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Supreme Court Strikes Down Tax as Violation of Tonnage Clause

4 min readBy: Joseph Bishop-Henchman

The Supreme Court’s decision this week in Polar Tankers, Inc. v. City of Valdez not only discusses an interestingly obscure taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. prohibition in the U.S. Constitution, but also has a bit of the scholarly reliance on constitutional originalism and purpose.

See our previous post-argument discussion of the case here.

The Court’s decision struck down the property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. imposed by Valdez, Alaska on large oil tanker vessels, as a violation of the Tonnage Clause of the Constitution, Art. I, § 10, Cl. 3. That Clause prohibits states or municipalities from “laying any duty of tonnage,” which is defined in past case law as a charge 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.”

The Court majority strikes down the tax because it is a duty on tonnage, which the text of the Constitution prohibits. The dissenters argue that while it is a duty on tonnage, it is not imposed for an improper intent and therefore should be upheld.

Justice Stephen G. Breyer wrote the majority opinion for the Court, joined by Justices Antonin Scalia, Anthony M. Kennedy, and Ruth Bader Ginsburg (and joined mostly by Justice Samuel A. Alito). The opinion gives great weight to the Tonnage Clause’s text but also to the underlying purpose behind it and other constitutional provisions of preventing state interference with interstate commerce. They conclude that the clause applies to charges based on ships using ports. Although the city claims the tax is a general property tax, the Court majority concluded that because in operation it effectively excludes all but the oil tankers, it operates as a forbidden duty on tonnage.

Chief Justice John G. Roberts, Justice Clarence Thomas, and (separately) Justice Samuel A. Alito would go further, holding that even a general property tax that applies to ships based on tonnage would be unconstitutional. They emphasize the text of the Tonnage Clause, writing that duties are impermissible under the Tonnage Clause’s language irrespective of whether they are “bundled with taxes on other activities or property.”

Justice John Paul Stevens and David A. Souter wrote a joint dissent and give greater weight to their conception of the Tonnage Clause’s purpose than to its text. They argue that the purpose of the Tonnage Clause is prevent states with ports from imposing charges with the intent of abusing states without ports. Thus, a duty on tonnage with a permissible purpose can be upheld. Relying heavily on past cases upholding some tonnage-based charges, the dissenters conclude that the tax’s purpose is to “support the ships’ use of the city’s services,” which they hold to be permissible. Further, they conclude that the charge is part of a general property tax.

Thus, Stevens and Souter would permit a duty on tonnage, even in light of an explicit constitutional prohibition on them, depending on whether the purpose of the tax is to disrupt interstate commerce or compensate for government expenditures. Although problematic because of the difficulty in divining one legislative intent out of multiple good and bad legislators’ intents, the Court’s tests under the Commerce Clause essentially look at whether the tax in operation disrupts interstate commerce. Stevens and Souter would extend that test to permit such taxes even where the text of the Constitution specifically forbids them.

Stevens and Souter apparently ignore economic incidence, or the idea that taxes imposed by Valdez on oil companies hurt consumers of oil everywhere, or they would have found such an interference with interstate commerce. Their test, combined with their deference to the city’s stated purpose for the tax, essentially guarantees that such taxes would be upheld from any challenge in their world.

(Justice Souter has announced his retirement at the end of the term. This opinion is another addition to his miserable record in tax policy cases.)

(Polar Tankers also argued that the formula used to calculate the tax adopted by the City Council is discriminatory for dividing the number of days a vessel is in Valdez by the number of days a vessel is in all ports. For example, if a given cargo is in port in Valdez for 50 days and is in ports anywhere for a total of 150 days in a year, Valdez would assess a property tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. d on 33% of the cargo’s value, even though it spends only 14% of the year in Valdez. Thus, the vessels will be taxed by Valdez for time it is on the high seas, exceeding its taxing power and risking double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. . Having invalidated the law on other grounds, the Court did not address these arguments.)