Burlington Northern Railroad Company v. City of Superior, Wisconsin

FLAUM, Circuit Judge,

dissenting in part.

Wisconsin imposes occupational taxes on operators of metalliferous mines, Wis.Stat. Ann. §§ 70.37-70.396 (West 1989 & Supp.1991), grain storage facilities, id., § 70.41, scrap iron and scrap steel docks, id., § 70.415, coal docks, id., § 70.42, crude oil refineries, id., § 70.421, and mink farms, id., § 70.425. The state also taxes iron ore concentrates docks, specifically the three docks in Superior, Wisconsin leased or owned by the Burlington Northern Railroad (“BN”). Id., § 70.40. I agree with the majority that BN has established a prima facie case that the tax on iron ore concentrates docks discriminates against railroads within the meaning of 49 U.S.C. § 11503(b)(4). Unlike the majority, however, I believe a remand is needed to allow the City of Superior to present evidence that the various other occupational taxes Wisconsin imposes rebut the inference that the tax on concentrates docks discriminates against railroads. I respectfully dissent from that portion of the majority opinion.

*1189The majority recognizes that the goals that led Congress to pass 49 U.S.C. § 11503 did not include “producing] a tax exemption for railroads.” Ante at 1188. Nevertheless, it concludes that once a railroad has identified a tax that uniquely burdens rail operations, that tax must be invalidated, regardless of whether the state imposes similar taxes on similarly situated taxpayers. I am unable to conclude that Congress intended to abandon the usual meaning of the word “discriminate,” which implies the need to compare taxes on railroad operations with taxes imposed on other taxpayers. Rather, I read § 11503(b)(4) to require that states be allowed to rebut the inference of discrimination that may be drawn from a tax on a freight facility used only by railroads with evidence that these facilities are taxed no more heavily than other, similar facilities which depend on road, pipeline, or water, but not rail, connections.

Congress addressed more fully the proper analysis to be conducted in determining whether a tax discriminates against railroads in the provisions of § 11503(b) applicable to taxes on railroad property than in the provision concerning other forms of taxation we are called upon to apply here. In both § 11503(b)(1) and (b)(3), Congress explicitly identified the comparison group to be used in determining whether a property tax discriminates against railroads as “commercial and industrial property in the same assessment jurisdiction.” By contrast, § 11503(b)(4), which invalidates any other form of discriminatory taxation against railroads, is silent on the question of how courts are to determine whether such taxes discriminate against railroads.1

The majority apparently draws from this silence the message that once it has been shown that a tax affects railroads, it is unnecessary to allow the state to present evidence that the tax in fact does not discriminate against railroads. Relying on the Fifth Circuit’s opinion in Kansas City Southern Railway Co. v. McNamara, 817 F.2d 368 (5th Cir.1987), the majority reasons that courts are poorly equipped to evaluate “whether different-taxes on other activities might offset the burden on the railroad industry of a tax limited to railroads.” Ante at 1188. The majority acknowledges that such an analysis has been a consistent feature of cases in which state taxes are challenged on the ground that they burden interstate commerce or deny equal protection to out-of-state taxpayers. See, e.g., Goldberg v. Sweet, 488 U.S. 252, 267, 109 S.Ct. 582, 592, 102 L.Ed.2d 607 (1989); D.H. Holmes & Co. v. McNamara, 486 U.S. 24, 32, 108 S.Ct. 1619, 1624, 100 L.Ed.2d 21 (1988). However, it distinguishes those cases because they arose in the course of constitutional adjudication, where the Supreme Court “is operating without the benefit of a congressional policy directive.”

Like the majority, I read § 11503(b)(4) as “a policy directive.” And like the majority, I glean the meaning of this policy directive by “reading subsection (4) ... in light of the approach taken in the first three subsections.” Ante at 1188. I am unable, however, to join the majority’s view that the intent of Congress we can derive from two subsections in which Congress directs courts to analyze property taxes on railroads by comparing them to property taxes on other commercial and industrial taxpayers is that any other kind of tax on railroads is discriminatory per se. Rather the intent I infer is that a court called upon to decide whether a tax violates § 11503(b)(4) must perform an analysis like that set out in the prior subsections: it must compare the taxes imposed on railroads to like taxes imposed on other activities that do not have the requisite nexus with railroads. In Wisconsin this may include any of the range of occupational taxes the state imposes on facilities like grain elevators, oil refineries, *1190scrap metal docks, coal docks, and ore mines.

