ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE.
CSX Transportation, Inc. filed this action against the Alabama Department of Revenue and Julie P. Magee, in her official capacity as Commissioner of the Department (collectively, "the State" or "Alabama"), seeking relief under Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. § 11501 (the "4-R Act"). Doc. 1. The 4-R Act, enacted in part to "foster competition among all carriers by railroad and other modes of transportation," 45 U.S.C. § 801(b)(2), prohibits states and localities from engaging in discriminatory taxation of railroads. See 49 U.S.C. § 11501(b). CSX contends that Alabama's taxing scheme is discriminatory because the State exempts motor carriers and water carriers from the diesel fuel sales tax it requires railroads to pay. Accordingly, CSX seeks to enjoin the State from collecting sales tax on CSX's diesel fuel purchases pursuant to § 11501(b)(4).
After considering the evidence presented at trial and the parties' post-trial briefs, for the reasons provided herein, the court concludes that the State has not violated the 4-R Act and that this action is due to be dismissed with prejudice.
The court initially dismissed CSX's complaint based on the Eleventh Circuit's determination, in a similar case, that "the Alabama tax statute . . ., with its exemptions for motor and water carriers, does not offend the 4-R Act so long as the tax is generally applicable and does not target railroads within Alabama." See doc. 22 (citing Norfolk S. Ry. v. Ala. Dep't of Revenue, 550 F.3d 1306, 1316 (11th Cir. 2008)). The Eleventh Circuit, "bound by the panel's decision in Norfolk Southern," affirmed, 350 Fed.Appx. 318 (2009). The Supreme Court reversed, stating that "CSX may challenge Alabama's sales and use taxes as `tax[es] that discriminat[e] against . . . rail carrier[s]' under § 11501(b)(4),"
On the State's petition, the Supreme Court again agreed to hear the case. ___ U.S. ___, 134 S.Ct. 2900, 189 L.Ed.2d 854 (2014). The Court reversed in part,
The Eleventh Circuit remanded the action to this court for further proceedings consistent with CSX II. 797 F.3d 1293, 1294 (11th Cir. 2015). This court conducted a second bench trial, and, with the benefit of the parties' post-trial briefs, see docs. 154; 155; 156, this matter is ripe again for adjudication.
Before proceeding to the analysis, this court must address the scope of the remand, because the law of the case doctrine bars this court from considering issues the appellate courts have already decided, even if only by necessary implication. See Burger King Corp. v. Pilgrim's Pride Corp., 15 F.3d 166, 169 (11th Cir. 1994). However, this court "is free to address, as a matter of first impression, those issues not disposed of on appeal." Cox Enters., Inc. v. News-Journal Corp., 794 F.3d 1259, 1271 (11th Cir. 2015).
Relevant here, the Supreme Court directed the Eleventh Circuit to consider "whether Alabama's fuel-excise tax is the rough equivalent of Alabama's sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption," and to determine the sufficiency of the State's "alternative rationales [to] justify its [water carrier] exemption." CSX II, 135 S.Ct. at 1144. At trial, the State presented evidence which, it claims, "prove[s] every theory to deny CSX relief that was mentioned in the Supreme Court's majority opinion in CSXT II, in Justice Thomas and Ginsburg's dissenting opinion, and/or by a Justice during oral argument." Doc.
CSX contends that these issues are outside the scope of remand. CSX's Br. at 7.
Turning next to the second issue regarding water carriers, although the State agrees that the Court impliedly decided that rail carriers and water carriers are similarly situated through its declaration (based on CSX's "complaint and the parties' stipulation") that "differential treatment" vis-à-vis rail carriers and a "comparison class of competitors consisting of motor carriers and water carriers" would "constitute discrimination," CSX II, 135 S.Ct. at 1143; see State's Reply Br. at 3, the State nonetheless asserts that this court may decide whether rail carriers and water carriers are actually similarly situated. According to the State, the July 2016 trial "produce[d] substantially different evidence" as to this issue, which triggers an exception to the law of the case doctrine. State's Br. at 25-26 (quoting Mega Life & Health Ins. Co. v. Pieniozek, 585 F.3d 1399, 1405-06 (11th Cir. 2009)).
