CSX Transportation, Inc. v. Alabama Department of Revenue (247 F. Supp. 3d 1240, 2017)

MEMORANDUM OPINION

ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE

CSX Transportation, Inc. filed this action against the Aabama Department of Revenue and Julie P. Magee, in her official capacity as Commissioner of the Department (collectively, “the State” or “Aa-bama”), seeking relief under Section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. § 11501 (the “4-R Act”). Doc. 1. The 4-R Act, enacted in part to “foster competition among all carriers by railroad and other modes of transportation,” . 45 U.S.C. § 801(b)(2), prohibits states and localities from engaging in discriminatory taxation of railroads. See 49 U.S.C. § 11501(b). CSX contends that Aabama’s taxing scheme is discriminatory because the State exempts motor earners and water carriers from the diesel fuel sales tax it requires railroads to pay. Accordingly, CSX seeks to enjoin the State from collecting sales tax on CSX’s diesel fuel purchases pursuant to § 11501(b)(4).

After considering the evidence presented at trial and the parties’ post-trial briefs, for the reasons provided herein, the court concludes that the State has not violated the 4-R Act and that this action is due to be dismissed with prejudice.

I. RELEVANT PROCEDURAL HISTORY

The court initially dismissed CSX’s complaint based on the Eleventh Circuit’s determination, in a similar case, that “the Aabama tax statute ,.., with its exemptions for motor and water carriers, does not offend the 4-R Act so long as the tax is generally applicable and does not target railroads within Aabama.” See doc. 22 (citing Norfolk S. Ry. v. Ala. Dep’t of Revenue, 550 F.3d 1306, 1316 (11th Cir. 2008)). The Eleventh Circuit, “bound by the panel’s decision in Norfolk Southern,” affirmed, 350 Fed.Appx. 318 (2009). The Supreme Court reversed, stating that “CSX may challenge Aabama’s sales and use taxes as ‘tax[es] that discriminat[e] against .., rail carrier[s]’ under § 11501(b)(4),” and remanded for further proceedings. 562 U.S. 277, 296, 131 S.Ct. 1101, 179 L.Ed.2d 37 (2011) (“CSX I”) (alterations and ellipsis in original),

Consistent with the remand from the Eleventh Circuit for this court to conduct further proceedings in light of CSX I, 639 F.3d 1040, 1041 (11th Cir. 2011), this court conducted a bench trial in April 2012. After the trial, this court held that: (1) Alabama’s motor carrier exemption was not discriminatory, because motor carriers pay a fuel-excise tax at a rate that is “essentially the. same” as the sales tax rate, doc. 71 at 23; and (2) CSX failed to demonstrate a discriminatory impact from the State’s disparate tax treatment of rail carriers vis-a-vis water carriers, id. at 30. CSX appealed, and the Eleventh Circuit reversed, holding that Alabama could not justify the disparate sales tax treatment by arguing that another tax, such as the motor fuel-excise tax, “level[sj the playing field.” 720 F.3d 863, 871 (11th Cir. 2013).

On the State’s petition, the Supreme Court again agreed to hear the case. — U.S. -, 134 S.Ct. 2900, 189 L.Ed.2d 854 (2014). The Court reversed in part, stating) “[tjhere is simply no discrimination when there are roughly comparable taxes.” — U.S. -, 135 S.Ct. 1136, 1144, 191 L.Ed.2d 113 (2015) (“CSX II”). The Court opined that “an alternative, roughly equivalent tax is one possible justification that renders a tax disparity nondiscriminatory,” and remanded the action for consideration of “whether Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption,” and whether the State’s “other justifications for the water carrier exemption,” which the “Eleventh Circuit failed to examine,” were sufficient. Id.

The Eleventh Circuit remanded the action to this court for further proceedings consistent with CSX II. 797 F.3d 1293, 1294 (11th Cir. 2015). This court conducted a second bench trial, and, with the benefit of the parties’ post-trial briefs, see docs. 154; 155; 156, this matter is ripe again for adjudication,

II. SCOPE OF THE REMAND

Before proceeding to the analysis, this court must address the scope of the remand, because the law of the case doctrine bars this court from considering issues the appellate courts have already decided, even if only by necessary implication. See Burger King Corp. v. Pilgrim’s Pride Corp., 15 F.3d 166, 169 (11th Cir. 1994). However, this court “is free to address, as a matter of first impression, those issues not disposed of oh appeal.” Cox Enters., Inc. v. News-Journal Corp., 794 F.3d 1259, 1271 (11th Cir. 2015).

