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Supreme Court: Alabama may try to justify Alabama Railroad tax

FILE - This Jan. 25, 2012, file photo, shows the U.S. Supreme Court Building in Washington. The Supreme Court is hearing arguments on March 4, 2015, in a major test of President Barack Obama’s health overhaul that threatens insurance coverage for millions of people. The justices are meeting Wednesday to try to determine whether the law makes people in all 50 states eligible for federal tax subsidies to cut the cost of insurance premiums.(AP Photo/J. Scott Applewhite, File)

FILE – This Jan. 25, 2012, file photo, shows the U.S. Supreme Court Building in Washington. The Supreme Court is hearing arguments on March 4, 2015, in a major test of President Barack Obama’s health overhaul that threatens insurance coverage for millions of people. The justices are meeting Wednesday to try to determine whether the law makes people in all 50 states eligible for federal tax subsidies to cut the cost of insurance premiums.(AP Photo/J. Scott Applewhite, File)

WASHINGTON (AP) — The Supreme Court ruled Wednesday that Alabama should have the chance to justify a fuel sales tax that it assesses on railroads but not on competitors in the trucking and barge industries.

The justices ruled 7-2 against CSX Transportation Inc., which had challenged the state’s assessment of a 4 percent sales tax whenever the company purchased diesel fuel.

The railroad company argued that the tax was illegal under a federal law barring taxes that discriminate against railroads. Alabama officials said the tax system was fair because truckers already pay a different 19-cent per gallon tax on diesel fuel.

The 11th U.S. Circuit Court of Appeals had ruled in favor of CSX, but the Supreme Court reversed. Justice Antonin Scalia said the appeals court was wrong in refusing to consider Alabama’s justification. The high court sent to case back to the appeals court so the state can explain its rationale, both as to the trucking and the barge industries.

“We do not decide whether Alabama’s tax regime subjects railroads and their competitors to roughly equivalent taxes, and therefore justifies railroads’ different treatment,” Scalia said. “We leave that to the Eleventh Circuit to decide in the first instance.”

Justice Clarence Thomas filed a dissenting opinion saying he would have reversed the appeals court and ruled in favor of Alabama. He was joined by Justice Ruth Bader Ginsburg.

Alabama and more than a dozen other states with similar tax schemes stand to lose millions in revenue if the railroad tax is declared illegal. A loss for the state means about $5 million less in annual sales tax revenue, much of that devoted to public schools. The state says it would also be on the hook to refund more than $10 million.

The Obama administration argued that Alabama could justify the different treatment of railroads by showing that its competitors are subject to “alternative and comparable” state taxes not levied against railroads. The Justice Department had urged the justices to send the case back to the lower courts for that determination.

 

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