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Union Pacific RR Co. v. Minn. Dep't. of Revnue: TAX | RR - fuel sales/use tax discriminates against railroads

United States Court of Appeals
No. 06-3397
Union Pacific Railroad Company; *
Soo Line Railroad Company, doing *
business as Canadian Pacific Railway, *
Appellants, *
v. **
Appeal from the United States
Minnesota Department of Revenue, * District Court for the
Sued as Department of Revenue of the * District of Minnesota.
State of Minnesota; Ward Einess, *
Appellees. *
______________________ **
Multistate Tax Commission, *
Amicus Curiae *
Amicus on Behalf of *
Appellee. *
Submitted: March 15, 2007
Filed: November 6, 2007
Before WOLLMAN, JOHN R. GIBSON, and MURPHY, Circuit Judges.
1Transportation fuel purchased for use in motor vehicles on public roadways in
Minnesota is subject to a petroleum excise tax of twenty cents per gallon. MINN.
STAT. 296A.07, 296A.08 (2007). Air carriers pay an excise tax between one-half
cent and five cents per gallon, depending on the amount of transportation fuel
purchased in a year. MINN. STAT. 296A.09 (2007), 296A.17 (1999).
WOLLMAN, Circuit Judge.
Union Pacific Railroad Company and Soo Line Railroad Company (the
Railroads) appeal from the district courts grant of summary judgment in favor of the
Minnesota Commissioner of Revenue, the Minnesota Department of Revenue, and the
State of Minnesota (hereinafter collectively referred to as the State). We reverse.
Minnesota imposes a sales or use tax of 6.5% on certain items purchased or
consumed in the state. MINN. STAT. 297A.62, 297A.63 (2007). The Railroads are
subject to these taxes when they purchase or consume transportation fuel in
Minnesota, as are several of the Railroads competitors barges and Great Lakes
ships. Two of the Railroads other competitors, motor carriers and air carriers, are
exempt from such taxes because they pay an excise tax on their transportation fuel
purchases.1 MINN. STAT. 297A.68 subd. 19(1) (2007). Because of this exemption,
the Railroads brought this action, which alleges that Minnesotas statutory scheme for
assessing a sales or a use tax on transportation fuel discriminates against the Railroads
in violation of section 306 of the Railroad Revitalization and Regulatory Reform Act
of 1976 (the 4-R Act), now codified at 49 U.S.C. 11501 (2006).
In granting summary judgment, the district court noted that two of the
Railroads competitors barges and Great Lakes ships are subject to sales and use
tax on fuel, and that the Railroads other two competitors motor carriers and air
carriers while not subject to a sales or use tax, are subject to an excise tax on fuel.
The district court concluded that because railroads are subject to the exact same tax
as at least two of their competitors, and because all competitors within the comparison
class are subject to a tax on fuel, . . . Minnesotas taxing scheme does not
discriminate against the railroads in violation of the 4-R Act.
We review the grant of summary judgment de novo, applying the same
standard as the district court. Burlington Northern and Santa Fe Ry. Co. v. State Tax
Commn, 188 F.3d 1039, 1041 (8th Cir. 1999). Summary judgment is proper when,
viewed in the light most favorable to the non-moving party, there is no genuine issue
of material fact and the moving party would be entitled to judgment as a matter of
law. Id.
The 4-R Act was enacted in part to restore the financial stability of the railway
system of the United States. Department of Revenue v. ACF Indus., Inc., 510 U.S.
332, 336 (1994) (internal quotations omitted). One of the ways Congress chose to
achieve this objective is found in 49 U.S.C. 11501, which prohibits States (and
their subdivisions) from enacting certain taxation schemes that discriminate against
railroads. ACF Indus., Inc., 510 U.S. at 336. Specifically, 11501(b)(1)-(3)
prohibit the imposition of higher assessment ratios or tax rates upon rail
transportation property than upon other commercial and industrial property. ACF
Indus., Inc., 510 U.S. at 337. Section 11501(b)(4) of the 4-R Act is broader and
prohibits the imposition of another tax that discriminates against a rail carrier
providing transportation. ACF Indus., Inc., 510 U.S. at 337. It is this provision that
the Railroads contend bars the State from assessing a sales or use tax on the
transportation fuel used by them.
In determining whether a tax impermissibly discriminates against a rail carrier
in violation of 11501(b)(4), a court must first determine the class of taxpayers with
whom the railroads are to be compared. In Burlington Northern, Santa Fe Ry. Co. v.
Lohman, 193 F.3d 984, 985 (8th Cir. 1999), we held that the competitive mode
comparison class, which is comprised of the railroads direct competitors, was the
proper comparison class for ascertaining whether Missouris sales and use tax scheme
violated 11501(b)(4). The Railroads and the State agree that for purposes of this
appeal the competitive mode class is the proper comparison class and that it consists
of motor carriers, air carriers, barges, and Great Lakes ships.
As recounted above, the fact that motor carriers and airlines are subject to an
excise tax on fuel formed in part the basis of the district courts conclusion that
Minnesotas sales and use tax scheme does not violate the 4-R Act. The Railroads
contend that our decision in Lohman precluded the district court from considering the
excise tax the motor carriers and airlines pay on fuel in making its determination. We
agree. In Lohman, we were faced with the same issue present here, namely, whether
an excise tax on fuel paid by the railroads competitors in Missouri should be taken
into account when determining whether Missouris sales and use taxes are
discriminatory under the 4-R Act. Id. at 986. Relying on our decision in Trailer Train
Co. v. State Tax Commn, 929 F.2d 1300 (8th Cir. 1991), we noted in Lohman that
a states overall tax structure need not be examined under the 4-R Act.
Consequently, we refused to consider the other fuel taxes paid by the competitors,
stating that we look only at the sales and use tax with respect to fuel to see if
discrimination has occurred. Lohman, 193 F.3d at 986. Likewise here, we conclude
that the district court should have confined its analysis to only the sales and use taxes
on transportation fuel.
The question remains whether the district court erred when it determined that,
because barges and ships pay the same sales and use taxes on fuel, Minnesotas taxing
scheme is not discriminatory. The district court examined the rationale set forth in
Lohman, in which we found Missouris sales and use taxes on transportation fuel to
be discriminatory. See id. The district court noted that in Lohman, the railroads were
the only member of the competitive class subject to Missouris sales and use taxes on
transportation fuel, whereas in Minnesota railroads, barges, and Great Lakes ships are
2We agree with the district court that the fact that the State, for whatever reason,
has not been collecting the taxes due from the Great Lakes ships has no bearing on
whether those ships are subject to the tax.
all subject to the same sales and use taxes.2 The district court concluded that because
two members of the competitive class are also subject to the taxes, the States taxing
scheme is distinguishable from that in force in Missouri and thus does not fall within
Lohmans proscription.
We respectfully disagree with the district courts analysis, for our holding in
Lohman is clear: only those taxes imposed upon the Railroads are taken into account
in determining whether those taxes are discriminatory. Id. True enough, within the
competitive mode here, barges and ships are also subject to the same tax imposed
upon the Railroads, but also true is the fact that two other members of the competitive
class motor carriers and air carriers are not, and it is this fact that requires us to
conclude that our holding in Lohman governs this case.
The judgment is reversed, and the case is remanded to the district court for the
entry of an appropriate judgment.


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