CSX TRANSPORTATION, INC. v. ALABAMA DEPARTMENT OF REVENUE, TIM RUSSELL, Commissioner of the Alabama Department of Revenue
No. 17-11705
United States Court of Appeals, Eleventh Circuit
March 23, 2018
D.C. Docket No. 2:08-cv-00655-AKK
[PUBLISH]
Appeal from the United States District Court for the Northern District of Alabama
(March 23, 2018)
Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY,* District Judge.
OPINION
The Railroad Revitalization and Regulatory Reform Act prohibits states from imposing a tax “that discriminates against a rail carrier.”
I. BACKGROUND
CSX Transportation, Inc. is an interstate rail carrier that does business and pays taxes in a number of states including Alabama. In the shipment of freight interstate it and other rail carriers compete against trucking transport companies (motor carriers) and commercial ships, vessels, and barges (water carriers). Yet Alabama taxes each type of carrier differently on the purchase or use of diesel fuel inside the state. Rail carriers pay a 4% sales and use tax on diesel fuel,1 while motor carriers
The State deposits revenue from the sales and use tax that rail carriers pay into the general fund and earmarks it for education purposes.
In 2008 CSX sued the Alabama Department of Revenue, seeking to enjoin the Department from collecting the sales and use tax on the railroad‘s purchase or consumption of diesel fuel in the state. It also sought a declaratory judgment that the imposition of that tax violates the Railroad Revitalization and Regulatory Reform Act,
Congress enacted the 4-R Act to “restore the financial stability of the railway system of the United States” and to “foster competition among all carriers by railroad and other modes of transportation.”
(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.
B. Procedural History
Over the past decade, this case has made two trips to the Supreme Court, stopping along the way three times at the district court and five times here. Because it is all pretty much relevant, we will set out that procedural history in some detail.
In doing so, we will begin with a discussion of the first district court order, which dismissed CSX‘s complaint, and from there we will recount our decision on appeal and the Supreme Court‘s first decision. We will then discuss the district court‘s second opinion, our second decision on appeal, and the Supreme Court‘s second decision. Finally, we will discuss the third leg of the journey to date, starting with our second remand order and ending with the district court judgment from which CSX now appeals.
1. The First Round of Proceedings
In round one of this case, the district court dismissed CSX‘s complaint and we affirmed. CSX Transp., Inc. v. Ala. Dep‘t of Revenue, 350 F. App‘x 318 (11th Cir. 2009), rev‘d, 562 U.S. 277, 131 S. Ct. 1101 (2011), vacated, 639 F.3d 1040 (11th Cir. 2011). In doing so, we relied on one of our earlier decisions involving a nearly identical challenge to Alabama‘s tax scheme. See Norfolk S. Ry. v. Ala. Dep‘t of Revenue, 550 F.3d 1306 (11th Cir. 2008), abrogated by 562 U.S. 277, 131 S. Ct. 1101. Based on Norfolk we held that discrimination in the granting of tax exemptions does not amount to tax discrimination for purposes of the 4-R Act. See 350 F. App‘x at 319. The Supreme Court reversed our decision and held that denying rail carriers exemptions provided to other carriers can be a form of discrimination under the 4-R Act. CSX Transp., Inc. v. Ala. Dep‘t of Revenue (“CSX I“), 562 U.S. 277, 280, 131 S. Ct. 1101, 1105 (2011). The Court explained that a tax discriminates when it treats “groups [that] are similarly situated” differently without “justification for the difference in treatment.” Id. at 287, 131 S. Ct. at 1109. As a result, “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.‘” Id. at 288, 131 S. Ct. at 1109. The Court did not decide whether the different tax treatment violated the 4-R Act, but it did decide that the outcome “depends on whether the State offers a sufficient justification for declining to provide the exemption at issue to rail carriers.” Id. at n.8, 131 S. Ct. at 1109 n.8.
2. Second Round of Proceedings
On remand, after holding a bench trial the district court ruled that Alabama‘s sales and use tax scheme does not discriminate against CSX. CSX Transp., Inc. v. Ala. Dep‘t of Revenue, 892 F. Supp. 2d 1300 (N.D. Ala. 2012), rev‘d and remanded, 720 F.3d 863 (11th Cir. 2013), rev‘d and remanded, 575 U.S. 21, 135 S. Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). The district court concluded that the motor carrier exemption to the sales and use tax is justified because motor carriers pay a “substantially similar” amount under the excise tax that applies to them. Id. at 1313. As to water carriers, which pay neither tax, the district court concluded that international commerce clause concerns do provide a rational basis for exempting them and also that CSX had failed to show that it had suffered a discriminatory effect. Id. at 1316-17.
