CSX TRANSPORTATION, INC. v. ALABAMA DEPARTMENT OF REVENUE
CSX Transportation, Inc. ("CSX") brought suit against the Alabama Department of Revenue in an Alabama federal district court seeking an injunction to prevent the imposition of the state's sales and use tax on diesel fuel. CSX argued that the tax discriminates against railroad companies in violate of the Railroad Revitalization and Regulatory Reform Act of 1976 ("RRRR"). The district court had granted a preliminary injunction, but of its own accord, dissolved the preliminary injunction and dismissed the case.
On appeal, the U.S. Court of Appeals for the Eleventh Circuit affirmed, holding that the district court appropriately dismissed the action. The court reasoned that because it had already ruled in favor of the Alabama Department of Revenue on an identical challenge to the tax in Norfolk S. R. v. AL Dep't of Rev., the district court was correct in dismissing CSX's suit.
Can the CSX Transportation railroad company challenge an Alabama state tax of its purchase of diesel fuel?
Legal provision: Railroad Revitalization and Regulatory Reform Act of 1976
Yes. The Supreme Court reversed and remanded the lower court decision in an opinion by Justice Elena Kagan. The majority held that a railroad could invoke the RRRR statute to challenge sales and use taxes that apply to rail carriers but exempt their competitors in the transportation industry. Justice Clarence Thomas dissented, joined by Justice Ruth Bader Ginsburg.
OPINION OF THE COURT
CSX TRANSPORTATION, INC. V. ALABAMA DEPT. OFREVENUE
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
CSX TRANSPORTATION, INC., PETITIONER v. ALABAMA DEPARTMENT OF REVENUE et al.
on writ of certiorari to the united states court of appeals for the eleventh circuit
[February 22, 2011]
Justice Kagan delivered the opinion of the Court.
The Railroad Revitalization and Regulatory Reform Act of 1976 restricts the ability of state and local governments to levy discriminatory taxes on rail carriers. We consider here whether a railroad may invoke this statute to challenge sales and use taxes that apply to rail carriers (among others), but exempt their competitors in the transportation industry. We conclude that the railroad may do so.
Congress enacted the Railroad Revitalization and Regulatory Reform Act of 1976 (Act or 4–R Act) to “restore the financial stability of the railway system of the United States,” among other purposes. §101(a), 90 Stat. 33. To help achieve this goal, Congress targeted state and local taxation schemes that discriminate against rail carriers. Burlington Northern R. Co. v. Oklahoma Tax Comm’n, 481 U. S. 454, 457 (1987). The provision of the Act at issue here, now codified at 49 U. S. C. §11501,[Footnote 1] bars States and localities from engaging in four forms of discriminatory taxation. 90 Stat. 54.
Section 11501(b) describes the prohibited practices. It begins with three provisions addressed specifically to prop- erty taxes; it concludes with a catch-all provision con- cerning other taxes. According to §11501(b), States (or their subdivisions) “may not”:
“(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 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.”
The following subsection confers jurisdiction on federal courts to “prevent a violation” of §11501(b) notwithstanding the Tax Injunction Act, 28 U. S. C. §1341, which ordinarily prohibits federal courts from enjoining the collection of state taxes when a remedy is available in state court. §11501(c).[Footnote 2]
Petitioner CSX Transportation, Inc. (CSX) is an interstate rail carrier that operates in Alabama and pays taxes there. Alabama imposes a sales tax of 4% on the gross receipts of retail businesses, Ala. Code §40–23–2(1) (2010 Cum. Supp.), and a use tax of 4% on the storage, use, or consumption of tangible personal property, §40–23–61(a) (2003). Railroads pay these taxes when they purchase or consume diesel fuel. But railroads’ main competitors—interstate motor and water carriers—are generally exempt from paying sales and use taxes on their fuel (although fuel for motor carriers is subject to a separate excise tax).[Footnote 3]
Alleging that Alabama’s tax scheme discriminates against railroads in violation of §11501(b)(4) of the 4–R Act, CSX sued respondents, the Alabama Department of Revenue and its Commissioner (Alabama or State), in Federal District Court. In particular, CSX complained that the State could not impose sales and use taxes on railroads’ purchase and consumption of diesel fuel while exempting motor and water carriers from those taxes. App. 22 (Complaint ¶26).
The District Court dismissed CSX’s suit as not cognizable under the 4–R Act, and the United States Court of Appeals for the Eleventh Circuit affirmed in a brief per curiam decision. 350 Fed. Appx. 318 (2009). The Eleventh Circuit rested on its earlier decision in Norfolk Southern R. Co. v. Alabama Dept. of Revenue, 550 F. 3d 1306 (2008), which involved a nearly identical challenge to the application of Alabama’s sales and use taxes.
In Norfolk Southern, the Eleventh Circuit rejected the plaintiff railroad’s challenge, principally in reliance on this Court’s decision in Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332 (1994). In that case, we held that a railroad could not invoke §11501(b)(4) to challenge a generally applicable property tax on the basis that certain non-railroad property was exempt from the tax. Id., at 335. The Eleventh Circuit recognized that the case before it involved sales and use taxes—not property taxes, which the statutory scheme separately addresses. Norfolk Southern, 550 F. 3d, at 1314. The court concluded, however, that this difference was immaterial, and accordingly held that a railroad could not object to Alabama’s sales and use taxes simply because the State provides exemptions from them. Id., at 1316.
CSX petitioned for a writ of certiorari, arguing that the Eleventh Circuit had misunderstood ACF Industries and noting a split of authority concerning whether railroads may bring a challenge under §11501(b)(4) to non-property taxes from which their competitors are exempt.[Footnote 4] We granted certiorari, 560 U. S. ____ (2010), and now reverse.
We begin, as in any case of statutory interpretation, with the language of the statute. Hardt v. Reliance Standard Life Ins. Co., 560 U. S. ___, ___ (2010) (slip op., at 8). Section 11501(b)(4) provides that a State may not “[i]mpose another tax that discriminates against a rail carrier.” CSX wishes to bring an action under this provision because rail carriers, but not motor or water carriers, must pay Alabama’s sales and use taxes on diesel fuel. To determine whether this suit may go forward, we must therefore answer two questions. Is CSX challenging “another tax” within the meaning of the statute? And, if so, might that tax “discriminate” against rail carriers by exempting their competitors?[Footnote 5]
An excise tax, like Alabama’s sales and use tax, is “another tax” under subsection (b)(4).[Footnote 6] The 4–R Act does not define “tax”; nor does the statute otherwise place any matters within, or exclude any matters from, the term’s ambit. In these circumstances, we look to the word’s ordinary definition, Asgrow Seed Co. v. Winterboer, 513 U. S. 179, 187 (1995), and we note what taxpayers have long since discovered—that the meaning of “tax” is expansive. A State (or other governmental entity) seeking to raise revenue may choose among multiple forms of taxation on property, income, transactions, or activities. “[A]nother tax,” as used in subsection (b)(4), is best understood to refer to all of these—more precisely, 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). See Burlington Northern R. Co. v. Superior, 932 F. 2d 1185, 1186 (CA7 1991) (Subsection (b)(4) includes “an income tax, a gross-receipts tax, a use tax, an occupation tax . . . —whatever”). The phrase “another tax” is a catch-all.
In particular, we see no reason to interpret subsection (b)(4) as applying only to the gross-receipts taxes—known as “in lieu” taxes—that some States imposed instead of property taxes at the time of the Act’s passage. See Brief for Respondents 53–55; Brief for State of Washington et al. as Amici Curiae 20–22. The argument in favor of this construction relies on the House Report concerning the bill, which described subsection (b)(4) as prohibiting “the imposition of . . . the so-called ‘in lieu tax.’ ” H. R. Rep. No. 94–725, p. 77 (1975). But the Conference Report on the final bill abandoned the House Report’s narrowing language and described the subsection as it was written—as prohibiting, without limitation, “the imposition of any other tax which results in the discriminatory treatment of any” railroad. S. Conf. Rep. No. 94–595, pp. 165–166 (1976); accord, S. Rep. No. 94–499, p. 65 (1975). And the statutory language is the real crux of the matter: Subsection (b)(4) speaks both clearly and broadly, and a legislative report misdescribing the provision cannot succeed in altering it.[Footnote 7]
Nor do we agree with the Eleventh Circuit’s apparent view that CSX does not challenge “another tax” because its complaint relies on the exemptions the State has given. See Norfolk Southern, 550 F. 3d, at 1315 (“The language of section (b)(4) prohibits a discriminatory ‘tax’ not a discriminatory tax exemption”); Brief for American Trucking Assns., Inc. as Amicus Curiae 9. What the complaint protests is Alabama’s imposition of taxes on the fuel CSX uses; what the complaint requests is that Alabama cease to collect those taxes from CSX. App. 23. The exemptions, no doubt, play a central role in CSX’s argument: They demonstrate, in CSX’s view, that the State’s sales and use taxes discriminate against railroads. See id., at 22, ¶¶24–26. But the essential subject of the complaint remains the taxes Alabama levies on CSX.
The key question thus becomes whether a tax might be said to “discriminate” against a railroad under subsection (b)(4) because the State has granted exemptions from the tax to other entities (here, the railroad’s competitors). The statute does not define “discriminates,” and so we again look to the ordinary meaning of the word. See supra, at 5. “Discrimination” is the “failure to treat all persons equally when no reasonable distinction can be found between those favored and those not favored.” Black’s Law Dictionary 534 (9th ed. 2009); accord, id., at 420 (5th ed. 1979); see also Webster’s Third New International Dictionary 648 (1976) (“discriminates” means “to make a difference in treatment or favor on a class or categorical basis in disregard of individual merit”). To charge one group of taxpayers a 2% rate and another group a 4% rate, if the groups are the same in all relevant respects, is to discriminate against the latter. That discrimination continues (indeed, it increases) if the State takes the favored group’s rate down to 0%. And that is all an exemption is. See West Lynn Creamery, Inc. v. Healy, 512 U. S. 186, 210–211 (1994) (Scalia, J., concurring in judgment) (noting that an “ ‘exemption’ from … a ‘neutral’ tax” for favored persons “is no different in principle” than “a discriminatory tax . . . imposing a higher liability” on disfavored persons). To say that such a tax (with such an exemption) does not “discriminate”—assuming the groups are similarly situated and there is no justification for the difference in treatment—is to adopt a definition of the term at odds with its natural meaning.
In line with this understanding, our decisions have repeatedly recognized that tax schemes with exemptions may be discriminatory. In Davis v. Michigan Dept. of Treasury, 489 U. S. 803 (1989), for example, we reviewed a state income tax provision that exempted retirement benefits given by the State, but not those paid by the Federal Government. We held that the tax “discriminate[d]” against federal employees under 4 U. S. C. §111, which serves to protect those employees from discriminatory state taxation. Similarly, our dormant Commerce Clause cases have often held that tax exemptions given to local businesses discriminate against interstate actors. See, e.g., Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 268–269 (1984) (holding that a state excise tax on alcohol “discriminate[d]” against interstate businesses because of exemptions granted to local producers); Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U. S. 564, 588–589 (1997) (invalidating as “discriminatory” a state property tax that exempted organizations operating for the benefit of residents, but not organizations aimed at nonresidents). And even our decision in ACF Industries, on which the Eleventh Circuit relied in dismissing CSX’s suit, made clear that tax exemptions “could be a variant of tax discrimination.” 510 U. S., at 343.
Nor does the 4–R Act limit the prohibited discrimination to state tax schemes that unjustifiably exempt local actors, as opposed to interstate entities. Alabama argues for this result, claiming that §11501(b) is designed “to protect interstate carriers against discrimination vis-À-vis local businesses.” Brief for Respondents 29. But the text of §11501(b) tells a different story. Consistent with the Act’s purpose of restoring the financial stability of railroads (not of interstate carriers generally), supra, at 1, each of subsection (b)’s provisions proscribes taxes that specially burden a rail carrier’s property or otherwise discriminate against a rail carrier. And not a single provision of the Act (including the references in subsections (b)(1)–(3) to “commercial and industrial property”) distinguishes between local and non-local taxpayers who receive favorable tax treatment. The distinctions drawn in §11501(b) are not between interstate and local actors, as the State contends, but rather between railroads and other actors, whether interstate or local. Accordingly, a state excise tax that applies to railroads but exempts their interstate competitors is subject to challenge under subsection (b)(4) as a “tax that discriminates against a rail carrier.”[Footnote 8]
As against the plain language of subsection (b)(4), Alabama offers two arguments based on our decision in ACF Industries. The first claim, which the Eleventh Circuit accepted, rests on the reasoning we adopted in ACF Industries: We concluded there that railroads could not challenge property tax exemptions under subsection (b)(4), and Alabama asserts that the same analysis applies to ex- cise (and other non-property) tax exemptions. The second contention focuses on alleged problems that would emerge in the application of §11501(b) if the rule of ACF Industries did not govern all tax exemptions. On this view, even if ACF Industries’ reasoning is irrelevant to cases involving excise taxes, its holding must extend to those cases to prevent inconsistent or anomalous results. We reject each of these arguments. We stand foursquare behind our decision in ACF Industries, but we will not extend it in the way the State wishes.
