Supreme Court to review Alabama rail tax

The Supreme Court Monday agreed to hear arguments over whether a 4% tax that Alabama collects from the railroad industry for its use of diesel fuel can be challenged as discriminatory.

Railroad companies have challenged Alabama’s tax policy, including Norfolk Southern, whose challenge was rejected by the 11th U.S. Circuit Court of Appeals in December 2008, allowing Alabama to continue collecting the tax. But CSX, which paid $7.1 million under the tax in 2006 and 2007 combined, has asked the Supreme Court to review the matter, and the court has now agreed.

“The railroads’ principal competitors in Alabama, motor carriers and water carriers, are expressly exempt from sales and use taxes on purchase and consumption of diesel fuel, and therefore paid no such tax,” CSX lawyers wrote in the brief to the Supreme Court. CSX also argues that the lower courts are conflicted on the legal issue, and that only the Supreme Court can settle the matter.

The tax helps fund the state’s education budget.

NS and CSX argue that the sales and use taxes on diesel fuel is unfair because trucks are exempt from comparable fees. Alabama state officials defend the measure, noting the trucking industry pays a 19 cent-per-gallon motor fuels tax that the railroads do not. “The only thing different is the label,” said Margaret Johnson McNeill, assistant counsel in the Alabama Department of Revenue.

The court agreed only to decide the narrow question of whether the tax can be challenged, not whether it is discriminatory.