Polar Tankers, Inc. v. City of Valdez, Alaska

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Authorship: Beverly Moore

Contents

[edit] Briefs and Documents

Docket: 08-310

Issue: Whether a municipal tax that falls exclusively on large vessels in the city’s harbor violates the Tonnage Clause, Commerce Clause, or Due Process Clause.

Merit briefs

Amicus briefs

Oral Argument

Transcript

Decision: Reversed and remanded in an opinion by Justice Breyer

[edit] Pre-Argument Articles

[edit] Argument Preview

The Tonnage Clause, U.S. Const., Art. I, § 10, Cl.3, prohibits states or municipalities from “laying a duty of tonnage,” which is defined as a fee imposed “upon a vessel, according to its tonnage, as an instrument of commerce, for entering or leaving a port, or navigating the public waters of the country.” On April 1, in No. 08-310, Polar Tankers v. City of Valdez, Alaska, the Court will consider (1) whether the Tonnage Clause prohibits a municipal personal property tax that falls on large vessels using the municipality’s harbor, and (2) whether a municipal personal property tax assessed on property with an out-of-state domicile violates the Commerce and Due Process Clauses when the assessment includes time spent by the property on the high seas or otherwise outside any State’s taxing jurisdiction.

[edit] Background

This case stems from a tax enacted by Valdez, Alaska, which is located on Prince William Sound at the south end of the Trans-Alaska Pipeline System. Each year, oil tankers load hundreds of millions of barrels of crude oil at the City’s port. In 1999, the City extended its property tax to apply to “boats and vessels of at least 95 feet in length” that are neither used “primarily in some aspect of commercial fishing” nor “dock at privately owned docks in the City.” The tax is calculated by multiplying a vessel’s total assessed value by a ratio that is in turn determined by dividing the number of days spent in Port Valdez by the total number of days it spends in all ports with taxing authority. The City resolution approving the tax also allows a taxpayer to petition for a different apportionment method if the default method “does not reasonably represent the portion of the total value of the vessel that should be” attributed to the City.

Petitioner Polar Tankers, Inc., whose principal place of business is in California, operates tankers that transport crude oil from a terminal in Valdez to refineries in California, Hawaii, and Washington. Polar Tankers filed a suit in Alaska state court in which it challenged the constitutionality of the City’s tax on two grounds: (1) the tax violated the Tonnage Clause because it effectively taxed vessels for the privilege of using the City’s harbor; and (2) the City’s apportionment formula violates the Commerce and Due Process Clauses by imposing a risk of duplicative taxation and taxing extraterritorial values.

The Alaska trial court initially held that the tax was unconstitutional under the Tonnage Clause, concluding that large vessels “are the only personal property taxed by the City.” However, on reconsideration, the court changed course, holding that the City’s failure to tax property other than large vessels did not render the tax unconstitutional. On the second issue, the trial court held that the City’s apportionment method violated both the Commerce and Due Process Clauses by creating a risk of duplicative taxation by domicile and non-domiciliary states.

On cross-appeals, the Alaska Supreme Court upheld the City’s tax in its entirety. In holding that there was no Tonnage Clause violation, the court relied on the fact that the amount of the City’s tax was based on the market value of the property being taxed. The court found the apportionment formula proper, even though its denominator excluded days at sea outside the jurisdiction of any taxing authority, because it “apportions the full value of a ship between the taxing jurisdictions in which it is regularly present in proportion to the number of days during the tax year that the ship is not present in each jurisdiction.” The court also upheld the apportionment formula as valid under both the Commerce and Due Process Clauses. It rejected the possibility of duplicative taxation, concluding that the Supreme Court’s repudiation of the “home port” doctrine, which had allowed a vessel’s home port to subject it to property tax, in Japan Line, Ltd. v. L.A. County, 441 U.S. 434 (1979), precluded the owner’s domicile from taxing property during periods in which the property had no specific tax situs.

