Ninth Circuit Rules that Oregon Tax Discriminated Against BNSF in Violation of 4-R Act

On July 8, the United States Court of Appeals for the Ninth Circuit issued a decision affirming a district court ruling in favor of BNSF Railway Company (BNSF) regarding the railroad’s challenge to Oregon’s tax on intangible personal property as a discriminatory tax on railroads in violation of the Railroad Revitalization and Regulatory Reform Act (4-R Act).  BNSF Ry. Co. v. Or. Dep’t of Revenue, 965 F.3d 681 (9th Cir. 2020).

Under the 4-R Act, a state may not “unreasonably burden and discriminate against interstate commerce” in certain ways, including “[imposing] another tax that discriminates against a rail carrier providing transportation subject to the jurisdiction of the Board under [49 U.S.C. §§ 10101 et seq.].”  49 U.S.C. § 11501(b)(4). 

            In Oregon, all real and tangible personal property (but not intangible personal property) that is situated within the state is subject to assessment and taxation by county assessors.  965 F.3d at 684.  However, for certain industries, including railroads, property is centrally taxed by the Oregon Department of Revenue (Department), and these industries must pay taxes on their tangible and intangible personal property.  Id. 

            In 2010, BNSF acquired approximately $14.8 billion in accounting goodwill as a consequence of Berkshire Hathaway’s acquisition of BNSF.  Id. at 685.  Intangible personal property includes accounting goodwill in Oregon, but the Department did not include the $14.8 billion goodwill in its assessment valuations for BNSF from 2011 to 2016.  Id. at 684-85.  In 2017, the Department did include the $14.8 billion goodwill in its assessment valuations, in addition to $637 million of other intangible personal property, which resulted in an increase of BNSF’s assessed value and tax liability by approximately 30 percent.  Id. at 685.  BNSF filed suit in October 2017, seeking “a declaratory judgment that Oregon’s property tax on its intangible personal property violated 49 U.S.C. § 11501(b)(4) and injunctive relief barring the Department from assessing and collecting taxes on BNSF’s intangible personal property.”  Id.

The case was assigned to a magistrate judge.  Id.  After a hearing, the magistrate judge issued Findings and Recommendations that a summary judgment motion filed by the Department should be granted, and a summary judgment motion filed by BNSF should be denied.  Id.  The district judge did not adopt the magistrate judge’s Findings and Recommendations, and instead, granted BNSF’s summary judgment motion and denied the Department’s motion.  Id.  In February 2019, “the district court entered judgment granting BNSF’s requested declaratory and injunctive relief but stayed the judgment pending appeal pursuant to the parties’ stipulation.”  Id.

            On appeal, the Department made three primary arguments.  First, the Department argued that Supreme Court precedent forecloses railroads’ ability to challenge any property tax scheme under 49 U.S.C. § 11501(b)(4).  Id. at 686.  Relying on language in CSX Transportation, Inc. v. Alabama Department of Revenue, 562 U.S. 277 (2011), the Department asserted that “the Supreme Court has concluded Congress fully defined all available property tax challenges in §§ 11501(b)(1)-(3) and has therefore definitively foreclosed any challenges to discriminatory property taxes under § 11501(b)(4).”  Id. at 687.  The court of appeals rejected the Department’s interpretation of CSX, noting that “[e]very other federal court that has faced this issue agrees” that railroads may challenge discriminatory property taxes under 49 U.S.C. § 11501(b)(4).  Id. at 688.

            The Department’s second argument was that “its intangible personal property tax is ‘generally applicable’ and that BNSF's challenge is no more than a demand for exemptions offered to other taxpayers,” similar to the unsuccessful challengers in Department of Revenue of Oregon v. ACF Industries, 510 U.S. 332 (1994).  965 F.3d at 690 (emphasis added).  The court of appeals concluded that BNSF’s case was not a challenge to exemption-based discrimination.  Id.  As the district court had stated, Oregon’s property tax law had two systems: “one that taxes intangible personal property and one that does not tax intangible personal property.”  Id.  According to the court of appeals, the plain language of the statute did not support the Department’s characterization of exemption-based discrimination.  Id.  Furthermore, the court explained that “BNSF’s challenge would lose no steam even if [the court] could accept the Department’s strained statutory construction” because the challenge would fit within an exception under ACF.  Id.

            The Department’s third argument was that BNSF had not otherwise proven discrimination.  Id. at 686.  A tax discriminates under 49 U.S.C. § 11501(b)(4) when it treats similarly situated groups differently without sufficient justification for the difference in treatment.  Id. at 691.  The court of appeals stated that while BNSF and the other centrally assessed taxpayers were clearly treated differently than locally assessed commercial and industrial taxpayers, the court needed to determine if the latter were the appropriate comparison class, and then assess whether the discriminatory treatment is sufficiently justified.  Id.  The court determined that Oregon commercial and industrial taxpayers were the appropriate comparison class.  The court also considered and rejected the Department’s characterization of Oregon’s intangible personal property tax as generally applicable, as well as the Department’s vague suggestion that the differential treatment of centrally assessed companies is justified by the underlying design and purpose of central assessment itself.  Id. at 693.  Thus, the court concluded that “Oregon’s tax on BNSF’s intangible personal property unlawfully discriminates against a railroad in violation of 49 U.S.C. § 11501(b)(4).”  Id. 

The court of appeals further noted that the record did not reveal why the Department chose to include BNSF’s intangible personal property in its assessment valuations after multiple years of not doing so, and “these facts make it very difficult for the Department to credibly argue that its tax treatment does not discriminatorily target BNSF.”  Id. at 693 n.6.

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