We reversed. CSX Transp. Inc. v. Ala. Dep‘t of Revenue, 720 F.3d 863, 865 (11th Cir. 2013), rev‘d and remanded, 575 U.S. 21, 135 S. Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). We first decided whether to apply the “functional approach” or the “competitive approach” to identify a comparison class of taxpayers for 4-R Act claims. Id. at 867-69. The functional approach compares rail carriers to all other “commercial and industrial” taxpayers, thereby importing into
We chose the competitive approach, reasoning that the functional approach disadvantages rail carriers by applying too broad a comparison class and that the competitive approach better accords with the 4-R Act‘s purpose. Id. at 869. Applying the competitive approach, we held that motor carriers and water carriers are competitors of, and as a result proper comparators to, rail carriers. Id. at 867. Because those two competitors are exempt from the sales and use tax, we reasoned that CSX had established a “prima facie case of discrimination,” shifting the burden to the State to justify its facially discriminatory tax. Id. at 869.
We rejected the argument that the motor carrier exemption to the sales and use tax would be justified if motor carriers paid excise taxes in amounts substantially similar to the sales and use tax that the rail carriers paid. Id. We held, instead, that a court should look “only at the sales and use tax with respect to fuel to see if discrimination has occurred.” Id. (quotation marks omitted). We reasoned that focusing solely on the specific tax that is allegedly discriminatory would avoid the “Sisyphean burden of evaluating the fairness of the State‘s overall tax structure in order to determine whether a single tax exemption causes a state‘s sales tax to be discriminatory.” Id. at 871. Because the State failed to justify the motor carrier exemption, and because “no one can seriously dispute that the water carriers, who pay not a cent of tax on diesel fuel, are the beneficiaries of a discriminatory tax regime,” we reversed and remanded with instructions to enter declaratory and injunctive relief for CSX. Id.
The Supreme Court granted certiorari on two questions: “whether the Eleventh Circuit properly regarded CSX‘s competitors as an appropriate comparison class for its subsection (b)(4) claim,” and “whether, when resolving a claim of unlawful tax discrimination, a court should consider aspects of a State‘s tax scheme apart from the challenged provision.” Ala. Dep‘t of Rev. v. CSX Transp., Inc. (“CSX II“), 575 U.S. 21, 135 S. Ct. 1136, 1140 (2015).
On the first question, the Court agreed with us that, “in light of [CSX‘s] complaint and the parties’ stipulation, a comparison class of competitors consisting of motor carriers and water carriers was appropriate, and differential treatment vis-à-vis that class would constitute discrimination.” Id. at 1143. The Court rejected Alabama‘s argument that the proper comparison class is all commercial and industrial taxpayers, deciding that the “commercial and industrial” limitation from
On the second question, about whether a state‘s other taxes should be considered in the analysis, the Court held that “an alternative, roughly equivalent tax is one possible justification that renders a tax disparity nondiscriminatory.” Id. at 1143. The Court reasoned that “[i]t does not accord with ordinary English usage to say that a tax discriminates against a rail carrier if a rival who is exempt from that tax must pay another comparable tax from which the rail carrier is exempt.” Id. As a result, the Court held that this Court should have let the State “justify its decision to exempt motor carriers from its sales and use tax through its decision to subject motor carriers to a fuel-excise tax” (which the rail carriers do not pay). Id.
The Court remanded for us to consider “whether Alabama‘s fuel-excise tax is the rough equivalent of Alabama‘s sales [and use] tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption.” Id. at 1144. It did not specify a standard for determining whether those taxes are “roughly equivalent.” See id. As to water carriers, which pay no state tax on diesel fuel, the Court noted that “[t]he State . . . offer[ed] other justifications for the water carrier exemption — for example, that such an exemption is compelled by federal law,” and directed us to consider those “alternative rationales” on remand. Id.
3. Third Round of Proceedings
We vacated the district court‘s judgment and remanded for proceedings “consistent with the Supreme Court‘s opinion.” CSX Transp., Inc. v. Ala. Dep‘t of Revenue, 797 F.3d 1293, 1294 (11th Cir. 2015). On remand, the district court again ruled that Alabama‘s tax scheme does not violate the 4-R Act. CSX Transp., Inc. v. Ala. Dep‘t of Revenue, 247 F. Supp. 3d 1240, 1242-43 (N.D. Ala. 2017).
The district court concluded that the motor carrier exemption does not violate the 4-R Act for two reasons. First, the court found that CSX‘s trains can operate on either clear diesel or dyed diesel, and that if CSX opted to purchase clear diesel, it would be subject to the excise tax, just like motor carriers, instead of the sales and use tax.3 Id. at 1245. For that reason, the court ruled that any alleged discrimination is “self-imposed,” and as a result, “the State has established that its tax schemes for dyed diesel and clear diesel do not discriminate against rail carriers.” Id. at 1247. Alternatively, the court ruled that the motor carrier exemption is justified because the excise tax that motor carriers pay is “roughly equivalent” to the sales and use tax. Id.
The court also determined that there were two reasons why the water carrier exemption does not violate the 4-R Act. First, it concluded that the exemption “does not violate the 4-R Act” because “CSX has suffered no competitive injury” from that exemption. Id. at 1255. Second, it found that because “imposition of a state
II. STANDARD OF REVIEW
We review de novo the district court‘s interpretation of the Supreme Court‘s rulings and the scope of the mandate. Cox. Enters., Inc. v. News-Journal Corp., 794 F.3d 1259, 1271-72 (11th Cir. 2015). We also review de novo questions of statutory interpretation. Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d 235, 237 (11th Cir. 1995). The district court‘s factual findings we review only for clear error. United States v. Magluta, 418 F.3d 1166, 1182 (11th Cir. 2005).