The "substantially different evidence" exception "is inapplicable where[,] by the prior appeal[,] the issue is not left open for decision." See This That & the Other Gift & Tobacco, Inc. v. Cobb County, 439 F.3d 1275, 1285 (11th Cir. 2006) (quoting Nat'l Airlines, Inc. v. Int'l Assoc. of Machinists & Aerospace Workers, 430 F.2d 957, 960 (5th Cir. 1970)). Here, however, in response to the State's argument that "resolution" was not appropriate, Eleventh Circuit case no. 12-14611, State's Br. at 16, and the State's request that the Eleventh Circuit remand the action for this court "to hold hearings and make findings about interstate water carriers," id. the Circuit remanded. Based on this procedural history, the court finds that the Circuit
The final issue of contention regarding the scope of the remand centers on the de minimis competition/lack of competitive injury issue. The Supreme Court did not decide this issue. Instead, it remanded this action for examination of the State's "other justifications for the water carrier exemption." CSX II, 135 S.Ct. at 1144. Although CSX correctly points out that the State stipulated that trucks and water carriers are CSX's "principal competitors," doc. 137 at 3, this stipulation does not equate to a concession that the competition between CSX and water carriers is substantial. See State's Reply Br. at 11. Therefore, because this court is "free to address, as a matter of first impression, those issues not disposed of on appeal," Cox, 794 F.3d at 1271, and to avoid another remand in the event the Circuit sides with the State on the scope of the current remand, the court will make findings and enter legal conclusions on this issue based on the evidence.
The Alabama Department of Revenue administers and collects taxes within the State, including sales and use taxes. Doc. 137 at 1. The State levies a generally-applicable sales tax on the gross proceeds from "the business of selling at retail any tangible personal property whatsoever" at "an amount equal to four percent. . . ." Ala. Code §§ 40-23-2(1), 40-23-61(a) (1975).
From a mechanical standpoint, CSX trains can operate on dyed or clear diesel. Trans. 17, 22, 540. CSX's fuel suppliers sell both types, and the trucks that deliver CSX's fuel are equipped to transport either type. Trans. 552. Nonetheless, the use of dyed diesel in railroad locomotives is a "decades"-long industry practice, recognizing a traditional distinction between clear diesel (used for highways) and dyed diesel (used for off-highway purposes). Trans. 532. CSX would encounter various administrative difficulties if it attempted to transition back-and-forth between the two types — based on the fluctuating price of fuel — in an effort to optimize its tax burden. Trans. 526-36.
Motor carriers and water carriers are CSX's principal competitors in the transportation of property in interstate commerce in Alabama.
State State + Local Undyed diesel fuel-excise tax 19¢ 23¢10 Dyed diesel sales tax 9.85¢ 23.48¢
[
State's Exs. 1-2. Moreover, in the 114 months between January 2007 and February 2016, the two taxes exceeded each other at an equal rate, i.e., 57 times each. State's Ex. 2.
Water carriers are exempted from both types of taxes for their diesel fuel. Doc. 137 at 3. Instead, water carriers pay a 29.1¢ per gallon federal tax on fuel used in a vessel in commercial waterway transportation, with 29.0¢ of that amount earmarked for the Inland Waterways Trust Fund. 26 U.S.C. § 4042(b).
In contrast to rail carriers and motor carriers, water carriers impose virtually no financial burden on the State. The federal government funds and performs all river dredging and lock and dam maintenance projects. See State's Ex. 44 at 73-75; Trans. 63, 96-97, 130-34, 149, 348, 363, 371. Half of the cost of construction and rehabilitation projects on Alabama's inland waterways is paid out of the Inland Waterways Trust Fund, while funds from the United States Treasury cover the remaining half. 26 U.S.C. § 9506(c); State's Ex. 44 at 85-89. The State also bears no burden stemming from accidents involving water carriers. Specifically, from 2004 to 2013, no interstate water carrier collided with an Alabama citizen; however, there were 703 "train-involved" automobile accidents in Alabama, resulting in 92 deaths and 316 casualties. State's Ex. 5 at 26. The Alabama Department of Transportation ("ALDOT"), the Alabama Department of Environmental Management ("ADEM"), and the Alabama Law Enforcement Agency ("ALEA") expended state funds responding to and investigating these incidents involving rail carriers. Trans. 69-70. The State does not budget funds for commercial water traffic regulation or enforcement. Trans. 124, 149.
