CSX Transportation, Inc. v. Alabama Department of Revenue

Case: 17-11705 Date Filed: 03/23/2018 Page: 1 of 46

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT
________________________

No. 17-11705
________________________

D.C. Docket No. 2:08-cv-00655-AKK

CSX TRANSPORTATION, INC.,

Plaintiff-Appellant,

versus

ALABAMA DEPARTMENT OF REVENUE,
TIM RUSSELL,
Commissioner of the Alabama Department of Revenue,

Defendant-Appellee.

________________________

Appeal from the United States District Court
for the Northern District of Alabama
________________________

(March 23, 2018)

Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY, * District
Judge.

*
Honorable Leigh Martin May, United States District Judge for the Northern District of
Georgia, sitting by designation.
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ED CARNES, Chief Judge:

The Railroad Revitalization and Regulatory Reform Act prohibits states

from imposing a tax “that discriminates against a rail carrier.” 49 U.S.C.

§ 11501(b)(4). The question before us is whether Alabama’s tax scheme, which

imposes either a sales or use tax on rail carriers when they buy or consume diesel

fuel but exempts competing motor and water carriers from those taxes, violates the

Act. Our answer is “no” as to motor carriers, “yes” as to water carriers.

I. BACKGROUND

A. Facts

CSX Transportation, Inc. is an interstate rail carrier that does business and

pays taxes in a number of states including Alabama. In the shipment of freight

interstate it and other rail carriers compete against trucking transport companies

(motor carriers) and commercial ships, vessels, and barges (water carriers). Yet

Alabama taxes each type of carrier differently on the purchase or use of diesel fuel

inside the state. Rail carriers pay a 4% sales and use tax on diesel fuel,1 while

motor carriers and water carriers are exempt from that tax, see Ala. Code §§ 40-17-

325(b) (motor carriers), 40-23-4(a)(10) (water carriers). Motor carriers do pay a

1
The “sales and use tax” is actually two separate taxes on tangible personal property
(including diesel fuel): a 4% sales tax on it if purchased in Alabama, and a 4% use tax on it if
purchased outside Alabama but used inside the state. Ala. Code §§ 40-23-2(1) (sales tax), 40-23-
61(a) (use tax). The rate is the same regardless of which of the two taxes is applied and it is
stylistically simpler to refer to the taxes as though they were one. For those reasons, we will use
the term “the sales and use tax” to refer to either or both taxes (unless we are quoting part of a
district court or Supreme Court opinion that refers to them separately).
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Motor Fuels Excise Tax of $0.19 per gallon of diesel.2 Id. §§ 40-17-325(a). But

water carriers pay no tax of any kind to Alabama for diesel fuel they purchase or

use in Alabama. Id. §§ 40-23-4(a)(10) (sales tax exemption), 40-23-62(12) (use

tax exemption).

The State deposits revenue from the sales and use tax that rail carriers pay

into the general fund and earmarks it for education purposes. Id. § 40-23-35(f). Of

the $0.19 per gallon excise tax that motor carriers pay, $0.13 goes to the Alabama

Department of Transportation for the construction and maintenance of roads and

bridges and for the payment of highway bonds. Id. § 40-17-361(a). The remaining

$0.06 per gallon goes to counties, towns, and cities for the construction and

maintenance of roads and bridges. Id. § 40-17-361(b).

In 2008 CSX sued the Alabama Department of Revenue, seeking to enjoin

the Department from collecting the sales and use tax on the railroad’s purchase or

consumption of diesel fuel in the state. It also sought a declaratory judgment that

the imposition of that tax violates the Railroad Revitalization and Regulatory

Reform Act, 49 U.S.C. § 11501, often called “the 4-R Act.”

Congress enacted the 4-R Act to “restore the financial stability of the

railway system of the United States” and to “foster competition among all carriers

2
For the first half of this litigation, the Motor Fuels Excise Tax was codified at Alabama
Code § 40-17-2. The State modified its motor fuels tax scheme in October 2012, and the excise
tax is now codified at § 40-17-325(a)(2), (b). The modification did not alter the amount of the
tax, only the time at which it is imposed, a change that does not affect the outcome of this case.
3
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by railroad and other modes of transportation.” 45 U.S.C. § 801(a), (b)(2). The 4-

R Act forbids states from discriminating against rail carriers in assessing property

or imposing taxes. 49 U.S.C. § 11501(b). It specifies that states and their

subdivisions may not:

(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 on an assessment that may not be made
under paragraph (1) of this subsection.

(3) Levy or collect an ad valorem property tax on rail transportation
property at a tax rate that exceeds the tax rate applicable to
commercial and industrial property in the same assessment
jurisdiction.

(4) Impose another tax that discriminates against a rail carrier.

Id. The first three paragraphs address property taxes, not sales and use taxes, and

are not at issue here. The fourth paragraph is a catchall that applies to taxes

generally and provides the basis for CSX’s claim about the sales and use tax

imposed on it but not on the other types of carriers.

B. Procedural History

Over the past decade, this case has made two trips to the Supreme Court,

stopping along the way three times at the district court and five times here.

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Because it is all pretty much relevant, we will set out that procedural history in

some detail.

In doing so, we will begin with a discussion of the first district court order,

which dismissed CSX’s complaint, and from there we will recount our decision on

appeal and the Supreme Court’s first decision. We will then discuss the district

court’s second opinion, our second decision on appeal, and the Supreme Court’s

second decision. Finally, we will discuss the third leg of the journey to date,

starting with our second remand order and ending with the district court judgment

from which CSX now appeals.

1. The First Round of Proceedings

In round one of this case, the district court dismissed CSX’s complaint and

we affirmed. CSX Transp., Inc. v. Ala. Dep’t of Revenue, 350 F. App’x 318 (11th

Cir. 2009), rev’d, 562 U.S. 277, 131 S. Ct. 1101 (2011), vacated, 639 F.3d 1040

(11th Cir. 2011). In doing so, we relied on one of our earlier decisions involving a

nearly identical challenge to Alabama’s tax scheme. See Norfolk S. Ry. v. Ala.

Dep’t of Revenue, 550 F.3d 1306 (11th Cir. 2008), abrogated by 562 U.S. 277, 131

S. Ct. 1101. Based on Norfolk we held that discrimination in the granting of tax

exemptions does not amount to tax discrimination for purposes of the 4-R Act. See

350 F. App’x at 319.

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The Supreme Court reversed our decision and held that denying rail carriers

exemptions provided to other carriers can be a form of discrimination under the 4-

R Act. CSX Transp., Inc. v. Ala. Dep’t of Revenue (“CSX I”), 562 U.S. 277, 280,

131 S. Ct. 1101, 1105 (2011). The Court explained that a tax discriminates when it

treats “groups [that] are similarly situated” differently without “justification for the

difference in treatment.” Id. at 287, 131 S. Ct. at 1109. As a result, “a state excise

tax that applies to railroads but exempts their interstate competitors is subject to

challenge under subsection (b)(4) as a ‘tax that discriminates against a rail

carrier.’” Id. at 288, 131 S. Ct. at 1109. The Court did not decide whether the

different tax treatment violated the 4-R Act, but it did decide that the outcome

“depends on whether the State offers a sufficient justification for declining to

provide the exemption at issue to rail carriers.” Id. at n.8, 131 S. Ct. at 1109 n.8.

2. Second Round of Proceedings

On remand, after holding a bench trial the district court ruled that Alabama’s

sales and use tax scheme does not discriminate against CSX. CSX Transp., Inc. v.

Ala. Dep’t of Revenue, 892 F. Supp. 2d 1300 (N.D. Ala. 2012), rev’d and

remanded, 720 F.3d 863 (11th Cir. 2013), rev’d and remanded, 575 U.S. __, 135 S.

Ct. 1136 (2015), vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). The

district court concluded that the motor carrier exemption to the sales and use tax is

justified because motor carriers pay a “substantially similar” amount under the

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excise tax that applies to them. Id. at 1313. As to water carriers, which pay neither

tax, the district court concluded that international commerce clause concerns do

provide a rational basis for exempting them and also that CSX had failed to show

that it had suffered a discriminatory effect. Id. at 1316–17.

