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March 30, 2017

For More Information, contact:
Mike Lewis (334) 353-2199
Steven T. Marshall
Joy Patterson (334) 242-7491
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Alabama Attorney General

Ruling Could Return More than $10 million to State Schools
(MONTGOMERY) – Attorney General Steven T. Marshall and Revenue
Commissioner Julie P. Magee announced that the federal District Court for the
Northern District of Alabama has dismissed CSX Transportation’s lawsuit challenging
the application of Alabama’s four percent sales tax to CSX’s purchase of diesel fuel, a
ruling that could return more than $10 million in unpaid taxes to Alabama’s Education
Trust Fund.
Beginning in 2008, four railroad companies sued the Alabama Department of
Revenue and its commissioner, claiming that the department’s application of the State’s
general four percent sales tax to the railroads’ purchase of diesel fuel discriminated
against railroads because neither trucks nor barges who transport goods across state
lines pay the four percent sales tax on their purchases of diesel fuel. The railroads
sought an order barring the State from applying the sales tax to future purchases of
diesel fuel, plus the return of millions of dollars the companies had already paid. The
lead case brought by CSX Transportation has been the subject of two opinions by the
U.S. Supreme Court, the second of which ordered the June 2016 trial that resulted in
Wednesday’s opinion dismissing CSX’s lawsuit.
In its opinion, the district court ruled that Alabama is justified in not applying its
four percent sales tax to trucking companies’ purchases of diesel fuel because trucks
pay Alabama’s more expensive 19 cents per gallon motor fuels tax, a tax that railroad
companies could choose to pay instead of the four percent sales tax. The district court
ruled that Alabama was justified in not applying its four percent sales tax to interstate
barges, who pay a 29.1 cents per gallon federal fuel tax, because doing so might violate
the federal Constitution, thus exposing the State to litigation brought by the barge
companies. The court also found that CSX was not injured by Alabama’s exemption for
interstate barges because the barges against whom CSX competes purchase their diesel
fuel outside Alabama.

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Attorney General Marshall and Commissioner Magee both stated that they are
pleased with the Court’s opinion.
Attorney General Marshall said, “I hope that Wednesday’s opinion signals the end of
nine years of litigation that has resulted in millions of dollars being withheld from
Alabama’s public schools. Everyone in this State benefits from stronger schools, so
everyone, including railroad companies, needs to pay their fair share of taxes to support
our schools.”
Commissioner Magee added, “The Court’s decision vindicates the State’s
imposition of sales tax on the railroad’s purchase of fuel and clearly shows that the State
never discriminated against CSX.”
In light of Wednesday’s ruling, which CSX may appeal, the State will seek to
recoup the sales taxes that CSX has withheld since filing its lawsuit, an amount that is
estimated to exceed $10 million. The cases initiated by the three remaining railroad
companies have been stayed pending resolution of CSX’s lawsuit, and the amounts of
withheld taxes involved in those cases are not presently available.
Attorney General Marshall commended Assistant Attorneys General Laura
Howell and Winfield Sinclair and Special Deputy Attorney General Corey Maze for
their successful work on the 2016 trial and Solicitor General Andrew Brasher for his
work on the successful 2015 appeal. The Attorney General also commended attorneys
Margaret McNeill and Keith Maddox of the Alabama Department of Revenue for their
assistance in the case.