(The following story by Sydney P. Freedberg appeared on the St. Petersburg Times website on August 12.)
ST. PETERSBURG, Fla. — For at least a decade, railroad giant CSX Corp. has avoided paying taxes on several Florida properties because of mistakes by state and local governments.
In 2006 alone, the unpaid tax bill could be as much as $1.9-million.
State officials are trying to shut down what they now call an elaborate tax-avoidance scheme.
CSX, a Fortune 500 firm based in Jacksonville, vehemently denies ducking its tax obligations and says the state Department of Revenue is misinterpreting the law.
At the heart of the dispute are three cargo terminals in Tampa, Orlando and Jacksonville, where containers are transferred between trucks and railcars.
CSX, Florida’s largest railroad, says the company subsidiary that runs these terminal operations is a trucking business, not a railroad subject to tax assessment by the state Department of Revenue.
The state accepted that argument for years. That meant the terminals and other assets should have been assessed by county property appraisers. The state never told the counties, however, so the counties assumed the state was assessing the terminals.
Result: Hundreds of acres apparently went untaxed or undertaxed since at least 1996.
Michael G. Zeigler, a tax administrator with the Revenue Department, acknowledged the goof during sworn testimony in a lawsuit three years ago.
“Let me make sure I understand, Mr. Zeigler,” said Gregory Fletcher, a lawyer for CSX. “Is it your testimony that for the 20 years prior to 2003, you had been doing it wrong?”
“That’s exactly right, Mr. Fletcher,” Zeigler replied.
The three counties where the terminals are located blame the state. The Hillsborough property appraiser cautions against pointing fingers.
“We’re all the government,” said Tim Wilmath, Hillsborough’s director of valuation. “We’re truly all responsible to make sure the property is assessed correctly. … Shame on us for not checking more closely.”
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CSX, which says it pays more than $10-million in property taxes in Florida, claims “every inch” of its property is taxed.
The company says the decision to treat the so-called intermodal terminals as a trucking business has been common practice for 15 years in Florida and accepted in every other state.
Yet Florida is now the only state trying to erroneously reclassify the trucking company as part of the railroad, says CSX spokesman Gary Sease.
The company contends that the trucking operation leases property from the railroad and that those leases are part of the assessed value of the railroad. That means the railroad subsidiary already pays taxes on the property, CSX says.
While homeowners have their property assessed by a county, rail companies in Florida and elsewhere historically have had their assets assessed by the state. That’s because so much rail property, such as tracks and trains, crosses state and county lines.
In Florida, that task falls to Zeigler, a tax specialist with the Revenue Department for more than 20 years.
Instead of valuing a track, a terminal or each railcar separately, Florida, like many states, calculates the value of each railroad company nationwide, using variables such as income.
Next, Zeigler uses factors such as track miles to calculate Florida’s share of that value and how much railroad property lies within each county. Then, each county is notified of its assessment.
County officials, meanwhile, assess all land, equipment and buildings that are owned by rail companies but not used in running the railroads. They also send out tax bills.
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Zeigler says he became aware in the mid 1990s that some CSX assets might be going untaxed, and not just in Florida.
The topic came up at conferences where he and tax administrators from other states swapped war stories.
Questions centered on a CSX subsidiary called CSX Intermodal Inc., formed from two companies that had been federally certified as “motor-carriers.” The designation meant the new subsidiary was a trucking company and not subject to federal railroad regulations.
As a result, lawyers argued that CSX Intermodal should not be taxed by state or local governments as railroad property.
While skeptical, Zeigler and the Revenue Department decided not to pursue it. They also did not notify the counties that the three Florida terminals might be going untaxed or undertaxed.
Revenue officials cite several reasons for not tackling CSX Intermodal earlier: They didn’t have enough evidence; they relied too much on the company’s financial reports to a federal regulatory agency; they worried about a costly court battle with a corporate titan.
CSX has a powerhouse of high-priced legal and accounting talent to help lower its taxes. Once run by former Treasury Secretary John Snow, it spends millions on lobbyists and is a major political campaign contributor.
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It wasn’t until 2002 that Florida Auditor General William Monroe turned a spotlight on railroad assessments.
His auditors found, among other things, that the Revenue Department sometimes reduced rail companies’ values without explanation or didn’t check information supplied by the firms.
“The lack of explanations and documentation and the use of unverified data in the appraisals bring into question the fairness and equity of the department’s appraisals of railroad companies,” the audit said.
Less than a year later, the Revenue Department finally decided to reclassify CSX Intermodal as part of the railroad.
That, and the addition of several other assets, pushed CSX’s statewide railroad property tax bill to about $14-million – nearly $6-million more than 2002.
CSX Transportation, the company’s main railroad-operating subsidiary, filed a federal lawsuit saying Florida was charging the company higher rates than those for other commercial and industrial property.
In an October 2004 settlement, CSX won a key concession: Florida agreed that the intermodal subsidiary would not be considered part of the railroad.
CSX agreed to pay about $9.7-million in railroad property taxes in 2003 – about $1.5-million more than the year before. In the next two years, the company fared better. Its 2004 tax bill was about $9.1-million; in 2005 it was about $8.7-million.
Once the settlement expired, the Revenue Department tried again.
This time it appraised the intermodal subsidiary as a separate railroad company. It would have to pay about $1.9-million in taxes to 40 counties, including about $250,000 to Hillsborough.
On top of that, the main railroad subsidiary would have to pay an estimated $13.2-million in taxes statewide. That put CSX’s property tax bill for 2006 at about $15.1-million, a 73 percent increase over the previous year.
The company responded with a two-front legal attack.
In federal court, CSX Transportation, the main railroad company, pressed its claim that Florida’s assessments are excessive and discriminatory.
In state court, CSX Intermodal, the trucking operation, argued it shouldn’t be assessed for taxation by the Revenue Department because it doesn’t meet the definition of a railroad company.
Furthermore, the company contended that it does pay taxes on the terminal equipment in Tampa, Orlando and Jacksonville. And it said that while CSX Intermodal operates in only three counties, Florida is trying to tax it in 40 counties.
Florida counters that CSX Intermodal is “engaged in a complicated business planning and accounting scheme to avoid or evade” taxes in Florida and other states. That scheme deprives local governments of revenues needed to help pay for schools, police, roads and other services, Florida says.
Both cases are ongoing.
(Times researcher Carolyn Edds and computer assisted reporting specialist Connie Humburg contributed to this report.)