BNSF Railway Company v. Alameda County

• Court: District Court, N.D. California
• Decided: April 8, 2020
• Docket: 4:19-cv-07230
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BNSF RAILWAY COMPANY, Case No. 19-cv-07230-HSG

8 Plaintiff, ORDER GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY 9 v. INJUNCTION

10 ALAMEDA COUNTY, et al., Re: Dkt. No. 35 11 Defendants.

12 13 Pending before the Court is Plaintiff BNSF Railway Company’s (“BNSF”) motion for a 14 preliminary injunction (Dkt. No. 35 (“Mot.”)), for which briefing is complete. Dkt. Nos. 43 (“SD 15 Opp.”), 44 (“Counties’ Opp.”), 53 (“Reply”). BNSF requests a preliminary injunction against 16 fifteen counties (“Defendants,” or “Defendant Counties”) under 49 U.S.C. § 11501(b)(3), which 17 prohibits applying higher tax rates to railroad property. On March 12, 2020, the Court held a 18 hearing on the motion. Dkt. No. 58. The Court GRANTS the motion for preliminary injunction. 19 I. BACKGROUND 20 A. The 4-R Act 21 The 4-R Act (now codified at 49 U.S.C. § 11501 (“Section 11501”)) was passed in 1976 to 22 “restore the financial stability of the railway system.” Burlington N. R.R. v. Oklahoma Tax 23 Comm’n, 481 U.S. 454, 457 (1987). This was, in part, because railroads “are easy prey for State 24 and local tax assessors,” as they are “nonvoting, often nonresident, targets for local taxation” that 25 cannot easily remove themselves from the locality. W. Air Lines, Inc. v. Board of Equalization of 26 State of S.D., 480 U.S. 123, 131 (1987). Congress declared that state and local taxation schemes 27 that discriminate against rail carriers “unreasonably burden and discriminate against interstate 1 rates, and provides that state and local governments may not “levy or collect an ad valorem tax on 2 rail transportation property at a tax rate that exceeds the tax rate applicable to commercial and 3 industrial property in the same assessment jurisdiction.” Id. 4 B. California Property Taxation 5 California’s system of taxation is, in a word, complicated. California law imposes an ad 6 valorem (i.e., value-based) property tax on all property in the State, unless exempt, in proportion 7 to its assessed value. Cal. Const. Art. XIII, § 1. Taxation is a three-step process. First, the value 8 of taxable property is assessed. Next, the applicable tax rate is computed, typically expressed as a 9 percentage of assessed value. Finally, the tax is levied and collected from the taxpayer. 10 Most property in California, including general “commercial and industrial property,” is 11 “locally assessed,” meaning that county assessors determine the assessed value of the property for 12 tax purposes. See Declaration of Alan M. Annis, Dkt. No. 35-1, (“Annis Decl.”) ¶ 7. California 13 classifies and taxes the bulk of property in the state as either “secured” or “unsecured.” See id. ¶ 14 8. The “secured roll” consists of most state-assessed property and that portion of locally assessed 15 property for which the taxes are secured by a lien on real property of a value sufficient to pay the 16 taxes. See Cal. Rev. & Tax. Code § 109. The “unsecured roll” consists of all other property, such 17 as personal property and possessory interests in tax-exempt land. Id. 18 Every year, each Defendant County’s board of supervisors determines the tax rates to be 19 applied in the county for locally assessed property and for unitary property, applying different 20 statutory formulas. Cal. Rev. & Tax. Code § 2151. Defendants’ respective auditors apply these 21 applicable tax rates to the assessed value shown on the assessment rolls. Cal. Rev. & Tax. Code § 22 2152. Then, Defendants’ respective tax collectors collect the taxes on unitary property at the 23 unitary rate determined by each county. Cal. Rev. & Tax. Code §§ 2605, 2610.5. Locally 24 assessed property, including commercial and industrial property, is assigned to a particular “Tax 25 Rate Area” within each county, based on the property’s location. See Annis Decl. ¶ 11. 