Relevant here, the Supreme Court directed the Eleventh Circuit to consider “whether Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption,” and to determine the sufficiency of the State’s “alternative rationales [to] justify its [water carrier] exemption.” CSX II, 135 S.Ct. at 1144. At trial, the State presented evidence which, it claims, “prove[s] every theory to deny CSX relief that was mentioned in the Supreme Court’s majority opinion in CSXT II, in Justice Thomas and Ginsburg’s dissenting opinion, and/or by a Justice during oral argument.” Doc. 155 at 7 (emphasis omitted). In other words, the 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; that rail carriers and water carriers are not “similarly situated”; and that CSX has sustained no competitive injury through the State’s exemption of water carriers from the sales tax.

CSX contends that'these issues are outside the scope of remand. CSX’s Br. at 7. Specifically, as to the clear fuel issue, CSX points out that Justice Thomas discussed “self-imposed discrimination” in his dissent, see CSX II, 135 S.Ct. at 1145 (Thomas, J., dissenting) (“The only relevant good exempted from the tax is diesel on which the motor fuel tax has been paid, ... and no provision of law prevents rail carriers from buying such diesel.”); id. at 1149 (“As far as I can tell, the rail carriers use dyed diesel fuel that is exempt from the motor fuel tax—and therefore subject to the sales and use taxes—as a matter of choice rather than necessity.”). According to CSX, the majority’s silence on this issue amounts to “an unmistakable rejection of the dissent’s clear fuel argument that this Court cannot review further.” CSX’s Br. at 14. This court declines to find that the majority decided this issue through silence.

Turning next to the second issue regarding water earners, although the State agrees that the Court impliedly decided that rail carriers and water carriers are similarly situated through its declaration (based on CSX’s “complaint and the parties’ stipulation”) that “differential treatment” vis-á-vis rail carriers and a “comparison class of competitors consisting of motor carriers and water carriers” would “constitute discrimination,” CSX II, 135 S.Ct. at 1143; see State’s Reply Br. at 3, the State nonetheless asserts that this court may decide whether rail carriers and water carriers are actually similarly situated. According to the State, the July 2016 trial “produce[d] substantially different evidence” as to this issue, which triggers an exception to the law of the case doctrine. State’s Br. at 25-26 (quoting Mega Life & Health Ins. Co. v. Pieniozek, 585 F.3d 1399, 1405-06 (11th Cir. 2009)).

The “substantially different evidence” exception “is inapplicable where[,] by the prior appeal[,] the issue is not left open for decision.” See This That & the Other Gift & Tobacco, Inc. v. Cobb County, 439 F.3d 1275, 1285 (11th Cir. 2006) (quoting Nat’l Airlines, Inc. v. Int’l Assoc. of Machinists & Aerospace Workers, 430 F.2d 957, 960 (5th Cir. 1970)). Here, however, in response to the State’s argument that “resolution” was not appropriate, Eleventh Circuit case no. 12-14611, State’s Br. at 16, and the State’s request that the Eleventh Circuit remand the action for this court “to hold hearings and make findings about interstate water carriers,” id. the Circuit remanded. Based on this procedural history, the court finds that the Circuit left the “similarly situated” issue open for decision.

The final issue of contention regarding the scope of the remand centers on the de minimis competition/lack of competitive injury issue. The Supreme Court did not decide this issue. Instead, it remanded this action for examination of the State’s “other justifications for the water carrier exemption.” CSX II, 135 S.Ct. at 1144. Although CSX correctly points out that the State stipulated that trucks and water carriers are CSX’s “principal competitors,” doc. 137 at 3, this stipulation does not equate to a concession that the competition between CSX and water carriers is substantial. See State’s Reply Br. at 11. Therefore, because this court is “free to address, as a matter of first impression, those issues not disposed of on appeal,” Cox, 794 F.3d at 1271, and to avoid another remand in the event the Circuit sides with the State on the scope of the current remand, the court will make findings and enter legal conclusions on this issue based on the evidence.