[edit] Petition for Certiorari

In its petition for certiorari, Polar Tankers contended that certiorari was warranted for two principal reasons. First, it argued that the City’s tax, by falling only on large vessels and not other types of property, was discriminatory and thus violated the Tonnage Clause. Acknowledging that vessels may be taxed based on their market value, Polar Tankers claimed that the City’s taxing authority was limited by the nondiscrimination principle developed by the Court in Transportation Co. v. Wheeling, 99 U.S. 273 (1878). Under that principle, the Tonnage Clause prohibits a tax that is not levied on vessels “in the same manner as other property of the citizens.” Moreover, a state law that authorizes the City to exempt certain types of personal property from ad valorem property taxes does not override its violation of the Constitution. The tax was also impermissible, Polar Tankers argued, because it was not designed to charge for services provided uniquely to vessels in its port but was rather an attempt to export the City’s local tax burden to out-of-state entities.

Second, Polar Tankers argued that the City’s apportionment formula violated the Commerce and Due Process Clauses. Specifically, because the formula does not account for the times when a vessel is not subject to any taxes — because it is either on the high seas or in ports where it is not subject to tax — it creates the risk of unconstitutional duplicative taxation. This risk stems from the fact that, under Central Railroad Co. of Pa. v. Pennsylvania, 370 U.S. 607 (1962), non-domicile jurisdictions can tax property based on the portion of the year spent in that jurisdiction, while the vessel’s domiciliary state is empowered to tax the value of the vessel in full for all other periods.

Finally, Polar Tankers contended that the formula allows the City to tax values that have no connection to the City, in violation of the Due Process and Commerce Clauses. By allowing the City to tax vessels for time spent outside the City’s jurisdiction, Polar Tankers reasoned, the formula did not correctly apportion the tax to commerce carried on in the City.

Opposing certiorari, the City advanced two basic arguments. First, it asserted that petitioner’s Tonnage Clause claim lacked merit because the City’s property tax applied, at the same rate, not only to vessels, but also to other kinds of property, including certain types of residences. The City contended that the Court’s decisions in Wheeling and Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976), did not establish a nondiscrimination principle requiring the City to tax non-vessel property in order to tax vessels. In any event, the City explained, the Tonnage Clause inquiry should focus on whether vessels are taxed as property based on their value. Moreover, its local taxpayers should not be forced to subsidize services used by vessels in its Port.

Second, the City contended that petitioner’s Commerce and Due Process claims also did not merit review. In its view, the question of whether a vessel’s domicile jurisdictions impose a tax identical to the City’s is a factbound inquiry that is insufficiently important to warrant the Court’s review.

[edit] Merits Briefing

In its merits brief, Polar Tankers presents two main arguments to support its contention that the City’s tax violates three separate provisions of the Constitution. First, it argues that the City’s tax, by falling almost exclusively on certain large vessels for the purpose of raising revenue from vessels that dock in the City, was discriminatory and thus violated the Tonnage Clause. The brief begins by discussing the Framers’ intent in enacting the Tonnage Clause: to complement the Import-Export Clause in preventing States from exploiting their ports to the disadvantage of other jurisdictions. Acknowledging that the Tonnage Clause does not prohibit all tonnage duties, such as a tax imposing a charge for services rendered, Polar Tankers contends that a tax such as the City’s, which “applies whether or not that service is provided,” falls outside the scope of permissible levies.

Polar Tankers then turns to the issue of nondiscrimination, arguing that although a State need not exclude vessels from a generally applicable ad valorem property tax, the Tonnage Clause precludes states from taxing vessels differently from other property. Polar Tankers argues that the Court in Wheeling adopted this ban on discriminatory property taxes on vessels, which it describes as “an essential element of the rule.” Moreover, in Michelin Tire, the Court distinguished between “discriminatory” and “nondiscriminatory” ad valorem property taxes, noting that the latter would not offend the Import-Export Clause. Polar Tankers further contends that the Court had emphasized the nondiscrimination principle with respect to constitutional limits on state taxing authority under the Commerce Clause, and that the City’s tax, drafted to apply only to oceangoing vessels, was “flatly inconsistent” with this nondiscrimination principle. The tax was also not designed to charge for services uniquely provided to those vessels, but rather to raise general revenue, which – according to Polar Tankers – was the “core concern of the Tonnage Clause.” Finally, Polar Tankers asserts that the City, by imposing a tax on large (but not small) vessels and oil tankers but not other types of vessels, was regulating interstate commerce and infringing on federal power.

