(The Associated Press circulated the following story by Phillip Rawls on December 12.)
MONTGOMERY, Ala. — A federal appeals court has sided with Alabama in a lawsuit filed by Norfolk Southern Railway Co. that could have wiped out several million dollars in taxes that support public education.
Norfolk Southern claimed the state’s 4 percent sales and use tax on diesel fuel used by railroads is discriminatory because the railroads’ competition, the trucking industry, doesn’t pay the same tax.
But in a 3-0 decision Thursday, the 11th U.S. Circuit Court of Appeals in Atlanta said the sales and use tax is not discriminatory because it does not single out railroads. The court also noted that trucking companies pay other taxes on fuel that railroads don’t pay.
Margaret Johnson McNeill, attorney for the Alabama Department of Revenue, said the appeals court’s ruling was significant because similar suits had been filed by the other two big railroads operating in Alabama: CSX Corp. of Jacksonville, Fla., and BNSF Railway Co. of Fort Worth, Texas. Those cases had been put on hold pending a ruling from the 11th Circuit in the Norfolk Southern case.
According to court records, Norfolk Southern has about one-third of the railroad market in Alabama and pays the state about $4.5 million annually in sales and use taxes on fuel. The tax revenue is set aside for public schools and colleges, which are already dealing with budget cuts due to declining state tax collections.
“It’s a pretty big deal that we won,” McNeill said.
At Norfolk Southern’s headquarters in Norfolk, Va., spokeswoman Susan Terpay said the railroad had no comment.
Norfolk Southern had sought a preliminary injunction to stop the Alabama Department of Revenue from collecting the tax. But the appeals court said such a step was unwarranted because Norfolk Southern had no likelihood of success with its lawsuit. The appeals court’s decision upheld a previous decision in federal district court in Birmingham.
Norfolk Southern had argued that the fuel taxes paid by the trucking industry go to maintain and improve highways, which helps that industry, but railroad’s sales and use taxes go for public education rather than directly helping the railroad industry.
The appeals court said how the state uses the revenue is irrelevant to the discrimination issue. It also said highways are built for the benefit of the general public, not just trucking companies, while train tracks are privately owned.
“Alabama must pay for the creation, maintenance, and repair of its roads, and must, in some fashion, obtain funds for such creation, maintenance, and repair. But Alabama has no constitutional discretion to allocate funds to private property,” the court said.