CSX Transportation v. Georgia State Board of Equalization

The Supreme Court has ruled that the federal Railroad Revitalization and Regulatory Reform Act allows railroads to prove in court that state tax processes discriminated against them.

The unanimous ruling in CSX Transp. Inc. v. Georgia State Bd. of Equalization, No. 06-1287, vindicated the supremacy of the federal effort to help the railroad industry over the right of the states to autonomy in taxing. The statute at issue, known as the 4-R Act, specifically prohibited states from taxing railroad property -- typically owned by out-of-state companies -- at a discriminatorily high rate. This prohibition was an exception to the generally broad discretion given states to tax as they wish.

The case arose in 2002, when Georgia's tax appraiser adopted a new method of determining CSX's market value for purposes of levying taxes. The new method resulted in a $2 million jump in the railroad's tax bill in Georgia.

CSX sued Georgia for violating the 4-R Act. The Act provides that if the ratio between the assessed value of railroad property and the true market value of that property is five percent higher than the analogous ratio for other commercial property within a state, the district court may enjoin the tax.

CSX introduced expert evidence that Georgia had used flawed methodology to value its property, and urged it to accept its expert's valuation as the "true market value."

The district court concluded that Georgia's methods were rational, and that he was therefore required to defer to that valuation for purposes of calculating the railroad-to-other property ratio to determine discrimination. The Eleventh Circuit affirmed that conclusion.

The Supreme Court reversed in an opinion written by Chief Justice John Roberts. It held that courts would be unable to complete the statutorily required assessed-to-true market value ratio without reaching a true market value. Courts cannot blindly accept the states' market valuations without potentially endorsing the type of discriminatory tax practices that the 4-R Act was designed to thwart, it reasoned.

Georgia had argued that if railroads were allowed to contest even widely accepted state valuation practices, courts would be required to referee so-called "battles of the experts." The Court held that district judges routinely weigh competing expert evaluations in financial cases, and were well equipped to do so in rail tax challenges.

Further, the Court rejected Georgia's argument that court review of its valuation methods were an infringement on its sovereignity. Tax valuation methods are not, the Court observed, considered expressions of state policy, but rather technical tools employed by disparate state employees.

On May 29, 2007, the U.S. Supreme Court accepted review in the case.