Polar Tankers next argues that the City’s tax violates both the Due Process and Commerce Clauses. By failing to account for time spent by a vessel on high seas, otherwise outside a taxing jurisdiction, tied up in strikes, or out of service for repairs, the City inflated the proportion of a ship’s value that is subject to taxation in Valdez. The brief includes several examples of vessels that spend a relatively small portion of the year in Valdez, but are nonetheless taxed on a high percentage of their full value under the City’s apportionment formula.

Polar Tankers also argues that the City’s tax was designed to tax “extraterritorial value” and thus contravened the Court’s prohibition in MeadWestvaco Corp. v. Illinois Department of Revenue, 128 S. Ct. 1498 (2008), of state taxation of property “unconnected with the State.” To pass constitutional muster under the Commerce and Due Process Clauses, the tax must be apportioned among all jurisdictions in which the property is subject to taxes. Polar Tankers contrasts the City’s tax with a tax imposed by a domicile State on property that is not subject to taxes elsewhere, explaining that the latter tax would not constitute an improper extraterritorial tax because a domicile State can impose a tax in return for providing the owner unique “opportunities, benefits, or protection.” Polar Tankers goes on to argue that the City’s tax fails to satisfy the requirement that it tax property on the basis of its “actual proportionate presence” within the City.

In its final argument, Polar Tankers emphasizes that the tax creates a risk of duplicative taxation of vessels, and is thus invalid, because a domicile State may, under Central Railroad, tax petitioner’s vessels for periods when the vessels are not subject to tax – even if it does not actually do so. Polar Tankers thus disputes the Alaska Supreme Court’s interpretation of Japan Line as abrogating the authority of domicile States under Central Railroad to tax property during the times in which they are not otherwise subject to taxes. In addition, Polar Tanker contends that a risk of duplicative taxation flows from the City’s taxation of vessels for periods they spend in other ports for repairs or because of a strike. Polar Tankers concludes by urging the Court to resolve the apportionment challenge even if it declares the tax unconstitutional under the Tonnage Clause, reasoning that the City might still impose a new nondiscriminatory tax using the same flawed apportionment formula.

The City brief on the merits advances two main arguments. Beginning with the Tonnage Clause issue, the City contends that the Tonnage Clause does not apply to either property taxes or ad valorem taxes. As an initial matter, the City argues, the Court has consistently recognized that a state tax on vessels that is based on the property’s valuation does not constitute an unconstitutional tonnage duty. Because its tax applies only to those vessels that acquired tax situs – that is, are principally located or used – within the City and was levied on petitioner’s vessels “as property, based on a valuation of the same as property” rather than for the privilege of entering or using the City’s port, it did not violate the Tonnage Clause. The City also refutes Polar Tankers’s claim that the City used the tax revenue for an “impermissible general revenue purpose,” noting that the Court has repeatedly held that taxpayers may not challenge a tax based solely on the manner in which a State chooses to spend the resulting revenues.

The City next contends that its tax is not discriminatory because it applied, at the same rate, to many types of property besides vessels, including mobile homes and recreational vehicles. But even if the tax had not applied to other types of property, it still would not have violated the Tonnage Clause because the “anti-discrimination principle” on which Polar Tankers relies is not supported by either the text or purpose of the Tonnage Clause. Moreover, this Court’s statement in Wheeling that a municipality may tax vessels in the “same manner as other property” refers to taxation based on property value – ad valorem taxation – and does not require a municipality to tax other types of property as well. The City also argues that imposing the nondiscrimination principle advanced by petitioner would require courts to engage in a “futile effort” to determine whether lawmakers harbored a “secret intent” to enact an impermissible duty on vessels. Moreover, the nondiscrimination principle does not apply to the Import-Export Clause, and, even if it did, the City’s tax applied equally to in-state and out-of-state vessels.

The City’s second main argument is that its apportionment formula satisfies both the Due Process and Commerce Clauses. With respect to the Due Process claim, the City argues that its port-day formula is valid because it allows the City only to tax that portion of a vessel’s value that was fairly attributable to its productive commercial activity within the City. The City further contends that the Court has never required taxing jurisdictions to use a particular formula to calculate in-state taxable value; thus, any apportionment method is valid as long as it does not reach beyond the value fairly attributable to economic activity within the jurisdiction. The City discusses a number of apportionment formulas previously upheld by the Court that were based on physical presence in the taxing jurisdictions or commercial value generated while in that jurisdiction. In addition, the City claims that, although Polar Tankers contends that a domicile State may tax vessels for time spent on the high seas, the only relevant issue is how the “taxable pie” is divided among States in which the taxpayer’s activities contributed to taxable value – an issue that the City considered by looking at the relative time spent in competing tax situses. Moreover, the services provided by non-domiciles to vessels in their ports often equal those provided by a vessel’s domicile State.