III. STANDING
The State contends that CSX lacks standing. It raises that issue for the first time in this appeal, but because standing goes to Article III jurisdiction a party can contest it “at any point in the litigation.” Fla. Wildlife Fed‘n, Inc. v. S. Fla. Water Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011). To have standing, CSX “must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 136 S. Ct. 1540, 1547 (2016).
CSX meets those three requirements. Without a favorable decision it will suffer an injury in fact because it will continue to be liable for roughly $5 million per year in sales and use tax on diesel fuel. See Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 599, 127 S. Ct. 2553, 2653 (2007) (“[B]eing forced to pay . . . a tax causes a real and immediate economic injury to the individual taxpayer.“). CSX‘s claimed injury is fairly traceable to the Department, which the parties stipulate is responsible for “administer[ing] and collect[ing] taxes within Alabama, including the administration of sales and use taxes.” And that injury would be redressed by a declaratory judgment that the sales and use tax violates the 4-R Act and an injunction prohibiting the Department from collecting that tax on CSX‘s purchase and consumption of diesel.
The State does not, of course, contest that CSX has paid, and unless it prevails here will continue to be liable for paying, the sales and use tax. It argues instead that CSX has not suffered an injury in fact because it failed to prove “that Alabama‘s exemption for water carriers actually injures CSX.” But CSX‘s challenge seeks to prevent application of the sales and use tax on it, not an end to the exemption of the water carriers from the tax. CSX I, 562 U.S. at 286, 131 S. Ct. at 1108 (“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. . . . The exemptions, no doubt, play a central role in CSX‘s argument . . . . But the essential subject of the complaint remains the taxes Alabama levies on CSX.“) (citations omitted). The only injury CSX must prove for standing purposes is liability for the sales and use tax that it claims is discriminatory in violation of the 4-R Act. CSX has standing.
IV. THE MOTOR CARRIER EXEMPTION
The Supreme Court remanded this case for us to consider “whether Alabama‘s fuel-excise tax is the rough equivalent of Alabama‘s sales [and use] tax as applied to diesel fuel, and therefore justifies the motor
A. The District Court‘s Clear Fuel Ruling
The district court found that CSX‘s trains can operate on clear diesel and that if CSX chose to do so, it could avoid the sales and use tax and instead pay the excise tax, just like motor carriers, which would be perfectly nondiscriminatory. Id. For that reason, the court ruled that any alleged discrimination is “self-imposed,” and “the State has established that its tax schemes for dyed diesel and clear diesel do not discriminate against rail carriers.” Id. at 1247. That ruling violates the mandate rule.
“The mandate rule is a specific application of the ‘law of the case’ doctrine which provides that subsequent courts are bound by any findings of fact or conclusions of law made by the court of appeals in a prior appeal of the same case.” Friedman v. Mkt. St. Mortg. Corp., 520 F.3d 1289, 1294 (11th Cir. 2008) (quotation marks omitted). That rule “has its greatest force when a case is on remand to the district court.” Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 881 F.3d 835, 843 (11th Cir. 2018). A district court “must implement both the letter and the spirit of the mandate taking into account the appellate court‘s opinion and the circumstances it embraces.” Cox Enters., 794 F.3d at 1271 (quotation marks and alterations omitted). Although a district court is “free to address, as a matter of first impression, those issues not disposed of on appeal,” it is “bound to follow the appellate court‘s holdings, both expressed and implied.” Id. (quotation marks omitted). The scope of the mandate is informed by the scope of the issues considered in the earlier appeal. Id.
The scope of the mandate that came out of our last decision was narrow. As to motor carriers, the Supreme Court had instructed us to consider only “whether Alabama‘s fuel-excise tax is the rough equivalent of Alabama‘s sales [and use] tax as applied to diesel fuel, and therefore justifies the motor carrier sales [and use] tax exemption.” CSX II, 135 S. Ct. at 1144. The district court noted that instruction and acknowledged that the clear fuel argument is not a “justification,” but ruled that it could be a basis for defeating CSX‘s claim anyway. 247 F. Supp. 3d at 1244 (“[T]he State introduced evidence not only to show sufficient justification, but also to prove: that any ‘discrimination’ is self-imposed through rail carriers’ practice of purchasing dyed, rather than clear, fuel . . . .“) (emphasis added).
That ruling went beyond the scope of the mandate, which was limited to whether the excise tax and the sales and use tax are roughly equivalent. CSX II, 135 S. Ct. at 1144. But because we agree with the district court‘s alternative ruling that the excise tax is roughly equivalent to the sales and use tax and, as a result, it justifies the motor carrier exemption, CSX Transp., 247 F. Supp. 3d at 1247-48, any error in the district court‘s clear fuel ruling is harmless.
