GENERAL AM. TRANSP. v. LOUISIANA TAX COM'N

Citation Codes

Equivalent Citations

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Docket Number

No. 81-3283.

Attorney(S)

V. Elaine Boyle, Asst. Atty. Gen., Baton Rouge, La., for defendants-appellants. Victor A. Sachse, III, Claude F. Reynaud, Jr., Baton Rouge, La., for plaintiffs-appellees.

Judges

David William Dyer
Jerre Stockton Williams

Acts

Transportation — Interstate Transportation — Operations — Car Service — Rail — Criteria
Transportation — Interstate Transportation — Operations — Car Service — Rail — Compensation And Practice

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Smart Summary

Factual and Procedural Background

The Louisiana Tax Commission imposed a higher ad valorem tax rate on private railroad-car companies by classifying their railroad specialty cars as "public service property," assessed at twenty-five percent of fair market value, rather than as "commercial and industrial property," which is assessed at fifteen percent. The private railroad-car companies, including General American Transportation Corp., challenged this tax treatment, alleging it violated the Railroad Revitalization and Regulatory Reform Act (4-R Act), 49 U.S.C. § 11503, which prohibits discriminatory taxation against rail transportation property. The district court enjoined the Commission from imposing the higher tax rate, and the Commission appealed the judgment to the Fifth Circuit.

Legal Issues Presented

Whether the Louisiana Tax Commission is required by article VII, section 18 of the Louisiana Constitution to tax private railroad-car companies at a higher rate than other commercial or industrial property.
Whether private railroad-car companies’ specialty cars, provided under leasing arrangements to rail carriers regulated by the Interstate Commerce Commission (ICC), constitute "rail transportation property" protected from discriminatory taxation under 49 U.S.C. § 11503.
Whether the district court erred in granting injunctive relief to private railroad-car companies by treating their leased rolling stock as protected rail transportation property under the 4-R Act.

Arguments of the Parties

Defendants-Appellants (Louisiana Tax Commission)

The Commission contended it was constitutionally required to levy the higher tax rate on private railroad-car companies under article VII, section 18 of the Louisiana Constitution as amended in 1979.
The Commission conceded that railroad rolling stock owned by railroads and rolling stock leased directly to railroads in pooling arrangements are protected under the 4-R Act.
However, the Commission argued that rolling stock owned by private car companies under leasing arrangements to shippers should not be considered "rail transportation property" protected by the Act.

Plaintiffs-Appellees (Private Railroad-Car Companies)

The car companies argued that their specialty railroad cars, leased to rail carriers, are integral and necessary parts of rail transportation services regulated by the ICC.
They claimed that the discriminatory tax assessment violated 49 U.S.C. § 11503, which prohibits state tax actions that assess rail transportation property at higher ratios than other commercial and industrial property.
The companies maintained that the plain meaning of "owned or used" in the statute includes their leased rolling stock and that the ICC’s broad regulatory authority over leasing arrangements supports this interpretation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Louisville N.R. Co. v. Louisiana Tax Commission, 498 F. Supp. 418 (M.D.La. 1980)	Article VII, section 18 of the Louisiana Constitution violates the 4-R Act when applied to property directly owned by rail carriers.	Supported the district court's finding that discriminatory tax treatment of railroad property violates the 4-R Act.
Ogilvie v. State Board of Equalization, 657 F.2d 204 (8th Cir. 1981)	Interpretation of the 4-R Act’s prohibition on discriminatory taxation of rail transportation property.	Referenced as authority supporting protection of rail transportation property from discriminatory tax assessments.
Trailer Train Co. v. State Board of Equalization, 511 F. Supp. 553 (N.D.Cal. 1981)	Application of the 4-R Act to railroad property and tax assessments.	Used to affirm the principle that discriminatory tax treatment violates the 4-R Act.
Atchison Topeka and Santa Fe Railroad Co. v. Lennen, 640 F.2d 255 (10th Cir. 1981)	Legislative purpose of 49 U.S.C. § 11503(b) to prevent discriminatory taxation burdens on interstate carriers.	Supported the court’s understanding of the Act’s purpose to prohibit discriminatory state tax burdens on rail carriers.