We reversed. CSX Transp. Inc. v. Ala. Dep’t of Revenue, 720 F.3d 863,

865 (11th Cir. 2013), rev’d and remanded, 575 U.S.__. 135 S. Ct. 1136 (2015),

vacated and remanded, 797 F.3d 1293 (11th Cir. 2015). We first decided whether

to apply the “functional approach” or the “competitive approach” to identify a

comparison class of taxpayers for 4-R Act claims. Id. at 867–69. The functional

approach compares rail carriers to all other “commercial and industrial” taxpayers,

thereby importing into § 11501(b)(4) the “commercial and industrial” limitation

from the three preceding paragraphs. Id. at 867 (citing Kansas City S. Ry. v.

Koeller, 653 F.3d 496, 508 (7th Cir. 2011)). The competitive approach, by

contrast, compares rail carriers only to their competitors. Id. at 867–68.

We chose the competitive approach, reasoning that the functional approach

disadvantages rail carriers by applying too broad a comparison class and that the

competitive approach better accords with the 4-R Act’s purpose. Id. at 869.

Applying the competitive approach, we held that motor carriers and water carriers

are competitors of, and as a result proper comparators to, rail carriers. Id. at 867.

Because those two competitors are exempt from the sales and use tax, we reasoned

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that CSX had established a “prima facie case of discrimination,” shifting the

burden to the State to justify its facially discriminatory tax. Id. at 869.

We rejected the argument that the motor carrier exemption to the sales and

use tax would be justified if motor carriers paid excise taxes in amounts

substantially similar to the sales and use tax that the rail carriers paid. Id. We

held, instead, that a court should look “only at the sales and use tax with respect to

fuel to see if discrimination has occurred.” Id. (quotation marks omitted). We

reasoned that focusing solely on the specific tax that is allegedly discriminatory

would avoid the “Sisyphean burden of evaluating the fairness of the State’s overall

tax structure in order to determine whether a single tax exemption causes a state’s

sales tax to be discriminatory.” Id. at 871. Because the State failed to justify the

motor carrier exemption, and because “no one can seriously dispute that the water

carriers, who pay not a cent of tax on diesel fuel, are the beneficiaries of a

discriminatory tax regime,” we reversed and remanded with instructions to enter

declaratory and injunctive relief for CSX. Id.

The Supreme Court granted certiorari on two questions: “whether the

Eleventh Circuit properly regarded CSX’s competitors as an appropriate

comparison class for its subsection (b)(4) claim,” and “whether, when resolving a

claim of unlawful tax discrimination, a court should consider aspects of a State’s

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tax scheme apart from the challenged provision.” Ala. Dep’t of Rev. v. CSX

Transp., Inc. (“CSX II”), 575 U.S. __, 135 S. Ct. 1136, 1140 (2015).

On the first question, the Court agreed with us that, “in light of [CSX’s]

complaint and the parties’ stipulation, a comparison class of competitors consisting

of motor carriers and water carriers was appropriate, and differential treatment vis-

à-vis that class would constitute discrimination.” Id. at 1143. The Court rejected

Alabama’s argument that the proper comparison class is all commercial and

industrial taxpayers, deciding that the “commercial and industrial” limitation from

49 U.S.C. § 11501(b)(1)–(3) does not carry over to (b)(4). Id. at 1142–43. Given

the 4-R Act’s purpose of “restor[ing] the financial stability of the railway system”

while “foster[ing] competition among all carriers by railroad and other modes of

transportation,” the Court held that competitors “can be another ‘similarly situated’

comparison class.” Id. at 1142 (quoting 45 U.S.C. § 801(a), (b)(2)).

On the second question, about whether a state’s other taxes should be

considered in the analysis, the Court held that “an alternative, roughly equivalent

tax is one possible justification that renders a tax disparity nondiscriminatory.” Id.

at 1143. The Court reasoned that “[i]t does not accord with ordinary English usage

to say that a tax discriminates against a rail carrier if a rival who is exempt from

that tax must pay another comparable tax from which the rail carrier is exempt.”

Id. As a result, the Court held that this Court should have let the State “justify its

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decision to exempt motor carriers from its sales and use tax through its decision to

subject motor carriers to a fuel-excise tax” (which the rail carriers do not pay). Id.

The Court remanded for us to consider “whether Alabama’s fuel-excise tax

is the rough equivalent of Alabama’s sales [and use] tax as applied to diesel fuel,

and therefore justifies the motor carrier sales-tax exemption.” Id. at 1144. It did

not specify a standard for determining whether those taxes are “roughly

equivalent.” See id. As to water carriers, which pay no state tax on diesel fuel, the

Court noted that “[t]he State . . . offer[ed] other justifications for the water carrier

exemption — for example, that such an exemption is compelled by federal law,”

and directed us to consider those “alternative rationales” on remand. Id.

3. Third Round of Proceedings

We vacated the district court’s judgment and remanded for proceedings

“consistent with the Supreme Court’s opinion.” CSX Transp., Inc. v. Ala. Dep’t of

Revenue, 797 F.3d 1293, 1294 (11th Cir. 2015). On remand, the district court

again ruled that Alabama’s tax scheme does not violate the 4-R Act. CSX Transp.,

Inc. v. Ala. Dep’t of Revenue, 247 F. Supp. 3d 1240, 1242–43 (N.D. Ala. 2017).

The district court concluded that the motor carrier exemption does not

violate the 4-R Act for two reasons. First, the court found that CSX’s trains can

operate on either clear diesel or dyed diesel, and that if CSX opted to purchase

clear diesel, it would be subject to the excise tax, just like motor carriers, instead of

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the sales and use tax.3 Id. at 1245. For that reason, the court ruled that any alleged

discrimination is “self-imposed,” and as a result, “the State has established that its

tax schemes for dyed diesel and clear diesel do not discriminate against rail

carriers.” Id. at 1247. Alternatively, the court ruled that the motor carrier

exemption is justified because the excise tax that motor carriers pay is “roughly

equivalent” to the sales and use tax. Id.

The court also determined that there were two reasons why the water carrier

exemption does not violate the 4-R Act. First, it concluded that the exemption

“does not violate the 4-R Act” because “CSX has suffered no competitive injury”

from that exemption. Id. at 1255. Second, it found that because “imposition of a

state sales [and use] tax on interstate water carriers would expose the State to

liability under the negative Commerce Clause,” their exemption “is compelled by

federal law.” Id. at 1252 (citing CSX II, 135 S. Ct. at 1144). This is CSX’s

appeal.

3
Under federal law, tax-exempt fuel must be “indelibly dyed.” 26 U.S.C. § 4082(a)(2).
Federal law prohibits using dyed diesel for travel on highways. Id. § 4041(a)(1)(A). Trains can
run on clear diesel, but CSX and its peer rail carriers buy dyed diesel to avoid paying federal and
state motor fuels taxes at the pump. If as the State suggests CSX were to switch between clear
and dyed diesel depending on tax implications, CSX says it would incur operational disruptions
and costs, including “a $9 million per year increase in up-front fuel costs due to the time lag
necessary to secure federal highway tax refunds, and the costs to put in a specialized system to
track fuel usage to secure those refunds.” Appellant’s Br. at 15.
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II. STANDARD OF REVIEW

We review de novo the district court’s interpretation of the Supreme Court’s

rulings and the scope of the mandate. Cox. Enters., Inc. v. News-Journal Corp.,

794 F.3d 1259, 1271–72 (11th Cir. 2015). We also review de novo questions of

statutory interpretation. Boca Ciega Hotel, Inc. v. Bouchard Transp. Co., 51 F.3d

235, 237 (11th Cir. 1995). The district court’s factual findings we review only for

clear error. United States v. Magluta, 418 F.3d 1166, 1182 (11th Cir. 2005).

III. STANDING

The State contends that CSX lacks standing. It raises that issue for the first

time in this appeal, but because standing goes to Article III jurisdiction a party can

contest it “at any point in the litigation.” Fla. Wildlife Fed’n, Inc. v. S. Fla. Water

Mgmt. Dist., 647 F.3d 1296, 1302 (11th Cir. 2011). To have standing, CSX “must

have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged

conduct of the defendant, and (3) that is likely to be redressed by a favorable

judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. __, 136 S. Ct. 1540, 1547

(2016).

