Court Says CSX Can Challenge State Tax

Court Says CSX Can Challenge State Tax

In a 7-2 ruling that could affect how states levy taxes on inland transportation carriers, the U.S. Supreme Court said eastern railroad CSX Transportation can challenge the percentage sales and use taxes that Alabama levies on its fuel use.

CSX had argued that its freight competitors – trucks and carriers – do not pay the same type of taxes, so the state fees amount to a discriminatory tax in violation of the Railroad Revitalization and Regulatory Reform Act of 1976.

Alabama charges truckers a 19 cent excise tax for each gallon of diesel fuel, and therefore exempts them from the 4 percent consumption tax that applies to railroads and other industries. Water carriers are not charged a state excise tax on their fuel use, and are wholly exempt from Alabama’s sales and use taxes.

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Lower courts had blocked CSX’s attempt to sue Alabama over its taxes, but the high court decision allows the railroad to proceed with litigation. Two justices dissented, taking the view CSX is not treated differently from other commercial and industrial firms that pay the 4 percent tax, despite the exemptions for other freight carriers.

If CSX eventually succeeds in overturning the Alabama sales tax on railroads’ fuel use, the action could spur that state or others to alter their taxation programs and put all carriers under the same process without exemptions.

Transportation groups and officials from state agencies are watching the case at a time when nearly all states face tough budget problems, with some raising taxes. Some industry groups are urging Congress to apply federal motor fuel taxes more broadly and include railroads’ fuel use in addition to that of highway vehicles. Some also want lawmakers to shift to a percentage sales tax on fuel that can rise with underlying prices, and move away from the traditional per-gallon excise taxes.

-- Contact John D. Boyd at