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.