26 For property on the secured tax roll, the annual ad valorem tax rate for each Tax Rate Area 27 is established as (a) a 1% general tax levy, typically used to fund general government services, 1 any voter-approved bonded indebtedness issued by the county or by the local agencies, school 2 entities, and special districts serving that Tax Rate Area. Cal. Rev. & Tax. Code § 93 (“Section 3 93”), enacted per Cal. Const. Art. XIIIA, § 1 (“Proposition 13”). This latter portion of the Section 4 93 tax rate above the 1% base levy is known as the “debt service component.” Under Proposition 5 13, real property must be valued at its 1975 fair market value (as shown on the 1975-76 6 assessment roll), or thereafter, the fair market value when purchased, newly constructed, or a 7 change of ownership has occurred after the 1975 assessment (i.e., the occurrence of an “assessable 8 event”). Cal. Const., art. XIII, § 2(a). 9 The debt service component is the sum of separately calculated rates for each local agency, 10 school entity or special district with outstanding debt. To calculate the elements of the debt 11 service component, the County first determines how much revenue it will need to make debt 12 service payments for the upcoming year for the voter-approved debt of the local agency, school 13 entity, or special district. See Cal. Gov. Code § 29100. Next, the County determines the portion 14 of assessed property values on the secured roll subject to the voter-approved debt issued by the 15 local agency, school entity or special district (i.e., the property located within the boundaries of 16 each local entity). Id. The County then calculates the percentage of those total property values 17 that will produce the necessary revenues to service the debt issued by that local entity, after 18 allowances for delinquencies and annual changes to the roll, among other factors. Id. The debt 19 service component in each Tax Rate Area is the sum of these calculated percentages for every 20 local agency, school entity or special district serving that Tax Rate Area. The debt service 21 component is combined with the 1% base levy to compute the total property tax rate in each Tax 22 Rate Area for property on the secured roll. 23 The property tax rate for property on the unsecured roll is the secured roll tax rate for that 24 Tax Rate Area for the previous year. Cal. Rev. & Tax. Code § 2905. This rule is consistent with 25 the separate requirement that unsecured taxes are due each year before the County calculates the 26 secured tax rate for that year. See Cal. Rev. & Tax. Code § 2922. 27 In contrast, the State Board assesses the value of certain utility and railroad property 1 Plaintiff’s property using the principle of unit valuation, under which all of a taxpayer’s assets, 2 wherever located, are valued as a unit, and that unitary value is then allocated among particular 3 taxing jurisdictions. See Annis Decl. ¶ 6. State-assessed property that is valued under the 4 principle of unit valuation is also referred to as “unitary property.” See Cal. Rev. & Tax. Code §§ 5 723, 723.1. Unit taxation provides a way to value and tax property in businesses for which the 6 component parts of the business are valuable when considered as a whole, but worth less when 7 considered in isolation. See ITT World Commc’ns, Inc. v. City & Cnty. of S.F., 37 Cal. 3d 859, 8 863 (Cal. 1985). For example, “ten miles of [railroad] track . . . ‘would have a questionable value, 9 other than as scrap, without the benefit of the rest of the system as a whole.’” Am. Airlines, Inc. v. 10 Cnty. of San Mateo, 12 Cal. 4th 1110, 1126 (Cal. 1996) (internal citations and brackets omitted). 11 C. Taxation Applicable to Railways 12 Plaintiff’s primary argument is that the tax rate applicable to its property is calculated 13 under a different formula than the Section 93 tax rate for locally-assessed commercial and 14 industrial property, resulting in a tax rate higher than the Section 93 tax rate. According to 15 Plaintiff, first, under Cal. Rev & Tax. Code § 100.11, the value attributable to the state-assessed 16 unitary property of a regulated railway company is generally allocated to a single countywide Tax 17 Rate Area in each county in which the property is located. The “unitary” tax rate to be applied to 18 these countywide tax rate areas is established in accordance with the formula in Cal. Rev. & Tax. 19 Code § 100(b)(2) (“Section 100”). Cal. Rev. & Tax. Code § 100.11(a)(2)(B). 