CSX has won an appeal against the Alabama Department of Revenue regarding the agency’s imposition of a sales and use tax on diesel fuel purchased by rail carriers.
Citing the Railroad Revitalization and Regulatory Reform Act of 1976, which prohibits certain discriminatory taxes, CSX Transportation said in the case, “CSX Transportation, Inc. v. Alabama Department of Revenue,” that Alabama’s tax on diesel fuel for rail carriers was discriminatory because fuel purchased by interstate motor and water carriers was exempt from the 4 percent tax, according to Ryan, a tax services firm. The state argued that it exempted the motor carriers because they pay a roughly equivalent amount of taxes in fuel excise tax.
However, the Circuit Court concurred that the tax appeared to be discriminatory and shifted the burden to Alabama to prove “sufficient justification” for taxing rail carriers differently, which Alabama failed to do. As a result, the court remanded the case to the U.S. District Court for the Northern District of Alabama, directing it to enter declaratory and injunctive relief in favor of CSX.
It is the second time that the case has been before the Circuit Court. An earlier decision of the court holding that a rail carrier could not challenge its competitors’ exemptions from sales and use tax under the 4-R Act was reversed by the U.S. Supreme Court on Feb. 22, 2011.