Reference no: EM133671739

Monopoly Railroad, Inc. ("Monopoly") operates an interstate network of railroads in 23 states, including New York. Monopoly owns physical assets in all of the states in which it operates and has taxable property in 28 of New York's 62 counties.

The scheme by which New York taxes Monopoly's property is complex. The Executive Department of Taxation of New York State (the "Department") is charged by state statute with administering all real property taxation in the state. New York State law provides interstate railroads with a form of tax exemption through a so-called "railroad ceiling." A railroad ceiling is the maximum value on which a county or other taxing district may levy real property taxes on a railroad's real property. Railroad property is exempt from taxation by such counties or other taxing districts to the extent its value exceeds the applicable railroad ceiling. The Department is responsible for establishing all railroad ceilings in the state.

There is one other statute of which you need to be aware. In 1976, Congress passed pursuant to its power to regulate interstate commerce and its authority to enforce the terms of the Fourteenth Amendment the Railroad Revitalization and Regulatory Reform Act (the "4-R Act"). The 4-R Act prohibits a state or any subdivision of a state from assessing railroad property at a higher percentage of the property's true market value than the percentage applied to other commercial or industrial property. It also provides that the 4-R Act may be enforced in "an appropriate state court or in an appropriate district court of the United States."

The 4-R Act was passed after 15 years of off-and-on congressional consideration. One of the principal goals of the 4-R Act was to combat what Congress concluded was a discriminatory over-taxing of interstate railroads. Congress held a number of hearings at which committees took evidence of examples of states and localities taxing the property of interstate railroads at percentages far greater than other commercial and industrial property. Congress concluded that such railroads were, as non-residents, easy targets for discriminatory treatment. In fact, a House of Representatives Report prepared in conjunction with the legislative debate concerning the 4-R Act stated that "interstate railroads are over-taxed by at least $50 million each year."

Monopoly believes that the method the Department uses to determine railroad ceilings violates the restrictions of the 4-R Act in certain respects. It has filed suit in the United States District Court for the Southern District of New York against the Department, seeking a declaration that the method for calculating the railroad ceiling is unlawful under the 4-R Act and an injunction against continuing to use that method in the future. The Department has moved to dismiss Monopoly's complaint under the Eleventh Amendment.

How would a court go about evaluating whether the Department's motion should be granted? Assuming the motion were granted, is there anything Monopoly might do in another lawsuit to obtain the relief it seeks in this one?