Milwaukee Journal Sentinel
Court strikes down Wisconsin intangible tax on railroads
Wisconsin’s effort to tax a railroad’s custom software has been ruled unlawful by a federal appeals court.
Union Pacific Railroad Co. refused to pay more than $2.6 million Wisconsin claimed it owed on the value of its custom software under the state’s intangible personal property tax.
The railroad argued, and the federal court agreed, that the tax — while exempting the same property for all other manufacturing and commercial entities — singled out railroads and utilities and violated the federal Railroad Revitalization and Regulatory Reform Act of 1976.
Union Pacific claimed its custom software as exempt for 2014 and 2015 but the state Department of Revenue, during an audit, disallowed the exemption and charged the railroad $2,631,104 in back taxes and interest. Union Pacific sued.
The district court granted summary judgment to the railroad, concluding Wisconsin’s tax on intangible personal property “is not one general applicability,” since it exempted more property than it taxed, and targeted railroads as part of an isolated group.
The state argued it is allowed to exempt most entities and deny the exemption to railroads.
The U.S. 7th Circuit Court of Appeals on Monday affirmed the lower court. It noted that railroads have long been easy targets for local taxation, as they are typically nonresidents, don’t vote and can’t easily relocate. The 1976 act aimed to restrict discriminatory local and state taxes on railroads.
“Manufacturing and commercial companies generally must pay property taxes on the value of their real and tangible personal property,” the opinion states. “Only railroad and utility companies, however, are required to pay an additional tax on their intangible property.”
The state, the court said, did not provide any nondiscriminatory reason for targeting only railroads and utilities to pay the tax on intangible property.