B. The District Court‘s “Roughly Equivalent” Ruling
The district court decided that the motor carrier exemption is justified because
The district court interpreted “roughly equivalent” to carry its ordinary meaning and limited its inquiry to whether the “fuel-excise tax approximates the sales [and use] tax.” CSX Transp., 247 F. Supp. 3d at 1247. Applying that standard, the court found that over a recent nine-year period, the average rates rail carriers and motor carriers paid on diesel fuel differed “by some quantity between less-than-half-of-one cent and 3.5 cents” per gallon.4 Id. at 1250-51. That led the court to conclude that “the fuel-excise tax motor carriers pay is ‘roughly equivalent’ to the sales [and use] tax CSX pays.” Id. at 1251. In reaching that conclusion the court declined to consider how the State spends revenues from those different taxes. Id. at 1251 n.16.
CSX doesn‘t question the district court‘s math. Instead, it questions the test that the district court applied. CSX argues that the proper test is the compensatory tax doctrine — a three-part dormant Commerce Clause test that would require us to compare not only the rate that rail carriers and motor carriers pay under the sales and use tax and the excise tax, but also how the State allocates revenue from those taxes. Appellant‘s Br. at 38-39 (citing West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201, 114 S. Ct. 2205, 2215 (1994) (examining revenue expenditures to determine whether a facially discriminatory tax violates the dormant Commerce Clause)).
The crux of CSX‘s argument is that the excise tax is not roughly equivalent to the sales and use tax because the excise tax “is used exclusively to fund public highways,” effectively subsidizing the infrastructure on which motor carriers travel, while “the railroad sales [and use] tax is deposited in the State‘s general fund, earmarked primarily for education.” Compare
CSX does not pretend that the 4-R Act‘s text supports its contention that a state‘s revenue expenditures control a claim under that statute. It argues instead that the Supreme Court in its decision implicitly guided us toward the compensatory tax doctrine and examining revenue expenditures in two ways. The first was by using the phrase “roughly equivalent,” some variation of which appears in all compensatory tax doctrine cases, and the second was by citing the “foundational” compensatory tax doctrine case of Gregg Dyeing Co. v. Query, 286 U.S. 472, 52 S. Ct. 631 (1932).
1. The 4-R Act Is Concerned with the Imposition of Taxes, Not with the Expenditure of Revenue from Taxes
“We begin, as in any case of statutory interpretation, with the language of the
Section 11501(b)(4) provides that no state shall “[i]mpose another tax that discriminates against a rail carrier.” The syntax of the sentence makes clear that the source of discrimination must be the state‘s imposition of a tax. The relative pronoun “that” introduces the subordinate clause “that discriminates against a rail carrier.” The subordinate clause modifies the antecedent “tax” and describes the kinds of taxes states may not impose. All of which is a fancy way of saying that
In spite of that, CSX would have us read that provision to require revenue from the sales and use tax paid by rail carriers to benefit them as much as revenue from the excise tax paid by motor carriers benefits those carriers. That reading of
CSX‘s interpretative remodeling of
Impose another tax or appropriate revenue in a way that discriminates against a rail carrier.
Or subtract some language and add other language so that no state could:
Impose another tax thatdiscriminate[ ] against a rail carrier in any other way.
“But we are not allowed to add or subtract words from a statute.” Friends of the Everglades v. S. Fla. Water Mgmt. Dist., 570 F.3d 1210, 1224 (11th Cir. 2009); accord T-Mobile South, LLC v. City of Milton, 728 F.3d 1274, 1284 (11th Cir. 2013) (“Although we, like most judges, have enough ego to believe that we could improve a good many statutes if given the chance, statutory construction does not give us that chance if we are true to the judicial function.“); Myers v. TooJay‘s Mgmt. Corp., 640 F.3d 1278, 1286 (11th Cir. 2011) (“[W]e are not licensed to practice statutory remodeling.“). If Congress had intended for
didn‘t. And we assume that “Congress does not generally ‘hide elephants in mouseholes.‘” Rambaran v. Sec‘y, Dep‘t of Corr., 821 F.3d 1325, 1333 (11th Cir. 2016) (quoting Whitman v. Am. Trucking Ass‘ns., 531 U.S. 457, 468, 121 S. Ct. 903, 909-10 (2001)).
Reading
For all of those reasons, we hold that how the State allocates its tax revenues is irrelevant to whether it “[i]mposes [a] tax that discriminates against a rail carrier.”