20 Section 100 (like Section 93) includes the base 1% tax levy. However, the additional 21 unitary debt service component under Section 100 is calculated by taking the County’s previous 22 year’s unitary debt service rate and multiplying it by the percentage change between the two 23 preceding fiscal years in the County’s ad valorem debt service levy for the secured roll (excluding 24 unitary and operating nonunitary debt service levies). See Mot. at 8. Plaintiff contends that this 25 formula has caused the Section 100 unitary tax rate to diverge from the Section 93 secured and 26 unsecured tax rates. In particular, when a County’s debt service needs increase, the secured and 27 unsecured rates will not rise if property values also rise and keep pace with inflation. But under 1 depends on the absolute dollar amount of debt service. 2 The State Board calculates and publishes the annual “average rate of general property 3 taxation” in each California county. Annis Decl. ¶¶ 24–26, 32. The State Board computes this 4 average tax rate by dividing (a) the sum of the total ad valorem property tax levies in each county 5 for each year, by (b) the total assessed value of all property in that county for that same year. See 6 Cal. Rev. & Tax. Code § 11403. For the 2019-20 tax year, using the methods described above, 7 Plaintiff contends that the Defendant Counties have levied property taxes at the unitary rate 8 applicable in their respective assessment jurisdictions. Below are the alleged differences between 9 the unitary rate applied to Plaintiff’s property and the Section 11501 “benchmark rate”: 10 2019-20 2019-20 Plaintiff Section 11501 11 County Unitary Rate Benchmark Rate 12 Alameda 2.5187% 1.241% Contra Costa 1.6865% 1.148% 13 Fresno 1.370408% 1.181% 14 Kern 1.611299% 1.24% 15 Kings 1.326084% 1.087% Madera 1.203169% 1.089% 16 Merced 1.4109014% 1.088% 17 Orange 1.28173% 1.064% 18 Plumas 1.11652% 1.089% 19 Riverside 1.76133% 1.164% San Bernardino 1.3645% 1.144% 20 San Diego 1.62331% 1.142% 21 San Joaquin 1.6922% 1.145% 22 Stanislaus 1.38011% 1.103% Tulare 1.4002% 1.113% 23 See Annis Decl. ¶33.1 24 25 1 The average rate difference for the Defendant Counties for the 2019-2020 fiscal year is only 26 0.38%, while the median difference is 0.29%. Differences in prior years are generally even smaller. See Narciso Decl., ¶ 10 & Ex. 7. With these smaller differences, Defendants are correct 27 that it is all the more important for Plaintiff to meet its burden of demonstrating that it has II. LEGAL STANDARD 1 The prohibition on tax rate discrimination is enforceable through an action for equitable 2 relief in federal court. In enacting Section 11501, “Congress … believed that a federal court 3 remedy for carriers subject to discriminatory taxation was necessary because state courts were not 4 providing them with a plain, speedy, and efficient remedy.” Trailer Train Co. v. State Bd. Of 5 Equalization, 697 F.2d 860, 866 (9th Cir. 1983). Congress thus included in Section 11501 “a 6 procedural component which authorizes victims of discrimination to seek injunctive relief in 7 federal court.” Id. This provision specifically empowers federal courts to “grant such mandatory 8 or prohibitive injunctive relief, interim equitable relief, and declaratory judgments as may be 9 necessary to prevent, restrain, or terminate any acts in violation of [Section 11501],” 10 notwithstanding 28 U.S.C. § 1341. Id. at 869 & n.16; see 49 U.S.C. § 11501(c). 11 Plaintiff contends that a preliminary injunction under Section 11501 is not governed by the 12 traditional equitable criteria of likelihood of success, irreparable harm, balance of hardships, or 13 public interest. See Mot. at 5 (citing Trailer Train, 697 F.2d at 869). Instead, because Section 14 11501 specifically contemplates interim equitable relief, a preliminary injunction must issue 15 “[w]here the trial court finds reasonable cause to believe that a violation of Section [11501] has 16 been, or is about to be, committed.” Burlington N. R. Co. v. Dep’t. of Revenue of State of Wash., 17 934 F.2d 1064, 1074 (9th Cir. 1991); BNSF Ry. v. Tenn. Dep’t of Revenue, 800 F.3d 262, 268 (6th 18 Cir. 2015) (“[A] railroad seeking injunctive relief under the 4-R Act need only demonstrate that 19 there is ‘reasonable cause’ to believe a violation of the 4-R Act has occurred or is about to 20 occur.”). 21 Defendants disagree, and contend that the Court should instead apply the traditional 22 equitable criteria. Defendants believe that the Ninth Circuit’s decisions in Burlington and Trailer 23 Train (as well as other circuit court decisions) misapplied—or failed to apply—the Supreme 24 Court’s decision in Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982), and instead incorrectly 25 applied the Tenth Circuit’s standard in Atchison, T. & S.F. Railway Co. v. Lennen, 640 F.2d 255, 26

