United States District Court, D. South Carolina, Columbia Division
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND
MARGARET B. SEYMOUR SENIOR UNITED STATES DISTRICT JUDGE.
matter is before the court after trial for final disposition
of Plaintiff CSX Transportation, Inc.’s
(“Plaintiff”) request for declaratory relief.
Plaintiff filed a Verified Complaint for Injunction and
Declaratory Relief on September 29, 2014, against South
Carolina Department of Revenue and Rick Reames, III, Agency
Director of the South Carolina Department of Revenue
(“Defendants”). ECF No. 1. Plaintiff requested a
declaration that South Carolina’s tax treatment of real
property owned by railroads under the South Carolina Real
Property Valuation Reform Act (“SC Valuation
Act”), codified at S.C. Code Ann. § 12-37-3140,
violates Section 306(1)(d) of the Railroad Revitalization and
Regulatory Reform Act of 1976 (“4-R Act”),
codified at 49 U.S.C. § 11501(b)(4). Specifically, the
S.C. Valuation Act limits increases in the value of
commercial and industrial real property for tax assessment
purposes to 15% over a five year reassessment cycle; however,
this 15% cap on value increases is not extended to real
property owned by railroads. Plaintiff asks the court to
declare that the S.C. Valuation Act’s exclusion of
Plaintiff from the 15% cap constitutes a violation of Section
11501(b)(4) of the 4-R Act.
September 29, 2014, Plaintiff filed a Motion for Preliminary
Injunction to enjoin Defendants from levying upon or
collecting taxes for the 2014 tax year based on an appraised
real property value in excess of a 15% increase over
Plaintiff’s appraised real property value for the year
2007. After a hearing held on October 29, 2014 (ECF No. 27),
the court granted Plaintiff’s Motion for Preliminary
Injunction by Order on November 4, 2014. ECF No. 28.
Defendants then filed an Amended Answer (ECF No. 42), and
moved to dismiss Plaintiff’s complaint for failure to
state a claim under Fed.R.Civ.P. 12(b)(6) on June 1, 2015.
ECF No. 47. Following a hearing held on July 31, 2015, the
court denied Defendants’ motion to dismiss. ECF No. 55.
The case proceeded to a bench trial, which was held on
November 3, 2015. ECF No. 77.
hearing the testimony, carefully considering the entire
record, weighing the credibility of the witnesses, reviewing
the exhibits, and applying the applicable law, the court
makes the following findings of fact and conclusions of law
in accordance with Federal Rule of Civil Procedure
Plaintiff is an interstate common carrier by railroad.
Plaintiff operates in 23 states, including South Carolina.
Tr. 14:3; 37:2-14.
Defendant South Carolina Department of Revenue (“South
Carolina” or “Department of Revenue”) is an
agency of South Carolina. It is charged by law to administer
and enforce the revenue laws of the state. See S.C.
Code Ann. § 12-4-10.
Defendant Rick Reames, III is the Agency Director of the
South Carolina Department of Revenue. Tr. 80:8-9.
Subject matter jurisdiction is proper as this complaint
raises a federal question under 49 U.S.C. §§
11501(b)(4) and 11501(c). See also CSX Transp., Inc. v.
Alabama Dep’t of Revenue, 562 U.S. 277,
281 n.2 (2011) (“CSX I”) (stating that
49 U.S.C. § 11501(c)’s limitations against courts
providing relief are applicable only to claims brought under
Sections 11501(b)(1) and (2)).
Venue is proper pursuant to 28 U.S.C. § 1391(b).
Property Tax Scheme 6.
South Carolina, all property that is subject to taxation is
valued at its true value, also known as its fair market
value. S.C. Code Ann. § 12-37-930. There are a variety
of methods for calculating fair market value, but in the case
of railroad property, state statute requires that the
Department of Revenue employ the unit valuation concept to
calculate fair market value. S.C. Code Ann. § 12-4-540.
The unit valuation concept is useful for appraising
properties that are spread over vast geographic areas and
bear integrated systems. Tr. 142:23-146:16.
South Carolina generally relies on an “income
approach” in calculating railroad unit values.
Id. at 16:12-15; 144:6-13; 152:9-12. The income
approach approximates the value of a property based on the
income the property is earning. Id. The first step
in the income approach is for South Carolina to review a
company’s prior income statements. Id. at
38:2-14. From the review of prior income statements, South
Carolina can ascertain anticipated future profits.
Id. at 16:16-22. Anticipated future profits are then
divided by the weighted average cost of capital. Id.
The resulting amount is the fair market value of the
property, which represents the value of all of
Plaintiff’s property located across the country.
Id. 16:16-25; 17:8-11; 144:14-20.
next step is to allocate a portion of the calculated unit
value to South Carolina. Id. at 17:12-20. This
allocation is done by balancing a number of factors,
including revenue derived in South Carolina versus revenue
derived elsewhere; track miles in South Carolina versus track
miles elsewhere; and investment in South Carolina versus
investment elsewhere. Id. Once an allocation
percentage has been determined, South Carolina applies it to
the fair market value, which was previously ...