Moving on to the Commerce Clause challenge, the City argues that Central Railroad did not, as Polar Tankers claims, vest domicile States with exclusive power to tax time on the high seas, but rather required only fair apportionment when property is amenable to taxation by multiple jurisdictions. In addition, the City points out that Polar Tankers’s approach to apportionment would result in the undertaxation of a vessel that spends all its time either in non-domicile ports or on the high seas, because Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194 (1905), prevents domicile States from taxing property permanently located in other states and petitioner’s approach precludes non-domicile States from taxing time spent on the high seas. Finally, the City concludes that petitioner’s claim that the formula did not account for time spent in dry dock or out of service due to strike is not properly before the Court. Even if it were, however, such time is “not productive” and therefore is necessarily excluded from the formula.

[edit] Oral Argument Recap

At last week’s oral argument in Polar Tankers v. City of Valdez, the Supreme Court questioned the constitutionality of a tax imposed by the City of Valdez on vessels using its port. Although Polar Tankers challenged the City’s tax on three constitutional grounds, the Court was almost exclusively concerned with the constitutionality of the tax under the Tonnage Clause.

Charles Rothfeld, arguing for Polar Tankers, began by arguing that the Valdez tax violates the Tonnage, Due Process, and Commerce Clauses. However, Justice Kennedy quickly turned the focus to the “basic facts” of the case, asking Mr. Rothfeld to explain in more detail the scope of the term “tax base” with respect to Valdez’s statement that the tax “constitutes 11 percent of the tax base.” Mr. Rothfeld responded that the term includes not only those taxes imposed by Valdez, but also taxes imposed by the State of Alaska but collected by Valdez. He agreed with Justice Kennedy that the figure thus “seems really quite irrelevant.” Mr. Rothfeld urged the Court to focus on the “nature” of the tax, invoking the nondiscrimination principle and arguing that the tax is “directed exclusively at vessels and not on all vessels.”

Justice Souter then asked Mr. Rothfeld whether a hypothetical regime in which the State of Alaska taxed all other property except tankers, which were taxed separately by Valdez, would constitute a discriminatory tax violating the Tonnage Clause. Mr. Rothfeld responded by noting that the situation raised by Justice Souter would be “a quite different situation than what we have here.” When Justice Souter continued to press the issue, Mr. Rothfeld emphasized that Valdez had the authority to tax all ordinary kinds of personal property except oil and gas property (which is taxed by the State), but chose only to tax a single item—large vessels.

Justice Scalia then chimed in, noting that the State of Alaska, instead of imposing the tax at the State level, could simply authorize the City to do it. Thus, he cautioned Mr. Rothfeld, if the Court decided the case on the non-discrimination principle he would get a “fragile judgment” that could be circumvented merely by modifying the taxing legislation. Mr. Rothfeld responded that there was little risk that the State would assign its right to tax oil and gas property and that the result under the Tonnage Clause would be the same even if the State imposed the tax and remitted the proceeds to Valdez. He again tried to focus the Justices on the fact that the tax falls “exclusively” on vessels exporting oil from Valdez.

In response to Chief Justice Roberts’s question whether a tonnage tax applicable to all property would be unconstitutional, Mr. Rothfeld instructed the Court to look at the Framers’ intent in drafting the Tonnage Clause. He conceded that a property tax measured by tonnage on everything would be “a difficult case for us,” but he also noted that the Valdez tax was not that case. When asked by the Chief Justice whether Polar Tankers would lose simply if the tonnage tax was nondiscriminatory, Mr. Rothfeld backtracked somewhat on his previous answer and stressed that the Valdez tax, by falling only on cargo vessels, circumvents the Framers’ goal of protecting free movement of commerce. Justice Souter then asked whether the tax would apply to a vessel that entered the Valdez port only once and took on cargo worth less than one million dollars. Mr. Rothfeld confirmed that it would not. Justice Souter pointed out that Valdez contended that the tax was valid because it was based on tax situs—meaning that not every ship coming into Valdez would be taxed. In response, Mr. Rothfeld claimed that old tonnage laws did not subject every ship to tax, and thus a tax that does not apply to all vessels entering a harbor may still violate the Tonnage Clause. Mr. Rothfeld did, however, agree with the Chief Justice that the validity of the tax did not depend on why it was enacted.

