On June 15, 2009, the U.S. Supreme Court issued its decision in Polar Tankers, Inc. v. City of Valdez, Alaska (No. 08-310). Polar Tankers challenged the imposition of a personal property tax on certain ships. The Alaska Supreme Court held that the tax did not violate the U.S. Constitution. The petition for certiorari raised two questions:
- Whether a municipal personal property tax that falls exclusively on large vessels using the municipality’s harbor violates the Tonnage Clause of the U.S. Constitution?
- Whether a municipal personal property tax that is apportioned to reach the value of property with an out-of-state domicile for periods when the property is on the high seas or otherwise outside the taxing jurisdiction of any State violates the Commerce and Due Process Clauses of the Constitution?
In an extremely narrow and badly splintered decision, which is unlikely to have significant implications for most state taxpayers, the Court reversed the decision of the Alaska Supreme Court and held that the levy violated the Tonnage Clause. The Court explicitly declined to reach the broader questions raised by the petitioner’s Commerce and Due Process Clause challenges.
In the only portion of the Court’s opinion that commanded a majority of the Court, seven Justices agreed that the narrowly targeted property tax violated the constitutional bar against any state “Duty of Tonnage.” The Court had previously read the Tonnage Clause as embracing “all taxes and duties, regardless of their name or form, and even though not measured by the tonnage of the vessel, which operate to impose a charge for the privilege of entering, trading in, or lying in a port.” In striking down the Valdez ordinance, the Court declared:
This case lies at the heart of what the Tonnage Clause forbids. The ordinance applies almost exclusively to oil tankers. And a tax on the value of such vessels is closely correlated with cargo capacity. Because the imposition of the tax depends on a factor related to tonnage and that tonnage-based tax is not for services provided to the vessel, it is unconstitutional.
Four Justices (Breyer, Scalia, Kennedy and Ginsburg) went on to consider the City’s contention that the levy, though concededly “operat[ing] much like a duty applied exclusively to ships,” was in substance simply one piece of the state’s overall and purportedly nondiscriminatory personal property tax regime. The plurality rejected this contention on the facts, because “it is clear that the vessels subject to the City’s ordinance are not taxed in the same manner as other personal property.”
Two other Justices (Chief Justice Roberts and Justice Thomas) found this additional inquiry irrelevant because in their view “the Tonnage Clause says nothing about discrimination,” and, once it has been determined that the levy is one that relates to tonnage, that is the end of the inquiry. Justice Alito, while unwilling to go as far as the Chief Justice and Justice Thomas in rejecting the nondiscrimination argument as irrelevant, was also unwilling to pursue that argument in Polar Tankers. “It is sufficient for present purposes,” he said in a separate concurrence, “that the Valdez tax is not such a personal property tax and therefore, even if the Tonnage Clause permits a true, evenhanded property tax to be applied to vessels, the Valdez tax is an unconstitutional duty of tonnage.”
Finally, Justice Stevens (joined by soon-to-be-retired Justice Souter) dissented on the ground that (a) property taxes based on a ship’s value were not barred by the Tonnage Clause, and (b) if such taxes were permitted only if other property in the jurisdiction was also taxed, that condition was satisfied by Valdez because, according to Justice Stevens, “Valdez also taxes mobile homes, trailers, and a wide variety of property used in producing oil.”
Sutherland Observations. As noted at the outset, perhaps the key takeaway point from the Court’s decision in Polar Tankers is its narrow scope. The Court explicitly declined to reach the issues of greatest interest to the business community, namely, the contention that even if the tax satisfied the Tonnage Clause, it was nevertheless invalid under the Commerce and Due Process Clauses. This argument focused on the City’s use of a throwout rule in its apportionment formula, which was based on the number of days a ship is in port in Valdez divided by the number of days the ship is in any port. Such an apportionment formula allows Valdez to tax the value of the Polar Tankers’ vessel for periods it is not in port either in Valdez or elsewhere (e.g., when it is at sea). A decision on the apportionment issue could have had far-reaching consequences for state and local tax regimes across the nation. Like the rule used by Valdez, several states already use apportionment rules that incorporate a throwout rule, and as states struggle financially, an increasing number are considering throwout rules as a means of increasing revenues.
Although it is understandable why the plurality declined to reach the Commerce and Due Process Clause issues, the fact that the dissenting Justices failed to do so as well may be viewed as noteworthy, though hardly unprecedented. In principle, once Justices Stevens and Souter found that the Valdez tax passed muster under the Tonnage Clause, they should have addressed the other constitutional challenges to the tax to indicate whether, at the end of the day, they believed the Valdez tax should be sustained or struck down. Their failure to do so may simply reflect a unanimous view of the Court that the peculiar facts of this case made it an unworthy vehicle for exploring any issues outside of the Tonnage Clause.