It is a foundational principle of statutory interpretation that statutes be read to give effect to their plain meaning. Where a statute is amended over time, as is often the case, it must be read so as to give effect to the amended language. A recent decision of the Ohio Board of Tax Appeals (“Board”) serves as a reminder of these basic principles. CSX Transportation, Inc. et al. v. Harris, No. 2021-575 (Ohio Board Tax App. Jan. 2, 2026).
The Facts: CSX Transportation, Inc. (“CSXT”) is a rail-based freight transportation provider. The freight CSXT transports includes a wide range of products, including coal and automotive parts. The rail system used to transport the freight stretches 22,000 miles across the Eastern United States, linking 23 states (plus the District of Columbia) and two Canadian provinces.
The Department of Taxation (“Department”) audited CSXT for the tax periods January 1, 2011 through December 31, 2016. In addition to minor adjustments, the Department rejected CSXT’s commercial activity tax (“CAT”) situsing methodology which was based on a 1995 corporate franchise tax (“CFT”) memorandum. Instead, the Department concluded that the situsing provision for transportation services was the appropriate sourcing methodology. After an unsuccessful hearing before the Tax Commissioner (“Commissioner”), CSXT appealed to the Board.
The Law: For CAT years prior to 2012, gross receipts from the sale of transportation services by a common carrier were sourced to Ohio “in proportion to the mileage traveled by the carrier during the tax period on… railways in [Ohio] to the mileage traveled by the carrier on… railways everywhere.” R.C. 5751.033(G) (“Transportation Sourcing Method”). In 2012, the statute was amended, and the term “motor carrier” was substituted for “common or contract carrier.” A “motor carrier” is defined as a for-hire or private motor carrier “engaged in the business of transporting persons or property by motor vehicle for compensation.” R.C. 4923.01. A motor vehicle does not include any locomotive operated exclusively on a rail or rails. Id. at (F).
The Decision: At the outset, the Board rejected CSXT’s reliance on the 1995 memorandum to source its receipts. The Board noted that the memorandum was neither controlling nor persuasive because the CFT was replaced by the CAT and because the memorandum set forth approaches for computing a railroad’s net income and net worth factors, neither of which are part of the CAT calculation. In addition, the Board rejected CSXT’s contention that the sourcing methodology from the memorandum was still applicable because “the memorandum expressly stated that the Department would accept the approaches until the year 2000” or until the relevant law was amended (both of which occurred before the audit periods).
Having rejected CSXT’s alternative sourcing methodology, the Board set out to determine the correct method by providing a fair reading of the statute based on its plain language. Because CSXT did not contest that it was a common carrier that would situs its receipts under the former Transportation Sourcing Method, the Board determined that the Commissioner’s sourcing method was correct prior to 2012. However, after the 2012 amendment, the Board found that the Transportation Sourcing Method could no longer apply to CSXT because its receipts were exclusively from transportation operating on rails, and “any vehicle, locomotive, or car operated exclusively on a rail or rails” is explicitly excluded from the definition of “motor vehicle.” Because the Transportation Sourcing Method no longer applied to CSXT’s receipts, the Board determined that CSXT’s receipts should be sourced “in the proportion that the purchaser’s benefit in [Ohio] with respect to what was purchased bears to the purchaser's benefit everywhere with respect to what was purchased.” R.C. 5751.033(I) (“Other Services Sourcing Method”).
The Board went on to reject the Commissioner’s two key arguments. First, the Commissioner argued that meaning must be given to the remaining language of the Transportation Sourcing Method that references mileage by railway. In rejecting this argument, the Board observed that excluding railroads from sourcing under the Transportation Sourcing Method does not render such language meaningless because motor carriers must include in their calculation of gross receipts any mileage traveled by rail. Thus, the railroad language remains “relevant to any multimodal carrier that uses rail transportation.”
Second, the Commissioner argued that because the sourcing under the Transportation Sourcing Method is “fair and reasonable” it should translate into the same measure of receipts under the Other Services Sourcing Method. The Board once again disagreed because to effectively allow sourcing of CSXT’s receipts under the Transportation Sourcing Method would render the 2012 amendment “meaningless.” Noting “that the location of the benefit to the customer is ‘paramount’ but not absolute,” the Board determined that the Other Services Sourcing Method “is the most legally supported approach in the record.”
The Takeaway: The Board’s decision serves as an important reminder that the language of statutes, including amendments, must be read to give effect to its plain meaning. Often, taxing authorities seek to cherry-pick sourcing methods in order to increase a taxpayer’s taxable income sourced to a state. Where a department’s chosen sourcing method ignores the law, it should be rejected!
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