Tax Law - Railroads May Not Challenge a State's Valuation Methodologies for Ad Valorum Tax Purposes under the 4-R Act - CSX Transportation, Inc. V. State Board of Equalization

By Gentile, Donald | Suffolk University Law Review, Summer 2008 | Go to article overview

Tax Law - Railroads May Not Challenge a State's Valuation Methodologies for Ad Valorum Tax Purposes under the 4-R Act - CSX Transportation, Inc. V. State Board of Equalization


Gentile, Donald, Suffolk University Law Review


Railroads May Not Challenge a State's Valuation Methodologies for Ad Valorum Tax Purposes Under the 4-R Act--CSX Transportation, Inc. v. State Board of Equalization, 472 F.3d 1281 (11th Cir. 2006)

Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act) prohibits states from discriminatorily taxing railroad property. (1) The 4-R Act creates an exception to the Tax Injunction Act (TIA) by granting federal courts jurisdiction to hear cases in which railroad companies allege tax discrimination by states. (2) In CSX Transportation, Inc. v. State Board of Equalization, (3) the Eleventh Circuit Court of Appeals considered whether, under the 4-R Act, a railroad company may challenge the valuation methodologies a state uses for ad valorum tax purposes. (4) The Eleventh Circuit ruled that a party may not challenge a state's valuation methodologies in federal court because Congress failed to unequivocally demonstrate its intent to allow such a challenge. (5)

CSX Transportation, Inc. (CSX), a railroad company, filed an action against the State Board of Equalization of the State of Georgia (Board) in the United States District Court for the Northern District of Georgia. (6) CSX challenged the valuation methodologies of the Department of Revenue of the State of Georgia (Department) in assessing its rail transportation property for the 2002 tax year. (7) The Department applied the unit rule along with three different valuation methods and arrived at a unit value of $8.2 billion, which the Board approved. (8) CSX argued that the valuation methods the Department employed produced a discriminatory unit value. (9) At trial, CSX introduced testimony from an expert who applied different valuation methodologies and arrived at an approximate unit value of only $6 billion. (10) Based on its expert's valuation, CSX argued that the maximum value of its property for 2002 tax purposes could not exceed $6 billion. (11)

The district court considered whether the Department was allowed to use any accepted method of valuation or whether it was required to use a specific method under the 4-R Act. (12) The court relied on the legislative history of the 4R Act and held that a state may use any rational, non-discriminatory methodology it chooses to assess property value. (13) The district court ultimately ruled against CSX, holding that a party cannot challenge a state's rational and non-discriminatory valuation methodology under the 4-R Act. (14)

CSX appealed to the United States Court of Appeals for the Eleventh Circuit. (15) Arguing that it should be allowed to challenge the Department's valuation methodologies under the 4-R Act, CSX contended that rules of federalism and comity should not factor into the court's analysis. (16) The Eleventh Circuit rejected CSX's argument and recognized that that the 4-R Act is subject to a clear statement rule regarding Congress's intent. (17) The Eleventh Circuit held that parties cannot challenge a state's valuation methodologies under the 4-R Act because Congress did not intend to allow such actions. (18)

Deeply rooted in the United States legal system is the principle that individual states have the power to tax, free from interference by the federal government. (19) Federalism and comity are the foundational principles upon which federal courts rely to abstain from meddling in controversies over state taxation between states and their citizens. (20) In 1937, Congress enacted the TIA in an effort to codify this precedent. (21) The TIA prohibits federal courts from interfering with a state's power to tax its citizens. (22) In 1976, Congress enacted the 4-R Act to combat discriminatory state tax practices that were threatening the future of the railroad industry as well as interstate commerce. (23) The 4-R Act provided an exception to the TIA by granting federal courts jurisdiction to hear taxpayer challenges when states tax railroad property at a rate grossly disproportionate to other businesses. …

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