Court's Reasoning and Analysis

The court began by recognizing the regulatory framework under which rail carriers must provide necessary equipment, often through leasing specialty cars from private companies. It noted that the 4-R Act prohibits state tax assessments that impose a higher ratio of assessed value to true market value on rail transportation property than on other commercial or industrial property, as such discrimination burdens interstate commerce.

The Commission conceded protection under the Act for railroad rolling stock owned by railroads and those leased directly in pooling arrangements but disputed coverage for leased rolling stock under leasing agreements with shippers. The court focused on the statutory phrase "owned or used," interpreting "used" broadly to include property put into service by rail carriers.

The court cited the ICC’s definition of rail transportation property as including all property comprising the entire operating unit devoted to rail transportation, regardless of ownership. Since private railroad-car companies’ specialty cars are integral to rail transportation and regulated leasing arrangements exist under ICC authority, the court found these cars fall within the scope of protected rail transportation property.

Given the legislative purpose of the 4-R Act to prevent discriminatory tax burdens on interstate carriers, the court concluded that denying private car companies protection would undermine this purpose. Therefore, the district court’s injunction against the discriminatory tax treatment was affirmed.

Holding and Implications

The court AFFIRMED the district court’s judgment enjoining the Louisiana Tax Commission from taxing private railroad-car companies’ specialty cars at a higher rate than other commercial or industrial property.

The direct effect of this decision is to extend protection under the 4-R Act to private railroad-car companies’ leased rolling stock, ensuring they are not subject to discriminatory taxation. The opinion does not establish new precedent beyond affirming the application of existing statutory protections to this class of property.

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GENERAL AMERICAN TRANSPORTATION CORPORATION, ET AL., PLAINTIFFS-APPELLEES, v. LOUISIANA TAX COMMISSION, ET AL., DEFENDANTS-APPELLANTS.

JOHNSON, Circuit Judge:

The Louisiana Tax Commission (Commission) appeals from a judgment which enjoins it from taxing private railroad-car companies at a higher rate than it assesses other commercial or industrial property. The Commission contends it is required to levy the higher tax rate by article VII, section 18 of the Louisiana Constitution, as amended in 1979. The district court, however, granted injunctive relief to General American Transportation Corp. and other private railroad-car companies on the grounds that the Louisiana Constitution imposed discriminatory tax treatment in violation of the Railroad Revitalization and Regulatory Reform Act (4-R Act), 49 U.S.C. § 11503.

I. Background

Rail carriers regulated by the Interstate Commerce Commission (ICC) are required to provide facilities and equipment that are reasonably necessary to furnish safe and adequate car service on American railroads. 49 U.S.C. § 11121. A major part of this obligation is provision of specialty cars such as tank cars, refrigerator cars, and hopper cars. Rather than directly purchase this equipment, rail carriers typically develop leasing arrangements with private railroad-car companies that own specialty cars. In this manner, carriers avoid the capital expense of purchasing this specialized equipment and the additional operating expense of cleaning and returning these cars for further shipments.

The plaintiffs in the instant case are private railroad-car companies that own railroad specialty cars. Through what are termed "leasing" agreements, the private car companies provide most of their rolling stock on a monthly basis to shippers, who in turn pay the railroads to carry these cars over the railroad tracks in interstate commerce. The car companies then charge the railroads a mileage rate, which amount is then credited to the shipper. In essence, both the shipper and the railroad pay the car companies for the use of their rolling stock.

To a lesser extent, some of the car companies provide specialty cars directly to the railroads on a daily basis through what are known as "pooling" arrangements.

The car companies' railroad cars, like other Louisiana property, are subject to an ad valorem tax based on a percentage of the property's value. The percentage differs according to the character of the property. "Commercial and industrial property" is assessed at fifteen percent of its fair market value by article VII, section 18(B) of the Louisiana Constitution. "Public service property" is assessed at twenty-five percent of its fair market value. Louisiana has classified railroad specialty cars owned by private car companies as "public service property," assessed at the rate of twenty-five percent of their fair market value. LSA-R.S. 47:1851 (West Supp. 1982).

