SandBar 8:3, October, 2009
Recommended citation: Hartman, Brent. , Supreme Court Declares City Tax on Large Vessels Unconstitutional, 8:3 SandBar 15 (2009).
Supreme Court Declares City Tax on Large Vessels Unconstitutional
Polar Tankers, Inc. v. City of Valdez, 129 S. Ct. 2277 (2009).
Brent Hartman, 3L, University of Toledo College of Law
A recent U.S. Supreme Court decision may force coastal cities and states to reconsider fees, taxes, and duties imposed on vessels. In Polar Tankers, Inc. v. City of Valdez, the Supreme Court, relying on the U.S. Constitution’s Tonnage Clause, found that port cities cannot circumvent the constitutional prohibition of state import and export tax by taxing the vessel itself.
Background
The Tonnage Clause states that “[n]o state shall, without the consent of Congress, lay any duty of tonnage.”1 Together with the Import-Export Clause, the Tonnage Clause limits the ability of coastal states to impose taxes, duties, or fees for the privilege of entering, trading, or lying in a port. Supreme Court precedent dating back to the nineteenth century states that the term “tonnage” extends beyond the capacity or weight of a ship and its cargo. The Court has ruled that the Tonnage Clause also forbids other measures bearing a relationship to capacity or size, such as engine size or the number of passengers.
In 1999, the City of Valdez passed an ordinance levying a tax on “[b]oats and vessels of at least 95 feet in length.”2 A large ship was subject to the tax if it: 1) regularly traveled to the city; 2) was kept or used in the city; or 3) had $1 million in cargo or business transactions in the city. Exceptions to the ordinance, however, essentially limited the applicability of the tax to large oil tankers. An interstate crude oil transporter, Polar Tankers, Inc. (Polar Tankers) challenged the constitutionality of the tax under the Tonnage, Commerce, and Due Process Clauses. The Alaska Superior Court declared the tax unconstitutional under the Commerce Clause and Due Process Clause, but the Alaska Supreme Court upheld the tax on appeal. On appeal to the U.S. Supreme Court, the justices ruled that the city’s tax was unconstitutional under the Tonnage Clause, making it unnecessary to examine the Commerce Clause and Due Process Clause claims.
Tonnage Clause
The Tonnage Clause does not operate to ban all state or municipal taxation of vessels. For example, states are permitted to tax for services rendered to vessels. In this instance, the Court noted that applicability of the city’s tax was levied based on the size of the ship, not whether services were rendered. The tax revenue supported the general municipal fund. According to the Court, collecting taxes for general revenue typically points toward a Tonnage Clause violation, because it suggests the tax is imposed in addition to any fee for service rendered. For these reasons, the Court ruled that the ordinance imposed an unconstitutional tax.
The Court had differing opinions on why the tax was unconstitutional. A plurality found that the law would be constitutional if the tax applied equally to all personal property and did not discriminate against ships. The plurality found that in this instance, however, the ordinance did discriminate against ships because the ships were not taxed in the same manner as other personal property in the state. In a concurring opinion joined by Justice Thomas, Chief Justice Roberts argued that the Tonnage Clause bars all duties including personal property tax on visiting ships. Justice Alito concurred on similar grounds, but he reserved analysis of the relationship between an evenhanded personal property tax and the Tonnage Clause for a case where the tax applied equally. In Justice Stevens’ dissenting opinion which was joined by Justice Souter, the ordinance was characterized as “a legitimate property tax” based on the value of property engaged in oil production.3 Even without such a classification, the dissent would have upheld the tax based on a more narrow view of the Tonnage Clause.
Conclusion
The Court found the city’s tax to be unconstitutional under the Tonnage Clause. Although a coastal state is not completely barred from charging fees and taxes for the use of its port, the state must ensure the taxes and fees fall within constitutional bounds.
As Justice Breyer stated in the majority opinion, “[t]his case lies at the heart of what the Tonnage Clause forbids.”4 Although Polar Tankers does not alter Tonnage Clause interpretation, the case extends the longstanding interpretation into the twenty-first century. The Court ruling proves that the clause continues to have practical effects, and that the Tonnage Clause is as applicable today as it was over a century ago.
The Tonnage Clause reinforces the Import-Export Clause and limits the power to tax. Fees, taxes, and duties collected by a city or state cannot be collected based on any “tonnage” characteristic. Furthermore, the use of revenue from any legitimate fees, taxes, or duties should be collected for services rendered. To avoid costly legal battles, coastal cities and states must carefully craft any fees, taxes, or duties for port usage and specifically state what services are being rendered.
Endnotes
1. US Const. Art. I, § 10, cl. 3
2. Polar Tankers, Inc. v. City of Valdez, 129 S. Ct. 2277, 2281 (2009) (citing the city’s ordinance).
3. Id. at 2291.
4. Id. at 2284.