III. FINDINGS OF FACT

The Alabama Department of Revenue administers and collects taxes within the State, including sales and use taxes. Doc. 137 at 1. The State levies a generally-applicable sales tax on the gross proceeds from “the business of selling at retail any tangible personal property whatsoever” at “an amount equal to four percent....” Ala. Code §§ 40-23-2(1), 40-23-61(a) (1975). Rail carriers pay this sales tax when they purchase dyed diesel. However, when rail carriers purchase clear diesel, like motor carriers, they instead pay a 19$ per gallon fuel-excise tax and are exempted from the sales tax. Trans. 36-38.

From a mechanical standpoint, CSX trains can operate on dyed or clear diesel. Trans. 17, 22, 540. CSX’s fuel suppliers sell both types, and the trucks that deliver CSX’s fuel are equipped to transport either type. Trans. 552. Nonetheless, the use of dyed diesel in railroad locomotives is a “decades”-long industry practice, recognizing a traditional distinction between clear diesel (used for highways) and dyed diesel (used for off-highway purposes). Trans. 532. CSX would encounter various administrative difficulties if it attempted to transition back-and-forth between the two types—based on the fluctuating price of fuel—in an effort to optimize its tax burden. Trans. 526-36.

Motor carriers and water carriers are CSX’s principal competitors in the transportation of property in interstate commerce in Alabama. Doc. 137 at 3. Motor carriers use clear diesel. Id. As a result, the State effectively exempts motor carriers from sales and use taxes on their fuel. Id. Instead, motor carriers pay the 19$ per gallon fuel-excise tax. Id. at 5. On average, clear diesel users (i.e., motor carriers and CSX for its vehicles) and dyed diesel users (ie., rail carriers) paid the following per gallon taxes from January 2007 through February 2016:

State State + Local

Undyed diesel fuel-excise tax 190 230

Dyed diesel sales tax 9.850 23.480

State’s Exs. 1-2. Moreover, in the 114 months between January 2007 and February 2016, the two taxes exceeded each other at an equal rate, ie., 57 times each. State’s Ex. 2,

Water carriers are exempted from both types of taxes for their diesel fuel. Doc. 137 at 3. Instead, water carriers pay a 29.1$ per gallon federal tax on fuel used in a vessel in commercial waterway transportation, with 29.0$ of that amount earmarked for the Inland Waterways Trust Fund. 26 U.S.C. § 4042(b).

In contrast to rail carriers and motor carriers, water carriers impose virtually no financial burden on the State. The federal government funds and performs all river dredging and lock and dam maintenance projects. See State’s Ex. 44 at 73-75; Trans. 63, 96-97, 130-34, 149, 348, 363, 371. Half of the cost of construction and rehabilitation projects on Alabama’s inland waterways is paid out of the Inland Waterways Trust Fund, while funds from the United States Treasury cover the remaining half. 26 U.S.C. § 9506(c); State’s Ex. 44 at 85-89. The State also bears no burden stemming from accidents involving water carriers. Specifically, from 2004 to 2013, no interstate water carrier collided with an Alabama citizen; however, there were 703 “train-involved” automobile accidents in Alabama, resulting in 92 deaths and 316 casualties. State’s Ex. 5 at 26. The Alabama Department of Transportation (“ALDOT”), the Alabama Department of Environmental Management (“ADEM”), and the Alabama Law Enforcement Agency (“ALEA”) expended state funds responding to and investigating these incidents involving rail carriers. Trans. 69-70. The State does not budget funds for commercial water traffic regulation or enforcement. Trans. 124,149.

Lastly, although the parties stipulated that water carriers are one of CSX’s two principal competitors in Alabama, the evidence showed a lack of substantial competition between water carriers and CSX. For example, in 2014, CSX’s top five commodities shipped into or from Alabama were coal (36.7%), minerals (12.1%), agriculture (9.1%), forest (8.9%), and intermo-dal (8.5%). CSX’s Ex. 50 at 5. In the largest category for CSX’s business in Alabama, water carriers offer no competition. Specifically, CSX makes two interstate coal shipments in Alabama: the first from Central Appalachia to Birmingham, Alabama, and the second from Oak Grove, Alabama to Chicago, Illinois. CSX’s Exs. 39, 44; Trans. 645-47, 674-67, 683-849. Water carriers do not haul coal from Central Appalachia to Birmingham, Trans, 694, and CSX only competes with motor carriers to haul coal along that route, Trans. 663, 665. Water carriers also provide no competition for the transportation of coal to Chicago—CSX competes with Norfolk Southern Rahway to haul coal along this route. Trans. 687. The only competition provided by water carriers is in the agricultural products sector, where CSX competes with water carriers to ship between 50,000 and 100,000 carloads of agricultural products per year from Indiana, Ohio, and Illinois to locations in North Alabama. Trans. 597-602, 614-22.