In ACF Industries, we considered whether a railroad could sue a State under subsection (b)(4) for taxing railroad property while exempting certain other commercial property. We held that the railroad could not do so. We noted that the language of subsection (b)(4), when viewed in isolation, could be read to allow such a challenge. But we reasoned that the structure of §11501 required the opposite result. 510 U. S., at 343. The Eleventh Circuit considered ACF Industries “determinative” of the question here, Norfolk Southern, 550 F. 3d, at 1313, and Alabama agrees, Brief for Respondents 18. We think they misread that decision.
We began our analysis in ACF Industries by explaining that railroads could not challenge property tax exemptions under subsections (b)(1)–(3)—the provisions of §11501 specifically addressing property taxes. As noted earlier, subsections (b)(1)–(3) prohibit a State from imposing higher property tax rates or assessment ratios on “rail transportation property” than on “other commercial and industrial property.” The statute defines “commercial and industrial property” as including only “property … subject to a property tax levy.” §11501(a)(4). We interpreted that phrase to mean “property that is taxed,” rather than property that is potentially taxable. 510 U. S., at 341–342. As a result, we determined that exempt (i.e., non-taxed) property fell outside the category of “other commercial and industrial property” against which the taxation of railroad property is measured. Ibid. The conclusion followed: Subsections (b)(1)–(3) permitted States to impose property taxes on railroads while exempting other entities. Ibid.
And because that was so, we stated, still another conclusion followed: Subsection (b)(4)’s prohibition on discrimination likewise could not encompass property tax exemptions. Id., at 343. We viewed this holding as a matter of simple deduction: “It would be illogical to conclude that Congress, having allowed the States to grant property tax exemptions in subsections (b)(1)–(3), would turn around and nullify its own choice in subsection (b)(4).” Ibid. Or stated otherwise: “[R]eading subsection (b)(4) to prohibit what” other parts of the statute were “designed to allow,” would “subvert the statutory plan” and “contravene the ‘elementary canon of construction that a statute should be interpreted so as not to render one part inoperative.’ ” Id., at 340. The structure of §11501 thus compelled our conclusion that property tax exemptions—even if “a variant of tax discrimination,” id., at 343—fell outside subsection (b)(4)’s reach.
But this structural analysis—the core of ACF Industries—has no bearing on the question here. Subsections (b)(1)–(3) specifically address—and allow—property tax exemptions. But neither those subsections nor any other provision of the 4–R Act speaks to non-property tax exemptions like those at issue in this case. Congress has expressed no intent to “allo[w] the States to grant” these exemptions. Ibid. Reading subsection (b)(4) as written—to encompass non-property tax exemptions—therefore poses no danger of “nullify[ing]” a congressional policy choice or otherwise “subvert[ing] the statutory plan.” Id., at 340, 343. To the contrary: Giving subsection (b)(4) something other than its ordinary meaning, absent any structural reason to do so, would itself contravene the expressed will of Congress.
Implicitly acknowledging that ACF Industries’ central theory is irrelevant here, Alabama focuses on what that decision called “[o]ther considerations reinforc[ing]” its structural analysis. Id., at 343. Most notably, Alabama underscores the following sentence from ACF Industries: “Given the prevalence of property tax exemptions when Congress enacted the 4–R Act, [§11501’s] silence on the subject—in light of the explicit prohibition of tax rate and assessment ratio discrimination—reflects a determination to permit the States to leave their exemptions in place.” Id., at 344. Alabama asserts that this statement “holds just as true” for sales and use taxes. Brief for Respondents 41.
That claim rings hollow. To be sure, ACF Industries noted that Congress had declined to speak “with any degree of particularity to” the permissibility of property tax exemptions, even though States often granted them. 510 U. S., at 343. But we thought that fact relevant only because Congress had spoken with particularity in proscribing other forms of discriminatory property taxes. The very sentence Alabama highlights makes our reasoning clear: Congress’s silence as to the practice of granting property tax exemptions reflected its acquiescence in that practice “in light of the explicit prohibition [in subsections (b)(1)–(3)] of [property] tax rate and assessment ratio discrimination.” Id., at 344 (emphasis added). If that explicit prohibition had not existed—if §11501(b) had consisted only of subsection (b)(4)’s broad ban on tax discrimination—we could not have gleaned what we did from congressional silence. After all, the very purpose of a catch-all provision like subsection (b)(4) is to avoid the necessity of listing each matter (here, each kind of tax discrimination) falling within it. And with respect to non-property taxes (like Alabama’s sales and use taxes), subsection (b)(4) is all there is. So here again, our analysis in ACF Industries does not apply because it rested on subsections (b)(1)–(3)—that is, on the highly reticulated scheme in the 4–R Act relating solely to property taxes.
Alabama also emphasizes our statement in ACF Industries that “ ‘[p]rinciples of federalism’ ” supported our holding, Brief for Respondents 41–43 (quoting 510 U. S., at 345), but this final effort to borrow from that decision’s analysis similarly fails. We indeed recognized in ACF Industries that the 4–R Act limits the traditional taxing power of the States. Because that is so, we expressed “hesitan[ce] to extend the statute beyond its evident scope.” 510 U. S., at 345. But here, for all the reasons already noted, we are not “extend[ing] the statute”; we are merely giving effect to its clear meaning. To reiterate: The 4–R Act distinguishes between property taxes and other taxes. Congress expressed its intent to insulate property tax exemptions from challenge; against that background, ACF Industries stated that permitting such suits would intrude on the States’ rightful authority. By contrast, Congress drafted §11501 to enable railroads to contest all other tax exemptions; and when Congress speaks in such preemptive terms, its decision must govern. Principles of federalism cannot narrow §11501’s clear scope. See, e.g., CSX Transp., Inc. v. Georgia State Bd. of Equalization, 552 U. S. 9, 20 (2007) (rejecting the idea that federalism principles preclude challenges to state valuation methodologies when §11501 “clearly authorized” such actions). Nothing in ACF Industries suggested otherwise.
Alabama additionally makes a subtler argument involving ACF Industries. Given that decision, Alabama contends, a ruling in CSX’s favor here would create troubling inconsistencies. Alabama claims that subsection (b)(4)’s singular prohibition on “discriminat[ion]” would then mean one thing for property taxes (according to ACF Industries) and another for non-property taxes, even though nothing in the statute supports “morphing definitions.” Brief for Respondents 32. And still worse than the difference in meaning would be the difference in result: A ruling for CSX, Alabama argues, would give railroads more protection against non-property taxes than against property taxes, even though no good reason exists for this distinction.
Alabama’s one-word-two-meanings argument collapses because it again rests on a misunderstanding of ACF Industries. That decision did not define “discriminat[e]” or say that a tax exemption could not fall within that term. Quite to the contrary: As noted earlier, ACF Industries frankly acknowledged that tax exemptions, including property tax exemptions, “could be a variant of tax discrimination.” 510 U. S., at 343; supra, at 9. We held that property tax exemptions were immune from challenge under subsection (b)(4) for structural, rather than linguistic, reasons. Even assuming these exemptions “discriminate[d],” they did so in a way that the specific provisions of §§11501(b)(1)–(3) allow, and accordingly §11501(b)(4)’s prohibition could not include them. That reasoning, once more, does not apply here, because subsections (b)(1)–(3) do not permit—indeed, in no way address—non-property tax exemptions. We therefore do not adopt a new definition of “discriminate” in this case; in the context of the 4–R Act, that word has, and has always had, just one meaning.
What remains is Alabama’s complaint that a ruling in CSX’s favor, when combined with our decision in ACF Industries, will result in divergent treatment of property and non-property taxes. At times, Alabama dresses up this objection in Latin: It contends that the canon of ejusdem generis, which “limits general terms [that] follow specific ones to matters similar to those specified,” Gooch v. United States, 297 U. S. 124, 128 (1936), has a role to play in interpreting §11501(b). More particularly, Alabama contends that this canon supports reading into §11501(b)(4) every limitation contained in §§11501(b)(1)–(3), including the exclusion of tax exemptions from the class of state actions subject to challenge. See Brief for Respondents 26–27. That interpretive move, Alabama rightly notes, would ensure equal treatment of property tax and non-property tax exemptions.
But we think ejusdem generis is not relevant here. As an initial matter, subsection (b)(4), “[a]lthough something of a catchall, . . . is not a general or collective term following a list of specific items to which a particular statutory command is applicable (e.g., ‘fishing rods, nets, hooks, bobbers, sinkers, and other equipment’).” United States v. Aguilar, 515 U. S. 593, 615 (1995) (Scalia, J., concurring in part and dissenting in part). Rather, that subsection is “one of . . . several distinct and independent prohibitions.” Ibid. Related to this structural point is a functional one. We typically use ejusdem generis to ensure that a general word will not render specific words meaningless. E.g., Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 114–115 (2001); see 2A N. Singer, Sutherland on Statutes and Statutory Construction §47:17 (7th ed. 2007). But that concern is absent here. Reading subsection (b)(4) to cover non-property tax exemptions will not deprive subsections (b)(1)–(3) of effect, because those subsections are addressed only to property taxes. A canon meaning literally “of the same kind” has no application to provisions directed toward dissimilar subject matter.
The better version of Alabama’s claim reads entirely in English; it is simply that distinguishing between property tax exemptions and other tax exemptions makes not a whit of sense. We are not much inclined to disagree. Neither CSX nor the United States as amicus curiae has offered a satisfying reason for why Congress drew this line—why in §§11501(b)(1)–(3) it barred challenges based on property tax exemptions, but then turned around in §11501(b)(4) to allow challenges based on, say, excise tax exemptions. See Tr. of Oral Arg. 4–5, 24–25. CSX, for example, has not presented any evidence that different tax exemptions posed different levels of threat to railroads’ financial stability. So even if Congress had a good reason for distinguishing between property and non-property tax exemptions, we acknowledge that it eludes us.
But this admission does not take us far in Alabama’s direction. Even if the 4–R Act were ambiguous, we doubt we would interpret subsection (b)(4) to replicate each facet of subsections (b)(1)–(3). Treating property tax exemptions and other tax exemptions equivalently might make sense, as Alabama argues. But so too might allowing railroads to challenge all taxes (property or non-property) that contain exemptions. After all, as we noted earlier, tax exemptions are an obvious form of tax discrimination. See supra, at 8–9. It is hardly self-evident why Congress would prohibit a State from charging a railroad a 4% tax and a competitor a 2% tax, but allow the State to charge the railroad a 4% tax and the competitor nothing. The latter situation would frustrate the purposes of the Act even more than the former. In ACF Industries, we accepted that anomaly because the terms and structure of the Act demanded that we do so. But we could say no more in favor of the result than that it was “not so bizarre that Congress could not have intended it.” 510 U. S., at 347 (internal quotation marks omitted). That was not a glowing recommendation, and we see no reason today to view the matter differently. Accordingly, even assuming that statutory ambiguity permitted us to do so, we would hesitate to extend the distinction between tax exemptions and differential tax rates in order to avoid a distinction between property and non-property taxes. That would seem a poor trade of statutory anomalies.
In any event, and more importantly, the choice is not ours to make. Congress wrote the statute it wrote, and that statute draws a sharp line between property taxes and other taxes. Congress drafted §§11501(b)(1)–(3) to exclude tax exemptions from the sphere of prohibited property tax discrimination. But it drafted §11501(b)(4) more broadly, without any of the prior subsections’ limitations, to proscribe other “tax[es] that discriminat[e],” including through the use of exemptions. That congressional election settles this case. Alabama’s preference for symmetry cannot trump an asymmetrical statute. And its preference for the greatest possible latitude to levy taxes cannot trump Congress’s decision to restrict discriminatory taxation of rail carriers.
Our decision in this case is limited. We hold that CSX may challenge Alabama’s sales and use taxes as “tax[es] that discriminat[e] against … rail carrier[s]” under §11501(b)(4). We do not address whether CSX should prevail in that challenge—whether, that is, Alabama’s taxes in fact discriminate against railroads by exempting interstate motor and water carriers. Alabama argues, in support of barring CSX’s challenge at the outset, that this inquiry into discrimination may pose difficulties. Brief for Respondents 35–37. We cannot deny that assertion, but neither can we respond to it by precluding CSX’s claim. Discrimination cases sometimes do raise knotty questions about whether and when dissimilar treatment is adequately justified. In the context of the 4–R Act, those hard calls can arise when States charge different tax rates to different entities in a practice the statute specifically subjects to challenge. See §11501(b)(3). So too, difficult issues can emerge when, as here, States provide certain entities with tax exemptions. In either case, Congress has directed the federal courts to review a railroad’s challenge; and in either case, we would flout the congressional command were we to declare the matter beyond us.
For the reasons stated, we reverse the judgment of the Eleventh Circuit and remand the case for further proceedings consistent with this opinion.