Lastly, although the parties stipulated that water carriers are one of CSX's two principal competitors in Alabama, the evidence showed a lack of substantial competition between water carriers and CSX. For example, in 2014, CSX's top five commodities shipped into or from Alabama were coal (36.7%), minerals (12.1%), agriculture (9.1%), forest (8.9%), and intermodal (8.5%). CSX's Ex. 50 at 5. In the largest category for CSX's business in Alabama, water carriers offer no competition. Specifically, CSX makes two interstate coal shipments in Alabama: the first from Central Appalachia to Birmingham, Alabama, and the second from Oak Grove, Alabama to Chicago, Illinois. CSX's Exs. 39, 44; Trans. 645-47, 674-67, 683-849. Water carriers do not haul coal from Central Appalachia to Birmingham, Trans. 694, and CSX only competes with motor carriers to haul coal along that route, Trans. 663, 665. Water carriers also provide no competition for the transportation of coal to Chicago — CSX competes with Norfolk Southern Railway to haul coal along this route. Trans. 687. The only competition provided by water carriers is in the agricultural products sector, where CSX competes with water carriers to ship between 50,000 and 100,000 carloads of
Based on the findings of fact and the relevant law, the court examines the State's clear fuel argument and the State's proffered justifications for any purported disparate tax treatment of rail carriers vis-à-vis motor carriers and water carriers, and makes the following conclusions of law.
It is undisputed that CSX's locomotives can operate on clear diesel. Moreover, if CSX purchases this fuel, Alabama will subject CSX to the same fuel-excise tax as motor carriers. See Trans. 17, 22, 36-38, 540. Consequently, the State asserts that any purported discrimination in its taxing scheme is self-imposed. CSX contends that the State's contention is unrealistic because of CSX's established practice of purchasing dyed fuel and the administrative burdens CSX would encounter in attempting to calibrate its usage of dyed and clear diesel to minimize its tax obligations in Alabama. To support its contention, CSX cites Kraft Gen'l Foods, Inc. v. Iowa Dep't of Revenue, 505 U.S. 71, 112 S.Ct. 2365, 120 L.Ed.2d 59 (1992), for the proposition that "a state cannot force a taxpayer to conduct his business differently, particularly where the taxpayer's practices `are supported by legitimate business reasons.'" See CSX's Br. at 17. However, because the holding in Kraft is narrower than CSX asserts and addresses taxation of foreign commerce,
To the extent that this ruling exceeds the scope of the remand, for the reasons explained in section B below, the court finds also that motor carriers' payment of the fuel-excise tax is roughly equivalent to the sales tax on dyed diesel, and that the fuel-excise tax sufficiently justifies any disparate sales tax treatment by the State.
The court must ascertain as an initial matter what "rough equivalent" means. See CSX II, 135 S.Ct. at 1144 (directing the court on remand to examine "whether Alabama's fuel-excise tax is the rough equivalent of Alabama's sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption"). To no surprise, the parties propose different interpretations, with the State contending that "rough equivalent" bears its plain meaning — i.e., that the State only has to show that the fuel-excise tax approximates the sales tax, see State's Br. at 7-9,
The Court has summarized the "compensatory tax doctrine" as follows:
Fulton Corp. v. Faulkner, 516 U.S. 325, 332, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996). Although CSX II contains no citations to Faulkner, Silas Mason, Oregon Waste Systems, Maryland, or Hardesty, and the Supreme Court did not include the words "compensatory" or "complementary" in its opinion, CSX insists that the Court prescribed application of the three-part test by citing Gregg Dyeing Co. v. Query, 286 U.S. 472, 479-80, 52 S.Ct. 631, 76 S.Ct. 1232 (1932). See CSX's Br. at 21.
Turning briefly to Gregg Dyeing, the case involved a bleachery operator in South Carolina who purchased its gasoline from out-of-state dealers. Gregg Dyeing, 286 U.S. at 475, 52 S.Ct. 631. South Carolina exacted a sales tax on the bleachery's purchases, while exempting other taxpayers' out-of-state gasoline purchases. Id. at 473, 52 S.Ct. 631. The bleachery sued under the Commerce and Equal Protection Clauses. Id. The Court, noting that other taxpayers that purchased or produced gasoline within South Carolina paid the tax at the same rate in relation to gasoline consumption, found no constitutional violation:
Id. at 479-80, 52 S.Ct. 631.
In CSX II, the Supreme Court cited Gregg Dyeing only once, after this
In a minor departure from this court's 2012 opinion, see doc. 71 at 24, the court is persuaded by the State's argument that the relevant comparison is State taxes, rather than State and local taxes. As the State puts it, "the only `act' Congress precluded Defendants from doing in section (b)(4) was to `impose another tax that discriminates,'" State's Br. at 5, and "allowing a local government to levy a tax is not the same as imposing the tax," State's Br. at 5 (emphasis in original). Because no local governmental entities are defendants in this particular lawsuit, and the State has merely allowed such entities, in their discretion, to levy additional taxes, the court concludes that State tax statistics provide the relevant comparison for purposes of this case. See State's Reply Br. at 16 ("[T]he State Defendants do not `impose' the local sales taxes; local officials do. These local officials are independent actors who must be (and have been) sued as independent defendants under the 4-R Act.").
