Supreme Court Decides Polar Tankers, Inc. v. City of Valdez

On June 15, the Supreme Court decided Polar Tankers, Inc. v. City of Valdez, No. 08-310.

The City of Valdez, Alaska imposes what it terms a personal property tax on ships at least 95 feet long that enter or leave the city's port regularly for business purposes or that (even once in the tax year) take on cargo or otherwise engage in business transactions in the port having a value of more than $1 million. As a practical matter, the tax applies almost exclusively to large oil tankers. The tax does not support services rendered to such vessels, but raises revenue for general municipal operations. The Supreme Court of Alaska upheld the constitutionality of this tax against a shipping company's assertion that it violated the Tonnage Clause and other sections of the U.S. Constitution.

The Supreme Court reversed, holding that the tax violates the Tonnage Clause, Art. I, § 10, cl. 3, which provides that, unless Congress consents, a state may not "lay any duty of Tonnage." This clause has been recognized as part of the Constitution's effort to prevent states from using their taxing authority to burden interstate or foreign commerce. It thus prohibits not only a true "duty" measured by a vessel's tonnage, but all taxes, regardless of their label or form, that "operate to impose a charge for the privilege of entering, trading in, or lying in a port." Because the city's tax here depends on a factor related to tonnage (i.e., the size of the vessel and the value its cargo) and is not based on services provided to the vessel, the tax is unconstitutional.

The Court rejected the city's argument that the tax was permissible because it was similar to taxes that were imposed on forms of personal property other than ships. But there was no majority rationale on this point. Four justices dismissed the argument based on evidence that ships were the only form of personal property that the city taxed. Two justices suggested that such evidence was irrelevant and that an unconstitutional tax on tonnage does not "become permissible when bundled with taxes on other activities or property." And one justice, declining to discuss the point at length, observed only that the tax in question was not a "true, evenhanded property tax" applicable to all forms of property.

Justice Breyer announced the judgment of the Court and delivered the opinion of the Court in part. Justices Scalia, Kennedy and Ginsburg joined Justice Breyer's opinion fully. Chief Justice Roberts filed an opinion concurring in part and concurring in the judgment, in which Justice Thomas joined. Justice Alito joined Justice Breyer's opinion in part and filed an opinion concurring in part and concurring in the judgment. Justice Stevens filed a dissenting opinion in which Justice Souter joined.