Published Online: November 15, 2010
Published in Print: November 17, 2010, as Alabama Tax Case Has K-12 Wrinkle

Policy Brief

High Court Hears Alabama Tax Case With K-12 Angle

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In a case with implications for Alabama public schools—and one that’s being closely watched in other states—the U.S. Supreme Court is weighing whether a railroad can challenge a state sales and use tax on diesel fuel that rail carriers must pay, while motor and water carriers are exempt.

Alabama education groups have filed a friend-of-the-court brief on the side of the state, arguing that the tax on railroads is critical because it helps finance the state’s Education Trust Fund.

“The amount of [railroad tax] refund claims that could be resurrected by this case is potentially devastating to Alabama’s public schools,” says the brief filed by the Alabama Education Association, the Alabama Association of School Boards, and other groups.

In CSX Transportation Inc. v. Alabama Department of Revenue (Case No. 09-520), which was argued before the high court Nov. 10, the Jacksonville, Fla.-based railroad is seeking to challenge the state’s exemptions for motor and water carriers under a 1976 federal law called the Railroad Revitalization and Regulatory Reform Act, or 4-R Act.

Congress found that railroads were often subject to disparate state and local tax treatment because they were nonvoting, nonresidential businesses that couldn’t easily pick up and leave a state. The law prohibits tax discrimination against railroads, particularly on property taxes, but also includes a catch-all provision that bars states from “imposing another tax that discriminates against a rail carrier.”


CSX paid some $3 million to $4 million in sales and use tax on diesel fuel to Alabama before winning an injunction in 2008 that has barred the taxes. The school groups estimate that all railroads operating in the state pay about $20 million per year in such taxes, but several are seeking to invalidate the tax and win refunds.

The education groups say that a ruling for the railroad could end funding for 250 teachers or 1,400 support workers.

Nineteen states filed a joint friend-of-the-court brief on Alabama’s side, saying that a ruling for CSX could lead many other rail carriers to challenge sales and use taxes wherever some taxpayers benefit from exemptions.

A decision in the case is expected by June.

Vol. 30, Issue 12, Page 21

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