Argument preview: CSX v. Ga. State Bd. of Equalization

The Tax Injunction Act, 28 U.S.C. 1341, prohibits federal courts from interfering with state tax issues. However, in response to economic problems in the railroad industry, Congress in 1976 enacted the Railroad Revitalization and Regulatory Reform Act (the 4-R Act), which allows railroads to challenge a state’s method for determining the market value of a railroad. Railroads can obtain relief under the 4-R Act only if the ratio of assessed value to true market value is at least five percent higher than a similar ratio for other commercial property.

At issue in the case is Georgia’s valuation for property owned in the state by petitioner CSX. In the state’s view, the railroad’s property should be taxed at a value of $7.8 billion; by contrast, an appraiser hired by the railroad – using a different methodology – assessed the property at a maximum of $6 billion.

CSX challenged the valuation in federal district court in Georgia. The district court held that Georgia had not discriminated against CSX and that “the 4-R Act does not generally allow a railroad to challenge the state’s chosen methodology” as long as the state’s methods “are rational and were not chosen for the purpose of discriminating against” the railroads.

On appeal, a divided panel of the Eleventh Circuit affirmed. The majority agreed with the district court that “railroads may not challenge state valuation methodologies.” Judge Fay dissented from that holding, concluding that “a railroad should be allowed to challenge the method used in an attempt to prove that the result of such a method was not the true market value of its property.”

CSX filed a petition for certiorari, which the Supreme Court granted on May 29, 2007.

In its brief on the merits, petitioner CSX first argues that the Eleventh Circuit’s holding is inconsistent with the very purpose of the 4-R Act – viz., “to remedy tax discrimination by state and local authorities.” It is also inconsistent with the statute itself, which specifically outlines “a precise formula for measuring discrimination” based on true market value – a calculation that courts are frequently called upon to make in other scenarios.

Georgia counters that, pursuant to “well-established principles of federalism,” the 4-R Act should be construed narrowly and should not be “extended ‘beyond its evident scope.’” Turning to the text of the statute, the state emphasizes that nothing clearly indicates that Congress intended to “allow a railroad to challenge the true market value of its assets determined under a correctly applied, reasonable valuation method chosen by the state.” Moreover, the state posits, a ruling in the railroad’s favor would turn each dispute over valuation into a “battle of expert witnesses.” The state decries such a solution as “worse than the supposed problem,” as it “would turn district courts into federal boards of equalization.”

The United States filed an amicus brief in support of CSX. It argues that “[t]here is nothing sacrosanct about a State’s use of a particular methodology in determining a railroad’s ‘true market value.’” Furthermore, the United States notes, there is “no clear line of demarcation between the State’s choice of a ‘method’ and its ‘application.’” It emphasizes that the different “methods” relied on by the parties’ dueling experts are essentially just different iterations of the same method, “but with slightly different assumptions about petitioner’s future income.” Finally, the United States echoes CSX’s argument that, in other circumstances, federal courts do determine the true market value of a property and thus are perfectly capable of doing so in cases such as this one.