Originally published June 15, 2009
Keywords: Polar Tankers, Inc. v City of Valdez, Alaska, Tonnage Clause, Trans-Alaska Pipeline System, personal property tax,
Today the Supreme Court issued a decision, described below, of interest to the business community.
Polar Tankers, Inc. v. City of Valdez, Alaska, No. 08-310 (previously discussed in the November 3, 2008 Docket Report).
The Constitution's Tonnage Clause provides that "[n]o State shall, without the Consent of Congress, lay any Duty of Tonnage." Today, the Supreme Court ruled that a personal property tax levied only against vessels violates that proscription.
The tax invalidated by today's decision was imposed by the City of Valdez, Alaska, on certain vessels exceeding 95 feet in length. The Port of Valdez is the southern terminus of the Trans-Alaska Pipeline System, so the tax fell principally on tankers transporting crude oil from Valdez to the continental United States.
The Supreme Court, dividing 7-2, held that the tax violates the Tonnage Clause. In an opinion by Justice Breyer, the Court explained that the Tonnage Clause historically has been interpreted to prevent states with convenient ports from taxing their neighbors. The constitutional prohibition on one state taxing another is equally violated by a tax on tonnage (an eighteenth-century term of art that refers to the cubic capacity of a ship's cargo hold) and by a tax on vessels' value, which is closely correlated with their cargo capacity. Because the tax charged by Valdez applied only to large ships and to no other personal property, and because it was designed to raise general revenue rather than impose a fee for services, the majority concluded that the tax was unconstitutional.
Although seven justices agreed that the tax was unconstitutional, they divided three ways on the governing principle. Justice Breyer, writing for a plurality of four, concluded that if the property tax did not discriminate against vessels but instead applied equally to all property, it would be constitutional. Chief Justice Roberts, joined by Justice Thomas, concluded that a tax levied against vessels would be unconstitutional regardless of whether other property was taxed. Justice Alito believed it to be unnecessary to resolve the issue in this case.
Justice Stevens, joined by Justice Souter, dissented. He viewed the Valdez tax as a legitimate property tax, as opposed to a tonnage duty, because it applied only to vessels that acquired a tax situs in Valdez. Moreover, he disagreed with the Court's conclusion that the tax was discriminatory against vessels.
Mayer Brown LLP represented the petitioner in the Supreme Court.
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