again, and it's reasonable to assume that it's using the word in the same sense that it has used it before as defined by the three examples.
Mr. Phillips: Except that the purpose of it is not to make comparisons to property.
(b)(1) through (b)(3) makes specific property types of comparisons.
(b)(4) protects a broader class.
It protects rail carriers.
And therefore that language doesn't necessarily take you back up to the discrimination language of the preamble, and it ought to be given the full effect.
Unknown Speaker: The carrier language doesn't, but the discrimination language still may.
Mr. Phillips: The difficulty I have with your argument, Justice Souter, is you still are dealing... I don't see how you get to the point where you say I can take all of the property of the state out of the personal property tax base except the railroads, and that's not a tax that results in discrimination against the railroads, against the rail carriers.
Unknown Speaker: It depends on whether you're going to redefine the word discrimination or not.
Your argument assumes that discriminate in (d) means something other than the discrimination exemplified in (a) through (c).
If you don't make that assumption, if you say based on the text I am going to assume that discriminate has a common usage throughout this section, then in fact it is no objection to the argument to say that yes, you may indeed leave the railroad as the only taxpayer with respect to a certain class of property.
And if that's the case, if the state does cut off its nose to spite its face, Congress is the answer.
Mr. Phillips: I have two thoughts about that.
First of all, the use of the term discriminate in the preamble talks about discriminating against interstate commerce, whereas the term discriminate in subsection (b)(4) talks about discrimination against rail carriers.
So I'm not sure that it's fair to infer that those necessarily reincorporate each other, and it's an odd phraseology.
And again, I think if you take the (b)(1) through (b)(3) and too narrow constrain them, what you do is violence to the language differences between (b)(1) and (b)(3), and (b)(4).
The specific exemptions provide that they are taking out exemptions for making assessment ratio decisions, and they are taking out exemptions from trying to make rate judgments.
That makes perfect sense if anybody has ever tried to do a ratio assessment, an assessment ratio analysis, because it's very hard to figure out how you're going to assess property that has never been taxed.
So it makes perfect sense to take it out of that context.
It's a much more streamlined and sensible way of implementing the tax scheme, but that's not a reason then to go and take away from (b)(4) the language that every court of appeals has embraced and said is a catch-all prohibition against all forms of discrimination.
Unknown Speaker: How do the courts of appeals explain the use of the word (4)?
Mr. Phillips: They view the "other" as referring to other forms of discrimination, so that it's any other tax that discriminates.
Unknown Speaker: Even though it modifies the word tax?
Mr. Phillips: Yes, Mr. Chief Justice.
That, coupled with the overall language in the purpose of the statute, which was to provide a generalized protection against unfair treatment to the railroads to insure their financial stability and viability.
Now, assuming that the (b)(4) exemption applies to the particular taxes here and that the exemption scheme that the state has adopted is subject to scrutiny on the standards of discrimination, we then come to the question of on what basis do you decide that there has been discrimination in this case.
The position of the carlines, as I suggested earlier, has remained steadfast, that the appropriate comparison is between personal property and personal property, and real property and real property.
The state defines those terms differently, the state applies its exemption policies differently, and as a consequence of that it is a legitimate position for the carlines to take that those comparisons ought to be made in the context of the specific case.
Under the stipulation as it comes to this Court, agreed to by both parties, there is no doubt that 67 percent of the property other than the railroad's property in the State of Oregon is exempt completely from taxation while 33 percent of the property remains fully taxed, as is the railroad property in this particular case.
Unknown Speaker: Suppose the relief that the Court ordered in the case was that you would simply get a 67 percent credit?
Would that eliminate the discrimination?
Mr. Phillips: Our position is that does not eliminate the discrimination, Justice Kennedy.
The problem with that argument is that our remedy flows directly from the nature of the violation.
If you treat us worse than a majority of the taxpayers of the state, of the property holders of the state, then the appropriate remedy that flows from that, given that it's a statute that prohibits imposing taxes in a particular way, is that we be treated precisely as the majority is treated.
And in this case 67 percent of the taxpayers, the tax base, is exempt from taxation and therefore we should be exempt from taxation as well.
Unknown Speaker: Well, you're put, under the formula where you get a 67 percent credit, you are put in the same position as all other taxpayers in the state.
Mr. Phillips: Technically you're certainly not, because what you've done is you have created three different categories of taxation.
You've got exempt tax, you've got fully taxed, and you've got railroad taxed, and that seems to me an extraordinary remedy for a court to order.
There is nothing in the statute that provides for that kind of relief, and it seems to us the more appropriate course to take under those circumstances is simply to place us in the position we would have been if the state had treated us as well as it does the majority of the other taxpayers in the state.
In that event we would be fully exempt from taxation.
Unknown Speaker: Well then if the 50 percent threshold is reached you do get a most favored nation type treatment.
Mr. Phillips: That's correct, because that's the only way to insure that we consistently are treated like the majority of the other property, which we think was a significant value that undergirds the statute.
The state did not disagree with that in its assessment.
It concedes that one of the purposes of the 4R Act in section 3061(d) was to insure that the fate of the railroads as taxpayers would be tied or bound up with the fate of the broader group of taxpayers in the state.
As a consequence of that, that remedy flows directly from the particular violation that we assert in this particular case.
Unknown Speaker: Mr. Phillips, with respect to the way you calculate the relevant percentage, given the fact that subsection (d) refers to discrimination against rail carriers without reference to specific classes of property or kinds of tax, why shouldn't you aggregate all of the property to get in effect a composite rate, in which case instead of 67 percent you would get, I guess what, 30 something percent in this case?