It is so ordered.Footnote 1
This provision was originally codified at 49 U. S. C. §26c (1976 ed.). In 1978, Congress recodified it at §11503 (1976 ed., Supp. II), with slightly altered language but “without substantive change,” §3(a), 92 Stat. 1466. In 1995, Congress again recodified the section without substantive change, this time at 49 U. S. C. §11501. This opinion refers to the statute’s current text.Footnote 2
The first sentence of subsection (c) provides: “Notwithstanding section 1341 of title 28 … a district court of the United States has jurisdiction … to prevent a violation of subsection (b) of this section.” The next sentence concerns the relief available for violations of §§11501(b)(1) and (2): “Relief may be granted under this subsection only if the ratio of assessed value to true market value of rail transportation property exceeds by at least 5 percent the ratio of assessed value to true market value of other commercial and industrial property in the same assessment jurisdiction.”Footnote 3
State law provides that motor carriers need not pay sales or use taxes on diesel fuel so long as they pay a different excise tax of $0.19 per gallon. Ala. Code §40–17–2(1) (2003) (primary tax of $0.13 per gallon); §40–17–220(e) (2010 Cum. Supp.) (additional tax of $0.06 per gallon). State law wholly exempts interstate water carriers from sales and use taxes on diesel fuel. §40–23–4(a)(10); §40–23–62(12). Nor do these water carriers pay any other tax on the fuel they purchase or consume. Brief for Respondents 16.Footnote 4
Compare Norfolk Southern R. Co. v. Alabama Dept. of Revenue, 550 F. 3d 1306, 1316 (CA11 2008), and Atchison, T. & S. F. R. Co. v. Arizona, 78 F. 3d 438, 443 (CA9 1996) (rejecting a railroad’s challenge to a use tax that exempted motor carriers), with Burlington N., S. F. R. Co. v. Lohman, 193 F. 3d 984, 986 (CA8 1999) (entertaining a challenge to a sales and use tax that exempted rail carriers’ competitors), Burlington No. R. Co. v. Commissioner of Revenue, 606 N. W. 2d 54, 58–59 (Minn. 2000) (same), and Atchison, T. & S. F. R. Co. v. Bair, 338 N. W. 2d 338, 348 (Iowa 1983) (same).Footnote 5
We consider here only questions relating to whether CSX can bring a claim for discrimination based on the State’s pattern of tax exemptions. We do not consider any issues concerning whether these exemptions actually discriminate against CSX. See infra, at 18–19, and n. 8. Alabama has raised two such issues in this Court. First, Alabama contends that in deciding CSX’s claim, a federal court must consider not only the specific taxes challenged, but also the broader tax scheme. Brief for Respondents 58–60. Second, the State argues that the court must compare the taxation of CSX not merely to direct competitors but to other commercial entities as well. Id., at 48, n. 7. Most of the dissenting opinion is devoted to supporting the State’s argument on this second question. But we leave these and all other issues relating to whether Alabama actually has discriminated against CSX to the trial court on remand to address as and when it wishes. No court in this case has previously considered these questions, and the parties’ briefs in this Court have only sketchily addressed them. In addition, the parties dispute whether Alabama waived its claim on the second issue by initially agreeing that “the comparison class consists of motor carriers and water carriers,” App. to Pet. for Cert. 12a (internal quotation marks omitted), and proceeding with the litigation on that basis. We think this question of waiver is also best considered by the trial court.Footnote 6
As originally enacted, the provision that is now 49 U. S. C. §11501(b)(4) prohibited the imposition of “any other tax” that discriminates against a railroad. §26c (1976 ed.). The substitution of “another tax” occurred when Congress first recodified the Act. In line with Congress’s statement that revisions made at that time should not be construed as having substantive effect, see n. 1, supra, we treat the two terms as synonymous.Footnote 7
Alabama also invokes the remedial provision of subsection (c), n. 2, supra, to urge that we read §11501 as effectively limited to property or “in lieu” taxes. According to Alabama, that provision entitles federal courts to grant relief only when States overvalue railroad property under subsections (b)(1) and (b)(2): Federal courts, the State avers, “have no power to enjoin the granting of tax exemptions as a violation of subsection (b)(4), or, apparently [to remedy] any violation of sub- section (b)(4).” Brief for Respondents 37. But that interpretation of subsection (c)’s remedial provision cannot be right, because it would nullify subsection (b)(4) (and, for that matter, subsection (b)(3) as well). We understand subsection (c)’s remedial provision neither as limiting the broad grant of jurisdiction to federal courts to prevent violations of subsection (b) nor as otherwise restricting the scope of that subsection. The remedial provision simply limits the availability of relief when a State discriminates in assessing the value of railroad property, as proscribed by subsections (b)(1) and (b)(2). That kind of discrimination is not at issue here.Footnote 8
This conclusion does not, as Alabama and the dissent contend, turn railroads into “most-favored-taxpayers,” entitled to any exemption (or other tax break) that a State gives to another entity. See Brief for Respondents 23; post, at 9 (opinion of Thomas, J.). We hold only that §11501(b)(4) enables a railroad to challenge an excise or other non-property tax as discriminatory on the basis of the tax scheme’s exemptions—as the dissent apparently agrees, post, at 1. Whether the railroad will prevail—that is, whether it can prove the alleged discrimination—depends on whether the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers. See supra, at 8; Brief for United States as Amicus Curiae 25–26; Richmond, F. & P. R. Co. v. Department of Taxation, Commonwealth of Va., 762 F. 2d 375, 380–381, and n. 4 (CA4 1985). So if, to use the dissent’s example, a railroad challenged a scheme in which “every person and business in the State of Alabama paid a $1 annual tax, and one person was exempt,” post, at 9, for some reason having nothing to do with railroads, we presume the suit would be promptly dismissed. Nothing in this application of §11501(b)(4) offers a “windfall” to railroads. Ibid.
The dissent argues in addition that a State should prevail against any claim of discrimination brought under subsection (b)(4) if it can demonstrate that a tax does not “target” or “single out” a railroad, post, at 1; that showing, without more, would justify the tax (although the dissent declines to say just what it means to “target,” post, at 7, n. 3). This argument primarily concerns the question whether Alabama’s tax scheme in fact discriminates under subsection (b)(4)—a question we have explained is inappropriate to address, see n. 5, supra. We note, however, that the dissent’s argument about subsection (b)(4) rests entirely on the premise that subsections (b)(1)–(3) prohibit only property taxes that “target” or “single out” railroads, see post, at 4; so, the dissent would say, a State may impose a 4% property tax on railroads (assuming some unspecified number of other taxpayers also pay that rate) while levying only a 2% property tax on railroad competitors. But we have never decided, in ACF Industries or any other case, whether subsections (b)(1)–(3) should be interpreted in this manner. And even accepting the dissent’s unexplained premise, a serious question would remain about whether to transplant this construction of subsections (b)(1)–(3) to subsection (b)(4)’s very different terrain, see infra, at 16–18.
THOMAS, J., DISSENTING
CSX TRANSPORTATION, INC. V. ALABAMA DEPT. OF REVENUE
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
CSX TRANSPORTATION, INC., PETITIONER v. ALABAMA DEPARTMENT OF REVENUE et al.
on writ of certiorari to the united states court of appeals for the eleventh circuit
[February 22, 2011]
Justice Thomas, with whom Justice Ginsburg joins, dissenting.
I agree with the Court that Alabama’s sales and use taxes are “another tax” within the meaning of 49 U. S. C. §11501(b)(4) and that a scheme of tax exemptions is capable of making a tax discriminatory. Ante, at 6–8. As a general matter, therefore, I agree that Alabama’s sales and use taxes could potentially violate subsection (b)(4), and would do so if their exemptions “discriminate[d] against a rail carrier.” §11501(b)(4). The majority’s holding stops there, see ante, at 10, n. 8, but I would go on.
I would hold that, to violate §11501(b)(4), a tax exemption scheme must target or single out railroads by comparison to general commercial and industrial taxpayers. Although parts of the majority’s discussion appear to question this standard, see ante, at 8–11, the limited holding does not foreclose it. Because CSX cannot prove facts that would satisfy that standard in this case, I would affirm.
In my view, “another tax that discriminates against a rail carrier” in §11501(b)(4) means a tax—or tax exemption scheme—that targets or singles out railroads as compared to other commercial and industrial taxpayers. That reading settles the ambiguity in the word “discriminates” by reference to the rest of the statute and gives subsection (b)(4) a reach consistent with the problem the statute addressed.
“Discriminates,” standing alone, is a flexible word. Compare, e.g., Clackamas Gastroenterology Associates, P. C. v. Wells, 538 U. S. 440, 446 (2003) (“[T]he statutory purpose of [the Americans with Disabilities Act of 1990 is] ridding the Nation of the evil of discrimination”), with Davis v. Bandemer, 478 U. S. 109, 132 (1986) (plurality opinion) (“[U]nconstitutional discrimination occurs only when the electoral system is arranged in a manner that will consistently degrade a voter’s or a group of voters’ influence”); and United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority, 550 U. S. 330, 338 (2007) (“In this context, ‘discrimination’ simply means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter” (some internal quotation marks omitted)).
Even though “discriminate” has a general legal meaning relating to differential treatment, its precise contours still depend on its context. See Guardians Assn. v. Civil Serv. Comm’n of New York City, 463 U. S. 582, 592 (1983) (opinion of White, J.) (“The language of Title VI on its face is ambiguous; the word ‘discrimination’ is inherently so”); Regents of Univ. of Cal. v. Bakke, 438 U. S. 265, 284 (1978) (opinion of Powell, J.) (“The concept of ‘discrimination’ … is susceptible of varying interpretations”). Here, the word “discriminates” in subsection (b)(4) is ambiguous as to the appropriate comparison class. Burlington Northern R. Co. v. Commissioner of Revenue, 509 N. W. 2d 551, 553 (Minn. 1993) (“To be discriminatory, a tax must be discriminatory as compared to someone else”). It is also ambiguous as to what type of difference is required to violate the statute—e.g., any distinction, singling out, or something in between.
Therefore, I would use the context to resolve the meaning of the word as it is used in subsection (b)(4). See Robinson v. Shell Oil Co., 519 U. S. 337, 341 (1997) (statutory interpretation focuses on “the language itself, the specific context in which that language is used, and the broader context of the statute as a whole”). We did precisely that in Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332 (1994), where we similarly faced a question about the meaning of subsection (b)(4). In that case, our structural analysis of §11501(b) was “central to the interpretation of subsection (b)(4).” Id., at 340.
The structure of §11501(b) is straightforward. Subsections (b)(1) through (3) instruct that States may not assess railroad property at “a higher ratio to the true market value … than … other commercial and industrial property,” 49 U. S. C. §11501(b)(1), collect taxes based on those inflated assessments, §11501(b)(2), or set property tax rates for railroad property higher than that “applicable to commercial and industrial property” in the same assessment jurisdiction, §11501(b)(3). Subsection (b)(4) then forbids “[i]mpos[ing] another tax that discriminates against a rail carrier.”
I would look to subsections (b)(1) through (3) to determine the meaning of “discriminates” in (b)(4). As many lower courts have correctly recognized, subsection (b)(4) is a residual clause, naturally appurtenant to subsections (b)(1) through (3).[Footnote 1] Moreover, the phrase “another tax that discriminates” in subsection (b)(4) suggests that the previous subsections all describe taxes that “discriminate” in a manner similar to that forbidden by subsection (b)(4). See Washington State Dept. of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U. S. 371, 384 (2003) (reading the phrase “other legal process” restrictively because “where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words” (internal quotation marks and brackets omitted)).
Subsections (b)(1) through (3) each prohibit particular types of state taxes that target or single out railroad property for less favorable tax treatment than other commercial and industrial property. First, the “discriminat[ion]” addressed in subsections (b)(1) through (3) can only be described as taxes that target or single out railroad property. Those subsections specifically concern taxes that affect railroad property differently from the way they affect a larger class of comparative taxpayers’ property. See §§11501(b)(1)–(3); cf. ante, at 9 (“[E]ach of subsection (b)’s provisions proscribes taxes that specially burden a rail carrier’s property or otherwise discriminate against a rail carrier” (emphasis deleted)). Second, each subsection refers to the same comparison class—other “commercial and industrial property.” §§11501(b)(1)–(3).
I think it follows that, under subsection (b)(4), a tax “discriminates against a rail carrier” if it similarly targets railroads for tax treatment less favorable than other commercial and industrial taxpayers. As we found in ACF Industries, the structure of the statute provides a light by which to navigate the meaning of subsection (b)(4).
The background of §11501(b) also supports this understanding of subsection (b)(4). In previous cases, we have identified the problem that made subsection (b) necessary. At the time the Railroad Revitalization and Regulatory Reform Act (4–R Act) was enacted, it was clear that “railroads ‘ “are easy prey for State and local tax assessors” in that they are “nonvoting, often nonresident, targets for local taxation,” who cannot easily remove themselves from the locality.’ ” ACF Industries, supra, at 336 (quoting Western Air Lines, Inc. v. Board of Equalization of S. D., 480 U. S. 123, 131 (1987) (quoting, in turn, S. Rep. No. 91–630, p. 3 (1969))). The “temptation to excessively tax nonvoting, nonresident businesses … made federal legislation in this area necessary.” Western Air Lines, supra, at 131; see also Burlington Northern R. Co. v. Oklahoma Tax Comm’n, 481 U. S. 454, 457 (1987) (noting that “[a]fter an extended period of congressional investigation, Congress concluded that ‘railroads are over-taxed by at least $50 million each year’ ” (quoting H. R. Rep. No. 94–725, p. 78 (1975))).
In other words, §11501(b) responded primarily to what its text describes—property taxes that soaked the railroads. The obvious rationale supporting subsections (b)(1) through (3) is that the “way to prevent tax discrimination against the railroads is to tie their tax fate to the fate of a large and local group of taxpayers.” Kansas City Southern R. Co. v. McNamara, 817 F. 2d 368, 375 (CA5 1987); see also Atchison, T. & S. F. R. Co. v. Arizona, 78 F. 3d 438, 441 (CA9 1996). In this way, subsections (b)(1) through (3) establish a political check on the taxation of rail- roads. States cannot impose excessive property taxes on the nonvoting, nonresident railroads without imposing the same taxes more generally on voting, resident local businesses.
