United States District Court, W.D. Virginia, Roanoke Division
Glen E. Conrad Chief United States District Judge.
Southern Railway Company ("Norfolk Southern") filed
this action against the City of Roanoke (the
"City"), alleging that the City's stormwater
utility ordinance violates the federal Railroad
Revitalization and Regulatory Reform Act of 1976 (the
"4-R Act"), which prohibits states and
municipalities from imposing a "tax that discriminate[s]
against a rail carrier." 49 U.S.C. § 11501(b)(4).
The City moved to dismiss the complaint pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure, arguing,
inter alia, that the stormwater utility assessment
imposed pursuant to the ordinance is not a "tax"
for purposes of the 4-R Act, and that Norfolk Southern is
therefore not entitled to relief under the statute.
court held a hearing on the City's motion on September
14, 2016. During the hearing, the parties agreed that the
threshold and potentially dispositive issue in this case is
whether the stormwater utility assessment is a
"tax" actionable under § 11501(b)(4) or a
non-actionable "fee." See Chicago & N.W.
Transp. Co. v. Webster Cnty. Bd. of Supervisors, 71 F.3d
265, 266 (8th Cir. 1995) ("Because the board is not
violating the 4-R Act if it is not taxing the railroad, our
first inquiry must be whether imposing the costs ... on the
railroad constitutes a tax within the meaning of [the
the 4-R Act "does not define the term 'tax, '
nor does it offer any other guidance about what falls within
its ambit." Kan. City S. Ry. v. Koeller, 653
F.3d 496, 505 (7th Cir. 2011) (citing CSX Trans.. Inc. v.
Alabama Dep't of Rev., 562 U.S. 277, 284 (2011)).
Consequently, courts look to how the term has been applied in
other federal constitutional and statutory contexts.
Id.; see also Chicago & N.W. Transp.
Co., 71 F.3d 265 at 267. In cases involving the Tax
Injunction Act, the United States Court of Appeals for the
Fourth Circuit has held that courts "must examine the
'explicit factual circumstances that transcend the
literal meaning of the terminology' and ask whether the
charge is levied primarily 'for revenue making purposes,
making it a tax, ' or whether it is assessed primarily
'for regulatory or punitive purposes, making it a
fee.'" GenOn Mid-Atlantic, LLC v. Montgomery
Cnty., 650 F.3d 1021, 1023 (4th Cir. 2011) (quoting
Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130,
134 (4th Cir. 2000)). To aid in this determination, the
Fourth Circuit has considered several factors, including:
"(1) what entity imposes the charge; (2) what population
is subject to the charge; and (3) what purposes are served by
the use of the monies obtained by the charge."
Valero Terrestrial Corp., 205 F.3d at 134 (citing
San Juan Cellular Telephone Co. v. Public Serv.
Comm'n, 967 F.2d 683, 685 (1st Cir. 1992)).
of the fact-specific nature of this inquiry, the issue of
whether an assessment is properly characterized as a
"tax" or a "fee" is ordinarily decided on
summary judgment. Collins Holding Corp. v. Jasper
Cnty., 123 F.3d 797, 801 (4th Cir. 1997); see also
Cumberland Farms, Inc. v. Tax Assessor, 116 F.3d 943,
946 (1st Cir. 1997) ("The classification of an impost
for purposes of the [Tax Injunction Act] - 'tax'
versus 'fee' ~ presents a question of law appropriate
for resolution on a properly developed summary judgment
record."). Consequently, during the hearing on the
City's motion, the court questioned whether this
threshold question could be better answered on a fuller
record. In response, both sides acknowledged that the
court's review of certain relevant factors, including how
the stormwater utility assessment is ultimately used by the
City, may benefit from factual development.
clear from existing precedent that the tax-versus-fee issue
"requires careful analysis because the line between
'tax' and 'fee' can be a blurry one."
Collins Holding Corp., 123 F.3d at 800. After
further consideration, the court is of the opinion that the
wiser course is for the parties to engage in limited
discovery and present the issue on a more fully developed
record, so that the court can adequately consider all of the
factors relevant to this analysis.
these reasons, the court believes that it will be necessary
to consider matters outside the pleadings in order to
properly resolve the issue of whether the stormwater utility
assessment imposed by the City is a "tax" for
purposes of the 4-R Act. Thus, further analysis of this
question will be conducted under Rule 56 of the Federal Rules
of Civil Procedure. The parties will be given ninety days in
which to engage in discovery on the tax-versus-fee issue. The
pending motion to dismiss will be denied without prejudice to
refiling as a motion for summary judgment upon the completion
of this limited discovery. At that time, the City may also
renew any other arguments raised in the motion to dismiss.
Clerk is directed to send copies of this memorandum opinion
and the ...