Transportation Law Update: Is a Toll a Tax?
Case Summary: The United States Court of Appeals for the First Circuit recently reversed a district court’s grant of dismissal of claims under the Commerce Clause of the United States Constitution, finding that an inquiry into the interpretation, purpose, and precedent leads to a finding that the Rhode Island Bridge Replacement, Reconstruction, and Maintenance Fund Act (“RhodeWorks”) tolls are not a tax under the federal Tax Injunction Act (“TIA”). American Trucking Associations, Inc. v. Alviti, 944 F.3d 45 (1st Cir. 2019).
The TIA contains no definition of “tax,” which has forced courts to use their own interpretation in evaluating whether tolls are taxes. Every court pre-TIA which has been called upon to decide whether a toll is a tax, and every court post-TIA which has directly spoken to whether tolls are taxes, has held that tolls are not taxes. Additionally, funds which are placed in a segregated account, expended by a single entity for a single purpose, and stand apart from the state’s central stream of government funding, lead to the conclusion that the word “tax” as used in the TIA does not include tolls. Finally, raising money placed in a special fund to help cover an agency’s regulation-related expenses is a “classic regulatory fee,” and thus does not provide a general benefit to the public that is associated with a tax.
Background: In 2016, the Rhode Island General Assembly passed RhodeWorks, finding that, among other things, larger commercial trucks caused over 70% of damage to Rhode Island roads and bridges, but contributed less than 20% of revenue to fund transportation infrastructure. In an effort to eliminate this disparity, the Rhode Island Department of Transportation was authorized to collect tolls exclusively from large commercial trucks. These tolls would then be deposited into the Rhode Island bridge replacement, reconstruction, and maintenance fund. The main issue on appeal is whether RhodeWorks tolls, which were to be used only in paying costs for operation and maintenance of toll facilities as well as to fund “replacement, reconstruction, maintenance and operation of Rhode Island bridges,” are a tax within the meaning of the TIA.
Procedural History and Court Rulings: American Trucking Associations brought suit in the United States District Court for the District of Rhode Island, alleging that the dormant Commerce Clause made RhodeWorks unconstitutionally discriminatory against out-of-state entities. In response, Rhode Island moved to dismiss the allegations on three grounds: (1) the district court lacked subject matter jurisdiction under the Tax Injunction Act (“TIA”); (2) the district court should be required to decline subject matter jurisdiction under principles of comity and federalism; and (3) the suit was barred by the Eleventh Amendment. In its ruling, the district court, pursuant to the TIA, dismissed the suit for want of jurisdiction and did not address the two remaining grounds for dismissal.
Analysis: The First Circuit, upon its de novo review, addressed the issue of whether the RhodeWorks tolls were a tax before reaching the issue of comity and federalism. Although the TIA contains no definition of “tax,” the Court noted that there were six pre-1937 cases and one renowned treatise, which all concluded that a toll was not a tax. The Court also inquired into the treatise’s use by Congress to help understand the TIA after its enactment in 1937, in which the treatise noted that “tolls are not taxes. A tax is a demand of sovereignty; a toll is a demand of proprietorship.”
The Court went on to determine that because the funds raised by RhodeWorks ($45-50 million) never entered the central stream of tax revenue, but were placed in a special account and used for the sole purpose of highway and bridge maintenance, the toll revenues stood separate from the state’s central funding which was provided by traditional types of taxes. As a result, this undercut any argument to resist the force of the Court’s textual finding that “tax” as used in the TIA does not include tolls. First Circuit precedent was also discussed. Based upon earlier cases, the funds raised by RhodeWorks were a “classic regulatory fee” as opposed to a “classic tax,” as there was no general benefit to the entire community, a requirement needed to classify funds as a “classic tax.” For these reasons, the First Circuit reversed the district court’s dismissal, holding that tolls are not taxes, that dismissal on comity grounds is unwarranted, and that the TIA did not divest the district court of jurisdiction, nor did the comity principle preclude its exercise of jurisdiction over the action.
Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041. Clark Butler, J.D. Candidate, Drake University Law School assisted in the preparation of these materials.