Alternatively, even if the court again considered both State and local taxes, the taxes are still roughly equivalent. During this same period, motor carriers and rail carriers each had a higher tax burden than the other an equal number of times. State's Ex. 2. As to the actual amount, motor carriers paid 20-23¢
The State also contends that its exemption of water carriers is justified, because: subjecting water carriers to the sales tax would expose the State to liability under various federal laws; water carriers impose virtually no financial burden on the State; and CSX has suffered no competitive injury. The court agrees in part, as explained below.
The State contends that the Commerce Clause and federal laws prohibit it from taxing water carriers for the fuel they purchase in Alabama.
In Complete Auto Transit, Inc. v. Brady, the Supreme Court stated that its decisions have "sustained a tax against Commerce Clause challenge when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to services provided by the State." 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). The Court elaborated on the Complete Auto test in Commonwealth Edison Co. v. Montana, stating: "Under this threshold test, the interstate business must have a substantial nexus with the State before any tax may be levied on it." 453 U.S. 609, 623, 101 S.Ct. 2946, 69 L.Ed.2d 884 (1981) (citing Nat'l Bellas Hess, Inc. v. Ill. Revenue Dep't, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967)). See also Barclays Bank Plc v. Franchise Tax Bd., 512 U.S. 298, 311, 114 S.Ct. 2268, 129 L.Ed.2d 244 (1994) (Complete Auto "sufficient nexus" requirement met when taxpayers did business in the state).
Based on this test—in particular the relation to services provided by the state, the State asserts that if it repealed the interstate water carrier exemption, these
The State asserts also that subjecting water carriers to the sales tax could violate the Maritime Transportation Security Act of 2002 ("MTSA"). State's Br. at 23. The MTSA amended section 5 of Title 33 of the United States Code, originally enacted in 1884, which prohibits the levying of tolls or operating charges upon any water craft "passing through any lock, canal, or canalized river" owned by the United States. 33 U.S.C. § 5(a). The MTSA amendment, codified as a new subsection (b), provides, in pertinent part:
33 U.S.C. § 5(b).
The State contends that interstate water carriers "could argue that the plain language of § 5(b) preempts Alabama's sales tax as applied to their purchase or use of fuel because Alabama's sales tax on diesel fuel is a `tax . . . collected from any vessel or other water craft . . . by [a] non-Federal interest,'" and no exception applies.
These cases are not helpful, because, as CSX points out, they address taxes on passengers of vessels on navigable waters. See CSX's Br. at 36 (noting that the text of § 5(b) is limited to taxes "from any vessel or other water craft, or from its passengers or crew"). In contrast, and relevant here, other courts have found that the MTSA's "prohibition does not apply to taxes imposed on things other than the vessel, its passengers, or crew, such as taxes on the fuel used, or the privilege of doing business or using goods or services in the state." Id. (citing Commercial Barge Line Co. v. Director of Revenue, 431 S.W.3d 479, 484 (Mo. 2014) (no violation of MTSA where state was "assessing sales and use tax on the goods and supplies delivered to the Taxpayers' towboats while they [were] in Missouri" and not "taxing the barges, towboats, or their crews"), and Reel Hooker Sportfishing, Inc. v. Department of Taxation, 236 P.3d 1230, 1232 (Haw. Ct. App. 2010) ("33 U.S.C. § 5(b) does not preempt the assessment of [the Hawaii general excise tax] on the charter fishing revenue of these Hawaii businesses because [the general excise tax] is a tax assessed on gross business receipts for the privilege of doing business in Hawaii, and is not a tax on their vessels or passengers")). The court agrees with this plain reading of the MTSA, and finds that it does not preempt the imposition of a sales tax on the diesel fuel used by water carriers.
The State cites next the congressional act admitting Alabama to the Union. Under that act, "all navigable waters within [Alabama] shall for ever remain public highways, free to the citizens of said state and of the United States, without any tax, duty, impost, or toll, therefor, imposed by the said state," Res. of Mar. 2, 1819, 15th Cong. (1819), 3 Stat. 489, 492. According to the State, this act prohibits it from assessing a sales tax on diesel fuel purchased by water carriers.
