Alabama diesel tax violates 1976 rail act, U.S. circuit court rules

The U.S. Circuit Court for the Eleventh Circuit on July 1 ruled that the state of Alabama's sales and use tax on diesel purchased by railroads violates the Railroad Revitalization and Regulatory Reform Act of 1976, according to global tax services firm Ryan L.L.C.

The court considered the case "CSX Transportation vs. Alabama Department of Revenue," which came before the court a second time. An earlier decision held that a rail carrier could not challenge its competitors' exemptions from sales and use tax under the act, but that decision was reversed by the U.S. Supreme Court in February 2011, Ryan officials said in a press release.

Citing the rail act, CSX challenged the state's imposition of a sales and use tax on diesel purchased by railroads. CSX officials claimed the tax is discriminatory because fuel purchased by interstate motor and water carriers is exempt from the tax.

The circuit court essentially shifted the burden to the state to prove a "sufficient justification" for taxing rail carriers differently, Ryan officials said.

"Because the state failed to do so, the circuit court held that the tax on diesel purchased by rail carriers is discriminatory in violation of the … act," they said.

The case was remanded to the U.S. District Court for the Northern District of Alabama, which was directed to enter declaratory and injunctive relief in favor of CSX.