CSX meets those three requirements. Without a favorable decision it will

suffer an injury in fact because it will continue to be liable for roughly $5 million

per year in sales and use tax on diesel fuel. See Hein v. Freedom From Religion

Found., Inc., 551 U.S. 587, 599, 127 S. Ct. 2553, 2653 (2007) (“[B]eing forced to

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pay . . . a tax causes a real and immediate economic injury to the individual

taxpayer.”). CSX’s claimed injury is fairly traceable to the Department, which the

parties stipulate is responsible for “administer[ing] and collect[ing] taxes within

Alabama, including the administration of sales and use taxes.” And that injury

would be redressed by a declaratory judgment that the sales and use tax violates

the 4-R Act and an injunction prohibiting the Department from collecting that tax

on CSX’s purchase and consumption of diesel.

The State does not, of course, contest that CSX has paid, and unless it

prevails here will continue to be liable for paying, the sales and use tax. It argues

instead that CSX has not suffered an injury in fact because it failed to prove “that

Alabama’s exemption for water carriers actually injures CSX.” But CSX’s

challenge seeks to prevent application of the sales and use tax on it, not an end to

the exemption of the water carriers from the tax. CSX I, 562 U.S. at 286, 131

S. Ct. at 1108 (“What the complaint protests is Alabama’s imposition of taxes on

the fuel CSX uses; what the complaint requests is that Alabama cease to collect

those taxes from CSX. . . . The exemptions, no doubt, play a central role in CSX’s

argument . . . . But the essential subject of the complaint remains the taxes

Alabama levies on CSX.”) (citations omitted). The only injury CSX must prove

for standing purposes is liability for the sales and use tax that it claims is

discriminatory in violation of the 4-R Act. CSX has standing.

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IV. THE MOTOR CARRIER EXEMPTION

The Supreme Court remanded this case for us to consider “whether

Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales [and use] tax

as applied to diesel fuel, and therefore justifies the motor carrier sales [and use] tax

exemption.” CSX II, 135 S. Ct. at 1144. We in turn remanded it to the district

court for proceedings “consistent with the Supreme Court’s opinion.” CSX

Transp., 797 F.3d at 1294. The district court in turn decided that the motor carrier

exemption does not violate the 4-R Act for two reasons: (1) CSX’s trains can

operate on either clear or dyed diesel, so any alleged discrimination is “self-

imposed,” and (2) the excise tax is “roughly equivalent” to the sales and use tax.

CSX Transp., 247 F. Supp. 3d at 1247, 1255. We address each ruling in turn.

A. The District Court’s Clear Fuel Ruling

The district court found that CSX’s trains can operate on clear diesel and

that if CSX chose to do so, it could avoid the sales and use tax and instead pay the

excise tax, just like motor carriers, which would be perfectly nondiscriminatory.

Id. For that reason, the court ruled that any alleged discrimination is “self-

imposed,” and “the State has established that its tax schemes for dyed diesel and

clear diesel do not discriminate against rail carriers.” Id. at 1247. That ruling

violates the mandate rule.

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“The mandate rule is a specific application of the ‘law of the case’ doctrine

which provides that subsequent courts are bound by any findings of fact or

conclusions of law made by the court of appeals in a prior appeal of the same

case.” Friedman v. Mkt. St. Mortg. Corp., 520 F.3d 1289, 1294 (11th Cir. 2008)

(quotation marks omitted). That rule “has its greatest force when a case is on

remand to the district court.” Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 881

F.3d 835, 843 (11th Cir. 2018). A district court “must implement both the letter

and the spirit of the mandate taking into account the appellate court’s opinion and

the circumstances it embraces.” Cox Enters., 794 F.3d at 1271 (quotation marks

and alterations omitted). Although a district court is “free to address, as a matter of

first impression, those issues not disposed of on appeal,” it is “bound to follow the

appellate court’s holdings, both expressed and implied.” Id. (quotation marks

omitted). The scope of the mandate is informed by the scope of the issues

considered in the earlier appeal. Id.

The scope of the mandate that came out of our last decision was narrow. As

to motor carriers, the Supreme Court had instructed us to consider only “whether

Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales [and use] tax

as applied to diesel fuel, and therefore justifies the motor carrier sales [and use] tax

exemption.” CSX II, 135 S. Ct. at 1144. The district court noted that instruction

and acknowledged that the clear fuel argument is not a “justification,” but ruled

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that it could be a basis for defeating CSX’s claim anyway. 247 F. Supp. 3d at 1244

(“[T]he State introduced evidence not only to show sufficient justification, but also

to prove: that any ‘discrimination’ is self-imposed through rail carriers’ practice of

purchasing dyed, rather than clear, fuel . . . .”) (emphasis added).

That ruling went beyond the scope of the mandate, which was limited to

whether the excise tax and the sales and use tax are roughly equivalent. CSX II,

135 S. Ct. at 1144. But because we agree with the district court’s alternative ruling

that the excise tax is roughly equivalent to the sales and use tax and, as a result, it

justifies the motor carrier exemption, CSX Transp., 247 F. Supp. 3d at 1247–48,

any error in the district court’s clear fuel ruling is harmless.

B. The District Court’s “Roughly Equivalent” Ruling

The district court decided that the motor carrier exemption is justified

because the sales and use tax is “roughly equivalent” to the excise tax. Id. The

Supreme Court did not specify how to decide whether those two taxes are roughly

equivalent. See CSX II, 135 S. Ct. at 1144. So we have to decide the proper test

for determining whether those taxes are roughly equivalent before we can evaluate

if the district court was correct in deciding that they are.

The district court interpreted “roughly equivalent” to carry its ordinary

meaning and limited its inquiry to whether the “fuel-excise tax approximates the

sales [and use] tax.” CSX Transp., 247 F. Supp. 3d at 1247. Applying that

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standard, the court found that over a recent nine-year period, the average rates rail

carriers and motor carriers paid on diesel fuel differed “by some quantity between

less-than-half-of-one cent and 3.5 cents” per gallon.4 Id. at 1250–51. That led the

court to conclude that “the fuel-excise tax motor carriers pay is ‘roughly

equivalent’ to the sales [and use] tax CSX pays.” Id. at 1251. In reaching that

conclusion the court declined to consider how the State spends revenues from

those different taxes. Id. at 1251 n.16.

CSX doesn’t question the district court’s math. Instead, it questions the test

that the district court applied. CSX argues that the proper test is the compensatory

tax doctrine — a three-part dormant Commerce Clause test that would require us to

compare not only the rate that rail carriers and motor carriers pay under the sales

and use tax and the excise tax, but also how the State allocates revenue from those

taxes. Appellant’s Br. at 38–39 (citing West Lynn Creamery, Inc. v. Healy, 512

U.S. 186, 201, 114 S. Ct. 2205, 2215 (1994) (examining revenue expenditures to

determine whether a facially discriminatory tax violates the dormant Commerce

Clause)).

4
The difference fluctuates because the excise tax that motor carriers pay is assessed as a
flat rate per gallon of fuel consumed regardless of the price of the fuel, while the sales and use
tax that rail carriers pay is assessed ad valorem and depends on the price of fuel. Compare Ala.
Code § 40-17-325(a)(2) (excise tax), with Ala. Code §§ 40-23-2(1) (sales tax), 40-23-61(a) (use
tax).

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The crux of CSX’s argument is that the excise tax is not roughly equivalent

to the sales and use tax because the excise tax “is used exclusively to fund public

highways,” effectively subsidizing the infrastructure on which motor carriers

travel, while “the railroad sales [and use] tax is deposited in the State’s general

fund, earmarked primarily for education.” Compare Ala. Code § 40-17-361(a),

(b), with id. § 40-23-35(f). Because excise tax revenues directly benefit motor

carriers while sales and use tax revenues do not directly benefit rail carriers, CSX

asserts that the excise tax “cannot possibly be ‘roughly equivalent’” to the sales

and use tax.

CSX does not pretend that the 4-R Act’s text supports its contention that a

state’s revenue expenditures control a claim under that statute. It argues instead

that the Supreme Court in its decision implicitly guided us toward the

compensatory tax doctrine and examining revenue expenditures in two ways. The

first was by using the phrase “roughly equivalent,” some variation of which

appears in all compensatory tax doctrine cases, and the second was by citing the

“foundational” compensatory tax doctrine case of Gregg Dyeing Co. v. Query, 286

U.S. 472, 52 S. Ct. 631 (1932).