IV. CONCLUSIONS OF LAW

Based on the findings of fact and the relevant law, the court examines the State’s clear fuel argument and the State’s proffered justifications for any purported disparate tax treatment of rail carriers vis-á-vis motor carriers and water carriers, and makes the following conclusions of law.

A. The Alleged Discrimination is Self-Imposed Based on CSX’s Decision to Purchase Dyed Diesel Rather than Clear Diesel for its Trains

It is undisputed that CSX’s locomotives can operate on clear diesel. Moreover, if CSX purchases this fuel, Alabama will subject CSX to the same fuel-excise tax as motor carriers. See Trans. 17, 22, 36-38, 540. Consequently, the State asserts that any purported discrimination in its taxing scheme is self-imposed. CSX contends that the State’s contention is unrealistic because of CSX’s established practice of purchasing dyed fuel and the administrative burdens CSX would encounter in attempting to calibrate its usage of dyed and clear diesel to minimize its tax obligations in Alabama. To support its contention, CSX cites Kraft Gen’l Foods, Inc. v. Iowa Dep’t of Revenue, 505 U.S. 71, 112 S.Ct. 2365, 120 L.Ed.2d 59 (1992), for the proposition that “a state cannot force a taxpayer to conduct his business differently, particularly where the taxpayer’s practices ‘are supported by legitimate business reasons.’ ” See CSX’s Br. at 17. However, because the holding in Kraft is narrower than CSX asserts and addresses taxation of foreign commerce, the court declines to construe Kraft to support a position that it forecloses the State from asserting that CSX can eliminate the purported discriminatory tax if it changed the fuel type it uses for its locomotives. Accordingly, based on the evidence at trial, because CSX can use clear fuel in its trains, and the State does not mandate that CSX use dyed diesel, this court finds that the State has established that its tax schemes for dyed diesel and clear diesel do not discriminate against rail carriers.

To the extent that this ruling exceeds the scope of the remand, for the reasons explained in section B below, the court finds also that motor carriers’ payment of the fuel-excise tax is roughly equivalent to the sales tax on dyed diesel, and that the fuel-excise tax sufficiently justifies any disparate sales tax treatment by the State.

B. The State Provides Sufficient Justification for Exempting Motor Carriers from the Sales Tax

1. The Proper Standard for Comparing the Sales Tax and Fuel-Excise Tax

The court must ascertain as an initial matter what “rough equivalent” means. See CSX II, 135 S.Ct. at 1144 (directing the court on remand to examine “whether Alabama’s fuel-excise tax is the rough equivalent of Alabama’s sales tax as applied to diesel fuel, and therefore justifies the motor carrier sales-tax exemption”). To no surprise, the parties propose different interpretations, with the State contending that “rough equivalent” bears its plain meaning—ie., that the State only has to show that the fuel-excise tax approximates the sales tax, see State’s Br. at 7-9, and CSX countering that the Court’s use of the phrase “rough equivalence” is a directive to apply the “compensatory tax doctrine,” CSX’s Br. at 21. The court disagrees with CSX.

The Court has summarized the “compensatory tax doctrine” as follows:

Since [Henneford v.] Silas Mason[, 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937)], our cases have distilled three conditions necessary for a valid compensatory tax. First, “a State must, as a threshold matter, ‘identify ... the [intrastate tax] burden for which the State is attempting to compensate.’” Oregon Waste [Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93,] 103, 114 S.Ct. 1345, 128 L.Ed.2d 13 [ (1994) ] (quoting Maryland v. Louisiana, 451 U.S. 726, 758, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981)). Second, “the tax on interstate commerce must be shown roughly to approximate—but not exceed—the amount of the tax on intrastate commerce.” Oregon Waste, 511 U.S. at 103, 114 S.Ct. 1345. “Finally, the events on which the interstate and intrastate taxes are imposed must be ‘substantially equivalent’; that is, they must be sufficiently similar in substance to serve as mutually exclusive ‘proxies’ for each other.” Ibid. (quoting Armco, Inc. v. Hardesty, [467 U.S. 638, 643, 104 S.Ct. 2620, 81 L.Ed.2d 540 (1984)]).