27 state (ECF No. 51 ¶ 10)—that the tax rates set forth in the chart are the tax rates levied on Plaintiff 1 259-61 (10th Cir. 1981), the first instance in which the “reasonable cause” standard was applied to 2 an alleged 4-R Act violation. 3 Notwithstanding any arguments Defendants may wish to preserve for potential en banc 4 consideration on appeal, the Ninth Circuit has clearly decided this question. See Burlington N., 5 934 F.2d at 1074 (“Issuance of preliminary injunctive relief in Section [11501] cases is not 6 governed by the traditional equitable criteria applicable in actions between private litigants . . . .”); 7 Trailer Train, 697 F.2d at 869 (“The standard requirements for equitable relief need not be 8 satisfied when an injunction is sought to prevent the violation of a federal statute which 9 specifically provides for injunctive relief. . . . Section [11501] clearly falls within this exception 10 because its subsection (c) specifically authorizes a district court to grant injunctive relief to 11 prevent a violation of the statute.”). This Court is bound to apply that clear holding unless the 12 “circuit authority is clearly irreconcilable with the reasoning or theory of intervening higher 13 authority.” Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003). The Court finds that no 14 intervening authority permits it to disregard the “reasonable cause” standard set out by the Ninth 15 Circuit in Burlington and Trailer Train.2 Accordingly, the Court applies that standard, and will 16 issue a preliminary injunction if there is reasonable cause to believe that a violation of the 4-R Act 17 has occurred, is occurring, or will occur. 18 III. ANALYSIS 19 A. Commercial and Industrial Property 20 The plain language of Section 11501(b)(3) prohibits levying “an ad valorem property tax 21 on rail transportation property at a tax rate that exceeds the tax rate applicable to commercial and 22 industrial property in the same assessment jurisdiction.” Section 11501(a)(2) defines “assessment 23 jurisdiction” as “a geographical area in a State used in determining the assessed value of property 24 for ad valorem taxation.” Section 11501(b)(3) recognizes that “tax-rate variation” is improper 25

26 2 Defendants assert that Trailer Train neither cites nor acknowledges the Supreme Court’s ruling in Romero-Barcelo, presumably (according to Defendants) because Trailer Train was argued and 27 submitted on March 10, 1982, while Romero-Barcelo was not decided until April 27, 1982. See 1 taxation of railroad property. Trailer Train, 697 F.2d at 865–66. The relevant section states: 2 (b) The following acts unreasonably burden and discriminate against interstate commerce, and a State, subdivision of a State, or authority 3 acting for a State or subdivision of a State may not do any of them: * * * (3) Levy or collect an ad valorem property tax on rail 4 transportation property at a tax rate that exceeds the tax rate applicable to commercial and industrial property in the same 5 assessment jurisdiction. 6 49 U.S.C. § 11501 (emphasis added). Defendants, as counties of California, are legal subdivisions 7 of the State of California, (Cal. Const. Art. XI, § 1), and thus are subject to Section 11501(b)(3). 8 And Plaintiff’s unitary property in California is “rail transportation property” within the meaning 9 of Section 11501(b)(3) and is, therefore, entitled to the protection of the statute. See Declaration 10 of Judy A. Cummings, Dkt. No. 35-2 ¶ 4. 11 The disputed element of Section 11501(b)(3) is the comparison to “the tax rate applicable 12 to commercial and industrial property.” See Mot. at 2. In order to prove a violation of Section 13 11501(b)(3), Plaintiff must demonstrate that Defendants are levying or collecting an ad valorem 14 property tax at a rate that exceeds the rate applicable to commercial and industrial property located 15 in the same assessment jurisdiction as Plaintiff’s property. 49 U.S.C. § 11501(b)(3). 16 The Ninth Circuit established the framework for that comparison in Trailer Train. 17 Plaintiffs there sued to enjoin the collection of a state tax on private railroad cars because the 18 applicable tax rate was higher than the rate for commercial and industrial property under the then- 19 adopted Proposition 13, such that the private railroad car tax “discriminated against owners of rail- 20 transportation property” in violation of Section 11501(b)(3). 