LSA-R.S. 47:1851 M recites as follows:

M. "Public service properties" means the immovable, major movable, and other movable property owned or used but not otherwise assessed in this state in the operations of each airline, electric membership corporation, electric power company, express company, gas company, pipeline company, railroad company, telegraph company, telephone company and water company. For each barge line, towing company or private car company, only the major movable property owned or used but not otherwise assessed in this state in interstate or interparish operations shall be considered as public service property.

II. Discriminatory Tax Treatment

The car companies sought injunctive relief against the Commission, alleging that such an assessment violates 49 U.S.C. § 11503, enacted by Congress in 1978 to prohibit tax discrimination against rail transportation property. Section 11503(b)(1) specifically declares that state action to assess "rail transportation property" at a value that has a higher ratio to the true market value than the ratio of assessed value of other commercial and industrial property, unreasonably burdens interstate commerce. Section 11503(c) allows injunctive relief to owners of rail transportation property in the following instance:

[When] the ratio of assessed value to true market value of rail transportation property exceeds by at least 5%, the ratio of assessed value to true market value of other commercial and industrial property in the same assessment jurisdiction.

Section 11503(a)(3) broadly defines this class of property:

(3) "rail transportation property" means property, as defined by the Interstate Commerce Commission, owned or used by a rail carrier providing transportation subject to the jurisdiction of the Commission under subchapter I of Chapter 105 of this Title.

The Commission concedes the following: (1) railroad rolling stock owned by the railroads is "rail transportation property" protected against discriminatory tax assessment rates by section 11503; (2) railroad rolling stock owned by private car companies but leased directly to the railroads in "pooling" arrangements is also "rail transportation property" protected by the Act. The Commission, however, alleges that the district court erred in treating the rolling stock of private car companies under "leasing" arrangements as "rail transportation property."

In Louisville N.R. Co. v. Louisiana Tax Commission, 498 F. Supp. 418 (M.D.La. 1980), the district court has already held that article VII, section 18 of the Louisiana Constitution violates the 4-R Act when applied to property directly owned by rail carriers. See also Ogilvie v. State Board of Equalization, 657 F.2d 204 (8th Cir. 1981); Trailer Train Co. v. State Board of Equalization, 511 F. Supp. 553 (N.D.Cal. 1981).

The only issue before the Court is whether privately owned specialty cars are equipment "owned or used" by rail carriers regulated by the ICC. The phrase "owned or used" implies an expansive scope of coverage. The plain meaning of "use" is "to put into action or service or to avail oneself of." Pursuant to section 11503(a)(3), the ICC has also defined rail transportation property broadly:

Rail transportation property is all property and other assets, irrespective of ownership that comprise the entire operating unit devoted to rail transportation service.

49 C.F.R. § 1201(2i)(33).

The rolling stock of private car companies is clearly an integral and necessary part of the "entire operating unit devoted to rail transportation services." Under 49 U.S.C. § 11122, the ICC is authorized to regulate the lease arrangements between the private companies and the shippers. The ICC also regulates the tariffs that shippers pay to railroads and that the railroads pay to the private car companies. Without a leasing arrangement for specialty cars, rail carriers would be unable to meet their obligations under 49 U.S.C. § 11121.

The legislative purpose of the Act is to prevent a state from unfairly burdening interstate carriers regulated by the ICC. In view of this comprehensive regulatory scheme, it makes little sense to deny private car companies the same protection against discriminatory taxation already provided to other railroad transportation property. Accordingly, the judgment of the district court, 511 F. Supp. 610, is affirmed.

The legislative purpose of 11503(b) is extensively discussed in Atchison Topeka and Santa Fe Railroad Co. v. Lennen, 640 F.2d 255 (10th Cir. 1981).

AFFIRMED.