Absent any indication that subsection (b)(4), as a residual clause, has any different aim, it is reasonable to conclude that it shares the same one as subsections (b)(1) through (3). See, e.g., Kansas City Southern R. Co., supra, at 373–374 (Congress included subsection (b)(4) “to ensure that states did not shift to new forms of tax discrimination outside the letter of the first three subsections”); Burlington Northern R. Co. v. Superior, 932 F. 2d 1185, 1186 (CA7 1991) (“Subsection (b)(4) is … designed to prevent the state from accomplishing the forbidden end of discriminating against railroads by substituting another type of tax”). Subsection (b)(4) should be understood to tackle the issue of systemic railroad over-taxation the same way that the other subsections do—by linking the taxation of railroads to the taxation of businesses with local political influence. Thus, a “tax that discriminates against a rail carrier” is a tax that targets or singles out rail carriers compared to commercial and industrial taxpayers.
Under this test, CSX’s complaint was properly dismissed. CSX has not alleged that Alabama’s sales and use taxes target railroads compared to general commercial and industrial taxpayers. See ACF Industries, 510 U. S., at 346–347 (leaving open a case in which “railroads—either alone or as part of some isolated and targeted group—are the only commercial entities” subject to a tax); Norfolk Southern R. Co. v. Alabama Dept. of Revenue, 550 F. 3d 1306, 1316 (CA11 2008). CSX alleges that it paid a tax on its fuel that certain rail competitors did not have to pay. But it concedes, as it must, that the sales and use taxes are “generally applicable.” Pet. for Cert. i; see Ala. Code §40–23–2(1) (2010 Cum. Supp.) (imposing a four percent sales tax on “every person, firm, or corporation … selling at retail any tangible personal property whatsoever”); §40–23–61(a) (2003); see also Norfolk Southern R. Co., supra, at 1316; Tr. of Oral Arg. 36.
Discrete exemptions for certain railroad competitors—namely, fuel exemptions for interstate motor carriers and interstate ships and barges—do not make a generally applicable tax “discriminat[ory]” under subsection (b)(4). Widespread exemptions could theoretically cause a facially general tax to target railroads, but the limited exemptions at issue here do not suggest that, and CSX has not argued it.[Footnote 2] Accordingly, CSX has not stated a cognizable claim for discrimination under §11501(b)(4).
The Court does not settle the ambiguity in the word “discriminates” in subsection (b)(4)—leaving open both the appropriate comparison class and the type of differential treatment required to constitute discrimination.[Footnote 3] The majority “hold[s] only that §11501(b)(4) enables a railroad to challenge an excise or other non-property tax as discriminatory on the basis of the tax scheme’s exemptions.” Ante, at 10, n. 8. Thus, when the majority says that “a state excise tax that applies to railroads but exempts their interstate competitors is subject to challenge under subsection (b)(4),” ante, at 10, it must mean only that a tax exemption scheme could potentially violate subsection (b)(4).
As I understand it, the majority does not decide whether CSX has stated a claim even in this case but instead leaves that issue for remand. Accordingly, States remain free to argue—and lower courts to hold—that complaints like CSX’s should be dismissed for failing to state a “discriminat[ion]” claim under §11501(b)(4) when they do not allege that railroads are targeted or singled out compared to commercial and industrial taxpayers generally.
Nonetheless, despite the majority’s assertion that it is “inappropriate” to address whether Alabama’s tax scheme actually discriminates within the meaning of §11501(b)(4), ante, at 10, n. 8, parts of its opinion suggest an answer to that question that I believe is incorrect. Relying on the second definition in Black’s Law Dictionary, the majority defines “discriminates” as “ ‘failure to treat all persons equally when no reasonable distinction can be found between those favored and those not favored.’ ” Ante, at 8. This definition of “discriminate,” combined with the majority’s insistence that the “distinctions drawn in §11501(b) are … between railroads and other actors, whether interstate or local,” suggests that the comparison class could be anyone.[Footnote 4] Ante, at 10. The majority ultimately implies that “another tax that discriminates against a rail carrier” is any tax that draws a distinction between a rail carrier and anyone else without sufficient justification. See ante, at 10, n. 8 (“Whether the railroad will prevail … depends on whether the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers”).
I do not read subsection (b)(4) so independently of (b)(1) through (3). Perhaps, as the majority asserts, subsection (b)(4) is not an ideal candidate for ejusdem generis. Ante, at 16–17. But given the ambiguity of subsection (b)(4), (b)(1) through (3) are the best guides for understanding its proper scope—something we recognized in ACF Industries. 510 U. S., at 343. It is more reasonable to discern the meaning of “discriminates” in subsection (b)(4) using the preceding subsections than to pluck from the dictionary a definition for such a context-dependent term.
Detaching subsection (b)(4) from the rest of the section would expand its meaning well beyond the scope of the problem that necessitated §11501(b). Instead of simply eliminating the particular vulnerability of railroads by tying their tax fate to that of general commercial and industrial taxpayers, railroads would receive a surprising windfall: most-favored taxpayer status. This would convert subsection (b)(4) from a shield into a sword.
The implication of the majority opinion is that if every person and business in the State of Alabama paid a $1 annual tax, and one person was exempt, CSX could sue under subsection (b)(4) and require the State to either exempt CSX also or “offe[r] a sufficient justification” for the distinction. See ante, at 10, n. 8. Although the majority denies that this would provide railroads most-favored-taxpayer status, see ibid., it acknowledges that States would have to justify any tax distinction that railroads argue may disfavor them.
The only bulwark against requiring States to give railroads every tax exemption that anyone else gets would be open-ended judicial determinations of what is “sufficient justification” for such distinctions. Ibid. Unsurprisingly, the statute provides no guidance for what “sufficient justification” might mean, but neither does the majority. There are all sorts of reasons that might lead a State to distinguish between railroads and others for tax purposes. See Tr. of Oral Arg. 58. For instance, in this case, Alabama points out that motor carriers and interstate water carriers pay a separate—and frequently higher—tax on fuel from which railroads are effectively exempt. Brief for Respondents 12–16, 59–60. That might be a “sufficient justification” for their exemptions from the taxes here, but the majority expressly disclaims reaching that question. Ante, at 5, n. 5.[Footnote 5] Of course, logically extending the meaning of “discriminates” from subsections (b)(1) through (3) would avoid this problem, as there is no need for “justification” at all: A tax either targets railroads by comparison to commercial and industrial taxpayers or it does not.
* * *
I disagree with the meaning of “discriminat[e]” in subsection (b)(4) that the majority seems to imply. The rest of §11501(b) provides a logical and coherent way to determine what subsection (b)(4) means, and we have used that methodology before. See ACF Industries, 510 U. S., at 340. The best way to read subsection (b)(4) is as prohibiting taxes that target or single out railroads as compared to general commercial and industrial taxpayers. That is the test I would establish, and I do not understand the majority to foreclose the lower courts from utilizing it. Under that test, CSX’s challenge to Alabama’s sales and use taxes was properly dismissed. Accordingly, I respectfully dissent.Footnote 1
See, e.g., Kansas City Southern R. Co. v. McNamara, 817 F. 2d 368, 373–374 (CA5 1987); Burlington Northern R. Co. v. Superior, 932 F. 2d 1185, 1186 (CA7 1991); Alabama Great Southern R. Co. v. Eagerton, 663 F. 2d 1036, 1041 (CA11 1981).Footnote 2
Although the majority rightly observes that whether a given tax is discriminatory may often be a difficult question, see ante, at 19, this is not a close case. I therefore need not define the exact boundaries of what constitutes targeting or singling out. See, e.g., Norfolk Southern R. Co. v. Alabama Dept. of Revenue, 550 F. 3d 1306, 1316, n. 16 (CA11 2008) (listing examples of courts finding railroads targeted by various state tax schemes).Footnote 3
The majority declines to reach the comparison class issue. But the question presented was: “Whether a State’s exemptions of rail carrier competitors, but not rail carriers, from generally applicable sales and use taxes on fuel subject the taxes to challenge under 49 U. S. C. §11501(b)(4) as ‘another tax that discriminates against a rail carrier.’ ” The question presented thus asks whether CSX can challenge a “generally applicable” tax based on exemptions granted to rail competitors—a straightforward comparison class issue. The lower courts have split over the proper scope of the comparison class, and the issue was presented in this case. I would decide it.Footnote 4
A comparison class of “anyone” is broader than either of the sides in the lower courts’ split on this issue. Courts usually disagree over whether to use commercial and industrial taxpayers or railroad competitors as the comparison class. Compare Burlington Northern, S. F. R. Co. v. Lohman, 193 F. 3d 984, 985–986 (CA8 1999) (applying a comparison class of rail competitors); Burlington Northern R. Co. v. Commissioner of Revenue, 509 N. W. 2d 551, 553 (Minn. 1993) (same), with Kansas City Southern R. Co., 817 F. 2d, at 375 (using commercial and industrial taxpayers as the comparison class); Atchison, T. & S. F. R. Co. v. Arizona, 78 F. 3d 438, 441 (CA9 1996) (same).Footnote 5
The majority appears to consider “sufficient justification” as a potential defense for the State, see ante, at 10, n. 8, but since it derives from the meaning of “discriminates,” a lack of sufficient justification would seem to be a part of what a railroad would have to plead in order to state a claim for a violation of §11501(b)(4).
ORAL ARGUMENT OF CARTER G. PHILLIPS ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We will hear argument first this morning in Case 09-520, CSX Transportation v. The Alabama Department of Revenue.
Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:
The pivotal, and in my judgment, incorrect holding of the Eleventh Circuit in the Norfolk Southern case is reproduced in the appendix to this case, because Norfolk Southern is the controlling precedent for our -- for our particular dispute.
And at page 29A of the appendix to the petition, in there, the court of appeals said that there is nothing in the 4-R Act's plain language that indicates an intent to reach exemptions content from generally applicable sales and use taxes.
To our way of thinking, all this case is about: Whether or not the State has free reign to employ exemptions without exposing the effects of those exemptions to a challenge under (b)(4) of the statute.
Justice Anthony Kennedy: But in light of our AFC case, it seems to me that what you are arguing is that the statute -- the effect of your argument is that the statute gives more protection in the case of non-property taxes than property taxes, and that's an -- an odd reading of the statute, which is directed primarily to the -- to the property tax.
Mr. Phillips: No, I think, Justice Kennedy, what we are doing is recognizing that Congress was very specific and very explicit about how to treat property taxes and set up an entire quite carefully articulated scheme in dealing with them in (b)(1) and (b)(3), and then said, in general, when you are dealing with areas that are not approved by (b)(1) and (b)(3), then you have to examine whether or not the overall scheme, in fact, discriminates against rail carriers.
So, while it is true that there could be circumstances in which you may end up with somewhat more protection as a consequence of (b)(4), I think that's a function of Congress not having limited the (b)(4) exemption to property, and just saying it's -- it's a discrimination against the rail carrier generally that the statute is aimed to prevent or to protect against.
Justice Elena Kagan: But what's the -- what's the possible rationale for that distinction?
Why would that distinction make any sense?
Mr. Phillips: Well, I think because Congress didn't have the full run mine of possibilities in front of it at that point in time.
I mean, it probably had some sense of what other taxes were out there that might pose discrimination, but I do think that Congress is very much concerned that the States, once they saw the roadmap laid out for them in (b)(1) through (b)(3), might seek other ways to recoup what they were going to lose in revenues when the 3-year period lapsed, and to be in a position to protect the railroads in the (b)(4) -- through (b)(4) in a situation when there would be future actions taken by the States.
Justice Sonia Sotomayor: --in the legislative record?
Mr. Phillips: Not -- there's very little in the legislative record, Your Honor, because the -- the specific formulation of -- of this (b)(4) catch-all provision comes in very, very late in the 15-year process.
Every other lower court that -- every lower court that has looked at it has drawn the inference, which seems to me the only fair inference to draw, when Congress said: Look, this is not just for in lieu taxes.
I mean, there was -- there was some debate about that going on between the House and the Senate, and the conference committee makes it clear.
This is not just something that's adopted by the States in lieu of a broader property tax.
It is intended, then, to have, I think, the language that you would normally give to a term as broad and sweeping as any other tax that discriminates against rail carriers.
Justice Antonin Scalia: Mr. Phillips, this is what troubles me about -- about your position: You make a viscerally appealing case on the facts of this case, where you say that your clients, the railroads, are being taxed more than competing carriers, truckers and -- and water carriers.
But if all -- if all it says is 85 and doesn't make the same exemption for railroads, the railroads win, right?
Mr. Phillips: That -- that -- no, I don't believe that's the necessary--
Justice Antonin Scalia: Why?
How do you limit the term "discrimination"?
Just a discrimination in favor of other competing carriers?
Mr. Phillips: --Well, I think it -- it is discrimination that Congress would have intended to prohibit under these circumstances.
So I think in the situation where you are talking about a single exemption for some group that does not compete or otherwise do any business with the railroads, we would not have a basis for saying they were similarly situated--
Justice Antonin Scalia: Why -- why do you assume that?
Congress didn't limit it to that in -- in the property tax exemption.
