Court To Decide Railroad Tax Dispute

By Kevin Russell
on May 29, 2007 at 3:40 pm

Today the Supreme Court agreed to decide whether railroads can challenge states’ methods of valuing their assets for tax purposes under a federal statute that prohibits states from discriminating against railroads in imposing property taxes on their in-state operations. The case is CSX Transportation, Inc. v. State Board of Equalization, No. 06-1287.

The case involves the interpretation of a provision of the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. 11501. That statute bars states from “[a]ssess[ing] rail transportation property at a value that has a higher ratio to the true market value of the rail transportation property than the ratio that the assessed value of other commercial and industrial property in the same assessment jurisdiction has to the true market value of the other commercial and industrial property.”

In order to apply this statute, one needs to know the “true market value” of a railroad. This would be relatively easy if railroads were like automobiles – you could look up the railroad’s true market value in the Blue Book or by surveying the prices paid for them in a competitive market. But railroads are not fungible and are not sold very often, so figuring out their value – whether in order to enforce this statute or to impose a property tax – requires making some guesses and assumptions about what the market would pay for the property if it were, in fact, for sale.

This case began when the State of Georgia changed its method of valuing petitioner CSX’s railroad operations from one method to another. The new method estimated the value of the railroad’s property to be significantly higher than it had been under the old method. As a result, CSX’s property tax went up by almost $2 million.

CSX brought suit under the federal statute. The district court, later affirmed by the court of appeals, decided that it did not have authority to second-guess the State’s choice of valuation methods. All the court could do was to decide whether the State has misapplied the valuation method it had chosen and whether the ratio between the assessed value and true market value (as calculated under the state’s chosen valuation method) was higher for the railroad than it was for other commercial property in the state.

The Supreme Court will now decide whether that view of the statute was correct. The case will be briefed over the summer and argued in the fall.