Taxation of Railroad Property

The Supreme Court, back on December 4th., decided that railroads could challenge state methods for determining the value of railroad property along with the manner in which those methods are applied, resolving a split in federal circuit court holdings as to whether a state’s property tax valuation methodologies could be challenged under the federal Railroad Revitalization & Regulatory Reform Act of 1976 (4-R Act)

An article in CCH’s State Tax Review on Dec. 13th. says “the 4-R Act, which bars states from discriminating against railroads when levying property taxes, provides an exception to the general rule of the Federal Tax Injunction Act that federal courts won’t interfere with matters of state taxation.

“In order to evaluate an assessment ratio under the 4-R Act, however, federal courts have to calculate the true market value of in-state railroad property, and that requires the court to ‘look behind’ a state’s choice of valuation methods, and preventing courts from scrutinizing methodologies would force them to accept the market value estimates of the state, a party to the litigation. States would then be free to use methodology that routinely overestimates market values of railroad property, perpetuating the discriminatory taxation of railroads Congress sought to eliminate.”