1. The 4-R Act Is Concerned with the Imposition of Taxes,
Not with the Expenditure of Revenue from Taxes

“We begin, as in any case of statutory interpretation, with the language of

the statute.” CSX I, 562 U.S. at 283, 131 S. Ct. at 1107. And the plain language of
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§ 11501(b)(4) stops in its tracks CSX’s argument that we must consider how the

State allocates revenue raised by the taxes in question.

Section 11501(b)(4) provides that no state shall “[i]mpose another tax that

discriminates against a rail carrier.” The syntax of the sentence makes clear that

the source of discrimination must be the state’s imposition of a tax. The relative

pronoun “that” introduces the subordinate clause “that discriminates against a rail

carrier.” The subordinate clause modifies the antecedent “tax” and describes the

kinds of taxes states may not impose. All of which is a fancy way of saying that

§ 11501(b)(4) doesn’t prohibit all anti-railroad discrimination, but only that which

occurs in the state’s imposition of a tax. Which is, after all, what the provision

says.

In spite of that, CSX would have us read that provision to require revenue

from the sales and use tax paid by rail carriers to benefit them as much as revenue

from the excise tax paid by motor carriers benefits those carriers. That reading of

§ 11501(b)(4) does not fit the meaning of “impose.” Impose, Black’s Law

Dictionary (10th ed. 2014) (“To levy or exact (a tax or duty).”). States cannot

“levy or exact” a revenue expenditure. CSX’s proposed reading of §11501(b)(4)

also equates “tax” with revenue, even though “tax” by definition distinguishes the

“charge . . . imposed by the government” from the “revenue” it seeks to yield.

Tax, Black’s Law Dictionary (10th ed. 2014). Stripped to the rails, CSX’s

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argument depends on calling revenues taxes. And “an argument that depends on

calling a duck a donkey is not much of an argument.” Gilbert v. United States, 640

F.3d 1293, 1320 (11th Cir. 2011).

CSX’s interpretative remodeling of § 11501(b)(4)’s restriction on states

would require us to rewrite the “[i]mpose another tax that discriminates against a

rail carrier” language in one of two ways. The first way would be to add words to

the provision so that no state could:

Impose another tax or appropriate revenue in a way that discriminates
against a rail carrier.

Or subtract some language and add other language so that no state could:

Impose another tax that discriminate[ ] against a rail carrier in any
other way.

“But we are not allowed to add or subtract words from a statute.” Friends of the

Everglades v. S. Fla. Water Mgmt. Dist., 570 F.3d 1210, 1224 (11th Cir. 2009);

accord T-Mobile South, LLC v. City of Milton, 728 F.3d 1274, 1284 (11th Cir.

2013) (“Although we, like most judges, have enough ego to believe that we could

improve a good many statutes if given the chance, statutory construction does not

give us that chance if we are true to the judicial function.”); Myers v. TooJay’s

Mgmt. Corp., 640 F.3d 1278, 1286 (11th Cir. 2011) (“[W]e are not licensed to

practice statutory remodeling.”). If Congress had intended for § 11501(b)(4) to

cover a state’s revenue expenditures, it easily could have written it to say so. It

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didn’t. And we assume that “Congress does not generally ‘hide elephants in

mouseholes.’” Rambaran v. Sec’y, Dep’t of Corr., 821 F.3d 1325, 1333 (11th Cir.

2016) (quoting Whitman v. Am. Trucking Ass’ns., 531 U.S. 457, 468, 121 S. Ct.

903, 909–10 (2001)).

Reading § 11501(b)(4) in context adds another layer of conviction to our

conclusion. See Wachovia Bank, N.A. v. United States, 455 F.3d 1261, 1267 (11th

Cir. 2007) (explaining that in statutory interpretation, “context is king”); accord

Dolan v. U.S. Postal Serv., 546 U.S. 481, 486, 126 S. Ct. 1252, 1257 (2006) (The

proper “[i]nterpretation of a word or phrase depends upon reading the whole

statutory text . . . .”). The three paragraphs preceding the more general

§ 11501(b)(4) prohibit discrimination against rail carriers in the assessment of, or

rates applicable to, property for purposes of taxation. 49 U.S.C. § 11501(b)(1)–

(3).5 They say nothing about revenue allocation or spending that discriminates

against rail carriers. Because none of the four paragraphs comprising § 11501(b)

mention revenue, it is evident that Congress did not intend (assuming it had any

collective intent) for us to consider revenue expenditures in deciding whether a tax

discriminates for purposes of subsection (b)(4).

5
In the order in which they appear, those paragraphs forbid states or their subdivisons
from assessing rail transportation property at a higher ratio to true market value than other
commercial and industrial property, id. § 11501(b)(1); from levying property taxes based on such
an assessment, id. § 11501(b)(2); and from levying ad valorem taxes on rail transportation
property at a higher rate than for commercial and industrial property generally, id. § 11501(b)(3).
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For all of those reasons, we hold that how the State allocates its tax revenues

is irrelevant to whether it “[i]mposes [a] tax that discriminates against a rail

carrier.” Id. § 11501(b)(4).

2. The Supreme Court Did Not Tell Us to Apply the Compensatory Tax Doctrine

Undeterred by the plain text or by context, CSX contends that in deciding

whether there is discrimination in violation of § 11501(b)(4) we must give weight

to discriminatory revenue expenditures because the Supreme Court in CSX II told

us to apply the compensatory tax doctrine. But the Court didn’t tell us to do that.

In fact, its opinion does not once use “compensatory” or any other derivative of the

word “compensate.” The Court has told us that it usually (almost always, we

hope) says what it means and means what it says: “[A] good rule of thumb for

reading our decisions is that what they say and what they mean are one and the

same.” Mathis v. United States, 579 U.S. __, 136 S. Ct. 2243, 2254 (2016).

Another good rule of thumb is that when the Supreme Court means to require

something on remand, the Court will say that it is required. The Court did not say

that we were to use the compensatory tax doctrine to determine if a tax scheme

violates § 11501(b)(4).

Not to be derailed by the Supreme Court’s failure to mention the

compensatory tax doctrine, CSX argues that we still must apply that doctrine

because the Court did use the term “rough equivalent,” some variation of which

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appears in all compensatory tax doctrine cases.6 CSX’s argument is a fine example

of a terminal logical fallacy known to logicians as an “illicit conversion” and to

LSAT students as a “mistaken reversal.” See, e.g., Patrick J. Hurley and Lori

Watson, A Concise Introduction to Logic 230–31 (13 ed. 2016); Steve Schwartz,

Conditional Reasoning: Contrapositive, Mistaken Reversal, Mistaken Negation,

LSAT Blog, April 10, 2009, http://lsatblog.blogspot.com/2009/04/conditional-

reasoning-contrapositive.html. That all compensatory tax doctrine decisions

feature the words “rough equivalent” does not mean that all decisions featuring

those words are compensatory tax doctrine cases. Just as the fact that all birds are

animals does not mean that all animals are birds.

As it happens, the Supreme Court has used the phrase “rough equivalent” in

all sorts of contexts. It has used the term when talking about taxes in the due

process and Commerce Clause contexts (to which the compensatory tax doctrine

does not apply). See Moorman Mfg. Co. v. Bair, 437 U.S. 267, 280, 98 S. Ct.

2340, 2348 (1978) (“In this case appellant’s actual income tax obligation was the

rough equivalent of a 1% tax on the entire gross receipts from its Iowa sales.”)