697 F.2d at 864. After recognizing 21 the purpose of Section 11501 and affirming the district court’s authority to enjoin violations of the 22 statute, the Ninth Circuit turned to comparing the challenged tax rate to “the rate generally 23 applicable to commercial and industrial property.” Id. at 866-67. 24 The Ninth Circuit explained that this “task is complicated by the fact that,” due to 25 California’s unique classification system (dividing property into secured and unsecured, as 26 opposed to residential and commercial/industrial), “California has no specific tax rate for 27 commercial and industrial property.” Id. at 867. Because neither Section 11501, “nor its 1 applicable to commercial and industrial property is not readily apparent,” the Ninth Circuit 2 articulated a framework with two alternative approaches for identifying “the tax rate generally 3 applicable to commercial and industrial properties” specifically in California, and specifically 4 under Section 11501. Id. 5 The first approach in that framework is to determine “the tax rate applicable” to whichever 6 tax roll, either secured or unsecured, contains “the majority of [the] commercial and industrial 7 property.” Id. Determining which tax roll contains the majority of commercial and industrial 8 property is (often) straightforward. The secured roll in each county contains the vast majority 9 (consistently over 90%) of the assessed value and the taxes levied against all property in that 10 county, and the secured roll, according to Plaintiff, almost certainly contains the majority of 11 commercial and industrial property. See Annis Decl. ¶¶ 30–31. 12 However, the weakness of this approach is that “the tax rate applicable” to the property on 13 the secured roll cannot be determined. Plaintiff contends that the property on the secured roll is 14 spread among the hundreds or thousands of Tax Rate Areas in each Defendant County that each 15 have their own tax rates. See id. ¶¶ 15, 31. Thus, Plaintiff contends that there is no identifiable 16 “tax rate applicable” to property on the secured or unsecured roll of any of the Counties. 17 As a fallback, the Ninth Circuit in Trailer Train authorized a second approach. First, the 18 Court is to determine the average tax rate for all property in the relevant county. See Trailer 19 Train, 697 F.2d at 868 n.13 (“We thus, for reasons different from those articulated by the district 20 court, conclude that the average rate for all property should be used when the rate generally 21 applicable to commercial and industrial property cannot be determined.”). 22 Plaintiff alleges that identifying the “average rate for all property” is possible because the 23 State Board already calculates that rate—the annual “average tax rate of general property taxation” 24 in each county. See Annis Decl. ¶ 24. By statute, the State Board calculates this average tax rate 25 by dividing (a) the sum of all ad valorem property tax levies in a given county for a given year by 26 (b) the sum of the assessed values of all property in that county for that same year. Cal. Rev. & 27 Tax. Code § 11403. According to Plaintiff, the State Board-calculated rate for each county is the 1 property at rates that are higher than the Section 11501 “Benchmark Rate” is a violation of Section 2 11501(b)(3).3 3 Defendants counter that the relevant assessment jurisdiction is the area of the entire State 4 of California that contains the unitary property, and the tax rate applied to the railroad must be 5 compared to the tax rate applied to other commercial and industrial property that is assessed as 6 unitary property. Counties’ Opp. at 19. Defendants further contend that, under Article XIII, 7 Section 19 of the California Constitution, the assessment jurisdiction of the State includes the 8 following types of property: “(1) pipelines, flumes, canals, ditches, and aqueducts lying within 2 9 or more counties and (2) property, except franchises, owned or used by regulated railway, 10 telegraph, or telephone companies, car companies operating on railways in the State, and 11 companies transmitting or selling gas or electricity.” Id. at 20. 12 Defendants, in theory, are contending that Section 100 (applicable to Plaintiff) does not 13 differentiate in the way tax rates are applied among these commercial and industrial properties, 14 because these nonrailroad companies do not have a different rate than Plaintiff. Put differently, all 15 of the non-railroad commercial and industrial property that is assessed as “unitary property” for 16 purposes of local property taxation is taxed pursuant to Section 100. 