Justice Breyer then returned to the state/city taxing authority issue first introduced by Justice Kennedy, posing a hypothetical in which the State wishes to tax all oil and gas property. Under the hypothetical, the State directly collects tax revenues and remits the money to the City. However, with respect to one subcategory of property—ships—the State allows the City to collect the tax revenue itself. Mr. Rothfeld once again noted that although Valdez has authority to tax all property, the Valdez tax singles out vessels. Justice Breyer responded that if the Alaska tax operated as laid out in his hypothetical, then, “I know how to go about deciding it.” Pressed again to explain the operation of the Alaska tax system, Mr. Rothfeld argued that any tax imposed by Valdez is ultimately a tax imposed by the State and that Valdez has no discretion to tax things not subject to tax by the State. Justice Scalia again pushed on whether the sole determinative factor in his argument was discrimination; Mr. Rothfeld said it was not. Justice Scalia did acknowledge that because the tax is based on how long a ship remains in port, it could be seen as a tax on the use of the port—exactly what the Tonnage Clause was designed to prevent.

Justice Ginsburg asked whether benefits provided by Valdez to shipowners might justify the tax and asked Mr. Rothfeld to define Valdez’s taxing authority. Mr. Rothfeld noted the two ways in which Valdez might tax vessels—through a user fee based on capacity or weight designed to pay for services provided specifically to vessels, or through a nondiscriminatory property tax. He also noted that this case did not provide the Court an opportunity to explore the exact limits of the nondiscrimination principle, but that a daily charge for remaining in port violates the Tonnage Clause. Justice Stevens continued by questioning whether any State was actually being discriminated against by the Valdez tax. Mr. Rothfeld responded that any consumers using oil shipped through Valdez ultimately paid for the tax, and that this type of burden was the Framers’ concern in including the Tonnage Clause. He further stated that Tonnage Clause limitations applied equally to a tax based on value or based on capacity. Closing out discussion on the Tonnage issue, Justice Alito questioned whether a tax based on the number of sailors coming ashore and time spent ashore to recover costs imposed on city services would violate the Tonnage Clause. Mr. Rothfeld responded that it would and urged the Court that the Valdez tax presents the “clearest, easiest case under the Tonnage Clause.”

In a very brief discussion of the apportionment issue, Mr. Rothfeld argued that the Valdez tax does not properly apportion on the basis of time spent in the jurisdiction over the course of the year. In response to a question from Justice Ginsburg, he noted that the Court’s decision in Central Railroad gave the domicile taxing authority over vessels, but the possibility that property may be subject to tax elsewhere does not allow Valdez to tax property that is not present in Valdez.

Arguing for the City of Valdez, Ted Olson began by emphasizing that the Court in Wheeling held that taxes on vessels based on their value as property do not violate the Tonnage Clause and that “no ad valorem tax has ever been held to violate the Tonnage Clause.” Addressing Justice Kennedy, he noted that Valdez taxes many types of property, including homes, oil and gas property, and barges; thus, there was no need to remand the case to address the nature of Valdez’s taxing regime. Furthermore, although the State taxes oil and gas property, it also authorizes a city to impose the tax. And in any event, whether the State or city imposed the tax is irrelevant for purposes of the Tonnage Clause: the primary issue is that the State, through the City, taxes many different things.

Noting that “we have a problem with the facts here,” Justice Kennedy indicated that, as he understood the tax, although Valdez had statutes that taxed many types of property, as a practical matter, only tankers actually paid the tax. Justices Breyer and Scalia also pressed Mr. Olson to clearly state whether Justice Kennedy’s statement was accurate. After some back and forth, Mr. Olson responded that non-vessel personal property was exempt from taxation except to the extent it was covered by the State oil and gas tax.

