United States: U.S. Supreme Court Remands Discriminatory Challenge To Alabama’s Fuel Excise Tax

On March 4, the U.S. Supreme Court ruled that the Eleventh Circuit Court of Appeals properly concluded that a taxpayer's transportation industry competitors were an appropriate comparison class for the taxpayer's claim that the sales and use taxes imposed on railroads were discriminatory under the Railroad Revitalization and Regulation Reform Act of 1976 (4-R Act).1 However, the Court reversed the Eleventh Circuit's decision and remanded the case for further consideration of whether Alabama discriminated against the taxpayer and other railroad carriers by exempting motor and water carriers from its sales and use taxes, and instead subjecting motor carriers to an alternative fuel-excise tax, while not imposing any comparable alternative tax on water carriers.


The taxpayer, CSX, is a common carrier railroad engaged in interstate commerce. The taxpayer filed suit against the Alabama Department of Revenue, alleging that the imposition of Alabama sales and use taxes on its purchase or consumption of diesel fuel violated the 4-R Act, which prohibits a state or political subdivision from imposing "another tax" that discriminates against a rail carrier.2 In the original lawsuit, the taxpayer sought an injunction prohibiting the Department from collecting the Alabama sales and use taxes on the taxpayer's purchase or consumption of diesel fuel within the state. The taxpayer also sought declaratory judgment that the imposition of these taxes violated the 4-R Act. The U.S. District Court for the Northern District of Alabama dismissed the case subsequent to the Eleventh Circuit's holding, in a different case, that a tax exemption cannot be deemed a discriminatory tax which is prohibited by the 4-R Act.3

The taxpayer appealed the dismissal to the Eleventh Circuit, which affirmed,4 and to the U.S. Supreme Court, which reversed and held that a tax "discriminates" under the applicable terms of the 4-R Act when it treats "groups [that] are similarly situated" differently without sufficient "justification for the difference in treatment."5 Finding that the taxpayer was thus permitted to challenge Alabama's sales and use taxes under the 4-R Act, the Supreme Court remanded the case for further proceedings on the merits.6

On remand, the U.S. District Court determined that the imposition of Alabama sales and use taxes on the purchase of diesel fuel by rail carriers did not constitute discriminatory taxes that are specifically prohibited under the 4-R Act.7 The District Court reasoned that when taking into account the excise tax applicable to motor carriers, and not rail carriers, motor carriers paid a "substantially similar" rate of tax, and that the taxpayer failed to show any discriminatory effect with respect to the tax treatment of water carriers.

The taxpayer appealed this decision and the Eleventh Circuit reversed, ruling in the taxpayer's favor that the sales tax was discriminatory under the 4-R Act.8 Specifically, the Eleventh Circuit held that the taxpayer could establish discrimination by showing that Alabama taxed rail carriers differently than its transportation industry competitors (including both motor and water carriers). The Eleventh Circuit refused to consider any aspects of Alabama's taxing scheme other than the challenged provision and wholly rejected the Department's argument that the fuel-excise taxes imposed on motor carriers offset the sales taxes charged to railroads. The Department appealed this decision and the U.S. Supreme Court agreed to consider the case for a second time.

Alabama's Imposition of Taxes

Under Alabama law, all businesses including railroads are generally subject to a 4 percent state-level sales and use tax on their purchases of diesel fuel in the state.9 Purchases of diesel fuel by other carriers, motor carriers or interstate water carriers, however, are exempt from sales and use tax. Instead, motor carriers are subject to a special motor fuels excise tax of 19 cents per gallon on their purchases of diesel fuel10 and water carriers are exempt on their purchase of diesel fuel used for interstate or foreign commerce.11 The central issue in this case was whether this disparate treatment of railroads and other common carriers constituted discrimination under the 4-R Act.

U.S. Supreme Court Decision

The Supreme Court held that the Eleventh Circuit correctly concluded that the taxpayer's competitors are an appropriate comparison class for its claim of discrimination under the 4-R Act. However, the Court ruled that the Eleventh Circuit erred in failing to consider whether Alabama was justified in subjecting motor carriers to a fuel-excise tax instead of the sales and use taxes imposed upon railroads. On remand, the Court also directed that consideration be given to whether similar justification applied to defend the sales and use tax exemptions applicable to water carriers.