6
Some of CSX’s cited decisions feature a variation of “rough equivalent” or “rough
approximate.” See, e.g., S. Cent. Bell Tel. Co. v. Alabama, 526 U.S. 160, 169, 119 S. Ct. 1180,
1186 (1999) (compensatory tax burden must “roughly approximate” the allegedly discriminatory
tax burden) (alterations omitted); Fulton Corp. v. Faulkner, 516 U.S. 325, 332–33, 116 S. Ct.
848, 854 (1996) (The compensatory tax “must be shown roughly to approximate — but not
exceed the amount of the tax on intrastate commerce.”); Or. Waste Sys. v. Dep’t of Envtl.
Quality of the State of Or., 511 U.S. 93, 103, 114 S. Ct. 1345, 1352 (1994) (noting that a
compensatory tax is the “rough equivalent” of a “substantially similar” discriminatory tax).
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(emphasis added). It has used the phrase when talking about extortion. See Ocasio

v. United States, 578 U.S. __, 136 S. Ct. 1423, 1428 (2016) (“[T]he type of

extortion for which petitioner was convicted — obtaining property from another

with his consent and under color of official right — is the rough equivalent of what

we would now describe as ‘taking a bribe.’”) (emphasis added). It has even used

the phrase when talking about usufructs of all things. See Boggs v. Boggs, 520

U.S. 833, 836, 117 S. Ct. 1754, 1758 (1997) (“A lifetime usufruct is the rough

equivalent of a common-law life estate.”) (emphasis added). The term “rough

equivalent” is not a magical incantation that spellbinds us to apply the

compensatory tax doctrine. It is, instead, a term whose meaning must be

determined in context. See Towne v. Eisner, 245 U.S. 418, 425, 38 S. Ct. 158, 159

(1918) (Holmes, J.) (“A word is not a crystal, transparent and unchanged, it is the

skin of a living thought and may vary greatly in color and content according to the

circumstances and the time in which it is used.”).

CSX’s next argument for applying the compensatory tax doctrine is that the

Supreme Court signaled that we should do so by citing Gregg Dyeing, which CSX

characterizes as the “foundational building block of the compensatory tax

analysis.” According to CSX, Gregg Dyeing is cited “as shorthand for the

Compensatory Tax Doctrine” by many courts, and it points to the Alabama

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Supreme Court’s opinion in White v. Reynolds Metals Co., 558 So. 2d 373 (Ala.

1989), as an example.

That is not a good example for CSX because in White the Alabama Supreme

Court did not use Gregg Dyeing as “shorthand for the Compensatory Tax

Doctrine,” but simply cited it along with two other decisions for the proposition

that the “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.”

Id. at 387. And even if the Alabama Supreme Court had used Gregg Dyeing as

code for the compensatory tax doctrine, that would not mean the United States

Supreme Court used it that way in this case. We apply to the Supreme Court’s

opinions some of the same interpretative principles that it applies to congressional

enactments, including the one about elephants and mouseholes. Whitman, 531

U.S. at 468, 121 S. Ct. at 909–10. We don’t read the citation to Gregg Dyeing in

the CSX II opinion as code but as simply a reference to the general principle that

courts should consider other taxes a state imposes when assessing a facially

discriminatory tax for 4-R Act purposes. See CSX II, 135 S. Ct. at 1143–44.

Third, CSX argues that failure to apply the compensatory tax doctrine would

“lead[ ] to absurd results.” We may deviate from the plain meaning of a statute

only if “the result produced by the plain meaning” is “truly absurd.” Merritt v.

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Dillard Paper Co., 120 F.3d 1181, 1188 (11th Cir. 1997). According to CSX,

because the dormant Commerce Clause “aris[es] from a negative implication

imposed by case law” instead of “an express statutory prohibition” like the 4-R

Act, we should scrutinize taxes that might violate the 4-R Act more rigorously than

taxes that might violate the dormant Commerce Clause. Absurdity ensues, CSX

asserts, if it is “easier to justify a facially discriminatory tax that violates a federal

statute than it is to justify a facially discriminatory tax that violates the dormant

Commerce Clause.” What?

The posited result does not strike us as “truly absurd” –– or even absurd

without an adverb, for that matter. Id. Although the dormant Commerce Clause

has been criticized, 7 the Supreme Court has held that it is grounded in the

Constitution. See Fulton Corp., 516 U.S. at 330, 116 S. Ct. at 853 (“The

constitutional provision of power ‘[t]o regulate Commerce’ . . . has long been seen

as a limitation on state regulatory powers, as well as an affirmative grant of

congressional authority.”). The economic protectionism that doctrine seeks to curb

is a problem that “plagued relations among the Colonies and later among the States

under the Articles of Confederation.” Dep’t of Revenue of Ky. v. Davis, 553 U.S.

7
See, e.g., Comptroller of the Treasury of Md. v. Wynne, 575 U.S. __, 135 S. Ct. 1787,
1808 (2015) (Scalia, J., dissenting) (“[T]he negative Commerce Clause is a judicial fraud . . . .”);
United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 349,
127 S. Ct. 1786, 1799 (2007) (Thomas, J., dissenting) (“The negative Commerce Clause has no
basis in the Constitution and has proved unworkable in practice.”).

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328, 338, 128 S. Ct. 1801, 1808 (2008). What seems truly absurd to us is the

premise of CSX’s assertion, which is that a constitutional doctrine is inherently

less important than a statutory provision.

3. The Excise Tax Is Roughly Equivalent to the Sales and Use Tax

Having established that how a state allocates tax revenue is immaterial to

whether two taxes are roughly equivalent under § 11501(b)(4), and that the

Supreme Court did not direct us to apply the compensatory tax doctrine, we turn to

the district court’s ruling that the sales and use tax and the excise tax are roughly

equivalent.

As an initial matter, the parties contest whether we should compare the rates

that rail carriers and motor carriers pay in state taxes, or the combined rate they

pay under state plus local taxes. We need not answer that question because the

sales and use tax and the excise tax are roughly equivalent regardless of whether

we consider local taxes. Considering only state taxes, over a recent nine-year

period, rail carriers paid $0.0985 per gallon for dyed diesel while motor carriers

paid $0.19 per gallon for clear diesel. CSX Transp., 247 F. Supp. 3d at 1250.

Accounting for both state and local taxes, rail carriers paid $0.2348 per gallon

while motor carriers paid between $0.20 and $0.23 per gallon. Id. During that

same period, rail carriers and motor carriers each had a higher state plus local tax

burden than the other one did an equal number of times (fifty-seven). Id. at 1246.

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We agree with the district court that “roughly equivalent” bears its ordinary

meaning and that two taxes are roughly equivalent if the rates they impose

approximate one another. See id. at 1248. It does not mean “perfectly equivalent.”

Because the average rates that rail carriers and motor carriers paid differed only

“by some quantity between less-than-half-of-one cent and 3.5 cents” per gallon,

favoring one as many times as the other, id. at 1250–51, the district court correctly

concluded that the excise tax is roughly equivalent to the sales and use tax. As a

result, the excise tax “justifies the motor carrier sales-tax exemption.” CSX II, 135

S. Ct. at 1144.

V. THE WATER CARRIER EXEMPTION

We now move from the roads to the waters. The Supreme Court recognized

that, unlike the motor carrier exemption, the State could offer no rough

equivalency justification for the water carrier exemption because water carriers pay

no state taxes at all when they buy or consume diesel. Ala. Code §§ 40-23-

4(a)(10) (sales tax exemption), 40-23-62(12) (use tax exemption). The State did,

however, offer “other justifications for the water carrier exemption — for example,

that such an exemption is compelled by federal law” –– and the Court remanded

for consideration of those “alternative rationales.” CSX II, 135 S. Ct. at 1144.

The district court ruled that the water carrier exemption does not violate the

4-R Act for two independent reasons. First, the court found that there was no

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violation because “CSX has suffered no competitive injury from the State’s

exemption of water carriers from the sales [and use] tax.” CSX Transp., 247 F.

Supp. 3d at 1255. Second, the court found that because “imposition of a state sales

[and use] tax on interstate water carriers would expose the State to liability under

the negative Commerce Clause,” the exemption for water carriers “is compelled by

federal law.” Id. at 1252 (citing CSX II, 135 S. Ct. at 1144). We will take those

two up in that order.

A. The District Court’s “Competitive Injury” Ruling

There are two problems with the district court’s ruling that the water carrier

exemption does not violate the 4-R Act because CSX has not shown that the

exemption causes it competitive injury. The first problem is that the parties

stipulated that water carriers are among “[t]he principal competitors to rail carriers

in the transportation of property in interstate commerce in the State of Alabama.”

Although a district court may set aside an erroneous stipulation where justice

requires, see, e.g., Morrison v. Genuine Parts Co., 828 F.2d 708, 709 (11th Cir.

1987), the district court did not suggest that it thought justice required doing so.