17 The Court finds Defendants’ suggestion that it should compare Plaintiff’s tax rate to the 18 rates for a relatively narrow subset of other state-assessed utilities and other entities that pay the 19 same unitary tax rate inconsistent with the 4-R Act. Section 11501(b)(3) calls for a broader 20 comparison to the rate paid by “commercial and industrial property in the same assessment 21 jurisdiction,” where an “assessment jurisdiction” is “a geographical area in a State.” 49 U.S.C. 22 11501(a)(2) (emphasis added). The “commercial and industrial property in” the “geographical 23 area” of California clearly is not limited to state-assessed utilities or similar Section 19 property: it 24 embraces all commercial and industrial taxpayers in the state. For the same reasons that there are 25 not county-specific rates for commercial and industrial taxpayers in California, (Mot. 9-10, 14-15), 26 there are also no statewide rates. 27 1 Railroads, like other utilities such as pipelines and telecommunications companies, are 2 “easy prey” in that they are “nonvoting, often nonresident” targets “who cannot easily remove 3 themselves from the locality.” Western Air Lines, Inc. v. Board of Equal., 480 U.S. 123, 131 4 (1987) (quotation marks omitted). The solution, Congress recognized early on, was to link 5 railroads’ fate with a mass of other taxpayers by insisting that “[rail] carriers are accorded equal 6 tax treatment with other taxpayers.” S. Rep. No. 87-445 at 466 (1961). Significantly, before the 7 final version of Section 11501 was passed, a provision permitting comparisons solely against 8 public utilities was introduced and rejected. See Atchison, Topeka & Santa Fe Ry. Co. v. Ariz., 9 559 F. Supp. 1237, 1244 (D. Ariz. 1983) (citing S. Rep. No. 92-1085 (1972)). The upshot is that 10 the comparison the Defendant Counties propose—between railroads and other state-assessed 11 taxpayers subject to the same tax laws—does not comport with the statute Congress enacted. 12 Defendants appear to recognize that Trailer Train poses a challenge for their argument. 13 They contend that the taxes at issue here are calculated at the local level and do not require use of 14 a statewide general property tax rate, whereas Trailer Train involved the applicability of the 4-R 15 Act to a statewide tax on plaintiffs’ private railroad cars, and the effort to identify a comparison 16 class for that statewide tax. 697 F.2d at 862. 17 But that is a distinction without a difference. The challenge in Trailer Train, as here, was 18 determining which group of commercial and industrial property to use as a comparison class, 19 given that commercial and industrial property appeared on both the secured and unsecured rolls. 20 The Ninth Circuit held first that “[t]he tax rate applicable to the roll that contained the majority of 21 the commercial and industrial property shall be deemed the rate generally applicable to 22 commercial and industrial property and will serve as the base rate for comparison against the 23 Companies’ $10.68 rate.” Id. at 867. The Ninth Circuit further reasoned that “[i]f the 24 determination of which roll contained the majority of the state’s commercial and industrial 25 property in the 1978-79 fiscal year is not possible, the average tax rate for all property shall be 26 used as the basis for comparison.” Id. 27 Defendants characterize Trailer Train as hinging on its discussion of a uniform statewide 1 there is no specific commercial and industrial rate for locally assessed property in California. 2 Defendants contention that Trailer Train predates the legislation subjecting railroad property to 3 unitary rates is irrelevant to the key question that Trailer Train resolves—how to determine the 4 appropriate comparison rate for locally-assessed property—and California law on that point 5 remains unchanged. 6 The Court finds that Defendants’ proposed comparison is untethered from the statutory 7 language and unsupported by Section 11501 jurisprudence. Indeed, under the Defendants’ 8 approach—under which railroads are only compared to taxpayers that are taxed like railroads— 9 violations of Section 11501(b)(3) likely would be rare or nonexistent, and Congress would have 10 accomplished very little. The statute’s use of the term “assessment jurisdiction” demonstrates that 11 Congress was concerned with the basic principle that like property should be treated alike. 