Comparison Class

In determining whether discrimination existed, the Court explained that it was first required to determine the appropriate "comparison class." The 4-R Act was found to be an "asymmetrical statute" wherein subsections (b)(1) through (b)(3) of the statute specifically address the comparison of railroad property to commercial and industrial property in the same jurisdiction, but subsection (b)(4) contains no similar limitation with respect to comparison class. Refusing to apply a limitation to the comparison class which was not directly specified, the Court rejected the Department's argument that the only appropriate comparison class for railroads is all general commercial and industrial taxpayers. Instead, the Court further scrutinized the language included in subsection (b)(4) requiring the finding of discrimination against a rail carrier. Noting that no such proof of discrimination is required to sustain a challenge to the provisions in subsections (b)(1) through (b)(3), the Court concluded that the concept of "similarly situated" must simply be applied in determining an appropriate comparison class.

Recognizing both the wide latitude typically allowed state legislatures regarding disparate treatment of taxpayers engaged in different lines of business12 and the narrow interpretation accorded the term "similarly situated" under the Equal Protection Clause,13 the Court noted that "the concept of 'similarly situated' individuals cannot be so narrow here. That would deprive subsection (b)(4) of all real-world effect, providing protection that the Equal Protection Clause already provides." Thus, the Court found that competitors of railroads such as motor carriers and water carriers can be another similarly situated comparison class. Accordingly, the Court upheld the Eleventh Circuit decision that a comparison class consisting of motor carriers and water carriers was appropriate, and differential treatment of railroads versus that class would constitute discrimination.

Consideration of Entire Tax Scheme

To determine whether the requisite discrimination was present, the Court found it necessary to examine differences in treatment between similarly situated taxpayers. While the Eleventh Circuit found that motor carriers and water carriers were similarly situated taxpayers to railroads, it declined to consider whether the converse imposition of fuelexcise taxes upon motor carriers but not railroads eliminated the potential for discrimination from imposing sales tax on fuel purchases by railroads. Specifically, the Eleventh Circuit refrained from this analysis as a result of its decision to consider only the specific tax statute upon which discrimination was alleged, rather than the overall taxes imposed upon the motor carriers.

Motor Carriers

In contrast, the Court cited a negative Commerce Clause decision to support the proposition that an additional tax on third parties may justify an otherwise discriminatory tax scheme.14 Precisely, the Court determined that an alternative, roughly equivalent tax is "one possible justification that renders a tax disparity non-discriminatory." The taxpayer made a case against consideration of such other taxes, noting that the statutory language regarding discrimination makes reference to a "tax" (singular) versus the tax code as a whole. Finding that the nature of the language included in the statute necessarily places the burden of determining whether taxes upon similarly situated taxpayers are discriminatory solely upon the courts, the Court remanded the case to the Eleventh Circuit for further consideration. Specifically, the Court requested consideration as to whether Alabama's fuel-excise tax imposed upon motor carriers is the rough equivalent of Alabama's sales tax as applied to the diesel fuel, rendering the sales tax non-discriminatory.

Water Carriers

Comparing the taxpayer to water carriers, the Court noted that water carriers pay neither the general sales tax on diesel fuel charged to railroads nor the fuel-excise tax paid by motor carriers. However, Alabama offered other justifications for this disparate treatment which were not considered by the Eleventh Circuit. Thus, the Court remanded the issue back to the Eleventh Circuit for further consideration.

Dissenting Opinion

Justice Thomas filed a dissenting opinion and was joined by Justice Ginsburg.15 Specifically, Justice Thomas, as expressed in his dissent in the original case, would have found that in order to violate subsection (b)(4) of the 4-R Act, "a tax exemption scheme must target or single out railroads by comparison to general commercial and industrial taxpayers." Based on this divergent opinion regarding the first portion of the decision, Justice Thomas necessarily disagreed with the final conclusion. Instead of treating subsection (b)(4) as a separate clause, Justice Thomas would have treated it as a residual clause. Thus, the statutory structure would have only been indicative of a discriminatory tax against a rail carrier only if it singled out railroads for unfavorable treatment as compared to the general class of commercial and industrial taxpayers.