Mr. Phillips: --Well, it -- it did to some extent, because there was a whole question about how -- you know, you had a whole comparative class that Congress defines in the property context.
So you make a context between the industrial and commercial property and the railroads' property.
So Congress defined the comparison class, but I don't think it's fair--
Justice Antonin Scalia: But not -- not just the industrial and -- and commercial competitors with the railroads.
The railroads were to be given, you know, the most favored treatment of -- of all the industrial and -- and commercial entities, I -- I think.
Mr. Phillips: --To be sure, Justice Scalia, but it was still as compared to the entirety of the industrial and commercial property base, and it was -- and the analysis has traditionally been the averages of the commercial industrial property.
So you -- and part of the problem here -- it's not a problem, but, you know, one of the reasons why you can't make direct comparisons is that because of ACF Industries, you don't evaluate exemptions under (b)(1) to (b)(3)--
Justice Anthony Kennedy: But in this case -- correct me if I'm wrong -- off-road users, agricultural users, and construction and timber companies--
Mr. Phillips: --Right.
Justice Anthony Kennedy: --have the same -- have the same tax structure as the railroads.
Mr. Phillips: Right.
Justice Anthony Kennedy: So there is an objective reference, neutral, and it seems to me that that's just quite rational to put the railroads there and not in the category of road -- road users.
Now, if -- unless you are arguing the discrimination has to have -- has to have a purposive component.
That might give you a different case.
I'm not sure you prevail on that, either.
Mr. Phillips: Well, but -- remember, Justice Kennedy, we don't even get to this issue if what you say is we are going to take all exemptions off the table.
And I guess I would go back to Justice Scalia's point, which is that there is a reason why this is a viscerally satisfying case, because we are talking here about a discrimination.
You know, when Congress says, we want to -- we want to eliminate any tax that discriminates against, the one thing it seems to me, clearly, Congress did not intend to exclude from that was a tax that discriminates against the -- the immediate direct competitors of the railroads in a way that would undoubtedly undermine the stability of the -- the financial stability and success of the railroad.
Justice Ruth Bader Ginsburg: I thought the concern was that the interstate actors should not be disadvantaged vis-a-vis the home people, the local businesses, and that was what was achieved.
But you're -- you are not complaining about discrimination against a railroad in comparison to local businesses.
You -- you are complaining about that you are not getting most-favored-nations treatment vis-a-vis other interstate carriers.
Mr. Phillips: That's -- that's correct, Justice Ginsberg, but I think the premise of your -- of your question is the place where we would probably differ, which is: To be sure, Congress intended to protect interstate carriers against discrimination in favor of local operations.
That's clear in (b)(1) through (b)(3) and otherwise pervades the legislative history.
But there is also a significant amount of discussion in that same legislative history to encourage intermodal competition; that is, competition between the railroads and others, both intrastate and interstate.
And so it seems to me that the statute that's -- that prohibits all discrimination against rail carriers, identified as carriers--
Justice Anthony Kennedy: Suppose a -- suppose a tax were structured so that the same tax applied to railroads and -- and -- and motor transport, but because of the way the tax was assessed, the railroads paid far more per mile than -- than the -- than the road transport.
Could the railroad then come in and say: Oh, we want to be like the farmers; we are off-road?
I mean, I can see you making that argument--
Mr. Phillips: --I can see us making that argument--
Justice Anthony Kennedy: --in case -- in case number two, welcome back.
That's going to be your argument.
Mr. Phillips: --Well, I always like to come back, but I don't -- I think the answer to that is -- again, I think the -- the Court ought to interpret the term "discrimination" against the clear objectives that Congress intended to fulfill when it protected the railroads this way.
And the two protections that are embedded in there is one that Justice Ginsberg identified, which was to protect them against local interests in a way where they had no political influence, and the other one is to protect them against their direct competitors in the intermodal competition realm.
And if it's -- if it's a discrimination that doesn't achieve either of those, then it seems to me you either say they are -- are not similarly situated or you would held -- you would hold that the State has a legitimate reason for doing what it's doing, and that that's just not a discrimination within the meaning of the statute.
Justice Antonin Scalia: So -- so 85-year-old widows would be covered?
That would be discrimination because, you know, there are only resident 85-year-old widows who are covered, right?
Mr. Phillips: Well, they would have -- they would be, to be sure, local interests.
But I think the problem with this is, and it goes to the core argument that the State makes, which is: How are you supposed to define "local business" for these purposes.
And I don't think the -- the answer to that is: I have no way to know that, because Congress didn't purport to define the comparison class for purposes of (b)(4).
It seems to me that when Congress said "any other tax"--
Justice Antonin Scalia: I agree with that, and that makes me suspect that Congress didn't -- didn't want to forbid exemptions in (b)(4).
Mr. Phillips: --But it seems to me quite -- I mean, the flip side of that argument would be to say, if they imposed the tax of 4 percent on the railroads and 2 percent on 85-year-old widows, that would be challengeable under (b)(4), because it's not an exemption, it's a differential, and that the exemption down to zero is -- is attackable under (b)(4).
It seems to me the right answer to this is, there is no reason to include your widow as a relative comparison class for purposes of (b)(4) and get out of that problem as opposed to setting this up.
To me, the fallacy of this analysis is to try to use exemptions and say that there is something special about exemptions beyond the (b)(1), (b)(3) context where Congress clearly acted, recognizing that it had to protect the States' ability to have exemptions for property taxes.
But then Congress goes to non-property taxes and to other taxes not covered by (b)(1) and (b)(3).
Then, it seems to me, you have to -- you just should change the analysis.
Look at whether or not similarly situated are being treated differently and if there is any kind of State justification for that, and if not, go through the analysis in the way -- and protect the railroads precisely the way that Congress meant for them to be protected.
Justice Ruth Bader Ginsburg: Mr. Phillips, are you saying that the -- the railroads have to be taxed in the very same way as, say, the -- the trucks?
Because one answer to your argument is: Well, they haven't created a non-tax situation for the other interstate carriers; they are just subject to a different tax.
The motor carriers have to pay motor fuel tax.
So are you saying to the State about that, you have to have the same sales tax, use tax, for everyone; you can't have a motor fuel tax for one and sales tax for the other?
Mr. Phillips: I think, ultimately, my conclusion would be that you can't have one -- you can't have this kind of a tax on us and not tax the motor carriers the same way.
But I do think it's important to recognize two considerations, at least as this case comes to this Court.
One is that the State and the trial court conceded that the appropriate comparison class was the motor and water carriers.
So the question of who is the -- who is properly in the comparison class has never been adjudicated.
And second, it seems to me that the question of what constitutes discrimination is not the issue in this case.
The only question in this case is whether there is something special about exemptions that makes them off-limits to the (b)(4) inquiry.
So I think, candidly, Justice Ginsburg, while I'm quite certain that Alabama and I would disagree fundamentally about how to approach this, it doesn't seem to me that that's a question that this Court should tarry long over, and instead ought to simply evaluate the very narrow question that was both presented by the holding below and presented in the petition as it came through the Solicitor General's invitation stage, which again, as I say, very narrowly focuses exclusively on exemptions, and of course allow us to have them.
Justice Ruth Bader Ginsburg: Well, why does the course for the court -- taking account of what you said, that the provision about other taxes came out very late in the day -- they had spent a lot of time talking about the property tax.
And the property tax, we know, they wanted to preserve the exemptions.
So why not take this latecomer of thought or discussion and say: Well, we'll assume that they want to treat that with regard to exemptions the same way that they treated property tax, which was the big-ticket item.
Mr. Phillips: Well, I think part of the reason, it may well be because the property tax was a big-ticket item, so you were trying to protect certain State interests, and Congress did it very clearly.
I think it is quite a remarkable stretch of -- of construction of the statute for the Court to say, we're going to take this very carefully reticulated scheme, which creates the inference that Congress meant to protect these kinds of exemptions for the States, and say we are going to now incorporate that wholesale, when Congress didn't use language that in any way compares.
It didn't include -- it didn't limit it to railroad property.
It didn't define a class in any particular way, and instead, it basically said, what we need here is something that will protect the railroads when the States become more innovative and come forward with additional problems.
And we would leave it to the courts, unfortunately -- I recognize that is not the most satisfying solution sometimes, but we will leave it to the courts to decide what forms of discrimination we would have intended to preclude, because we are here to protect the railroads.
If there are no further questions, I would like to reserve the balance of my time.
Chief Justice John G. Roberts: Thank you, Mr. Phillips.
ORAL ARGUMENT OF MELISSA A. SHERRY, ON BEHALF OF THE UNITED STATES AS AMICUS CURIAE, SUPPORTING THE PETITIONER
Ms Sherry: Mr. Chief Justice, and may it please the Court:
The only question that the Court needs to resolve today is whether a non-property tax that's imposed on a rail carrier but from which its competitors are exempt can ever be another tax that discriminates against a rail carrier under subsection (b)(4).
The answer is yes.
A lot of the Court's questions focus on some of the difficulties that are inherent in a discrimination inquiry, but as Mr. Phillips pointed out, those difficulties are just as inherent in a discrimination inquiry under (b)(4), whether we are talking about exemptions or whether we are talking about differential tax rates or whether we are talking about any other type of discrimination claim that can be brought under (b)(4).
That is the very nature of (b)(4): It broadly prohibits another tax that discriminates against a rail carrier, and inherent is that is the notion that courts are going to have to decide what it means to discriminate.
Justice Samuel Alito: Do you think we have to decide whether the appropriate comparison class is the rail carriers' competitors or some broader class?
Ms Sherry: I don't think the Court has to decide it.
As Mr. Phillips pointed out, that was an issue that was conceded below by the State, at least at this stage of the proceedings.
And they acknowledged that in note 7 of their brief, so it wasn't something that was addressed by the Eleventh Circuit below.
I think, as the Court wants to address it, it should reject the notion that the only comparison class in a (b)(4) case, no matter what the (b)(4) case looks like, is all other commercial and industrial taxpayers.
And I think the Court should reject that primarily because that's not what the tax says.
If you look at the language of (b)(4), it talks about another tax that discriminates against a rail carrier.
Congress easily could have said another tax that discriminates against a rail carrier, as compared to other commercial and industrial taxpayers, and it didn't do that.
And Justice Ginsburg, to your question involving whether we should be focusing on interstate versus local businesses and whether that was Congress's focus, of course that was -- that was certainly one of their concerns, but the reason that doesn't work is if you look to even subsections (b)(1) through (3), the comparison that is very clearly spelled out there is not between local businesses and interstate businesses; it's between rail transportation property and other commercial and industrial property.
Now, that other commercial and industrial property can be owned by an interstate business like Wal-Mart just as easily as it can be owned by a local coffee shop, and so I think to suggest that the only thing Congress wanted to prohibit was this local interstate type of discrimination is not borne out by the text.
If you look at subsection (b)(4), we think the language speaks for itself.
It speaks broadly of another tax that discriminates against a rail carrier.
Another question that a number of you have asked is why Congress would want to treat property taxes' exemptions differently than non-property tax exemptions, and I think the answer has to come from the text.
In ACF, this court concluded that Congress did not want to prohibit property tax exemptions based on the text of the statute and its structure.
And when it comes to non-property taxes, the text of the act and the structure of the act simply tell a different story, and that has to be the best indicator of what Congress intended.
Again, subsection (b)(4) speaks broadly of another tax that discriminates against a rail carrier.
This court has long recognized that taxes can discriminate in a number of different ways, including by granting some taxpayers an exemption and not granting that exemption to other taxpayers.
That's the ordinary meaning of (b)(4) is easily susceptible to that meaning.
Justice Elena Kagan: Ms. Sherry, there seems to be a question as to what remedy somebody would be entitled to under subsection (c) in the challenge brought against a tax exemption.
So what's the government's position on that?
Ms Sherry: The government's position, first with respect to subsection (c), is that it is a broad grant of jurisdiction to the district courts to adjudicate all violations of subsection (b), and that seems clear from the first sentence in that provision.
I'd also note that the arguments that were made with respect to subsection (c) in this case were brought up by the government in ACF; and in ACF the government explained why the best reading of subsection (c) is a broad grant of jurisdiction over all violations of subsection (b).
That's clearly what Congress intended.
While Congress intended to provide a substantive right for rail carriers to come into court and claim discrimination on one of the four -- under one of the four subsections, it also intended to provide a Federal forum.
And the reason that it did that was because at the time, rail carriers were having a very hard time bringing claims in the State court.
The Tax Injunction Act was out there then, as it is now, and it does provide an -- exception, rather -- for when State court remedies are not plain, speedy, and efficient.
Justice Ruth Bader Ginsburg: I think Justice Kagan meant to ask, assuming that we say yes, it -- it applies; exemptions don't count -- are included in whether there is discrimination, and the Court finds discrimination between the way the railroad is taxed and the way motor carriers are taxed, what -- what then?
What is the remedy?
Ms Sherry: I think in that type of case the remedy would be for the rail carrier to be exempt from the tax, and that's because what subsection (c) provides--
Justice Ruth Bader Ginsburg: Without -- without putting on -- I mean, the motor carriers do have the tax.
Ms Sherry: --Oh, I apologize.
I should back up.
I am assuming that when you said that the Court found that there was discrimination, the Court had already engaged in inquiry as to whether or not this other tax compensates for or provides a justification for any differential treatment.