Instead, its rationale was that the “stipulation does not equate to a concession that

the competition between CSX and water carriers is substantial.” CSX Transp., 247

F. Supp. 3d at 1245. We are hard pressed to square a finding that competition

between CSX and water carriers is insubstantial with a stipulation that they are

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“principal competitors,” especially where the stipulation distinguishes “[a]ir

carriers,” which “also are engaged in the transportation of property in interstate

commerce in the State of Alabama, but only marginally compete with rail

carriers.”

And we are supremely reluctant to allow a district court to relitigate a

stipulated fact that the Supreme Court relied on for one of its holdings, which is

that rail carriers and water carriers are a similarly situated comparison class. CSX

II, 135 S. Ct. at 1143 (“[I]n light of [CSX’s] complaint and the parties’ stipulation,

a comparison class of competitors consisting of motor carriers and water carriers

was appropriate . . . .”) (emphasis added).

The second problem with the district court’s ruling is that it is contrary to the

Supreme Court decisions in CSX I and CSX II. While neither of those decisions

explicitly held that competitive injury was not required, the two of them combined

decided that discriminatory taxation had been shown and that the remaining

question to be answered on remand was whether there was sufficient justification

for it. CSX I, 562 U.S. at 288 & n.8, 131 S. Ct. at 1109 & n.8 (“[A] state excise

tax that applies to railroads but exempts their interstate competitors is subject to

challenge under subsection (b)(4)[,]” . . . but the State may “offer[ ] a sufficient

justification for declining to provide the exemption at issue to rail carriers.”); CSX

II, 135 S. Ct. at 1143–44 (holding that rail carriers and water carriers are similarly

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situated competitors and remanding for us to determine “whether Alabama’s

alternative rationales justify its exemption”). Competitive injury may play an

important role in antitrust law but under the 4-R Act the lack of it is not a

justification for discriminatory taxes.

Instead of putting the burden on the State to justify the difference in

taxation, the district court put the burden on CSX to prove “discriminatory effect”

or “competitive injury.” CSX Transp., 247 F. Supp. 3d at 1255. While the district

court was “free to address, as a matter of first impression, those issues not disposed

of on appeal,” Cox Enters., 794 F.3d at 1271, it was not free to add another

element for CSX to prove in order to establish a violation of the Act. 8

B. The District Court’s “Compelled by Federal Law” Ruling

In remanding the case the Supreme Court recognized that if the water carrier

exemption were “compelled by federal law,” that might be sufficient justification.

CSX II, 135 S. Ct. at 1144. The district court concluded that “imposition of a state

8
The State contends that even if proof of injury is unnecessary to establish a violation of
the 4-R Act, it is necessary for injunctive relief. That argument goes against the decisions of five
of our sister circuits that have held the “irreparable injury” requirement does not apply to 4-R
Act claims because the Act authorizes injunctive relief without it where the statutory conditions
are satisfied. 49 U.S.C. § 11501(c). See Consol. Rail v. Town of Hyde Park, 47 F.3d 473, 479
(2d Cir. 1995); CSX Transp. Inc. v. Tenn. State Bd. of Equalization, 964 F.2d 548, 551 (6th Cir.
1992); Burlington N. R.R. v. Bair, 957 F.2d 599, 601–02 (8th Cir. 1992); Burlington N. R.R. v.
Dep’t of Revenue, 934 F.2d 1064, 1074–75 (9th Cir. 1991); Atchison, T. & S.F. Ry. v. Lennen,
640 F.2d 255, 259 (10th Cir. 1981). Although we have not addressed this issue in the 4-R Act
context, we follow the principle that when “an injunction is authorized by statute and the
statutory conditions are satisfied the usual prerequisite of irreparable injury need not be
established.” Gresham v. Windrush Partners, 730 F.2d 1417, 1423 (11th Cir. 1984) (citations
and alteration omitted).
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sales [and use] tax on interstate water carriers would expose the State to liability

under the negative Commerce Clause,” and for that reason, “the exemption for

water carriers ‘is compelled by federal law.’” CSX Transp., 247 F. Supp. 3d at

1252 (citing CSX II, 135 S. Ct. at 1144).

As an initial matter, we disagree with the district court that the water carrier

exemption is “compelled by federal law” merely because the “imposition of a state

sales [and use] tax on water carriers would expose the State to liability” under the

Commerce Clause. Id. (emphases added). For 4-R Act justification purposes

exposure to a risk is not compulsion; compulsion requires legal obligation.

1. The Negative Commerce Clause

The Supreme Court applies a four-prong test to determine whether a state

tax violates the Commerce Clause. See Complete Auto Transit, Inc. v. Brady, 430

U.S. 274, 279, 97 S. Ct. 1076, 1079 (1977). A state tax survives Commerce Clause

scrutiny if it “[1] is applied to an activity with a substantial nexus with the taxing

State, [2] is fairly apportioned, [3] does not discriminate against interstate

commerce, and [4] is fairly related to services provided by the State.” Id. All four

requirements must be met. The district court’s ruling that the Commerce Clause

compels the water carrier exemption was based on the fourth requirement alone,

CSX Transp., 247 F. Supp. 3d at 1251–52, and the State does not contend that any

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of the first three were not met. As a result, we consider only the “fairly related” or

fourth requirement.9

The district court ruled that if imposed on water carriers the sales and use tax

would not be fairly related to services that the State provides them because

Alabama “provides virtually no services to interstate water carriers.” Id. at 1252.

It found that Alabama “spends no tax dollars on river maintenance projects” or

“commercial water traffic regulation or enforcement.” Id. It is, instead, the federal

government that “funds all river dredging and lock and dam maintenance” and

“spends monies licensing, policing, and maintaining commercial water traffic.” Id.

Because “water carriers impose virtually no financial burden on the State” and

“may never contact state land,” the district court concluded that water carriers

could challenge the sales and use tax as not “fairly related to services provided

[them] by the State.” Id. at 1251–52. Because imposition of the sales and use tax

“would expose the State to liability under the negative Commerce Clause,” the

9
We have not previously applied the Complete Auto test because the Eleventh
Amendment and the Tax Injunction Act ordinarily prevent lower federal courts from deciding
constitutional challenges to state taxes. See Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S.
356, 363, 121 S. Ct. 955, 962 (2001) (“The ultimate guarantee of the Eleventh Amendment is
that nonconsenting States may not be sued by private individuals in federal court.”); 28 U.S.C.
§ 1341 (“The district courts shall not enjoin . . . collection of any tax under State law where a
plain, speedy and efficient remedy may be had in the courts of such State.”). But neither the
Eleventh Amendment nor the Tax Injunction Act forbids us from deciding whether imposing the
sales and use tax on water carriers would violate the Commerce Clause. The Supreme Court’s
remand instructions require us to decide that hypothetical case within this case to determine
whether the water carrier exemption is “compelled by federal law.” CSX II, 135 S. Ct. at 1144.
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district court ruled the water carrier exemption is “compelled by federal law” under

the CSX II decision. Id. at 1252.

That ruling doesn’t hold water. The Supreme Court rejected similar

reasoning in Commonwealth Edison Co. v. Montana, 453 U.S. 609, 620–21, 101 S.

Ct. 2946, 2955 (1981). That decision involved a Montana severance tax of up to

30% imposed on coal extracted in the state for use outside it. Id. at 612–13, 101

S. Ct. 2951. The coal producers argued that the “amount collected under the

Montana tax is not fairly related to the additional costs the State incurs because of

coal mining.”10 Id. at 620, 101 S. Ct. at 2955. The Court was not persuaded,

explaining that the fourth prong of the Complete Auto test does not require “that

the amount of general revenue taxes collected from a particular activity . . . be

reasonably related to the value of services provided to the activity.” Id. at 622, 101

S. Ct. at 2956. “Nothing is more familiar in taxation than the imposition of a tax

upon a class or upon individuals who enjoy no direct benefit from its expenditure,

and who are not responsible for the condition to be remedied.” Id. (internal

citations omitted); see also Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S.

175, 199, 115 S. Ct. 1331, 1345 (1995) (“The fair relation prong of Complete Auto

requires no detailed accounting of the services provided to the taxpayer on account

10
The coal producers asserted that the “legitimate local impact costs [of coal mining] . . .
might amount to approximately 2 [cents] per ton, compared to present average revenues from the
severance tax alone of over $2.00 per ton.” Id. at 620 n.10, 101 S. Ct. at 2955 n.10.
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of the activity being taxed, nor, indeed, is a State limited to offsetting the public

costs created by the taxed activity.”).