12 Because there is no specific commercial and industrial rate in the State of California, Trailer Train 13 authorized the use of either the rate for the secured roll or the average rate for all property. 14 Accordingly, under the Trailer Train framework, Plaintiff has established reasonable cause 15 that a violation of Section 11501(b)(3) has occurred or will occur if it is required to pay taxes at 16 the rate Defendants claim applies for the 2019-20 tax year. 17 B. Discrimination and Justification 18 Defendants make a secondary argument that Plaintiff (and the railroad industry) lobbied to 19 be taxed at the Section 100(b) rate that Plaintiff now alleges is unlawful. According to 20 Defendants, the railroad industry wanted its taxes to be calculated under Section 100(b) because 21 the railroads wanted to “reduce[ ] the administrative burden imposed on the Board of Equalization, 22 county auditors and treasurers, and the railroads.” See Declaration of Michael Narciso, Dkt. No. 23 44-4 Ex. 5 at pages 316-17 (ECF pagination). 24 Defendants cite to the railroad industry’s arguments in favor of the current law, specifically 25 the claim that “each year, the railroads, the State Board of Equalization (SBE) and individual 26 taxing jurisdictions must undertake a painstaking and time consuming process in which they are 27 forced to redraw hundreds of ‘tax maps’ and prepare a similar number of bills for each and every 1 and BNSF Railway Company received more than 2,400 tax rate area changes and 2,850 operating 2 tax bills from the tax districts.” Id. Defendants point out that this legislation, by allowing the 3 railroad to pay only on one tax rate area in each county, reduced the number of operating tax bills 4 from 2,850 to approximately 61. Id. 5 Defendants thus argue that any discriminatory outcome for Plaintiff was a direct result of 6 the railroad industry’s lobbying efforts regarding which tax rates would apply to its members in 7 California. Defendants use the legislative history to argue that Plaintiff should not be allowed to 8 reap the benefits of its lobbying efforts, then pounce only once it perceives an advantage in 9 invoking Section 11501. Defendants contend that Section 11501 is meant to address concerns 10 about the railroads’ political vulnerability and establishes a prohibition only as to discriminatory 11 state taxation of railroad property. Thus, Defendants conclude, because the railroads in California 12 wanted to be taxed pursuant to Section 100(b), and wanted to benefit themselves through reduced 13 administrative burdens provides, this provides sufficient justification for any alleged tax disparity. 14 Whatever equitable force Defendants’ argument might have in a vacuum, the Court finds it 15 to be inconsistent with the relevant language in the statute. Section 11501(b)(3) does not use the 16 word “discriminates.” Rather, subsection (b)(3) forbids “[l]evy[ing] or collect[ing] an ad valorem 17 property tax on rail transportation property at a tax rate that exceeds the tax rate applicable to 18 commercial and industrial property in the same assessment jurisdiction.” 49 U.S.C. § 19 11501(b)(3). The statute does not require proof of discrimination, because Congress has already 20 declared in the preface of Section 11501(b) that the imposition of such an ad valorem property tax 21 rate disparity “unreasonably burden[s] and discriminate[s] against interstate commerce.” 49 22 U.S.C. § 11501(b). 23 In arguing to the contrary, Defendants cite the Supreme Court’s 2011 decision in CSX 24 Transportation, Inc. v. Alabama Department of Revenue, 562 U.S. 277 (2011) (“CSX I”), which 25 discussed the meaning of the word “discriminate” in Section 11501 and explained how a state 26 might engage in illegal discrimination under Section 11501(b)(4). The Court stated that if a state 27 charged “one group of taxpayers a 2% rate and another group a 4% rate,” the State would be 1 justification for the difference in treatment.” CSX I, 562 U.S. at 287. 