2. The Supreme Court Did Not Tell Us to Apply the Compensatory Tax Doctrine
Undeterred by the plain text or by context, CSX contends that in deciding whether there is discrimination in violation of
Not to be derailed by the Supreme Court‘s failure to mention the compensatory tax doctrine, CSX argues that we still must apply that doctrine because the Court did use the term “rough equivalent,” some variation of which appears in all compensatory tax doctrine cases.6 CSX‘s argument is a fine example of a terminal logical fallacy known to logicians as an “illicit conversion” and to LSAT students as a “mistaken reversal.” See, e.g., Patrick J. Hurley and Lori Watson, A Concise Introduction to Logic 230-31 (13 ed. 2016); Steve Schwartz, Conditional Reasoning: Contrapositive, Mistaken Reversal, Mistaken
As it happens, the Supreme Court has used the phrase “rough equivalent” in all sorts of contexts. It has used the term when talking about taxes in the due process and Commerce Clause contexts (to which the compensatory tax doctrine does not apply). See Moorman Mfg. Co. v. Bair, 437 U.S. 267, 280, 98 S. Ct. 2340, 2348 (1978) (“In this case appellant‘s actual income tax obligation was the rough equivalent of a 1% tax on the entire gross receipts from its Iowa sales.“) (emphasis added). It has used the phrase when talking about extortion. See Ocasio v. United States, 578 U.S. __, 136 S. Ct. 1423, 1428 (2016) (“[T]he type of extortion for which petitioner was convicted -- obtaining property from another with his consent and under color of official right -- is the rough equivalent of what we would now describe as ‘taking a bribe.‘“) (emphasis added). It has even used the phrase when talking about usufructs of all things. See Boggs v. Boggs, 520 U.S. 833, 836, 117 S. Ct. 1754, 1758 (1997) (“A lifetime usufruct is the rough equivalent of a common-law life estate.“) (emphasis added). The term “rough equivalent” is not a magical incantation that spellbinds us to apply the compensatory tax doctrine. It is, instead, a term whose meaning must be determined in context. See Towne v. Eisner, 245 U.S. 418, 425, 38 S. Ct. 158, 159 (1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.“).
CSX‘s next argument for applying the compensatory tax doctrine is that the Supreme Court signaled that we should do so by citing Gregg Dyeing, which CSX characterizes as the “foundational building block of the compensatory tax analysis.” According to CSX, Gregg Dyeing is cited “as shorthand for the Compensatory Tax Doctrine” by many courts, and it points to the Alabama Supreme Court‘s opinion in White v. Reynolds Metals Co., 558 So. 2d 373 (Ala. 1989), as an example.
That is not a good example for CSX because in White the Alabama Supreme Court did not use Gregg Dyeing as “shorthand for the Compensatory Tax Doctrine,” but simply cited it along with two other decisions for the proposition that the “United States Supreme Court has upheld taxing statutes that appeared to discriminate against interstate commerce by holding that the state‘s tax scheme compensated for the tax by a substantially equivalent tax on intrastate commerce.” Id. at 387. And even if the Alabama Supreme Court had used Gregg Dyeing as code for the compensatory tax doctrine, that would not mean the United States Supreme Court used it that way in this case. We apply to the Supreme Court‘s opinions some of the same interpretative principles that it applies to congressional enactments, including the one about elephants and mouseholes. Whitman, 531 U.S. at 468, 121 S. Ct. at 909-10. We don‘t read the citation to Gregg Dyeing in the CSX II opinion as code but as simply a reference to the general principle that courts should consider other taxes a state imposes when assessing a facially discriminatory tax for 4-R Act purposes. See CSX II, 135 S. Ct. at 1143-44.
The posited result does not strike us as “truly absurd” -- or even absurd without an adverb, for that matter. Id. Although the dormant Commerce Clause has been criticized,7 the Supreme Court has held that it is grounded in the Constitution. See Fulton Corp., 516 U.S. at 330, 116 S. Ct. at 853 (“The constitutional provision of power ‘[t]o regulate Commerce’ . . . has long been seen as a limitation on state regulatory powers, as well as an affirmative grant of congressional authority.“). The economic protectionism that doctrine seeks to curb is a problem that “plagued relations among the Colonies and later among the States under the Articles of Confederation.” Dep‘t of Revenue of Ky. v. Davis, 553 U.S. 328, 338, 128 S. Ct. 1801, 1808 (2008). What seems truly absurd to us is the premise of CSX‘s assertion, which is that a constitutional doctrine is inherently less important than a statutory provision.
3. The Excise Tax Is Roughly Equivalent to the Sales and Use Tax
Having established that how a state allocates tax revenue is immaterial to whether two taxes are roughly equivalent under
As an initial matter, the parties contest whether we should compare the rates that rail carriers and motor carriers pay in state taxes, or the combined rate they pay under state plus local taxes. We need not answer that question because the sales and use tax and the excise tax are roughly equivalent regardless of whether we consider local taxes. Considering only state taxes, over a recent nine-year period, rail carriers paid $0.0985 per gallon for dyed diesel while motor carriers paid $0.19 per gallon for clear diesel. CSX Transp., 247 F. Supp. 3d at 1250. Accounting for both state and local taxes, rail carriers paid $0.2348 per gallon while motor carriers paid between $0.20 and $0.23 per gallon. Id. During that same period, rail carriers and motor carriers each had a higher state plus local tax burden than the other one did an equal number of times (fifty-seven). Id. at 1246.
We agree with the district court that “roughly equivalent” bears its ordinary meaning and that two taxes are roughly
V. THE WATER CARRIER EXEMPTION
We now move from the roads to the waters. The Supreme Court recognized that, unlike the motor carrier exemption, the State could offer no rough equivalency justification for the water carrier exemption because water carriers pay no state taxes at all when they buy or consume diesel.
The district court ruled that the water carrier exemption does not violate the 4-R Act for two independent reasons. First, the court found that there was no violation because “CSX has suffered no competitive injury from the State‘s exemption of water carriers from the sales [and use] tax.” CSX Transp., 247 F. Supp. 3d at 1255. Second, the court found that because “imposition of a state sales [and use] tax on interstate water carriers would expose the State to liability under the negative Commerce Clause,” the exemption for water carriers “is compelled by federal law.” Id. at 1252 (citing CSX II, 135 S. Ct. at 1144). We will take those two up in that order.