Instead, the fourth prong requires only that “the measure of a tax is

reasonably related to the taxpayer’s activities or presence in the State,” in which

case “the taxpayer will realize, in proper proportion to the taxes it pays, the only

benefit to which the taxpayer is constitutionally entitled: that derived from his

enjoyment of the privileges of living in an organized society.” Commonwealth

Edison, 453 U.S. at 628–29, 101 S. Ct. at 2959 (quotation marks and alterations

omitted). Those privileges are the “services” to which a tax must be “fairly

related” for Commerce Clause purposes, and they include “police and fire

protection,” public roads and mass transit, and other “advantages of a civilized

society.” Id. at 624, 101 S. Ct. at 2957. Applying that analysis, the Court had

“little difficulty” upholding the Montana tax. Id. at 626, 101 S. Ct. at 2958

(“Because [the tax] is measured as a percentage of the value of the coal taken, the

Montana tax is in proper proportion to appellants’ activity within the State and,

therefore, to their consequent enjoyment of the opportunities and protections which

the State has afforded in connection with those activities.”) (quotation marks

omitted).

Under the Commonwealth Edison standard, a tax on water carriers would be

“fairly related” to the services provided by the State. It makes no difference that

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the federal government, instead of the State, foots the bill for barge-related services

like river maintenance projects and commercial water traffic. The standard is

unconcerned with “the services provided to the taxpayer on account of the activity

being taxed.” Jefferson Lines, 514 U.S. at 199, 115 S. Ct. at 1345. Instead, the

services to which a tax must be “fairly related” are the “privileges of living in an

organized society.” Commonwealth Edison, 453 U.S. at 629, 101 S. Ct. at 2959.

Water carriers purchasing or using diesel fuel in Alabama benefit from those

privileges. That is doubtless true for the two categories of water carriers that,

according to the record, regularly make landfall in Alabama. For example, water

carriers engaged in “head-to-head competition” with CSX take product from feed

mills “located between Decatur[, Alabama] and Guntersville[, Alabama] directly

on the river system.” Water carriers engaged in “river-to-truck competition”

transport product from out of state to Albertville, Alabama and Ivalee, Alabama,

where they “transfer [the product] and then truck it into their facilities.” Those

water carriers benefit from the State’s provision of emergency services, access to

the judicial system, roads, and other “advantages of civilized society,” no matter

how often they use those services. See Jefferson Lines, 514 U.S. at 200, 115 S. Ct.

at 1346 (“The bus terminal may not catch fire during the sale, and no robbery there

may be foiled while the buyer is getting his ticket, but police and fire protection,

along with the usual and usually forgotten advantages conferred by the State’s

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maintenance of a civilized society, are justifications enough for the imposition of a

tax.”).

Even for water carriers that “may never contact state land,” CSX Transp.,

247 F. Supp. 3d at 1252, the fact that they could call upon the State to render aid in

case of an emergency or use the state courts to vindicate their rights means that

they derive some benefit, however attenuated, from the State’s services. An

attenuated benefit is all the fourth requirement of the Complete Auto test requires,

which makes it unsurprising that the Supreme Court has never invalidated a state

tax under that requirement. See, e.g., Jefferson Lines, 514 U.S. at 200, 115 S. Ct.

at 1346. Justice Blackmun may have been right when he said that Commonwealth

Edison had gone so far as to “emasculate” the fairly related requirement of the

Complete Auto test, 453 U.S. at 645, 101 S. Ct. at 2967–68 (Blackmun, J.,

dissenting), but whether it is an emasculator or not, Commonwealth Edison is the

law and we follow it.

The question then is whether the “measure of the tax [is] reasonably related

to the extent of [water carriers’] contact” with the state. Commonwealth Edison,

453 U.S. at 626, 101 S. Ct. at 2958. Because the severance tax in Commonwealth

Edison was “measured as a percentage of the value of the coal taken,” the Supreme

Court held that it was “in proper proportion to appellants’ activities within the

State.” Id. Likewise, if applied to water carriers Alabama’s sales and use tax,

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which is proportionate to the amount of diesel fuel bought or used in the state,

would also be “in proper proportion to [the water carrier’s] activities within the

state.” Id.; see Ala. Code §§ 40-23-2(1), 40-23-61(a). As a result, imposing the

sales and use tax on water carriers would not offend the Commerce Clause and

exempting those carriers from the tax cannot be justified on the basis that it

would.11 See CSX Transp., 247 F. Supp. 3d at 1252.

2. The Maritime Transportation Security Act

The State points to another federal law as compelling the water carrier

exemption, arguing that taxing them could expose it to suit under the Maritime

Transportation Security Act, 33 U.S.C. § 5(b). That statute provides:

No taxes . . . shall be levied upon or collected from any vessel or other
water craft, or from its passengers or crew, by any non-Federal
interest, if the vessel or water craft is operating on any navigable
waters subject to the authority of the United States, or under the right
to freedom of navigation on those waters[.]

33 U.S.C. § 5(b). Taxing water carriers would expose it to suit for violating § 5(b),

the State asserts, because the sales and use tax would be a “tax . . . collected from

11
The State and district court cite an Illinois appellate court decision that applied the
fourth requirement of Complete Auto more strictly. See CSX Transp., 247 F. Supp. 3d at 1252
n.18 (citing Am. River Transp. Co. v. Bower, 813 N.E.2d 1090, 1094 (Ill. App. Ct. 2004)
(finding “no fair relation between the use tax and the benefits that [the tugboat company]
received from the state for the use by its line haul tugboats of the navigable waterways of the
United States”)). We are not bound by one decision of one state appellate court about whether
one tax imposed on one type of boat violates the Commerce Clause. See Lewis v. Casey, 518
U.S. 343, 379 n.7, 116 S. Ct. 2174, 2194 n.7. And for reasons we have discussed, we agree with
Judge Bowman’s dissenting observation in Bower, 813 N.E.2d at 1094–95, that the majority in
that case took too strict a view of the fourth requirement.
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any vessel or other water craft, or from its passengers or crew by [a] non-Federal

interest.” Id. But, as we have already explained, exposure to a lawsuit alone is not

compulsion under CSX II.

And any such a lawsuit would not, in our view, succeed. The State bases its

fears primarily on Kittatinny Canoes, Inc. v. Westfall Township, No. 183 CV

2013, 2013 WL 8563483 (Pa. Com. Pl. May 6, 2013), and Moscheo v. Polk

County, No. E2008-01969-COA-R3-CV, 2009 WL 2868754 (Tenn. Ct. App. Sept.

2, 2009). Both decisions struck down under § 5(b) state taxes on recreational

activities on waterways. Kittatinny, 2013 WL 8563483, at *9; Moscheo, 2009 WL

2868754, at *1. The district court found those decisions “not helpful” because they

involved the taxation of passengers of vessels on navigable waters. CSX Transp.,

247 F. Supp. 3d at 1253. In rejecting this proffered justification for exempting the

water carriers from the sales and use tax, the district court ruled that § 5(b) does

not apply to taxes imposed on things other than “the vessel, its passengers, or

crew.” Id. We agree.

If as the State suggests § 5(b) of the Maritime Transportation Security Act

invalidates the sales and use tax — which applies to diesel fuel because it is

“tangible personal property,” see Ala. Code § 40-23-2(1) — it would forbid states

from taxing the purchase of any tangible property for use on or by a “vessel . . . its

passengers[,] or crew,” 33 U.S.C. § 5(b). Under that view states could not collect

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sales or use taxes when a boat purchases porcelain pitchers for a dinner cruise or

mattresses for the berths or any other property for any other reason. Water carriers

would become floating tax free zones.