If the -- the Court were to find discrimination but find that maybe, you know, 50 percent of the tax was compensated by this other tax, it could remedy that situation by only enjoining, and it should remedy the situation by only enjoining, the discriminatory portion of the tax.
Chief Justice John G. Roberts: Well -- well, but in any case when you have discrimination, you can remedy it by reducing the tax, for example, in this case on the railroad or by increasing the tax on the people who are otherwise exempt.
Ms Sherry: And I don't--
Chief Justice John G. Roberts: A decision that I suppose would be left at some point or another up to the State.
Ms Sherry: --It would certainly be left up to the State and the State could choose to remedy it in -- in any number of different ways, including the one that Your Honor suggests, but the remedy that is actually provided for in subsection (c) for the Federal court to issue is to enjoin the discriminatory portion of the tax, and the focus is on the tax--
Chief Justice John G. Roberts: But the discriminary -- the discriminary portion of the tax may be regarded as the excess that is imposed on the railroad or the deficiency on -- on the others.
Ms Sherry: --I -- I think it's better understood as -- as -- as speaking specifically to the tax itself, and not to the tax exemption.
And in fact, in the -- at the cert stage when the government suggested a reformulated question presented, it reformulated the question to better focus on the fact that this is a challenge to a discriminatory tax and not to a discriminatory tax exemption.
And I think the State in -- in its supplemental brief at the cert stage acknowledged that is the better way and correct way, in fact, to look at these type of challenges and what the appropriate remedy would be.
Justice Anthony Kennedy: You present the case to us as if it's either/or: That we must either in disagreement with your position, to say that it doesn't apply to exemptions; or if it applies to exemptions, it must be remanded.
Can we say that the exemptions are not covered by the act unless the railroad is a target of an -- an isolated target and it's clear that it's discriminatory?
I mean, do we have to have your either/or position?
Ms Sherry: I -- I don't know that the Court has to -- has to go with one or the other, but I think the Court should not hold that it only applies to exemptions to the -- to the extent it's the type of tax where it's generally applicable on its face, but everyone is exempt except for the rail carriers, or everyone is exempt except for the rail carriers and maybe some targeted and isolated group, as -- as this Court recognized in ACF.
And the reason I think that is so is because that's what the language provides in (b)(4).
Certainly Congress was concerned with taxes that would single out a rail carrier, but that wasn't their only concern.
And an example that I've thought of but I think helps put that into some perspective is: I think Alabama would concede that if instead of imposing a generally applicable sales tax, it had a separate excise tax on diesel fuel for use in locomotives, and it was a 4 percent tax, looks exactly like the one we are looking at, except it is an a separate excise tax, that that would be the type of singled-out tax that could be challenged under (b)(4).
And it makes little sense that they -- that a State could basically insert that type of tax into a generally applicable sales tax and that would be immunized from any scrutiny.
The adverse economic impact on the rail carriers is the same whether you are looking at a singled-out tax or whether you are looking at a generally applicable--
Justice Antonin Scalia: It doesn't make any -- any sense, you are quite right; but -- but Congress thought it made sense in (1) to (3), so why doesn't it make sense in (4)?
Ms Sherry: --I think--
Justice Antonin Scalia: That's the argument.
Ms Sherry: --I think the reason that Congress thought it made sense in (1) through (3) and the reason that this Court in ACF concluded that Congress wanted to permit property tax exemptions is because of the language of (1), (2) -- (1) through (3), and because of the very specific comparison class that is provided there.
That is noticeably absent from (b)(4), and in fact wouldn't really work in (b)(4).
And what I mean by that is if you look at (b)(1) and you look at (b)(3), it's a comparison between transportation rail property on the one hand and commercial and industrial property on the other; and as we all know, commercial and industrial property is specifically defined to -- may I finish?
Chief Justice John G. Roberts: You can finish the sentence.
Ms Sherry: I don't know if I will get to the point, but suffice it to say--
Justice Antonin Scalia: Use a lot of conjunctions.
Ms Sherry: --I'm not surprised.
Chief Justice John G. Roberts: Don't even try.
Ms Sherry: The point is: (B)(4) doesn't talk about property; it talks about discrimination against the rail carrier, and the comparison class is nowhere to be found in that subsection.
Chief Justice John G. Roberts: Thank you, Counsel.
ORAL ARGUMENT OF COREY L. MAZE ON BEHALF OF THE RESPONDENTS
Mr. Maze: Mr. Chief Justice, and may it please the Court:
Justice Kennedy, you hit on the proper definition of a tax that discriminates in this case.
A tax that discriminates under (b)(1), (2), and (3) is a tax that singles out railroads as compared to the general mass of taxpayers.
So another tax that discriminates is a tax that singles out railroads as compared to the general mass of taxpayers.
The pivotal question in this case is the one raised by Justice Kagan and Justice Scalia, and that is: Why in the world would Congress, on the one hand, say you can exempt property taxes under this statute, but you can't -- you -- we are prohibiting sales and use tax exemptions, when for 15 years Congress never had a single hearing, a single study, and never even heard a single complaint from the railroads about discriminatory sales and use taxes?
Justice Anthony Kennedy: Well, it may be because the universe of non-property taxes is -- so infinitely large that there's a much greater room for -- a much great danger of discrimination.
We know all States have property taxes.
Mr. Maze: Right.
But again, I think the answer is what Justice Ginsberg was pointing out, that we would say the United States and CSX still has not come up with a good reason.
They basically said -- the United States said, you just look at the statute and it tells a different story.
There are three good reasons that Congress would have intended, and the Court should read property tax exemptions and non-property tax exemptions to be read the same way, and the first one is the one that Justice Ginsberg was pointing out: The purpose of the statute was to protect out-of-State, interstate businesses from being easy prey in the State legislature.
They don't have voting power.
But if you put an interstate business in the generally applicable tax scheme, that means they are paying the same tax as the local businesses and local taxpayers.
They are protected.
If the tax rate goes up, the local businesses, the local taxpayers, will protect them.
If too many exemptions occur, the local taxpayers and the local businesses will protect them.
Justice Samuel Alito: Well, you are arguing in favor of -- you are arguing in favor of a very idiosyncratic interpretation of the concept of a discriminatory tax, aren't you?
In almost any other context, granting tax exemptions to one group but denying them to another group would be viewed as -- if there isn't a good reason for drawing the distinction, as discrimination, wouldn't it?
Mr. Maze: Yes.
I definitely agree, as an abstract matter, an exemption could be a tax that discriminates.
But what Congress has told us in (1) through (3) with regard to property taxes is you can grant an exemption, and Congress didn't want to -- and they also told us--
Justice Samuel Alito: And it did so with explicit language by -- in -- what is it -- (a)(4), by referring to property that is subject to a property tax levy.
Mr. Maze: --Right.
Justice Samuel Alito: So what you're saying is that the ordinary interpretation of the concept of a discriminatory tax should not be applied here, because Congress used specific language to take tax exemptions out of the determination of discrimination under other provisions.
Mr. Maze: My--
Justice Samuel Alito: What sense does that make?
Mr. Maze: --I'm sorry?
Justice Samuel Alito: What sense does that make?
The fact that they specifically took it out of some provisions but not out of this provision, you think, leads to the implication that they meant to put it in here, too, where they could have easily used language here to put it in.
Mr. Maze: Right.
Well, I would say that Congress wasn't even thinking about non-property tax exemptions when they wrote before.
But the answer is: Our argument is to say that we understand from the structure of the statute as a whole that Congress didn't intend to preempt the State's ability to issue tax exemptions.
Justice Sonia Sotomayor: Excuse me.
May I pose a hypothetical so that I understand?
And I think it follows up on what Justice Alito was saying.
Let's assume all taxes are equal between water carriers and railroads, except there is an excise tax: 4 percent on the railroads, 2 percent on the water carriers.
Mr. Maze: Right.
Justice Sonia Sotomayor: Everybody else pays 4 percent.
On your theory, is that discrimination or not?
Mr. Maze: No, because they are paying a generally applicable 4 percent tax.
Again, remember, in the property tax--
Justice Sonia Sotomayor: But this is not an exemption area, so what meaning do you give -- that's what I'm trying to figure out.
Are you saying -- what meaning are you giving to discrimination at all, other than -- unless we accept that the class always has to be the commercial class?
Mr. Maze: --I'm giving the meaning the same meaning that the Court suggested in ACF; that is, (b)(4) is a tax.
Another tax that discriminates is one that singles out the railroads.
Chief Justice John G. Roberts: Well, you can single out the railroads through exemptions.
I mean, let's say you have a tax of $1,000 per mile per day for anything that uses a thoroughfare in the State.
However, things that use roads, waterways, you know, the long list that in effect leaves only the railroads exposed.
You are saying that can't be regarded as a tax that discriminates against the railroads?
Mr. Maze: I'm saying that a tax that in effect, in the end, singles out the railroads because they are the only ones that pay it; that would be discrimination.
Chief Justice John G. Roberts: Okay.
So what if there's only two that pay it?
Only -- and it applies only to railroads and bicycles?
Mr. Maze: Well, then again, the tax wouldn't be generally applicable.
This is what the Court went over in ACF.
In this case, the parties agreed--
Chief Justice John G. Roberts: We can determine that a tax is not generally applicable based on the exemptions.
If everybody else is exempt, well, it's not generally applicable.
If just bicycles are also exempt, then it is not generally applicable.
We have to look at the exemptions to decide whether there is discrimination.
Mr. Maze: --No.
Actually, you are not supposed to look at the exemptions at all.
If you think about property taxes, when you have a generally applicable property tax, exemptions are removed from the comparison class.
All you are looking at are the businesses that pay the tax.
In that case, as long as the businesses that pay the tax are paying the same rate--
Justice Sonia Sotomayor: So if there's 100 businesses, where does the line between singling out the railroad get drawn?
When they exempt 98?
When they exempt 97?
When they exempt 95, or is it at 80?
Where do we draw the singling out?
If the State says the general tax is 4 percent, but everybody -- but how many are exempted?
Mr. Maze: --Well, again, I would say that you use the phrase -- see, I know that singling out is not the best answer, but the lower courts have looked at it.
We have seen cases where even 80 percent -- as long as 20 percent of the businesses in the State are paying it, it's generally applicable.
Justice Sonia Sotomayor: What sense would there be for Congress to use the word 4 percent like everyone else, but their competitors, for no reason other than that the State wants to favor the water carrier, is only paying 2 percent?
What -- what conceivable reason would Congress want that differential to exist?
Mr. Maze: Because Congress understood that exemptions for individual businesses--
Justice Sonia Sotomayor: I'm not talking about an exemption.
I'm talking about a rate difference.
Mr. Maze: --If you are given a rate difference, a benefit of any kind to an individual business, Congress understood that that is important to the State.
Let's say, for example, we had a business who's has had an economic crisis or we want to bring a new business into the State.
Congress understood that is important to the State tax policy.
The point of the statute was simply to put the railroads on equal footing.
Again, if you think back to property taxes, we can treat trucks however we want to.
We could exempt them.
We can treat them at a different rate.
As long as the railroads are paying an equal rate to the general mass, it's not discrimination.
Justice Samuel Alito: So it's a commodity that is purchased by only railroads and one other class, and there is a 4 percent sales tax on this commodity, but the other class is exempt from the tax.
Now, is that -- is that discrimination against the railroad?
Mr. Maze: Can you explain the classes again?
Justice Samuel Alito: Let's say there is some commodity that is purchased only by railroads and truckers, and there is a 4 percent tax on the commodity, but truckers are exempt from it -- from the tax.
Is that discrimination against the railroad, even though it takes the form of -- it's not discrimination against the railroad because it takes the form of a tax exemption?
Mr. Maze: No.
Again, in that instance, like the Court said in ACF, that would be a case in which the railroads had been singled out, because only two businesses were paying the tax.
One has been exempted; then the railroads are only one left paying it.
Justice Samuel Alito: Once you say that, your argument that exemptions can't count as discrimination is destroyed, because you are conceding that an exemption can constitute discrimination.
Mr. Maze: At that point, as the Court said in ACF, it's not an exemption scheme anymore.
At this point, it's just a tax on the railroads.
Again, there is no reason in the text or the structure or the history of the act to treat property taxes any differently than sales and use taxes.
Justice Anthony Kennedy: Then you need to give us a test, and the test is whether or not the railroad is singled out as a target group for discrimination.
Mr. Maze: Yes.
Justice Anthony Kennedy: Something like that -- for discrimination, something like that.
Mr. Maze: And that's the test that just Judge Posner gave in the ACF case.
That's the test that the Court suggested in ACF.
That's the test that the Eleventh Circuit used here.
You know, one of the problems--
Chief Justice John G. Roberts: I'm sorry.
Just so I follow: And that test says what?
Mr. Maze: --The test is -- as long as it is a generally applicable tax that does not single out or target the railroads, it is not subject to challenge.
In fact, the Court--
Chief Justice John G. Roberts: I'm sure I'm just repeating mysself here.
So that it doesn't single it out if there's one additional business or line of business subject to the tax, no matter how small that exemption is?
Mr. Maze: --You mean how small the business is that is actually paying the tax?
Chief Justice John G. Roberts: Right.
Mr. Maze: That's a question for the Court -- excuse me, choked.
That would be a question for the Court, yes.
Chief Justice John G. Roberts: Exactly.
So the Court has to decide, even when you are dealing with exemptions, whether or not that discriminates against the railroad?