A. The District Court‘s “Competitive Injury” Ruling
There are two problems with the district court‘s ruling that the water carrier exemption does not violate the 4-R Act because CSX has not shown that the exemption causes it competitive injury. The first problem is that the parties stipulated that water carriers are among “[t]he principal competitors to rail carriers in the transportation of property in interstate commerce in the State of Alabama.” Although a district court may set aside an erroneous stipulation where justice requires, see, e.g., Morrison v. Genuine Parts Co., 828 F.2d 708, 709 (11th Cir. 1987), the district court did not suggest that it thought justice required doing so. Instead, its rationale was that the “stipulation does not equate to a concession that the competition between CSX and water carriers is substantial.” CSX Transp., 247 F. Supp. 3d at 1245. We are hard pressed to square a finding that competition between CSX and water carriers is insubstantial with a stipulation that they are “principal competitors,” especially where the stipulation distinguishes “[a]ir carriers,” which “also are engaged in the transportation of property in interstate commerce in the State of Alabama, but only marginally compete with rail carriers.”
And we are supremely reluctant to allow a district court to relitigate a stipulated fact that the Supreme Court relied on for one of its holdings, which is that rail carriers and water carriers are a similarly situated comparison class. CSX II, 135 S. Ct. at 1143 (“[I]n light of [CSX‘s] complaint and the parties’ stipulation, a comparison class of competitors consisting of motor carriers and water carriers was appropriate . . . .“) (emphasis added).
Instead of putting the burden on the State to justify the difference in taxation, the district court put the burden on CSX to prove “discriminatory effect” or “competitive injury.” CSX Transp., 247 F. Supp. 3d at 1255. While the district court was “free to address, as a matter of first impression, those issues not disposed of on appeal,” Cox Enters., 794 F.3d at 1271, it was not free to add another element for CSX to prove in order to establish a violation of the Act.8
B. The District Court‘s “Compelled by Federal Law” Ruling
In remanding the case the Supreme Court recognized that if the water carrier exemption were “compelled by federal law,” that might be sufficient justification. CSX II, 135 S. Ct. at 1144. The district court concluded that “imposition of a state sales [and use] tax on interstate water carriers would expose the State to liability under the negative Commerce Clause,” and for that reason, “the exemption for water carriers ‘is compelled by federal law.‘” CSX Transp., 247 F. Supp. 3d at 1252 (citing CSX II, 135 S. Ct. at 1144).
As an initial matter, we disagree with the district court that the water carrier exemption is “compelled by federal law” merely because the “imposition of a state sales [and use] tax on water carriers would expose the State to liability” under the Commerce Clause. Id. (emphases added). For 4-R Act justification purposes exposure to a risk is not compulsion; compulsion requires legal obligation.
1. The Negative Commerce Clause
The Supreme Court applies a four-prong test to determine whether a
The district court ruled that if imposed on water carriers the sales and use tax would not be fairly related to services that the State provides them because Alabama “provides virtually no services to interstate water carriers.” Id. at 1252. It found that Alabama “spends no tax dollars on river maintenance projects” or “commercial water traffic regulation or enforcement.” Id. It is, instead, the federal government that “funds all river dredging and lock and dam maintenance” and “spends monies licensing, policing, and maintaining commercial water traffic.” Id. Because “water carriers impose virtually no financial burden on the State” and “may never contact state land,” the district court concluded that water carriers could challenge the sales and use tax as not “fairly related to services provided [them] by the State.” Id. at 1251-52. Because imposition of the sales and use tax “would expose the State to liability under the negative Commerce Clause,” the district court ruled the water carrier exemption is “compelled by federal law” under the CSX II decision. Id. at 1252.
That ruling doesn‘t hold water. The Supreme Court rejected similar reasoning in Commonwealth Edison Co. v. Montana, 453 U.S. 609, 620-21, 101 S. Ct. 2946, 2955 (1981). That decision involved a Montana severance tax of up to 30% imposed on coal extracted in the state for use outside it. Id. at 612-13, 101 S. Ct. 2951. The coal producers argued that the “amount collected under the Montana tax is not fairly related to the additional costs the State incurs because of coal mining.”10 Id. at 620, 101 S. Ct. at 2955. The Court was not persuaded, explaining that the fourth prong of the Complete Auto test does not require “that the amount of general revenue taxes collected from a particular activity . . . be reasonably related to the value of services provided to the activity.” Id. at 622, 101 S. Ct. at 2956. “Nothing
Instead, the fourth prong requires only that “the measure of a tax is reasonably related to the taxpayer‘s activities or presence in the State,” in which case “the taxpayer will realize, in proper proportion to the taxes it pays, the only benefit to which the taxpayer is constitutionally entitled: that derived from his enjoyment of the privileges of living in an organized society.” Commonwealth Edison, 453 U.S. at 628-29, 101 S. Ct. at 2959 (quotation marks and alterations omitted). Those privileges are the “services” to which a tax must be “fairly related” for Commerce Clause purposes, and they include “police and fire protection,” public roads and mass transit, and other “advantages of a civilized society.” Id. at 624, 101 S. Ct. at 2957. Applying that analysis, the Court had “little difficulty” upholding the Montana tax. Id. at 626, 101 S. Ct. at 2958 (“Because [the tax] is measured as a percentage of the value of the coal taken, the Montana tax is in proper proportion to appellants’ activity within the State and, therefore, to their consequent enjoyment of the opportunities and protections which the State has afforded in connection with those activities.“) (quotation marks omitted).
