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October Term, 2007

December 4, 2007

Today the Supreme Court issued one decision, described below, of interest to the business community.

CSX Transportation, Inc. v. Georgia State Board of Equalization, No. 06-1287 (previously discussed in the May 29, 2007 docket report).  The Railroad Revitalization and Regulatory Reform Act ("4–R Act"), 90 Stat. 31 (1976), now codified at 49 U.S.C. § 11501, prohibits states from, among other things, "[a]ssess[ing] rail transportation property at a value that has a higher ratio to the [property’s] true market value * * * than the ratio" between the assessed and true market values of other commercial and industrial property in the same taxing jurisdiction. Id. § 11501(b)(1). In Burlington Northern Railroad Co. v. Oklahoma Tax Commission, 481 U.S. 454 (1987), the Court held that this provision allows railroads to challenge the way that a state applied its chosen valuation method to railroad property. In a unanimous decision today, the Court extended Burlington Northern, holding that railroads could also challenge the state’s choice of valuation methods.

CSX Transportation, Inc. ("CSX") is a freight rail carrier with property in the State of Georgia. In 2002, a new state appraiser chose to apply a valuation technique different from that of his immediate predecessors. His method assigned CSX a market value 47 percent higher than his predecessor’s 2001 assessment. As a result, CSX’s ad valorem tax bill from the state was $6.5 million--41 percent higher than the $4.6 million bill from 2001. In district court, CSX submitted testimony from its own appraiser, arguing that the state’s valuation methodologies were flawed and resulted in a discriminatory tax rate against railroad property. The Northern District of Georgia held that the 4–R Act does not permit railroads to challenge a state’s choice among reasonable valuation techniques. See 448 F. Supp. 2d 1330, 1341 (N.D. Ga. 2005). The Court of Appeals for the Eleventh Circuit affirmed. See 472 F.3d 1281, 1289 (2006).

A unanimous Court, in an opinion by Chief Justice Roberts, reversed the Court of Appeals. The Court held that the 4–R Act requires district courts independently to determine the “true market value” of railroad property; otherwise, the courts would be unable to perform the required comparison between railroad property assessment rates and assessment rates on “commercial and industrial property in the same jurisdiction.” Slip op. at 5–6. The Court then reasoned that courts determining market value cannot ignore the state’s methodology in this analysis: “Valuation is not a matter of mathematics,” but a “craft” that allows appraisers discretion to “employ appraisal techniques that routinely overestimate the market worth of railroad assets.” Id. at 6, 7. The Court then rejected two of Georgia’s arguments. It first brushed aside Georgia’s argument that courts have no advantage over state appraisers in choosing the proper market value, noting that “true market value may well not be a single, precise number, but Congress obviously believed it was susceptible to judicial inquiry and that some approximations were better than others.” Id. at 8. Second, it rejected Georgia’s claim that there is an important connection between valuation methodology and state taxing policy; such an argument was belied by the fact that individual appraisers in Georgia make independent determinations regarding valuation methods. Id. at 10. Further, to the extent that policies are enacted through valuation methodologies, Congress’s explicit direction to the courts to examine the state’s valuation choices is not inconsistent with principles of federalism. See id. at 9–11.

Today's decision is of significant interest to states and businesses making tax decisions affected by the provisions of the Railroad Revitalization and Regulatory Reform Act. It indicates the Court’s willingness to read the 4–R Act literally to uphold district court power, even when such power results in the direct examination of administrative state taxation decisions.

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