Mr. Maze: Right.
But it's the same test.
Chief Justice John G. Roberts: If I'm right, that means you lose the case--
Mr. Maze: No.
Chief Justice John G. Roberts: --at least as the question presented has been addressed, because all we are deciding -- I understand you think we ought to decide more, but all we are deciding is: Can (b)(4) ever come into play when the discrimination arises from an exemption?
Mr. Maze: No.
The question presented precisely is whether a State's exemptions of rail carrier competitors, but not rail carriers, from a generally applicable sales and use tax.
In this case, we've already presumed that the fact has been established that this a generally applicable tax.
The Eleventh Circuit has already made that determination.
CSX and the United States agree with it.
There is no question in this case that it is generally applicable.
The only question is: Under the test we have just articulated, does it single out the railroads?
Everybody agrees it's a generally applicable tax.
Thus, as a matter of law, it cannot be another tax that discriminates.
Justice Sonia Sotomayor: So to answer that question, you are telling us that we have to define what discrimination means?
Mr. Maze: I think inherently you have to understand what another tax that discriminates is before you can say whether something is subject to challenge as another tax that discriminates.
One of Justice Scalia's points earlier was to Mr. Phillips, there is no limiting principle if you treat property tax exemptions differently than non-property taxes, and not only can they change the comparison class, the railroads do.
They will argue against the States' different comparison classes.
Take Justice Kennedy's example: If the local farmers are exempt, they would argue that that is discrimination against interstate commerce; again, the phrase Congress used to bind the four together.
We've had cases at the same time that Burlington Northern was arguing the diesel fuel cases on an interstate competitor class.
They turned around at the same time in Wyoming and argued that a coal transportation tax is discriminatory because it singled them out versus--
Chief Justice John G. Roberts: That's what railroads do.
Mr. Maze: --Sure.
Chief Justice John G. Roberts: But it still doesn't get to the question that in courts in each particular case will be able to decide, even under your test, whether it singles out railroads.
The only question I have is that whether singling out means railroads have to be the only business subject to it, or if it has to be, you know, some theory -- Justice Kennedy was looking for a test.
I don't know if we have got a workable one -- to decide when it's really discriminating against the railroad and when it's that the exceptions are just the way taxes normally work.
Mr. Maze: And, again, if we adopt a test, which we believe is the right test, the Eleventh Circuit has already done it in this case.
This would be a question for another case.
Again, there is no more generally applicable tax than Alabama's 4 percent sales and use tax.
Justice Stephen G. Breyer: Haven't you just pushed all the difficult questions into the word "generally applicable"?
I imagine a fuel tax applies to everybody in the State, but then we exempt everybody who does business in the State with fuel.
Mr. Maze: Right.
Justice Stephen G. Breyer: Except for railroads.
Mr. Maze: Right.
Justice Stephen G. Breyer: All right, now.
You want to call that not a generally applicable class?
Do you want to call it a discrimination against railroads?
It seems to me about the same question.
Mr. Maze: Right.
Justice Stephen G. Breyer: All right.
So why isn't the easiest thing to say, since there's so many other questions involved in discrimination: Yes, the clause applies?
What counts is a discrimination is an obviously difficult question, and we will send it back for somebody else to wrestle with this, since it's so difficult.
Mr. Maze: Here's the problem the State has with that -- and you almost channelled what Mr. Phillips said earlier -- that we leave it to courts to determine discrimination.
Justice Stephen G. Breyer: What is the choice?
Mr. Maze: Well, this is a State tax.
Under the clear statement rule -- we detrimentally rely on these statutes when we determine whether we can tax someone or not.
Now, you know, if the courts were to say, you can't prospectively tax because you lose, that's one thing, but we have taxed the railroads for years--
Justice Stephen G. Breyer: I realize that, but what they are worried about is somebody that's having passed on the property level--
Mr. Maze: --Right.
Justice Stephen G. Breyer: --thinks I have a great revenue-raising idea.
What we do is tax the New York Central, and then they sit down with a bunch of lawyers and the lawyers say: Oh, great, they come through this State; what we'll do is we'll have a tax that applies to all fuel and then we will exempt everybody except the New York Central.
We've now found a replacement of the revenue that they just said in Congress we couldn't have in the first three provisions.
Mr. Maze: Right.
And, again, that would be the test that we've talked about--
Justice Stephen G. Breyer: No, because you're saying that's not generally applicable.
They are saying sure it is, read the first line, applies to everybody.
You say no, no, no.
That's a trick because of the second line.
So now what we will do is we'll monkey around with it a little bit.
And we will make it tough.
All I'm saying is that's precisely the same question in that context as whether it's discriminates or not.
I'm not saying it's an easy question.
I'm just saying it might be clearer if we said, yes, the thing applies, now go work out the hard question of whether you had have got a discriminatory tax.
Mr. Maze: --And -- and, again, the problem we would have with that is now you are going to have two different definitions of what another tax that discriminates in (b)(4) for property taxes, which CSX agreed applies to property taxes--
Justice Stephen G. Breyer: The property taxes, the language is different.
Justice Antonin Scalia: I didn't understand your last answer.
What was it?
Mr. Maze: --CSX argues on page 8 and 9 of the reply brief that with regard to property taxes (b)(4) would apply if the tax singles out the railroads.
But now they are arguing another tax that discriminates, the very same phrase means any differential treatment of any kind when it comes to non-property taxes.
To agree that the test would be different is not only not clearly required by the statute, it would be illogical, because what happens is, you can have an infinitely broad definition of discriminate.
Any treatment that we do differently for non-property taxes is discrimination, which not only does it make note -- the most favored taxpayer, they might as well be considered charities, billion dollar charities.
We could -- we could never tax them at all, because we exempt someone from every single tax we levy.
Justice Stephen G. Breyer: You are assuming how the Court will decide the word "discriminate".
Mr. Maze: --Yes.
Justice Stephen G. Breyer: I understand what you are saying, and so would every other judge.
And of course, it's hard to figure out in these contexts what is real discrimination, but there could be obvious cases.
And so why cut out the obvious cases simply because it's hard in a non-obvious case to figure it out?
Mr. Maze: Because Congress didn't clearly put in the statute that we want a different definition for discrimination when we have one.
Justice Stephen G. Breyer: There is no way -- there is no way with the property -- the property tax is tough.
And once you start taking exemptions into account, it's double tough, and there is very little need, is there?
Every State in the country has property taxes and every State in the country has property taxes on businesses.
Mr. Maze: Right.
Justice Stephen G. Breyer: And -- and it might not be so that every State in the country has particular taxes on diesel fuel.
And it might be that they don't have taxes on rails, or it might be that they -- you see?
So, I -- I -- that's how I am explaining to myself.
What do you think?
Mr. Maze: I think that if -- well, first of all, every State taxes diesel, at least for truckers, and most do for the trains.
But if Congress was thinking about this, they should have told us what discriminate means.
And I think that -- honestly, I think we should go across the street and have them tell us.
But -- but they are not here and what we are saying is the easiest way to do this and the proper way to do it is simply to read the test to be the same as property for non-property taxes.
If the test is single out railroads when you are talking about property taxes, it should be the same.
Again, the point would be, we can't tax at all non-property taxes, at all if the definition literally is, any differential treatment.
Congress never would have intended to literally prohibit States from taxing--
Justice Sonia Sotomayor: It's not quite -- it's not quite that.
You forget the other part of the test, which is without a reason.
Now, the other side hasn't defined what a legitimate reason would be.
And that's a separate inquiry.
But if there is a -- some form of legitimate reason to treat people differently, I think the other side is saying that's okay.
Mr. Maze: --I think the other side would tell you that we can't give a justification.
Again, (b)(1)(2) and (3) are absolutely--
Justice Sonia Sotomayor: In their particular facts of their case.
I mean, that's what they have to come up and explain to us, what's the -- what's the defining principle of acceptable or unacceptable different treatment, because it can't be -- you're right, logically, it can't be most favored taxpayer status.
Mr. Maze: --But that is logically what would happen.
Justice Sonia Sotomayor: Well, so far, yes, unless they can give--
Mr. Maze: They haven't articulated a way yet from preventing that from happening.
Justice Antonin Scalia: Yes, but I don't understand why you think it is -- it is more articulable on your theory than on theirs.
I don't see where solving your predictability problem, you're worried about it, you know, we don't know how to tax anymore.
I don't know why it's any more certain if we -- if we say the key is whether it's a generally applicable tax than it is if we say the key is whether it discriminates against railroads.
I mean it's the same inquiry.
So what do you care?
It's just as -- just as unpredictable ex ante.
It's exactly the same inquiry, whether it's generally applicable or whether it discriminates against railroads.
Isn't -- isn't -- isn't that what you have been saying?
Mr. Maze: What I have been saying, yes, a tax doesn't discriminate--
Justice Antonin Scalia: So, it's twiddle dum or twiddle dee, maybe we should, you know, dismiss this as improvidently granted, it doesn't make any difference.
Mr. Maze: --I -- I would have no problem if you dismiss it improvidently granted.
I would certainly accept that.
And, again, if the test is the same, the Eleventh Circuit has already answered the question.
Justice Stephen G. Breyer: No, but it's not quite, because this is the same problem I was raising.
You just shoved the difficult questions into generally applicable.
But you might think of some new ways of doing it that they don't want.
So I would worry about giving you just the decision where the word in the statute is "discriminate", and nowhere does it say "generally applicable".
I'd somewhat worry about whether this statute shoves the same problems into two words that aren't there as to rather leaving those problems for resolution under the one word that is there.
Mr. Maze: The -- the statute actually does use the word "generally applicable".
If you turn to page 25 of the joint appendix--
Justice Stephen G. Breyer: I'll believe you, I'll believe you.
Mr. Maze: --Well, but it makes a good point in the original version of (b)(3), you could not levy a tax against a leveler property tax at a tax rate higher than the tax rate generally--
Justice Stephen G. Breyer: The word -- the word I was looking at was is 4, impose another tax that discriminates against a rail carrier providing transportation, subject to the jurisdiction of the board under this part.
Now, I read all the words of 4, and I found the word "discriminates", and I did not find the two words "generally applicable".
Mr. Maze: --Right.
And you will find the word "discriminate" at the beginning of each of these section as well, saying each of these discriminate against interstate commerce, meaning they all discriminate in the same manner.
Again, if you think about it, when you have a specific provision or several specific provisions followed by a general, you have to give some independent effect to the specific provision.
Here's the problem with CSX's argument, the independent effect that they are giving (b)(1), (2), and (3) for property taxes is that they are narrowing the prohibition on discriminatory property taxes from the infinitely broad anything goes discrimination test for all property taxes, which again is illogical when the only thing Congress talked about for 15 years was discriminatory property taxes.
Chief Justice John G. Roberts: Do you think section 11501(c) is relevant to all these disputes, because one thing 11501(c) does is give the State a little bit of a break?
Mr. Maze: --Right.
Chief Justice John G. Roberts: They recognize that it is hard to have exact equality in terms of ad valorem property assessment.
So, what does -- what does it say -- you know, a 5 percent legal room.
Mr. Maze: Yes.
Chief Justice John G. Roberts: Couldn't you, if we rule against you, when you get back and other State officials say, look, the one thing we don't have to worry about is being precise.
We have got some legal room, so we can exempt the 85-year-old widow, we can, you know, exempt the farm property.
We just kind of have to get it close so that if somebody looks at it, and they'll say, well, it doesn't really look like they are discriminating against railroads, why isn't that pertinent and why doesn't it respond to a lot of your concerns?
Mr. Maze: Textually that's a problem because the 5 percent in it only applies to assessment ratio problems in (b)(1) and (b)(2), and the rest--
Chief Justice John G. Roberts: No, I know.
I'm using that not as saying that this is applicable to (b)(4), but that it gives you an idea that Congress didn't have the precise absolute rule, and you go one, you know, 1 inch over the line and you are in trouble.
Mr. Maze: --I -- I don't think at that point the courts have any idea what they can do.
What -- what how does a State know what is over the line and what's not?
I mean, now we know as long as we subject them to our generally applicable tax, which is what all the States did when the 4-R Act passed--
Justice Antonin Scalia: But you don't know what "generally applicable" means.
Mr. Maze: --It simply means that you apply--
Justice Antonin Scalia: At least I don't know.
How do you know?
Mr. Maze: --Because I know that everyone who pays the diesel fuel tax pays 4 percent.
It generally applies to everyone.
A -- a problem that you have with subsection (c), again, and that the United States and CSX has avoided so far is it is a jurisdictional problem, and it has been raised as by one of our amici.
Even if there is a (b)(4) violation, which we obviously don't agree that there is, it says that no relief can be granted unless have you an assessment value problem of plus or 5 minus percent.
Chief Justice John G. Roberts: It clearly -- it clearly applies to (b)(1) through (3) and has got nothing to do with (b)(4) because it can't apply to (b)(4).
Mr. Maze: Well, then it says relief can't be granted.
Chief Justice John G. Roberts: (b)(4) is not a -- (b)(4), the whole point is if it's not a property tax, you don't have ad valorem assessments, so the details limiting jurisdiction when you do have ad valorem taxes don't apply to this case at all.
Mr. Maze: The problem with that is -- that is CSX's argument -- is now you are reading into Congress's intent for the statute and the moment you open up to what Congress's intent for the statute is, we know that Congress didn't intend to make railroads the most favored taxpayers in any way.