Under the Commonwealth Edison standard, a tax on water carriers would be “fairly related” to the services provided by the State. It makes no difference that the federal government, instead of the State, foots the bill for barge-related services like river maintenance projects and commercial water traffic. The standard is unconcerned with “the services provided to the taxpayer on account of the activity being taxed.” Jefferson Lines, 514 U.S. at 199, 115 S. Ct. at 1345. Instead, the services to which a tax must be “fairly related” are the “privileges of living in an organized society.” Commonwealth Edison, 453 U.S. at 629, 101 S. Ct. at 2959.
Water carriers purchasing or using diesel fuel in Alabama benefit from those privileges. That is doubtless true for the two categories of water carriers that, according to the record, regularly make landfall in Alabama. For example, water carriers engaged in “head-to-head competition” with CSX take product from feed mills “located between Decatur[, Alabama] and Guntersville[, Alabama] directly on the river system.” Water carriers engaged in “river-to-truck competition” transport product from out of state to Albertville, Alabama and Ivalee, Alabama, where they “transfer [the product] and then truck it into their facilities.” Those water carriers benefit from the State‘s provision of emergency services, access to the judicial system, roads, and other “advantages of a civilized society,” no matter how often they use those services. See Jefferson Lines, 514 U.S. at 200, 115 S. Ct. at 1346 (“The bus terminal may not catch fire during the sale, and no robbery there may be foiled while the buyer is getting his ticket, but police and fire protection, along with the usual and usually forgotten advantages conferred by the State‘s maintenance of a civilized society, are justifications enough for the imposition of a tax.“).
Even for water carriers that “may never contact state land,” CSX Transp., 247 F. Supp. 3d at 1252, the fact that they could
The question then is whether the “measure of the tax [is] reasonably related to the extent of [water carriers‘] contact” with the state. Commonwealth Edison, 453 U.S. at 626, 101 S. Ct. at 2958. Because the severance tax in Commonwealth Edison was “measured as a percentage of the value of the coal taken,” the Supreme Court held that it was “in proper proportion to appellants’ activities within the State.” Id. Likewise, if applied to water carriers Alabama‘s sales and use tax, which is proportionate to the amount of diesel fuel bought or used in the state, would also be “in proper proportion to [the water carrier‘s] activities within the state.” Id.; see
2. The Maritime Transportation Security Act
The State points to another federal law as compelling the water carrier exemption, arguing that taxing them could expose it to suit under the Maritime Transportation Security Act,
No taxes . . . shall be levied upon or collected from any vessel or other water craft, or from its passengers or crew, by any non-Federal interest, if the vessel or water craft is operating on any navigable waters subject to the authority of the United States, or under the right to freedom of navigation on those waters[.]
And any such a lawsuit would not, in our view, succeed. The State bases its fears primarily on Kittatinny Canoes, Inc. v. Westfall Township, No. 183 CV 2013, 2013 WL 8563483 (Pa. Com. Pl. May 6, 2013), and Moscheo v. Polk County, No. E2008-01969-COA-R3-CV, 2009 WL 2868754 (Tenn. Ct. App. Sept. 2, 2009). Both decisions struck down under
If as the State suggests
Properly construed, the Act forbids taxes imposed on the vessel itself, or on its crew members themselves, or on the passengers themselves -- not taxes imposed on property purchased for use on or by a vessel, or by its crew, or by its passengers. See, e.g., Commercial Barge Line Co. v. Dir. of Revenue, 431 S.W.3d 479, 484 (Mo. 2014) (holding that there was no violation of the Act where the state “assess[ed] sales and use tax on the goods and supplies delivered to the Taxpayers’ towboats while they [were] in Missouri“); Reel Hooker Sportfishing, Inc. v. Dep‘t of Taxation, 236 P.3d 1230, 1232 (Haw. Ct. App. 2010) (”
If exempting water carriers from the sales and use tax that rail carriers pay is to be justified, it must be on some basis other than the Commerce Clause or the Maritime Transportation Security Act. The State has some more possibilities.
C. Other Justifications
The State advances two more arguments to justify the water carrier exemption: (1) “States can seek to avoid double taxation“; and (2) “States can charge a higher tax on a party that imposes higher costs on the State than its comparison class does.” Neither argument persuades us.
1. Double Taxation
The State argues that the water carrier exemption is justified because water carriers pay $0.29 per gallon in federal tax in exchange for barge-related services.