2 Four years later, the Court found such justification for a difference in treatment in Alabama 3 Department of Revenue v. CSX Transp., Inc. (“CSX II”), 575 U.S. 21 (2015). At issue there was 4 whether the 4-R Act prohibited Alabama from imposing a 4% tax on the diesel fuel used by 5 railroads that it did not impose on the diesel fuel used by the railroads’ competitors, given that 6 Alabama also imposed comparable taxes on the competitors that it did not impose on railroads. 7 Id. at 24, 30. The Court concluded that the 4-R Act did not prohibit such differential treatment 8 because “an alternative, roughly equivalent tax is one possible justification that renders a tax 9 disparity nondiscriminatory.” Id. at 30-31. 10 The Court finds the CSX cases inapplicable. In both CSX I and CSX II, Section 11 11501(b)(3) was not at issue: the Court addressed Section (b)(4), which specifically prohibits a 12 state from imposition “another tax that discriminates against a rail carrier ….” See Section 13 11501(b)(4) (emphasis added). In CSX I, the “key question” was “whether a tax might be said to 14 ‘discriminate’ against a railroad under subsection (b)(4).” 562 U.S. at 286. The Court held that 15 subsection (b)(4) permits a justification defense because, as used in that subsection, the undefined 16 term “discriminates” means a failure to treat similarly situated taxpayers the same without 17 “justification for the difference in treatment.” Id. at 287. Then, in CSX II, the Court held that the 18 existence of an “alternative, roughly equivalent tax” (paid by the taxpayers to which the railroad is 19 compared) is a possible justification under subsection (b)(4). 575 U.S. at 30-31. These 20 discussions about when the catchall provision regarding “another tax that discriminates” might be 21 triggered do not shed light on the issue presented in this case, because the face of the statute 22 already reflects Congress’ determination that the acts set out in subsection (b)(3) amount to per se 23 discrimination against interstate commerce. 24 IV. CONCLUSION 25 Because Plaintiff has established reasonable cause that a violation of Section 11501(b)(3) 26 has occurred or will occur, the motion for a preliminary injunction is GRANTED. 27 Defendants Alameda County, Contra Costa County, Fresno County, Kern County, Kings 1 Bernardino County, San Diego County, San Joaquin County, Stanislaus County, and Tulare 2 County, California; their boards of supervisors, county auditors, tax collectors, agents, employees, 3 and all those acting in concert or participating with them who receive actual notice of this order 4 || (the “Enjoined Parties”) are hereby ENJOINED through the pendency of this litigation until entry 5 || of a final judgment from levying or collecting ad valorem property taxes from Plaintiff on its 6 || unitary property based on a tax rate higher than the annual average tax rate of general property 7 taxation calculated and reported for each county by the California State Board of Equalization 8 || under Cal. Rev. & Tax Code §11403. 9 The Enjoined Parties are further enjoined through the pendency of this litigation until entry 10 || of a final judgment from taking any action to impose any interest or penalties, from taking any 11 action to record or enforce a tax lien upon any property used or owned by Plaintiff, or from taking 12 any other action authorized by state law for delinquent or unpaid taxes under California law. 5 13 Plaintiff will be required to post a bond under Federal Rule of Civil Procedure 65(c). The 14 || parties are directed to meet and confer and agree if possible by 5:00 p.m. Pacific Time on April 9, 3 15 || 2020 regarding the appropriate amount of the bond. See Opp. at 25 (seeking bond of “no less than 16 || $1.6 million in lost tax revenue”), Reply at 15 (acknowledging that Plaintiff will post a bond if 3 17 ordered, without indicating its view as to the appropriate amount of the bond). By that time, the 18 || parties should either file an agreed-upon proposed bond order (which should be done if at all 19 || possible), or separate proposed forms of order (understanding that the Court is going to require a 20 || bond notwithstanding Plaintiffs argument that doing so is unnecessary). 21 Consistent with the discussion at the hearing, see Dkt. No. 61 at 41, the parties are also 22 || directed to meet and confer and submit a joint proposal by April 15, 2020 regarding the proposed 23 timing of initial disclosures, discovery and other proceedings in light of this order. 24 25 IT IS SO ORDERED. 26 || Dated: 4/8/2020 27 Abpspucred 3 bbl). 28 HAYWOOD S. GILLIAM, JR. United States District Judge