U.S. Supreme Court Questions Georgia’s Discriminatory Property Tax Assessment in CSX Case

November 5, 2007

I just returned from attending this morning’s oral arguments in the CSX and Davis cases, in both of which the Tax Foundation submitted friend-of-the-court briefs supporting taxpayers facing discriminatory taxation. Learn more about the cases and read our briefs here. I will be posting first on CSX, and later in the afternoon on Davis.

First argued this morning was the CSX case: whether a state’s property tax assessment method can be challenged by railroad taxpayers. The lower courts held that evidence of better assessment methods cannot be considered, so whatever method that the state picks gets deference and taxpayers can only challenge how it’s applied in their case. As Justice David Souter asked this morning, “The role of the federal judge would become a grade school math teacher: to make sure the sums are added up correctly. That cannot be what Congress had in mind.”

At issue is the federal 4-R Act, which prohibits discriminatory state taxation of railroads. Courts are given the power under that law to strike down a property tax scheme if the “true market value” of railroads subject to tax is higher than the tax burden on other comparable property.

Carter Phillips of Sidley Austin LLP argued for CSX Transportation. His main point was that the role of courts in assessment cases is to consider all experts and all evidence about methods and values, and make a judgment about which most accurately reflects “true market value” – in other words, the assessment is “reliable.” Georgia’s counsel, Warren Calvert, argued that courts must defer to whatever assessment method the state has chosen, so long as it is “reasonable.”

Chief Justice John Roberts, Justice David Souter, and others expressed concern that “reasonableness” is not ascertainable. Justice Souter, for instance, stated that whether a method is reasonable requires asking if it is reliable, and that requires hearing testimony from experts about how other methods and other states do their calculations. In any event, upholding the state except if its method is unreasonable has no basis in the statute’s text, as Justice Antonin Scalia stated (“It’s not fuzzy. It doesn’t sound like a reasonableness test.”), or in its purpose, as Justice Ruth Bader Ginsburg stated (“It would defeat the purpose of the statute.”).

The justices seemed more comfortable with courts judging “true market value” than “reasonable assessment method.” Justice Antonin Scalia’s first question to Calvert was why courts should defer to the state, considering that the law required a comparison of true market value-truth, not one party’s version of it. Calvert responded that “true market value” actually gives more leeway to the state than if the law required “fair market value,” because determining the former is not likely to produce one “correct” answer. To this, Justice Anthony Kennedy asked how truth could be so indeterminate, jokingly asking if anything that was not “true market value” was “false market value.” Justice Scalia stated that he had expected Calvert to ask about the nature of truth. Finally, Justice Souter plainly said, “The criteria is truth, and truth does not involve deferring to a party of interest.”

Justice Stephen Breyer was concerned that the state’s rule would leave no check on the state to prevent it from engaging in discriminatory taxation. While judges are not experts at developing accurate assessment methods (if they were, Breyer joked, they would be making millions on Wall Street, not judging), judges are able to weigh evidence submitted by experts and apply it to different facts. Calvert responded that if courts start rejecting certain assessment methods, the eventual result would be one federally-sanctioned method. This argument found some sympathetic questions early on from Roberts and Scalia. Both Phillips and the representative of the U.S. Solicitor General, Douglas Hallward-Driemeier, responded that it’s a matter of allowing courts to hear and consider all available evidence in an adversarial process, like any other valuation case.

The outrageous assessment in this case was certainly on the justices’ minds. Justice Samuel Alito noted the “astonishing range” of values Georgia came up with in this case, varying by billions of dollars. Later, he asked if the state could just pick the method that would produce the highest number, and Calvert conceded that might be a problem. Justice Scalia found it “absurd” that a judge would have to “defer to a novice” assessor and not be allowed to compare calculations with an expert’s assessment. Finally, Justice John Paul Stevens mused about whether Georgia’s motivations were “suspicious,” considering that Georgia and Florida’s calculation of CSXT’s property were nearly twice that of other southeastern states.

To sum up, observer reactions indicated that Georgia’s counsel had a very tough time, and the justices were very concerned about state overreaching should they prevail. While there was some concern that allowing challenges to state assessment methods might ultimately produce one federally-sanctioned rule, Phillips and Hallward-Driemeier effectively countered that assessing property is about educated guesses, and disputes between the guessers can be resolved in a judicial setting. Insulating state method choices from legal challenge seems to go against both the statute’s text (as Scalia noted) and its purpose (as Ginsburg and Breyer noted), and as we wrote in our brief, upholding the text and purpose would require a finding for CSXT in this case.

A decision is expected sometime in the spring.

See above for our post on the Davis argument.


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