Properly construed, the Act forbids taxes imposed on the vessel itself, or on

its crew members themselves, or on the passengers themselves — not taxes

imposed on property purchased for use on or by a vessel, or by its crew, or by its

passengers. See, e.g., Commercial Barge Line Co. v. Dir. of Revenue, 431 S.W.3d

479, 484 (Mo. 2014) (holding that there was no violation of the Act where the state

“assess[ed] sales and use tax on the goods and supplies delivered to the Taxpayers’

towboats while they [were] in Missouri”); Reel Hooker Sportfishing, Inc. v. Dep’t

of Taxation, 236 P.3d 1230, 1232 (Haw. Ct. App. 2010) (“33 U.S.C. § 5(b) does

not preempt the assessment of [Hawaii’s general excise tax] because [it] is a tax

assessed on gross business receipts for the privilege of doing business in Hawai’i,

and is not a tax on their vessels or passengers.”).

If exempting water carriers from the sales and use tax that rail carriers pay is

to be justified, it must be on some basis other than the Commerce Clause or the

Maritime Transportation Security Act. The State has some more possibilities.

C. Other Justifications

The State advances two more arguments to justify the water carrier

exemption: (1) “States can seek to avoid double taxation”; and (2) “States can

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charge a higher tax on a party that imposes higher costs on the State than its

comparison class does.” Neither argument persuades us.

1. Double Taxation

The State argues that the water carrier exemption is justified because water

carriers pay $0.29 per gallon in federal tax in exchange for barge-related services.

26 U.S.C. § 4042(b). Because water carriers benefit from “federal, not state,

services,” the State asserts that it is justified in “allowing water carriers to be taxed

solely by the federal government” to avoid “double taxation.”

The State cites only one decision in support of its avoiding double taxation

argument. See Lawrence v. State Tax Comm’n of Miss., 286 U.S. 276, 279, 52

S. Ct. 556, 556 (1932). The Lawrence decision upheld a Mississippi income tax

that exempted out-of-state income of corporations but not of individuals. The

Court held that “a rational basis for the distinction made[ ] is the fact that the state

has adopted generally a policy of avoiding double taxation of the same economic

interest in corporate income, by taxing either the income of the corporation or the

dividends of its stockholders, but not both.” Id. at 284, 52 S. Ct. at 558–59

(emphasis added). Notably, the State omitted the part of the quotation to which we

have added emphasis. With that important language out of mind, the State

suggests that Lawrence stands for the proposition that a state’s interest in

“avoiding double taxation” includes not taxing income or activities that the federal

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government taxes. But the decision cannot stand for that proposition because the

case did not involve it.

Lawrence involved a state’s effort to avoid imposing two taxes on the same

corporate income –– once as the income comes into the corporation and again as

that same income goes out as dividends. Id. at 284, 52 S. Ct. at 558–59. It did not

involve, as this case does, a state tax and a federal tax that are of different types

and serve different purposes. See 26 U.S.C. § 4042(b); Ala. Code § 40-23-2(1).

For that reason, imposing the sales and use tax on water carriers would not qualify

as “double taxation” under Lawrence or any of the three dictionary definitions of

that term. 12

And even if imposing a state tax and a federal tax that are measured in

different ways and used for different purposes did qualify as “double taxation,” the

State offers no evidence that it has “adopted generally a policy of avoiding double

taxation,” which is necessary for two taxes to fall under Lawrence. See 286 U.S. at

284, 52 S. Ct. at 558. Indications are that it does not have a policy of not taxing

what the federal government taxes. For example, the State imposes an excise tax

on diesel fuel that motor carriers purchase even though the federal government

does too. See Ala. Code § 40-17-325(a)(2); 26 U.S.C. § 4081. The State cannot
12
See Double taxation, Black’s Law Dictionary (10th ed. 2014) (“1. The imposition of
two taxes on the same property during the same period and for the same taxing purpose. 2. The
imposition of two taxes on one corporate profit . . . 3. Int’l law. The imposition of comparable
taxes in two or more states on the same taxpayer for the same subject matter or identical
goods.”).
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treat a federal and a state tax as one tax if by land, two if by sea. And, of course,

the federal income tax has not dissuaded the State from taxing income. See Ala.

Code § 40-18-2(a). For these reasons, the State’s reliance on Lawrence is

misplaced and the federal excise tax on diesel fuel does not justify the water carrier

exemption from the State’s sales and use tax.

2. Disparate Burdens

The State also argues that the water carrier exemption is justified because

water carriers “impose virtually no financial burden on the State” while rail

carriers impose significant costs. The disparity in burdens, the State asserts,

justifies the disparity in taxation.

The State relies on Oregon Waste, 511 U.S. 93, 114 S. Ct. 1345. That is a

dormant Commerce Clause decision invalidating a regulatory scheme that imposed

a “purportedly cost-based surcharge” of $0.85 per ton on the disposal of waste

generated in-state and a $2.25 per ton surcharge on the disposal of waste from out

of state. Id. at 95–96, 114 S. Ct. at 1348. Oregon did not argue that out-of-state

waste imposed higher costs, nor did it contend it had considered any cost disparity

when it fixed the surcharge rates. Id. at 101 & n.5, 114 S. Ct. at 1351 & n.5. In a

footnote, the Supreme Court theorized that if out-of-state waste imposed higher

costs on the State, the scheme would pass muster because the surcharge disparity

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would not be based impermissibly on the waste’s origin but would instead be

calibrated to cost. Id.

The Oregon Waste decision does not control here. The Court’s footnote

musing about what might have been if something were different is doubtless dicta.

See Edwards v. Prime, Inc., 602 F.3d 1276, 1298 (11th Cir. 2010). And in any

event, Oregon Waste is oceans apart from this case. Because that case involved a

dormant Commerce Clause challenge, the issue was whether a state law

impermissibly discriminates against out-of-staters. See, e.g., Maine v. Taylor, 477

U.S. 131, 137–38, 106 S. Ct. 2440, 2446–47 (1986). Its holding does not apply to

a tax that does not discriminate against out-of-state economic interests.

Even if we could draw on dormant Commerce Clause decisions in deciding

this 4-R Act case, the Oregon Waste dicta does not shed light on the sales and use

tax at issue here. In that dicta the Court noted that evidence about disparate costs

might salvage a facially discriminatory “cost-based surcharge.” 511 U.S. at 95,

101 n.5, 114 S. Ct. at 1348, 1351 n.5. But a sales and use tax is not “cost-based”

— it is not calibrated to account for varying burdens. See CSX Transp., 247 F.

Supp. 3d at 1254. Instead, it is a flat-rate, 4% general tax imposed without

reference to burdens generated by the activity and borne by the State. There is no

evidence that the State accounted for disparate burdens when it set a tax rate of 4%

for rail carriers and 0% for water carriers. As a result, the Oregon Waste Court’s

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conjecture that a cost disparity might justify a proportionally disparate “cost-based

surcharge” does not mean that one might justify exempting water carriers from a

flat-rate tax of general applicability.

Because the sales and use tax does not account for the relative burdens

imposed by taxpayers, and because dicta from the dormant Commerce Clause

decision in Oregon Waste does not control the result in this 4-R Act case, the

State’s “disparate burdens” argument does not justify the water carrier exemption.

Having concluded that the water carrier exemption is not “compelled by federal

law” and that neither of the State’s “alternative rationales” justifies the water

carrier exemption, see CSX II, 135 S. Ct. at 1144, we hold that Alabama’s sales

and use tax violates the 4-R Act.

VI. CONCLUSION

As to motor carriers, we agree with the district court that the excise tax is

roughly equivalent to the sales and use tax because the average rates that rail

carriers and motor carriers have paid differed “by some quantity between less-than-

half-of-one cent and 3.5 cents” per gallon. CSX Transp., 247 F. Supp. 3d at 1250–

51. As a result, the excise tax justifies the motor carrier exemption from the sales

and use tax. See CSX II, 135 S. Ct. at 1144.

As to water carriers, their exemption is not “compelled by federal law.”

CSX Transp., 247 F. Supp. 3d at 1252. Although imposing the sales and use tax

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on water carriers might “expose” the State to a lawsuit under federal law,

compulsion requires more than exposure. The water carrier exemption is

“compelled by federal law” only if imposition of the sales and use tax would

violate federal law. In our view, it would not. And we are unpersuaded by the

State’s “alternative rationales” for the water carrier exemption. See CSX II, 135 S.

Ct. at 1144.

We REVERSE the district court, hold that the State’s sales and use tax

violates the 4-R Act, and REMAND to the district court with instructions to enter

declaratory and injunctive relief in favor of CSX consistent with this opinion.

46