WASHINGTON - All aboard!
Ever since 1976, when Congress passed the Railroad Revitalization and Regulatory Reform Act, states have chugged along on the assumption that they could provide property tax exemptions not available to railroads without violating the law's prohibition against imposing discriminatory taxes on rail concerns.
But, last year, the states' chorus of "I think I can, I think I can" came to a screeching halt after the U.S. Court of Appeals for the Ninth Circuit ruled that Oregon's property tax system unlawfully discriminates against railroads.
The reason: Oregon exempts from taxation various types of property, such as bees, fur-bearing animals, and farm equipment, but offers no exemption for railroad cars.
The case is now before the Supreme Court, which will hear oral arguments in the dispute today.
The Ninth Circuit's ruling ultimately turned on a semantic leap, but the Supreme Court's disposition of the case more likely will be narrowly drawn.
The railroad revitalization law, known commonly as the 4R Act, forbids assessment of rail property at a higher ratio of its true market value than the ratio at which other commercial and industrial property is assessed; forbids levy of a tax based on such a disparate assessment; and forbids higher tax rates for rail property than for other commercial and industrial property.
Finally, the law forbids states from imposing "another tax that discriminates against a rail carrier."
ACF Industries Inc. and seven other companies that lease railroad cars to railroads and shippers brought suit in federal district court charging that Oregon's imposition of a property tax on their railroad cars constituted unlawful discrimination. Although challenges to state taxes generally must be brought in state court under the federal Tax Injunction Act, the 4R Act allows railroads to challenge some taxes in federal court.
The companies, known as carlines, alleged that Oregon's property tax, with its exemption of various types of non-railroad property, is "another tax" that discriminates against railroads.
The federal district court rejected the challenge, noting, among other things, that Oregon had not engaged in "backdoor discrimination" by "exempting all taxpayers except railroads."
But the Ninth Circuit, in a ruling April 8, 1992, reversed the district court, holding that "any exemption not also available to railroads violates the statute," the 4R Act.
The appeals court said that although the railroad revitalization law implicitly allows states to impose property taxes on railroads, so long as they are fairly assessed compared with other taxpayers, the law's provision prohibiting "another tax" that discriminates against railroads "must be read broadly" to make sure states do not do indirectly what the other portion of the law prohibits them from doing directly.
The appeals court concluded that the federal law is violated by any exemption given to other taxpayers but not to railroads.
State governments are concerned that, if allowed to stand, the Ninth Circuit's ruling will seriously under-mine their autonomy and revenue raising powers. The ruling could require states to eliminate all property tax exemptions - or grant railroads broad immunity from normal property taxes, an approach that could cause serious revenue drains. An adverse ruling could lead to the loss nationwide of an estimated $100 million in annual tax revenues.
Handicapping how the justices will dispose of cases is always a hazardous venture. But state officials may take heart from the fact that in recent years the court has shown increasing sympathy for municipal interests and has shown a greater willingness to protect their powers.
Using what they call a "plain meaning" analysis, the justices have made clear that when Congress decides to preempt traditional state powers, it must be explicit. In a 1992 case, Cipollone v. Liggett Group Inc., the court said that when statutory language is ambiguous, the justices will not "infer a scope of preemption beyond that which clearly is mandated by Congress' language."
Because the phrase "another tax" in the 4R Act on its face appears to refer to a tax other than a property tax, the use of a plain meaning analysis probably would lead the justices to uphold Oregon's tax system.
That would be music to the ears of state officials, who would then be assured that their little economic engines that could are back on track.