CSX directs the court to Battle v. Corporation of Mobile, in which the Alabama Supreme Court addressed whether the city of Mobile's "power to lay taxes on both real and personal estate within the city, making no distinction as to any persons," violated the congressional act "declar[ing] that [the State's] rivers shall forever remain public highways, without the imposition of any duty, tax, or impost by the State." 9 Ala. 234, 236 (1846). The Court held that "th[e] tax, not being a specific one, applicable alone to steamboats, but a general one, extending to all personal estate," was "free from constitutional objection." Id. at 238. Because the Alabama Supreme Court, tracking the language of the congressional act, held that a generally
The State also contends that it can justify the exemption of water carriers from the sales tax in light of the extensive evidence that "[t]rains burden the State fisc more than foreign/interstate water carriers do." State's Br. at 17. The State's sole articulated basis for presenting evidence of relative burdens is as follows:
State's Br. at 17 (footnote in original). As discussed at length in Part IV.B.1, supra, reliance upon negative Commerce Clauses like Oregon Waste is misplaced, because the court is not presented with alleged discrimination based on an entity's in-state or out-of-state character. Perhaps more importantly, the State presented no evidence to establish that it took into account the varying burdens imposed by rail carriers and water carriers when setting rail carriers' sales tax rate at 4% like most other taxpayers. As CSX puts it, the relative burdens are irrelevant, because "Alabama sales tax is not calibrated to account for varying burdens." CSX's Br. at 39 (citing doc. 137 at 2). The court agrees.
Finally, the State asks this court to find that Alabama's sales tax exemption for interstate water carriers does not negatively impact CSX's competition with interstate water carriers. The State correctly notes that CSX's director of agriculture and food marketing (the only area in which the record shows competition between CSX and water carriers) could not testify that the competing water carriers purchase dyed fuel in Alabama and, therefore, avail themselves of the sales tax exemption at issue. State's Br. at 34. Thus, according to the State, "correcting" the disparate tax treatment would not change anything, and CSX has failed to prove any competitive injury. As the State points out, the Supreme Court has held, albeit in a negative Commerce Clause case,
Because the court finds that: (1) the State does not force rail carriers to use dyed diesel (and thus, any "discrimination" results from CSX's business practices rather than State law) or alternatively, the sales tax and fuel-excise tax are roughly equivalent; (2) a failure to exempt water carriers from the sales tax could violate the Commerce Clause; and (3) CSX has suffered no competitive injury from the State's exemption of water carriers from the sales tax, the court concludes that Alabama's tax scheme does not violate the 4-R Act. The court will enter an order contemporaneously herewith dismissing CSX's claims with prejudice.
CSX I, 562 U.S. at 287, 131 S.Ct. 1101.
135 S.Ct. at 1143-44 (alteration and emphasis in original).
CSX mentions that, in Comptroller of the Treasury of Maryland v. Wynne, ___ U.S. ___, 135 S.Ct. 1787, 1803 n.8, 191 L.Ed.2d 813 (2015), a case the Supreme Court heard during the same term as CSX II, the Court described "compensatory" taxes as "rough equivalents imposed upon substantially similar events." CSX's Br. at 24. Thus, according to CSX's logic, because the reference to "substantially similar events" is a component of the three-part test, "roughly equivalent" is a call to apply the three-part test. However, Wynne is a negative Commerce Clause case, and CSX omits the quoted language's context: "independent taxes on intrastate and interstate commerce are `compensatory' if they are rough equivalents imposed upon substantially similar events." 135 S.Ct. at 1803 n.8.
CSX also contends that the Alabama Supreme Court has cited Gregg Dyeing as "shorthand" for the compensatory tax doctrine. CSX's Br. at 24. As an initial matter, the Alabama Supreme Court's interpretation of federal common law is not binding on this court. Also, the referenced language states that "[t]he 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." White v. Reynolds Metals Co., 558 So.2d 373, 387 (Ala. 1989) (citing Gregg Dyeing, 286 U.S. 472, 52 S.Ct. 631) (emphasis added). Again, the tax scheme at issue here does not distinguish based on a taxpayer's in-state or out-of-state character.
CSX's Br. 23 n.25. To clarify, DuBose testified that local fuel taxes "range from 1 cent to 6 cents," and that most taxes are "1 or 2 cents a gallon." Doc. 65 at 64. Critically, however, as the State points out, Friedman testified on cross-examination that "there's no way that trucks buy 88 percent of their diesel fuel in [Birmingham]," Trans. 498-500, and that trucks actually purchase their fuel "interspersed all over the State[,] just when they need to fill up," Trans. 501-02. Finally, when accounting for this fact, Friedman testified that the tax rates rail and truck carriers paid were "very similar." Trans. 504.
