Supreme Court Should Rule Sales Tax Exemptions Are Discriminatory Taxes

September 13, 2010

The U.S. Supreme Court should reverse a lower court ruling and determine that sales and use tax exemptions are discriminatory taxes and are not immune from being challenged under federal law, according to a Tax Foundation legal brief.

The Supreme Court will hear arguments on November 10 in CSX Transportation, Inc. v. Alabama Department of Revenue, in which CSX argues that Alabama’s state tax system is discriminatory because it grants sales and use tax exemptions for CSX’s competitors but not CSX.

The Railroad Revitalization and Regulatory Reform Act, known as the 4-R Act, prohibits discriminatory state tax policies against railroads, but the Supreme Court subsequently ruled that some property tax exemptions are immune from challenge under the act. Relying on that immunity concept, a lower court incorrectly determined that sales tax exemptions may not be challenged either.

Tax Foundation Fiscal Fact, No. 244, “Supreme Court Considers Whether Sales Tax Exemptions Can Be Discriminatory Taxes,” summarizes the brief’s arguments.


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