Waste Tax Derailed

A city tax on the transfer of solid waste from trucks to trains imposes a burden on railroading and violates federal law by “discriminat[ing] against a rail carrier,” according to a ruling by the Washington Supreme Court. Regional Disposal Co. (Regional) has contracts with several counties in Washington State to dispose of locally generated waste. The trash is collected from transfer stations, placed into covered containers and hauled by a subcontractor to a rail yard in Centralia, Wash. Containers then are transferred from the trucks onto railroad cars, and the railroad transports the cars to a landfill.

In March 2001, the city of Centralia imposed a tax on “the transfer of solid waste generated in or outside of the city from one mode of transportation to another.” The professed purpose of the levy was to pay for roadwork and other improvements that were affected by garbage trucking. Curiously, the ordinance excluded waste haulers who used a transfer station located in the city.

Regional filed a lawsuit in Lewis County Superior Court asking that the tax be declared unlawful and unenforceable. On stipulated facts, the court ordered the city to stop collecting the tax. The judge ruled the tax unlawful because, among other reasons, it was contrary to the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act).

The 4-R Act forbids states and local governments from imposing a tax that disproportionately burdens railroads compared to other commercial and industrial activities. Congress stated that such taxes “unreasonably burden and discriminate against interstate commerce.” 49 U.S.C. § 11501(b)(4).

The city appealed directly to the state supreme court. Centralia argued that the waste transporter, not the railroad, used the transfer service, and that the railroad did not pay the tax. For its part, Regional contended that the tax was discriminatory because it targeted an activity performed only in connection with railroads.

Citing a federal appeals court decision involving the city of Superior, Wis., the state high court affirmed the lower court. Superior had imposed a tax on dock operators where iron ore was transferred from trains to barges. A railroad operated the only such docks in the city, and those docks were the only ones in the state. The federal decision held that the tax was discriminatory under the 4-R Act because it was imposed on “an activity in which … only railroads engage.”

“Centralia's tax raises the cost of getting on the railroad,” the Washington court said. “It burdens only railroading.”

Whether or not the railroad directly pays does not matter. “Who conducts the activity that is taxed is irrelevant,” the opinion continued. “The tax will increase the cost of the activity to the railroad's detriment.”

Regardless of who performs the transfer — the hauler or the railroad — “the economic impact … is the same.”

[Regional Disposal Company v. City of Centralia, 51 P.3d 81 Wash., Aug. 8, 2002]

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail: shanoff@knopf-brown.com.

The columnist is a Washington, D.C., attorney and serves as general counsel of the Solid Waste Association of North America.