U.S. Supreme Court: Alabama’s tax system for diesel fuel

Supreme Court: Alabama’s tax system for diesel fuel

The U.S. Supreme Court today held that Alabama state law that imposes sales and use tax on diesel fuel purchases made by a rail carrier, but exempts purchases made by its competitors (motor carriers and water carriers), may be discriminatory under federal statutes.

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The case is: Alabama Dept. of Revenue v. CSX Transportation, Inc., No. 13-553 (S. Ct. March 4, 2015)

The Supreme Court again remanded the case to the Eleventh Circuit for a determination as to whether Alabama’s fuel excise tax is the “rough equivalent” of Alabama’s sales tax as applied to diesel fuel and whether it justifies the sales tax exemption for motor carriers.

 

Read the Supreme Court’s opinion [PDF 133 KB] that includes a dissenting opinion.

Summary

Under Alabama law, a sales tax at a rate of 4% is imposed on diesel fuel purchased by rail carriers. Diesel fuel purchased by motor carriers and by water carriers, however, is not subject to this tax. Rather, motor carriers pay a 19-cents per gallon fuel excise tax on diesel purchases. Water carriers do not pay either the sales tax or the fuel excise tax.

The rail carrier challenged Alabama’s tax system concerning diesel fuel, asserting that the system discriminates against a rail carrier, in violation of 49 U.S.C. §11501(b)(4) (the Railroad Revitalization and Regulatory Reform Act of 1976).

When previously before the U.S. Supreme Court in 2011, the case was remanded to the Eleventh Circuit on a finding that the rail carrier could challenge the state’s application of its sales and use tax regime under provisions of the 1976 act.

The Eleventh Circuit subsequently determined that the rail carrier could establish discrimination by showing that Alabama taxes rail carriers differently than their competitors, and rejected Alabama’s argument that the fuel excise tax offsets the sales tax (i.e., because the system imposed fuel tax on motor carriers, but not on rail carriers, the state was justified in imposing sales tax on rail carriers but not on motor carriers).

Today, the U.S. Supreme Court determined that the Eleventh Circuit had properly concluded that the motor and water carriers were an appropriate comparison class for purposes of 11 U.S.C. §11501(b)(4), but that the Eleventh Circuit erred in refusing to consider whether Alabama could justify the exemption from sales and use tax for motor carriers by instead imposing the fuel excise tax on motor carriers.

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