Rehearing on Alabama’s tax regime for diesel fuel | KPMG | US
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Eleventh Circuit: Rehearing on Alabama’s tax regime for diesel fuel

Rehearing on Alabama’s tax regime for diesel fuel

The U.S. Court of Appeals for the Eleventh Circuit today, on a petition for rehearing, concluded that Alabama’s tax regime that imposes a sales or use tax on rail carriers when they buy or consume diesel fuel, but exempts competing motor and water carriers from those taxes, does not violate provisions of the “Railroad Revitalization and Regulatory Reform Act” (4-R Act) with respect to motor carriers, but does violate the 4-R Act rules with respect to water carriers.


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The Eleventh Circuit reversed the district court, and held that Alabama’s sales and use tax on the purchase or use of diesel fuel for interstate shipment of freight violates the 4-R Act, and remanded the case to the district court with instructions to enter declaratory and injunctive relief in favor of the taxpayer.

The case is: CSX Transportation, Inc. v. Alabama Dept. of Revenue, No. 17-11750 (11th Cir. April 25, 2018). Read the Eleventh Circuit’s decision [PDF 241 KB].

Eleventh Circuit

The purpose of this brief summary to provide notice of today’s decision from the Eleventh Circuit on the petition for rehearing. The case was previously before the U.S. Supreme Court.

In summary, the Eleventh Circuit today found that:

  • Concerning motor carriers—Although motor carriers are exempt from Alabama sales and use tax on fuel purchases, they do pay motor fuels excise tax on each gallon of fuel purchased. The Eleventh Circuit concluded that this excise tax is roughly equivalent to the sales and use tax because the average rates paid by rail carriers and motor carriers differed “by some quantity between less-than-half-of-one cent and 3.5 cents” per gallon and, as a result, the imposition of the excise tax on motor carriers’ fuel purchases justified the motor carrier exemption from the sales and use tax. 
  • Concerning water carriers—The Eleventh Circuit found there was no alternative tax imposed on water carriers. However, Alabama attempted to offer additional justifications for the water carrier exemption, including that the exemption was “compelled by federal law.” The Eleventh Circuit found the water carrier exemption was “compelled by federal law” only if imposition of the sales and use tax would violate federal law. In the appeals court’s view, it would not. 

The Eleventh Circuit concluded that the taxpayer was entitled to relief from Alabama’s rules that violated the 4-R Act and the case was remanded to the district court to fashion relief to cure the discrimination. The relief, in the Eleventh Circuit’s view, "...should leave the [s]tate some discretion in remedying the tax discrimination." For example, the state could repeal the water carrier exemption, in which case, water carriers and rail carriers would both pay the sales and use tax when they buy or use diesel fuel for interstate hauls—or the state could retain the water carrier exemption and exempt rail carriers when they buy or use diesel fuel for interstate hauls.


The U.S. Supreme Court in 2015 held that Alabama state law that imposes sales and use tax on diesel fuel purchases made by a rail carrier, but exempts purchases made by its competitors (motor carriers and water carriers), may be discriminatory under federal statutes. Alabama Dept. of Revenue v. CSX Transportation, Inc., 135 S. Ct. 1136 (2015)

The Supreme Court again remanded the case to the Eleventh Circuit for a determination as to whether Alabama’s fuel excise tax is the “rough equivalent” of Alabama’s sales tax as applied to diesel fuel and whether it justifies the sales tax exemption for motor carriers. Read TaxNewsFlash

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