Mr. Phillips: I'm not exactly sure how the numbers would play out.
Unknown Speaker: In any case, why isn't it a bottom line analysis as opposed to a class-by-class analysis?
Mr. Phillips: There are two answers to that.
First of all, that is not the approach that has ever been taken with respect to (b)(1) and (b)(3).
Under those provisions it is never available to the railroad to argue that the differentials in rates for personal property should be compared to real property as a basis for seeking some kind of relief.
And it seems to us if you don't compare it for (b)(3) there is really no reason to compare it for (b)(4).
Second of all, it is wholly arbitrary to decide that you're going to make a comparison with respect to real property but then you're going to exclude all intangible personal property.
And the stipulation in this case is that there is $60 billion worth of intangible personal property in the State of Oregon, all of which is exempt, so that if you were to include that into the mix you would end up with something akin, under the state's reply brief analysis of all the property things, you'd end up with an 89 percent exemption of property while we're getting taxed fully.
Under those circumstances it seems clear to us that would be invalid.
But we have never argued, none of the railroads nor the carlines have ever insisted on that kind of a comparison.
What we ask for is to be treated like the property holders who are most comparable to us, business and commercial industries.
That is all we have asked for, and it seems reasonable to us.
One last observation I would make with respect to the Government's justifications argument, it seems to me clear that justifications are not provided for for (b)(1) and (b)(3), and no reason appears under our theory of a majority rule to have justifications applied for (b)(4).
And in any event it is absolutely clear on the record in this case that there is no justification within the meaning of the Government's position that would justify--
Unknown Speaker: (b)(4) does use the word discriminate, where (1), (2), and (3) don't.
Mr. Phillips: --That is correct, Mr. Chief Justice.
On the other hand we're not talking about every disparity giving rise to discrimination.
Under our theory of it, when you get above 50 percent you have the kind of discrimination that should not warrant an additional justifications argument.
I guess I would just go back to Justice Scalia's sort of basic point here which is that to incorporate that kind of a justifications analysis is to take what we think is a relatively straightforward and simple analysis and make it an extraordinarily complex and difficult problem for the lower courts, and we see no reason to commend that approach.
Since the court of appeals enjoined properly the tax in this case, it's judgment should be affirmed.
If there are no further questions.
Unknown Speaker: Thank you, Mr. Phillips.
Ms. Linder, you have 2 minutes remaining.
Rebuttal of Virginia L. Linder
Mr. Linder: I've only a couple of points to make.
Mr. Phillips said that in Oregon all carlines and all railroad property is taxed.
That is not true.
Railroad property is subject to the same set of exemptions.
If railroads own timberland they receive the same tax treatment as any other taxpayer.
As a result of that, that is true with respect to any exemption, business inventory as well.
The point of that is that in fact there is extraordinary uniformity in the State of Oregon in its taxing scheme.
Railroads and carlines are in the host of a great number of population that consists of a large number of taxpayers, a large number of taxed property, and they are in very good company in that way.
They receive exactly the same average tax rate and assessment of every other taxpayer in the State of Oregon.
Put aside the percentages and the numbers which are designed to suggest that something else occurs, it simply does not.
Beyond that our only other point is the point we began with with this statute.
When Congress crafted subsections (1) through (3) and defined the comparison class it was not simply declining to deal with exempt property as the United States' Solicitor suggests.
It was defining discrimination in the process of doing that.
And the express policy choice plain in the text of the statute was that states may exempt property from their taxation schemes without penalty to railroads in the form of lower taxes.
That same express policy runs directly to timberland and agricultural land as to, you can no more put exempt property back in the calculus and be true to that policy choice than you can put timberland or agricultural land back in the formula as well.
It makes no sense to say that in the first three sections of the act Congress gave with one hand and then came down to the fourth and took it away.
Chief Justice Rehnquist: Thank you, Ms. Linder.
The case is submitted.
Argument of Speaker
Mr. Phillips: The opinion of the Court in No. 92-74 Department of Revenue of Oregon versus ACF Industries will be announced by Justice Kennedy.
Argument of Justice Kennedy
Mr. Kennedy: Oregon imposes an ad valorem tax upon all real and personal property within its jurisdiction except property granted an express exception and there are various classes of business personal property that are exempt.
The respondents in these case are called the Carlines and there are eight companies at least railroad cars to railroad and shippers.
Now, the railroad cars are not exempt in taxation in Oregon and the Carlines brought claim that this differential exemption scheme voilates the federal statute and that statute prohibits certain taxes against railroad property.
It is called the Railroad Revitalization and Regulatory Reform Act of 1976, otherwise known as the 4-R Act.
The question presented is whether Congress violated the 4-R Act by imposing an ad valorem tax upon railroad property while exempting various other but not all classes of commercial and industrial property.
In an opinion for the Court of some 14 pages now we attempt in detial to examine the structure and the wording to the statute to resolve the issue presented.
Now, that analysis would be somewhat insidious to explain on the bench even in a brief statement.
Suffice it to say that our holding rejects the challenge to the taxation scheme.
The exemptions Oregon granted did not discriminate its railroad property within the meaning relevant statutory sections.
We are confident that had congress to limit.
The power of the State to exempt non-railroad property from a general property tax scheme it would have spoken with precision and clarity in order to do so.
We do not find that intent to the stature.
We reverse the judgment of the Court of Appeals for the Ninth Circuit and Justine Steven has filed a dissenting opinion.