Justice Ginsburg then questioned Mr. Olson’s reliance on Wheeling, which she characterized as involving a general property tax. Mr. Olson responded that the focus should be on the “bundle of taxes that a community or a state imposes on property used.” When Justice Scalia asked about the services provided to vessels in the Valdez port, Mr. Olson responded that vessels pay 11 percent of Valdez’s revenue base, defined as the amount of tax collected by Valdez with respect to all ad valorem taxes in the city, as well as tax collected by the State. Although Mr. Olson urged the Court to look at the “total taxation package,” Justice Breyer asked to focus on “this tax” and walked through Polar Tankers’ claim that, in reality, any other non-vessel property subject to tax is either exempt or fixed in place and thus categorized as real, rather than personal, property. He noted the distinction between the State’s ability to impose a tax and its actual imposition of that tax. Mr. Olson responded that, for purposes of the Tonnage Clause, whether a tax is imposed by a State or city is irrelevant, but that, in any case, the City here does impose a tax on taxable property and in turn receives “a credit against what might otherwise be owed to the State.”

Justice Scalia then urged Mr. Olson to explain this “credit.” Mr. Olson responded that if Valdez imposes a tax, the taxpayer does not also have to pay that tax to the State—thus, it is a City tax, but the taxpayer, not the City, receives the credit. This is the situation, he argued, with respect to taxes imposed by Valdez on many different types of personal property. Moreover, because the Tonnage Clause prohibits States from imposing a tonnage tax, it would not be unconstitutional for the City to impose only the tax at issue in this case, because what other people pay through other taxes is irrelevant. The nondiscrimination issue, he noted, “is not in the Tonnage Clause.” It also would not matter if the tax imposed on vessels was higher than that imposed on other types of property, as long as it was an ad valorem tax. Here, the Valdez tax is assessed annually on the replacement value of the vessels. He directly refuted suggestions by Justices Ginsburg and Scalia that tonnage, or the internal capacity of a vessel, serves as a proxy for a vessel’s value, pointing out that many other factors, including construction and efficiency, also affect value. And under Wheeler, no Tonnage Clause problem exists when a tax is based on the value of a vessel.

After a very brief exchange with Justice Breyer on the validity of a “porthole tax,” Mr. Olson directed the Court to “start on the basics.” Mr. Olson noted that the Framers did not intend the Tonnage Clause to limit States’ ability to impose taxes, but rather to protect commerce. Moreover, the Court has affirmed that cities and States may impose property taxes. Chief Justice Roberts pressed Mr. Olson further on the Framers’ concerns, to which Mr. Olson responded that the Tonnage Clause was intended to ensure that coastal states did not tax imports and exports in a way that disadvantaged inland states.

Justice Scalia then turned to the nondiscrimination issue, asking Mr. Olson to explain why, assuming that discrimination is relevant, the Valdez tax would be nondiscriminatory simply because the State and Valdez tax other property. He noted that consumers in states outside Alaska ultimately bear the burden of the tax. Although Mr. Olson acknowledged that there might be a Due Process problem, he disputed that there was any Tonnage Clause issue.

Justice Souter then contended that, at the time of the Framers, a tax on the value of a ship would have exactly the same effect as a tonnage tax. Thus, the only way to accomplish their intent might be to exempt vessels from property tax. Mr. Olson responded: “Well, it’s going to require an amendment to the Constitution . . . .” Although Mr. Olson reiterated that the Court had repeatedly said that it did not intend to prohibit states from imposing property taxes based on value, Justice Ginsburg noted that those cases involved general property taxes, not a tax applied to “one single category of property.” Mr. Olson responded that the West Virginia statute in Wheeling allowed the city to impose a tax on steam ships, but acknowledged that the Court did not address what else the city taxed in that case. He concluded his argument by again stressing that the Framers did not intend to remove the power of States to tax commercial activity using property in their communities in the same manner, based on value, that they taxed other property.

On rebuttal, Mr. Rothfeld first reemphasized that the Valdez tax is a State tax because it is “imposed by the State.” Chief Justice Roberts pressed Mr. Rothfeld on the point, noting that Valdez, not the State, collects and keeps the tax revenue. Second, Mr. Rothfeld reemphasized that the tax violates the nondiscrimination principle adopted in Wheeling.

