September 17, 2019
from the United States District Court for the Western
District of Wisconsin. No. 17-cv-00897 - William M. Conley,
Flaum, Rovner, and Scudder, Circuit Judges.
Wisconsin Department of Revenue (the "Department")
disallowed the Union Pacific Railroad Company ("Union
Pacific") from claiming a property tax exemption for the
value of its custom computer software, which under Wisconsin
law is a type of intangible personal property. Union Pacific
refused to pay the tax on its custom software and filed suit,
arguing that the tax singles out railroads as part of an
isolated and targeted group in violation of Section 306 of
the Railroad Revitalization and Regulatory Reform Act of 1976
(the "4-R Act"), codified at 49 U.S.C. §
11501(b)(4) ("subsection (b)(4)"). The defendants
contend that Wisconsin is permitted to grant non-railroads an
exemption from its generally applicable ad valorem property
tax scheme for intangible property, even if railroads do not
qualify for the same exemption. The intangible property tax,
however, exempts everyone except for an isolated and targeted
group of which railroads are a part. The district court
entered summary judgment for Union Pacific. We affirm.
70 of the Wisconsin Tax Code ("the Code") governs
the taxation of manufacturing and commercial companies aside
from railroad and utilities companies. Chapter 76 governs the
taxation of railroad and utilities companies, including air
carriers, pipeline companies, and water conservation and
regulation companies. Wis.Stat. §§ 76.01-76.02.
Taxpayers under chapters 70 and 76 must pay taxes on their
real and personal property unless that property is exempt.
Code contains several exemptions from the general property
tax for various classes of property, including an exemption
for "all intangible personal property," which
covers custom computer software. Wis.Stat. § 70.112(1).
Manufacturing and commercial taxpayers generally qualify for
the intangible personal property exemption, but railroad and
utilities companies do not. Compare id., with Wis.
Stat. § 76.025(1). The parties do not dispute that
railroad and utilities companies are the only taxpayers that
Wisconsin requires to pay taxes on their intangible property,
including custom software.
several years, Union Pacific claimed the value of its custom
software as exempt under Wis.Stat. § 70.11(39), which
applies to computers and certain types of software; however,
that exemption expressly does not cover custom
software. The Department audited Union Pacific and concluded
that, for the years 2014 and 2015, it owed $2, 631, 104.77 in
back taxes and interest after disallowing Union Pacific's
deduction of its custom software. Union Pacific filed suit
against the Department and its secretary,  contending that
Wisconsin's tax on Union Pacific's custom software
violates subsection (b)(4) of the 4-R Act.
district court entered summary judgment for Union Pacific,
concluding that because railroads are "the only entities
in Wisconsin who are taxed for their intangible personal
property - including custom computer software," the tax
on intangible personal property "is not one of
general applicability, but rather is one that appears to fall
squarely, if not entirely, on railroads 'as part of some
isolated and targeted group.'" The defendants now
appeal, arguing that Wisconsin is permitted under subsection
(b)(4) to grant exemptions from its generally applicable ad
valorem tax scheme, even if those same exemptions are denied
case comes to the Court on appeal of the district court's
ruling on cross-motions for summary judgment with no disputed
material facts. Accordingly, we review the district
court's legal conclusions de novo. State Auto Prop.
& Cas. Ins. Co. v. Brumitt Sews., Inc., 877 F.3d
355, 357 (7th Cir. 2017).
Pacific asserts that Wisconsin "[i]mposes another tax
that discriminates against a rail carrier" in violation
of 49 U.S.C. § 11501(b)(4) ("subsection
(b)(4)") by taxing railroads' custom computer
software while exempting custom computer software for other