The State cites only one decision in support of its avoiding double taxation argument. See Lawrence v. State Tax Comm‘n of Miss., 286 U.S. 276, 279, 52 S. Ct. 556, 556 (1932). The Lawrence decision upheld a Mississippi income tax that exempted out-of-state income of corporations but not of individuals. The Court held that “a rational basis for the distinction made[ ] is the fact that the state has
Lawrence involved a state‘s effort to avoid imposing two taxes on the same corporate income -- once as the income comes into the corporation and again as that same income goes out as dividends. Id. at 284, 52 S. Ct. at 558-59. It did not involve, as this case does, a state tax and a federal tax that are of different types and serve different purposes. See
And even if imposing a state tax and a federal tax that are measured in different ways and used for different purposes did qualify as “double taxation,” the State offers no evidence that it has “adopted generally a policy of avoiding double taxation,” which is necessary for two taxes to fall under Lawrence. See 286 U.S. at 284, 52 S. Ct. at 558. Indications are that it does not have a policy of not taxing what the federal government taxes. For example, the State imposes an excise tax on diesel fuel that motor carriers purchase even though the federal government does too. See
2. Disparate Burdens
The State also argues that the water carrier exemption is justified because water carriers “impose virtually no financial burden on the State” while rail carriers impose significant costs. The disparity in burdens, the State asserts, justifies the disparity in taxation.
The State relies on Oregon Waste, 511 U.S. 93, 114 S. Ct. 1345. That is a dormant Commerce Clause decision invalidating a regulatory scheme that imposed a “purportedly cost-based surcharge” of $0.85 per ton on the disposal of waste generated in-state and a $2.25 per ton surcharge on the disposal of waste from out of state. Id. at 95-96, 114 S. Ct. at 1348. Oregon did not argue that out-of-state waste imposed higher costs, nor did it contend it had considered any cost disparity when it fixed the surcharge rates. Id. at 101 & n.5, 114 S. Ct. at 1351 & n.5. In a footnote, the Supreme Court theorized that if out-of-state waste imposed higher costs on the State, the scheme would pass muster because the surcharge disparity would not be
The Oregon Waste decision does not control here. The Court‘s footnote musing about what might have been if something were different is doubtless dicta. See Edwards v. Prime, Inc., 602 F.3d 1276, 1298 (11th Cir. 2010). And in any event, Oregon Waste is oceans apart from this case. Because that case involved a dormant Commerce Clause challenge, the issue was whether a state law impermissibly discriminates against out-of-staters. See, e.g., Maine v. Taylor, 477 U.S. 131, 137-38, 106 S. Ct. 2440, 2446-47 (1986). Its holding does not apply to a tax that does not discriminate against out-of-state economic interests.
Even if we could draw on dormant Commerce Clause decisions in deciding this 4-R Act case, the Oregon Waste dicta does not shed light on the sales and use tax at issue here. In that dicta the Court noted that evidence about disparate costs might salvage a facially discriminatory “cost-based surcharge.” 511 U.S. at 95, 101 n.5, 114 S. Ct. at 1348, 1351 n.5. But a sales and use tax is not “cost-based” -- it is not calibrated to account for varying burdens. See CSX Transp., 247 F. Supp. 3d at 1254. Instead, it is a flat-rate, 4% general tax imposed without reference to burdens generated by the activity and borne by the State. There is no evidence that the State accounted for disparate burdens when it set a tax rate of 4% for rail carriers and 0% for water carriers. As a result, the Oregon Waste Court‘s conjecture that a cost disparity might justify a proportionally disparate “cost-based surcharge” does not mean that one might justify exempting water carriers from a flat-rate tax of general applicability.
Because the sales and use tax does not account for the relative burdens imposed by taxpayers, and because dicta from the dormant Commerce Clause decision in Oregon Waste does not control the result in this 4-R Act case, the State‘s “disparate burdens” argument does not justify the water carrier exemption. Having concluded that the water carrier exemption is not “compelled by federal law” and that neither of the State‘s “alternative rationales” justifies the water carrier exemption, see CSX II, 135 S. Ct. at 1144, we hold that Alabama‘s sales and use tax violates the 4-R Act.
VI. CONCLUSION
As to motor carriers, we agree with the district court that the excise tax is roughly equivalent to the sales and use tax because the average rates that rail carriers and motor carriers have paid differed “by some quantity between less-than-half-of-one cent and 3.5 cents” per gallon. CSX Transp., 247 F. Supp. 3d at 1250-51. As a result, the excise tax justifies the motor carrier exemption from the sales and use tax. See CSX II, 135 S. Ct. at 1144.
As to water carriers, their exemption is not “compelled by federal law.” CSX Transp., 247 F. Supp. 3d at 1252. Although imposing the sales and use tax on water carriers might “expose” the State to a lawsuit under federal law, compulsion requires more than exposure. The water carrier exemption is “compelled by federal law” only if imposition of the sales and use tax would violate federal law. In our view, it would not. And we are unpersuaded by the State‘s “alternative rationales” for the water carrier exemption. See CSX II, 135 S. Ct. at 1144.
We REVERSE the district court, hold that the State‘s sales and use tax violates the 4-R Act, and REMAND to the district court with instructions to enter declaratory