Fulton Corp. v. Faulkner, 516 U.S. 325, 332, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996). Although CSX II contains no citations to Faulkner, Silas Mason, Oregon Waste Systems, Maryland, or Hardesty, and the Supreme Court did not include the words “compensatory” or “complementary” in its opinion, CSX insists that the Court prescribed application of the three-part test by citing Gregg Dyeing Co. v. Query, 286 U.S. 472, 479-80, 52 S.Ct. 631, 76 L.Ed. 1232 (1932). See CSX’s Br. at 21.

Turning briefly to Gregg Dyeing, the case involved a bleachery operator in South Carolina who purchased its gasoline from out-of-state dealers. Gregg Dyeing, 286 U.S. at 475, 52 S.Ct. 631. South Carolina exacted a sales tax on the bleachery’s purchases, while exempting other taxpayers’ out-of-state gasoline purchases. Id. at 473, 52 S.Ct. 631. The bleachery sued under the Commerce and Equal Protection Clauses. Id. The Court, noting that other taxpayers that purchased or produced gasoline within South Carolina paid the tax at the same rate in relation to gasoline consumption, found no constitutional violation:

The state court answered the contention as to discrimination against interstate commerce by referring to other statutes of the State imposing a tax upon the sale and use of gasoline within the State.... But appellants question the right to invoke other statutes to support the validity of the Act assailed. To stand the test of constitutionality, they say, the Act must be constitutional “within its four corners,” that is, considered by itself. This argument is without merit. The question of constitutional validity is not to be determined by artificial standards. What is required is that state action, whether through one agency or another, or through one enactment or more than one, shall be consistent with the restrictions of the Federal Constitution. There is no demand in that Constitution that the State shall put its requirements in any one statute.

Id. at 479-80, 52 S.Ct. 631.

In CSX II, the Supreme Court cited Gregg Dyeing only once, after this sentence: “Our negative Commerce Clause cases endorse the proposition that an additional tax on third parties may justify an otherwise discriminatory tax.” CSX II, 135 S.Ct. at 1143. The Court’s negative Commerce Clause jurisprudence (including Faulkner, Silas Mason, Oregon Waste Systems, Maryland, and Hardesty) addresses scenarios in which a state unjustifiably attempts to “discriminate against or burden the interstate flow of articles of commerce,” by means of “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.” Oregon Waste, 511 U.S. at 98-99, 114 S.Ct. 1345 (emphasis added). This court does not believe this doctrine is implicated here, where the Alabama tax scheme at issue draws no distinction between in-state and out-of-state interests in its exemption of motor carriers from the sales tax rail carriers pay for their dyed fuel. Therefore, in light of the Court’s failure to explicitly call for application of the compensatory tax doctrine, and because negative Commerce Clause jurisprudence would not provide a useful framework for comparing rail carriers and motor carriers, this court believes the citation to Gregg Dyeing stands for the basic, generalized proposition that courts should screen an allegedly discriminatory tax in context with other aspects of a state’s tax code.

For these reasons, the court will proceed according to the plain language of the remand order, and analyze whether the fuel-excise tax paid by motor carriers is “roughly equivalent” to the sales tax paid by rail carriers for dyed diesel.

2. Application of the “Rough Equivalence” Standard

In a minor departure from this court’s 2012 opinion, see doc. 71 at 24, the court is persuadéd by the State’s argument that the relevant comparison is State taxes, rather than State and local taxes. As the State puts it, “the only ‘act’ Congress precluded Defendants from doing in section (b)(4) was to ‘impose another tax that discriminates,’ ” State’s Br. at 5, and “allowing a local government to levy a tax is not the same as imposing the tax,” State’s Br. at 5 (emphasis in original). Because no local governmental entities are defendants in this particular lawsuit, and the State has merely allowed such entities, in their discretion, to levy additional taxes, the court concludes that State tax statistics provide the relevant comparison for purposes of this casé. See State’s Reply Br. at 16 (“[Tjhe State Defendants do not ‘impose’ the local sales taxes; local officials do. These local officials are independent actors who must be (and have been) sued as independent defendants under the 4-R Act.”), Narrowing the inquiry accordingly, during a recent nine-year period, motor carriers paid 19