On April 1, the U.S. Supreme Court heard oral argument in Polar Tankers, Inc. v. City of Valdez, No. 08-310. The case involves Valdez’s 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. on large oil tankers who service the port, which is at the southern end of the Trans-Alaska Pipeline (see map right). We went over the facts of the case in this blog post.
Two issues confront the Court. First, there is the question of whether the 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. violates the Tonnage Clause of the Constitution, which prohibits local taxes based on tonnage. The original meaning and text of the Constitution, which both point to a stated intent to bar taxes for the use of a port because they discourage commerce and promote tax exporting, conflict with a series of cases which permit such taxes under certain conditions.
Some justices, in their questions, pointed back to the original meaning and the text, while others pointed back to the case law. Ted Olsen, attorney for the city, attempted to characterize the tax as a general property tax which sounds less like a Tonnage Clause imposition; Charles Rothfeld, attorney for the company, noted that only large oil tankers pay the tax because everyone else has been exempted. (This dispute created some confusion.) Most of the oral argument focused on the Tonnage Clause aspect of the case, and it may be the focus of the opinion.
The second question involves Valdez’s formula for apportioning taxation. The large oil tankers (for example) spend part of their year in Valdez’s port (picture below), part of it in port in California, and part of it on the high seas outside any port. While their parent company is presumably always paying income tax, there is a part of the year where their property (the tankers and its cargo) are outside any property tax jurisdiction. The city of Valdez not only taxes the property while it is physically present in the jurisdiction, but also seeks to tax a share of the time on the high seas.
For policymakers, the key question is which is more offensive: that a piece of property pays no property tax for part of the year because it is outside the bounds of all taxing jurisdictions, or that a city is extending its tax to property outside its borders and jurisdiction. Both have implications far beyond this case, and it is unfortunate the Court did not spend much time on the issue (although they spent some). Thinking on the subject seemed to divide on the oft-cited liberal-conservative divide on the Court.
A decision is expected by June. The transcript of the Court’s argument is here (PDF).
Here are some quotables:
Justice Antonin Scalia:
“[A] tax for the use of the port. And that’s exactly what the Tonnage Clause was directed against, preventing Philadelphia and New York from taxing the consumers in New Jersey by imposing taxes on ships that bring in goods.”
“But you can’t — you can’t make vessels bear the overall burden of municipal governance. You can make them bear the burden of the services provided to them in harbor. But you cannot make them the instrument of funding all other municipal services. That’s what the Tonnage Clause means.”
Justice Ruth Bader Ginsburg:
“Mr. Olson, we — we have said it’s not just tonnage. It said that the clause bars states, we said, from imposing a charge even if not measured by a vessel’s tonnage, for the privilege of entering, trading in or lying in a port. So we have ruled out the position that it’s got to be an old-fashioned tonnage charge, and can’t be based on the assessed value of the property.”
Justices John Paul Stevens and Antonin Scalia discussing economic incidence:
Justice Stevens: “If you assume that the Tonnage Clause was designed to protect New Jersey from being exploited by New York and perhaps other States because they don’t have their own ports, why does that rationale have any application to this case, because the only State ships oil out of Alaska is Alaska? So there is no other State like New Jersey who could be harmed by the Tonnage Clause.”[…]
Justice Scalia: “Not felt by the other States, felt by the consumers in other States. Ultimately, it’s not going to be the oil companies that pay this tax; it’s going to be purchasers of oil.[…] It’s a neat tax, you know, get somebody else to pay your taxes.”Share