This approach, which compares occupational taxes on activities only railroads engage in with activities that may rely on other forms of transportation, is substantially less ambitious than the open-ended comparison of benefits, burdens, and incidence employed in Commerce Clause cases. Nevertheless, it answers the central question of whether a state taxes railroads only “as members of a larger taxpayer group,” ante at 1188, defeating the inference that a tax on railroad activities is part and parcel of the history of discriminatory taxation against railroads that Congress sought to bring to an end in passing § 11503.2

I recognize that the view the majority adopts today has previously won the favor of the Fifth Circuit in Kansas City Southern and the Eighth Circuit in its recent opinion in Trailer Train v. State Tax Comm’n, 929 F.2d 1300 (1991). Both of these opinions relied on Arizona Public Service Co. v. Snead, 441 U.S. 141, 99 S.Ct. 1629, 60 L.Ed.2d 106 (1979), to reach the conclusion that no discrimination analysis was necessary. In Snead, the Supreme Court held that the appropriate way to determine whether a state tax contravened an act of Congress was “[t]o look narrowly to the type of tax the federal statute names, rather than to consider the entire tax structure of the State.” Id. at 149-50, 99 S.Ct. at 1633-34. Applying this approach, the Court in Snead struck down a New Mexico statute on electricity generated in the state and exported elsewhere as inconsistent with a statute Congress had passed prohibiting discriminatory taxes on power sold out of state. As the defendant in Snead conceded, Congress’s enactment was aimed directly at the New Mexico tax; indeed, the sponsors of the statute had gone so far as to identify the New Mexico tax by name. See 441 U.S. at 147-48, 99 S.Ct. at 1632-33. Striking down the tax regardless of whatever other activities New Mexico might tax was thus “faithful not only to the language of the statute but to the expressed intent of Congress in enacting it.” Id. at 150, 99 S.Ct. at 1634.

So, I contend, is the approach recommended here. By comparing state taxes on activities engaged in solely by railroads with similar activities that do not have a similar nexus with rail transportation, courts could distinguish taxes on railroads from taxes that form part of a comprehensive state scheme to impose special burdens on activities that state legislators conclude have an unusual impact on scarce resources. It would also avoid the harsh consequences that applying § 11503(b)(4) without looking to similar taxes levied on other taxpayers will often produce.3 The *1191present state of the record in this case does not permit such an examination, and the majority’s reading of the statute renders it superfluous. Because this reading favors railroads to a degree far beyond the intention of the legislators who drafted § 11503(b)(4), I respectfully dissent.

. Perhaps this is because the provision that § 11503(b)(4) is indirectly derived from, § 306(1 )(d) of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L. No. 94-210, 90 Stat. 54 ("the 4-R Act”), was “inserted three weeks before [the 4-R Act’s] passage, [and] represented a last minute realization by Congress that prohibiting only discriminatory property taxes would not be enough.” Richmond, Fredericksburg & Potomac R.R. Co. v. Department of Taxation, 762 F.2d 375, 380 (4th Cir.1985).

. Cf. McGoldrick v. Berwind-White Co., 309 U.S. 33, 46 n. 2, 60 S.Ct. 388, 392 n. 2, 84 L.Ed. 565 (1940) ("Lying back of [Commerce Clause jurisprudence] is the recognized danger that, to the extent that the burden falls on economic interests without the state, it is not likely to be alleviated by those political restraints which are normally exerted on legislation where it affects adversely interests within the state.").

. In McNamara, the Fifth Circuit recognized that applying Snead's rule that no inquiry into discriminatory effect is needed when a state tax statute is challenged as violating an act of Congress might well have unjust results. See id. at 375 (state tax may be struck down under § 11503(b)(4) even where tax "is perfectly fair” to railroads). Judge Floyd Gibson, dissenting from the Eighth Circuit’s recent Trailer Train decision, also pointed to the potential for strange results under the statute, concluding that a demonstration that state taxes on railroads disadvantaged railroads relative to other taxpayers was "necessary lest Congress be open-Iy called a fool.” Trailer Train, 929 F.2d at 1305.

Congress’s wish to avoid being called a fool may be surmised from two anti-discrimination statutes passed since Snead. In 1980, Congress enacted 49 U.S.C. § 11503a, which tracks the language of § 11503, except that the phrase "motor carrier transportation property” is substituted for "rail transportation property.” There is, however, one more difference in the otherwise identical statutes: § 11503a contains no provision analogous to § 11503(b)(4). In 1982 Congress amended 49 U.S.C. § 1513(d), which hars discriminatory state taxation of airline operating property. Again, this provision is for the most part identical to §§ 11503(b) and § 11503a(b). The only differences are the substitution of the phrase "air carrier transportation property” for "rail transportation property” and "motor carrier transportation property” respectively, and, again, the omission of a provision analogous to § 11503(b)(4).