[edit] Opinion Analysis

On Monday, June 15, the Supreme Court shed light on the contours of the Constitution’s Tonnage Clause. The Court, in a 7-2 decision reversing the Alaska Supreme Court, held that a tax implemented by the City of Valdez, Alaska on “[b]oats and vessels of at least 95 feet in length” that regularly use the City’s port violated the Tonnage Clause. The Court consequently did not reach the question whether the tax also violated the Commerce and Due Process Clauses.

Noting that “We begin, and end, with Polar Tankers’ Tonnage Clause claim,” Justice Breyer wrote the opinion for the Court, which was joined in full by Justices Scalia, Kennedy, and Ginsburg and in part by the Chief Justice and Justices Thomas and Alito. It began by focusing on the Framers’ intent in drafting the Tonnage Clause, as well as the Court’s subsequent interpretation of the Clause. The Framers, Breyer wrote, adopted the Tonnage Clause to prevent States from evading the Import-Export Clause’s prohibition of duties on imports and exports by simply taxing the vessels transporting merchandise instead. The Tonnage Clause was thus intended to prevent States from obtaining certain “geographical vessel-related tax advantages.” Breyer noted that, in light of the Framers’ intent, the Court had previously interpreted the Clause to encompass “all taxes and duties . . . which operate to impose a charge for the privilege of entering, trading in, or lying in a port.”

Breyer then went on to address whether or not the specific tax implemented by Valdez violated the Tonnage Clause. He focused on the fact that the tax, in practice, applies only to only one type of property—large vessels. Rejecting the City’s argument that the tax did not impose a duty, but rather a fee for “services rendered” to vessels using its port, Breyer concluded succinctly that “[t]his case lies at the heart of what the Tonnage Clause forbids.” The tax depends on the value of the vessels—a factor closely related to tonnage and not related to services provided. Thus, Breyer wrote, the tax is unconstitutional.

In the plurality portion of his opinion, joined by Justices Scalia, Kennedy, and Ginsburg, Breyer went on to address the City’s claim that the tax fell outside the prohibitions of the Tonnage Clause because it was simply a personal property tax based on valuation of the property. Justice Breyer, however, rejected the City’s argument on the ground that a tax may only escape the prohibitions of the Tonnage Clause if it taxes vessels in the same manner as other personal property owned by citizens of the State. The Clause thus requires that a State also impose a similar tax on other businesses. The requirement helps serve as a political check on States that might seek to take economic advantage of their port’s geographic position. The City of Valdez did not satisfy this requirement, Breyer wrote, because “[w]e can find little, if any, other personal property that it taxes.” The City’s argument that it also imposes a value-based tax on certain other property such as mobile homes and trailers operates as a tax on real, not personal property, since it requires the property to be “affixed” to the site. In addition, Breyer rejected the City’s claim that the tax is simply another form of Alaska’s state-level tax on oil-related property. The City’s ship tax, unlike the tax on oil-related property, is a purely municipal tax, defined, administered, and collected solely by the City of Valdez. Moreover, unlike the broader tax on oil-related property, the City’s tax affects only ships. The City, Breyer wrote, is therefore not constrained by the need to treat vessels like other types of business property, and thus the tax “lacks the safeguards implied by this Court’s statements that a property tax on ships escapes the scope of the Tonnage Clause only when that tax is imposed on ships ‘in the same manner’ as it is imposed on other forms of property.” Breyer concluded by declaring the tax unconstitutional.

Chief Justice Roberts, joined by Justice Thomas, agreed that the tax is unconstitutional but rejected the City’s argument that its tax should be upheld as a property tax similar to its other property on the ground that an unconstitutional tax on maritime commerce is not justified simply because it is grouped together with taxes on other activities or property.

Justice Alito concluded that the tax is an unconstitutional duty of tonnage even if the Clause permits a “true, evenhanded property tax” to be applied to vessels.

Justice Stevens, joined by Justice Souter, dissented. Stevens concluded that the Valdez tax is constitutional because the Tonnage Clause allows a State to impose a property tax on ships, regardless of whether it also taxes other property. Even if that were not the case, Stevens wrote, the City’s tax is nonetheless constitutional since the City also taxes other types of property such as mobile homes and trailers.

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