BNSF Railway Company v. Alameda County

Background

BNSF Railway Company asked the court for a preliminary injunction against fifteen counties under 49 U.S.C. § 11501(b)(3), part of the federal Railroad Revitalization and Regulatory Reform Act, commonly called the 4-R Act. That provision prohibits a state or local government from imposing a value-based property tax on railroad property at a rate higher than the rate applicable to commercial and industrial property in the same assessment jurisdiction.

California uses different systems to assess property. Most commercial and industrial property is locally assessed and placed on either a secured or unsecured tax roll. Railroad property is state-assessed as “unitary property,” meaning the value of the railroad’s assets is calculated as a whole and then allocated among taxing jurisdictions. BNSF argued that California’s formula for taxing its unitary property produced higher rates than the rates used for commercial and industrial property.

For the 2019–20 tax year, BNSF identified differences between the unitary rates and the benchmark rates in the fifteen defendant counties. The opinion states that the unitary rate was higher than the benchmark rate in each county listed in BNSF’s chart.

Legal standard

The court held that Ninth Circuit precedent requires a preliminary injunction under Section 11501 when there is “reasonable cause” to believe that a violation has occurred, is occurring, or will occur. The court rejected the counties’ argument that the traditional preliminary-injunction factors—likelihood of success, irreparable harm, balancing of hardships, and the public interest—should apply instead.

Analysis

The court concluded that the counties were subject to Section 11501 and that BNSF’s unitary property qualified as railroad transportation property. The main dispute was how to identify the comparison rate for commercial and industrial property in California.

The court followed the comparison framework from Ninth Circuit precedent. That framework uses the rate applicable to the tax roll containing most commercial and industrial property when that rate can be identified. If it cannot be identified, the framework permits use of the average tax rate for all property. Because California has no single specific rate for commercial and industrial property, the court found that the annual average rate of general property taxation calculated by the California State Board of Equalization could serve as the benchmark.

The counties argued that BNSF’s rate should instead be compared with the rates paid by a narrower group of state-assessed utilities and other entities taxed as unitary property. The court rejected that approach because Section 11501 calls for comparison with commercial and industrial property in the same geographical assessment area, not only with taxpayers treated like railroads under state law.

The counties also argued that the railroad industry had supported the California tax formula because it reduced administrative burdens. The court found that argument inconsistent with Section 11501(b)(3), which does not require separate proof of discrimination or permit the proposed justification. The court distinguished Supreme Court decisions concerning Section 11501(b)(4), a different provision addressing another tax that discriminates against rail carriers.

Ruling and relief

The court found that BNSF established reasonable cause to believe that taxing its unitary property at the challenged rates violated Section 11501(b)(3). It therefore granted BNSF’s motion for a preliminary injunction.

The order enjoins Alameda County, Contra Costa County, Fresno County, Kern County, Kings County, Madera County, Merced County, Orange County, Plumas County, Riverside County, San Bernardino County, San Diego County, San Joaquin County, Stanislaus County, and Tulare County, along with their boards of supervisors, auditors, tax collectors, agents, employees, and others acting with them who receive actual notice. Until final judgment, those parties may not levy or collect value-based property taxes from BNSF on its unitary property at a rate higher than the annual average tax rate of general property taxation reported for each county by the California State Board of Equalization. They also may not impose related interest or penalties, record or enforce tax liens, or take other state-law collection actions for delinquent or unpaid taxes.

The court required BNSF to post a bond under Federal Rule of Civil Procedure 65(c), but left the amount for the parties to address through an agreed proposal or separate proposed orders. The parties were also directed to submit a joint proposal concerning initial disclosures, discovery, and other proceedings.