Alabama’s Water Carrier Exemption Violates a Federal Act

Apr 6th, 2018

The United States Court of Appeals recently ruled that the sales and use tax exemption for fuel used by water carriers violates the Railroad Revitalization and Regulatory Reform Act (4-R Act) because it discriminates against rail carriers.

Alabama's tax scheme imposes either a sales or use tax on rail carriers when they buy or consume diesel fuel but exempts motor and water carriers from those taxes. Motor carriers must pay a roughly equivalent fuel-excise tax on the sale and use of diesel fuel. However, there is no roughly equivalent tax imposed on water carriers. Water carriers include commercial ships, vessels, and barges.

The 4-R Act prohibits states from imposing a tax discriminates against a rail carrier. The court ruled that the state's water carrier exemption discriminates against rail carriers and therefore violates the 4-R Act. Carrier Exemption