Also in support of his reasoning, Justice Thomas noted that there is no law preventing railroad carriers from buying the same diesel fuel used by motor carriers and claiming the same tax exemption enjoyed by that group. Similarly, the same general sales and use tax as applied to railroads also applies to all commercial and industrial taxpayers. Based at least partially on these facts, Justice Thomas would have found no discrimination evident.


This is a significant decision which provides guidance, albeit limited, for any taxpayers entertaining thoughts of asserting tax discrimination under an industry-specific statute. By referencing negative Commerce Clause authority allowing for the comparison of two statutorily different tax schemes to determine the presence of discrimination, the decision provides at least some insight into the analysis which could be applied by taxpayers asserting a similar injustice. This broad interpretation allowing comparison between different tax types to prove the existence of discrimination, rather than simply considering the provision claimed to be discriminatory, could result in an expectation of greater latitude at the state legislative and judicial levels. Of particular interest is how the Eleventh Circuit will deal with the issue of whether a 19 cent per gallon tax imposed on motor carriers can be treated as a tax that is roughly equivalent to a 4 percent tax on the value of the diesel fuel imposed on rail carriers. The measurement of these two taxes (flat fee per gallon of diesel fuel versus a percentage of the value of the diesel fuel) is completely different as the value of diesel fuel can vary substantially according to market conditions.

Transportation companies should pay considerable attention to the anticipated further developments in what has turned out to be a very lengthy judicial process, as the result could impact the Alabama sales and use tax structure imposed on rail carriers, as well as in other states. Many other jurisdictions generally impose sales taxes upon railroads in a manner similar to Alabama and allow exemptions for fuel used by motor carriers. While the final conclusion remains to be seen, the case conceivably could go back to the Supreme Court for a third time if the lower courts' view of discrimination under the 4-R Act is appealed by the aggrieved party, and the Supreme Court decides to take the case yet again.


1 Alabama Dep't. of Revenue v. CSX Transportation, Inc., U.S. Supreme Court, No. 13-553, March 4, 2015. Justice Scalia delivered the opinion of the Court and was joined in the decision by Justices Roberts, Kennedy, Breyer, Alito, Sotomayor, and Kagan. Justice Thomas filed a dissenting opinion, in which Justice Ginsburg joined. The Railroad Revitalization and Regulatory Reform Act is codified at 49 U.S.C. § 11501(b)(4).

2 49 U.S.C. § 11501(b)(4). For reference, the 4-R Act provides: "(b) the following acts unreasonably burden and discriminate against interstate commerce, and a State, subdivision of a State, or authority acting for a State or subdivision of a State may not do any of them: (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 that may not be made under paragraph (1) of this subdivision; (3) levy or collect an ad valorem property tax at a tax rate that exceeds the tax rate applicable to commercial and industrial property in the same assessment jurisdiction; or (4) impose another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under this part."

3 Norfolk S. Ry. Co. v. Alabama Department of Revenue, 550 F.3d 1306 (11th Cir. 2008).

4 CSX Transportation, Inc. v. Alabama Department of Revenue, 350 Fed. Appx. 318 (11th Cir. 2009).

5 CSX Transportation, Inc. v. Alabama Department of Revenue, 562 U.S. 277 (2011).

6 Id.

7 CSX Transportation, Inc. v. Alabama Department of Revenue, 892 F. Supp. 2d 1300 (N.D. Ala., 2012). For a discussion of this case, see GT SALT Alert: Federal District Court Holds Alabama's Imposition of Sales and Use Taxes on Rail Carriers Does Not Violate 4-R Act.

8 CSX Transportation, Inc. v. Alabama Department of Revenue, 720 F.3d 863 (11th Cir. 2013).

9 ALA. CODE §§ 40-23-2(1); 40-23-61(a).

10 ALA. CODE § 40-17-325(a)(2), (b).

11 ALA. CODE §§ 40-23-4(a)(10); 40-23-62(12).

12 Citing, for example, New York Rapid Transit Corp. v. City of New York, 303 U.S. 573, 579 (1938) and Southwestern Oil v. Texas, 217 U.S. 114, 121 (1910).

13 U.S. CONST. amend. XIV, § 1.

14 Gregg Dyeing Co. v. Query, 286 U.S. 472, 479-480 (1932).

15 Justice Thomas also filed a dissenting opinion in the initial Supreme Court CSX decision, CSX Transportation, Inc. v. Alabama Department of Revenue, 562 U.S. 277 (2011).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.