The railroads actually said that themselves.
If you start reading intent into the statute, the intent was simply to put them on equal footing.
So you would have to read (b)(4) to say, just like property taxes, and non-property taxes as long as they are subject to a generally applicable tax there is no discrimination, you are not subject to challenge.
So again, I don't think that would -- would be an issue.
Now one of the problems I see that the Court has is this fear that the States are going to take a generally applicable tax and then all of a sudden start exempting everyone.
Let's say, for example the State of Alabama sales and use tax.
It's not going to happen for a very simple reason.
Our sales and use tax funds our schools.
At the moment we start exempting every single business, our schools don't have any money.
We are not going to pick on the railroads by exempting, exempting, exempting, exempting.
The railroads, quite honestly, can't fund our schools.
We are having a hard enough time funding them as it is, and we are not going to just target railroads by exemption.
So I see that the Court might have a problem understanding what's the line with exemptions, but it's just never going to happen.
Justice Antonin Scalia: How are these any different from property taxes?
I mean States could say the same thing about property taxes.
Nonetheless it was felt necessary to specify that -- that exemptions don't count.
Mr. Maze: Right.
But -- but--
Justice Antonin Scalia: Before deciding whether or not you are discriminating against the railroads.
Mr. Maze: --Again, because Congress understood that exemptions are a -- an integral part of the State's tax policy.
We need to be able to give exemptions to individual businesses.
Justice Sonia Sotomayor: --I'm having a problem.
I thought as you argued in your brief that you were only arguing that States can tax-exempt, but you are asking us to rule more broadly to say that States can treat -- impose taxes differently.
Mr. Maze: --No.
Justice Sonia Sotomayor: So it doesn't really matter that it's a tax exemption; you are just saying if the tax is a positive imposition or a negative one, taking someone out, it doesn't matter.
Mr. Maze: Right, because that's the way it works for property taxes.
Let me be very clear what we are asking the Court to hold.
On page 335 of ACF, this is what the Court held in that case: A State may grant exemptions from a generally applicable ad valorem property tax without subjecting the taxation of railroad property to challenge under (b)(4).
All we are asking the Court to do in this case is substitute three words.
Ad valorem property is out; sales and use tax is in.
There is nothing in the language, the structure or history of the Act that would suggest, much less clearly and manifestly mandate, which is necessary under the clear statement rule, that that rule should be any different.
Again, it would be illogical because it would be illogical to think that Congress spent 15 years worried about one problem and that problem is, is the States were discriminating in property taxes.
But there is one clear, easy way to see that the railroads didn't really believe that this was a clear statement against generally applicable sales and use taxes.
The point was made earlier, the railroads will sue us all of the time to save money.
It's very telling that the railroads didn't sue any State, despite we have been taxing this way since the 1930s, until the late 80s or early 90s under this theory, because even they when they read this statute, understood it to mean only if we are singled out or targeted.
That's the way they litigated (b)(4) for the first decade.
It's only when they couldn't win those cases any more that they changed what they believed it meant.
But the fact that this was able -- again sales and use taxes is their most expensive tax.
And as they say in the -- in the Norfolk Southern opinion, the third largest expenditure of the railroads is diesel fuel.
If the third largest expenditure of the railroads is out there to be taken away -- the taxes, they certainly would have sued us within the first 10 years if this statute clearly said we couldn't do it.
But nobody believed that is what the statute said, because Congress never said it in the entire 15-year history.
The statute itself when you read it doesn't say it.
Just as the Court said in ACF, this statute is at best vague on the point of tax exemptions.
And in that case, under the clear statement rule, you have to defer to the State.
Congress needs to tell us specifically what we can and can't do.
Justice Anthony Kennedy: What -- what authority do you have for the proposition that the clear statement rule applies to the exercise of the congressional power under the Commerce Clause?
Mr. Maze: A--
Justice Anthony Kennedy: --some general rule that we've always had?
Mr. Maze: --ACF actually applied the clear statement rule, not only said it applied, it said it compelled the ruling in this case.
The -- I'm sorry, I've got the page number?
In ACF, you said it was -- sorry -- I drew a blank all of a sudden.
Regardless, it's in ACF, the Court said that -- I'm sorry, it's page 345 of ACF.
The Court said -- "absent unambiguous evidence" was one of the quotes, and then at the end it said, you have to show Congress's clear and manifest purpose; and the Court said because you can't see a clear and manifest purpose, because there is no unambiguous evidence -- again, because the statute doesn't talk about tax exemptions at all.
Justice Stephen G. Breyer: Yes, but in all these years where they never challenged it, did all these other States not only tax their diesel fuel, but at the same time exempt the diesel fuel tax from all their competitors.
Mr. Maze: Absolutely.
We have been doing it since the 1930s.
As you'll see in--
Justice Stephen G. Breyer: What's the rationale, that the trucks don't have to say it but the railroads do?
Mr. Maze: --Because Federal law makes us do it.
Federal law taxes diesel fuel differently on road, and they makes us -- die -- fuel off-road.
And because they're taxed differently at the Federal level, the States have had to adopt it.
In fact the Hayden-Cartwright Act up until the 1980s forced us to do so.
So we have been doing this since the 1930s.
Congress obviously knew we were doing it when we wrote the "four R" Act.
And yet nobody ever complained.
Congress knew exactly--
Chief Justice John G. Roberts: Thank you counsel.
Mr. Maze: --Thank you.
Chief Justice John G. Roberts: Mr. Phillips, you have 5 minutes remaining.
REBUTTAL ARGUMENT OF CARTER G. PHILLIPS ON BEHALF OF THE PETITIONER
Mr. Phillips: Thank you, Mr. Chief Justice.
Just a -- a few quick points.
First of all, with respect to the reason why the States didn't challenge these tax exemptions earlier; for some of us it's relatively easy to remember what the price of fuel oil was back in the 1970s, it was somewhere in the sort of 10 to 30 cents a gallon range.
Therefore exemptions of that amount of tax, 1 percent exemption of that amount of tax is not a whole lot of money.
Today the rates are $4 a gallon, and an exemption under those circumstances, particularly when you have a fixed rate for your major competitor, gives you a more than substantial incentive to bring an action under these circumstances.
The notion that somehow the -- the State has gone down this path because of Federal law has not been true for at least 15 years.
That statute was repealed and Alabama could have modified its tax however it wanted to and chose not to do so.
Justice Alito, your hypothetical I think is almost exactly this case, because as my friend indicated, diesel fuel is by far the biggest expense that the railroads have.
It's also a very significant expense for the motor carriers, and it is a pretty trivial expense for everybody else in the -- in the State of Alabama.
Justice Antonin Scalia: Mr. Phillips, do you agree that -- that, generally applicable produces the same -- requires the same inquiry as discriminates?
Mr. Phillips: Well, you're ultimately going to have to come down to the same issue, and the problem is, and I -- the reason why I -- I find it hard to accept Justice Kennedy's formulation, which is simply singling out the railroads, because in ACF the Court sort of said well, we will hold that out as a possibility.
If you're doing -- you know, it would be one thing if you are just singling them out.
But it seems to me that in a statute like (b)(4), where you -- where you are more broadly, and you don't have the (b)(1) to (b)(3) baggage to deal with property taxes, the idea that you would then limit (b)(4) solely to the situation of singling out is -- is simply not a fair way to characterize it.
Justice Sonia Sotomayor: So give me a definition of discriminate.
Give me your working -- it can't -- as I started to ask your adversary, it can't be most favored taxpayer status.
Mr. Phillips: Right.
It has to be that -- the traditional and common understanding of discriminate is that you treat similarly situated individuals differently without -- with an adequate justification.
Justice Sonia Sotomayor: So what constitutes an adequate justification?
Mr. Phillips: Well, it depends on the -- it's going to depend on the tax, and I don't know the answer in this context, because as Justice Alito's question reveals--
Justice Sonia Sotomayor: Well--
Mr. Phillips: --it could be that the vast majority of diesel fuel is--
Justice Sonia Sotomayor: --Stop.
You are going to grant an exemption; you are going to treat someone differently because you are favoring them for a reason.
People don't -- States don't do these willy-nilly.
Either some enterprises or some individuals, like the 85-year-old widow, you are sympathetic to her.
You want to encourage your water transport, because it's an industry that is nascent in your State and you want it to grow, so it's a pro-competition reason.
Are those legitimate?
And if those are--
Mr. Phillips: --I -- the first one I think without question.
Justice Sonia Sotomayor: --what isn't?
Mr. Phillips: I think the second one has more of a problem, because I don't think Congress intended to allow to you favor direct competitors of the railroads when the ultimate effect of that may be to undermine the -- the financial stability of the railroads.
Justice Sonia Sotomayor: Give me a working principle.
What does -- how do you define legitimate and illegitimate, assuming--
Mr. Phillips: I would define.
Justice Sonia Sotomayor: --The government reason is always going to be premised on wanting to favor someone for a reason.
Mr. Phillips: Right.
I think ultimately the way to analyze this is case is what was Congress's ultimate objective.
And if the state is putting forward a legitimate reason that is fully consistent with Congress's overall objective, then there is no problem.
Justice Sonia Sotomayor: That is the problem because there were two objectives.
One was to promote equality with local businesses and the other to promote equality--
Mr. Phillips: Competition among carriers.
Justice Sonia Sotomayor: --Right.
Mr. Phillips: Which suggests to me that there are two ways to worry about discrimination.
Have you singled out other carriers for more favorable treatment?
There I think if the answer is per se, if you do that you lose.
And if you are not in that world and you are talking about some other classes, then it seems to me it depends on how far you want to go in terms of how much of an exemption you want to play.
But the important part of this is still and I think the questions to Mr. Maze reflected is that you should undertake the inquiry to determine whether there is discrimination even if the State happens to use the guise of exemptions as opposed to rate differentials or anything else.
There is nothing special about exemptions that takes it off the table.
It proposes the Federalism concerns and that ACF spoke to this issue.
ACF said you should not extend the statute beyond its evident reach reflecting the (b)(1), (b)(3) and (b)(4) relationship without a clear statement.
That's not what we have in this case, Your Honor.
Chief Justice John G. Roberts: Thank you, Mr. Phillips, counsel.
Case is submitted.
Justice Elena Kagan: In 1976, Congress enacted the Railroad Revitalization and Regulatory Reform Act, sometimes called the “4R Act,” to restore the financial stability of railroads.
A provision of the Act prohibits state governments from discriminating against railroads through their tax systems.
The provision contains four separate prohibitions.
The first three are directed at discriminatory property taxes.
The fourth is the one at issue in this case.
It prohibits states from imposing “Another tax that discriminates against a rail carrier.”
This case involves a challenge that's brought by a railroad, CSX to an Alabama tax.
The tax is a 4% sales and use tax.
Railroads pay this tax whenever they purchase or consume diesel fuel, which of course they do a lot of.
But railroads' main competitors, motor carriers, trucks and water carriers, ships, those competitors are exempt from the tax.
What CSX said in this suit was that, Alabama sales and use tax was another tax that discriminated against railroads because railroads had to pay the tax, while these other entities, their competitors did not have to pay it.
But the Eleventh Circuit dismissed CSX's suit.
It said that the statute did not allow railroads to challenge the tax on the theory that the tax exempted other entities, and in reaching that decision, it relied on the prior decision of this Court called, ACF Industries.
We held in ACF that a railroad could not challenge a property tax based on the tax exemptions.
The Eleventh Circuit thought the same rule should apply to non-property taxes like the one in this case.
Today, we reversed the Eleventh Circuit.
We hold that a railroad can challenge a non-property tax like this one, on the ground that the tax contains exemptions.
We rely on the plain language of the prohibition, again, another tax that discriminates against a rail carrier.
First, a sales and use tax is another tax.
The meaning of that phrase is very broad.
There are lots of different kinds of taxes in the world as all of you taxpayers know, and this provision includes all of those taxes.
Second, a tax that contains exemptions can discriminate within the meaning of the statute.
Simply put, discrimination is the failure to treat people in the same way without a good reason.
So if one person has to pay a 4% tax and another identically situated person has to pay 2% tax, that's discrimination.
And the same is true if the first person has to pay a 4% tax and the second person pays 0%, nothing, which is of course what an exemption is.
That's also discrimination, it's even worse discrimination.
So with sales and use tax that contains exemptions can be challenged as discriminatory under the statute.
Now, all of this would be easy.
It would be obvious except for the case of the Eleventh Circuit relied on ACF Industries.
In that case, you'll recall, we held that a railroad could not challenge a property tax as discriminatory based on the tax exemptions.
So a very considerable part of this opinion is devoted to explain why a different rule should apply for non-property taxes.
And I won't say very much about that, it's -- it's complicated but it comes down to this.
The Congress drafted a set of provisions that concerned property taxes alone.
And those provisions, for whatever reason, prevent property tax exemptions from being viewed as discriminatory under the statute.
But those provisions have nothing to say about non-property taxes and so, we can hold and today we do hold that the sales and use tax, unlike a property tax, might discriminate because of its exemptions.
But one last point, we do not decide today whether Alabama's tax in fact discriminates against CSX and other railroads because it exempts their competitors.
Alabama might, well have a sufficient reason to make that distinction and that is a matter for the trial court on remand.
Justice Thomas has filed a dissenting opinion in which Justice Ginsburg joins.