Tax News

CCH (cch.taxgroup.com) reports:

An Alaska city's property tax on certain large vessels that docked at private facilities in the city did not violate the Due Process Clause, Commerce Clause, or Tonnage Clause of the U.S. Constitution. The Alaska Supreme Court held that the city's apportionment formula, based on days spent in port, did not create a risk of duplicative taxation, and it was therefore error for the Superior Court to declare the city ordinance unconstitutional as applied.
The test set forth in Complete Auto Transit v. Brady, 430 U.S. 274 (1977), was applicable in determining whether a tax on mobile property used in interstate commerce satisfied the Commerce Clause. The test also encompassed due process requirements, and the Alaska Supreme Court therefore considered the first two elements of the test, substantial nexus and fair apportionment, under both clauses simultaneously. Due to the direct and significant economic connection between the city and the vessel owner and the services the city provided to the owner, there was a substantial nexus and the city was a tax situs for the vessel owner.
With regard to fair apportionment, the vessel owner argued that California was its commercial domicile, and the Alaska city's apportionment scheme was unfair because it impinged on the domicile's taxing authority, creating the risk of multiple taxation. However, the U.S. Supreme Court had recognized that the home port doctrine had yielded to a rule of fair apportionment among situs states and, therefore, a rule of fair apportionment had to be applied. In this instance, the port-day apportionment formula used by the city was fair because it apportioned the full value of a ship between the taxing jurisdictions in which it was regularly present in proportion to the number of days during the tax year that the ship was present in each jurisdiction. Additionally, the owner waived claims regarding the third and fourth elements of the Complete Auto test --whether the tax discriminated against interstate commerce and whether there was a fair relation between the tax and the services provided --because it failed to adequately argue the issues before the court.
Finally, the vessel tax did not violate the Tonnage Clause, which prohibits taxes that operate to impose a charge for the privilege for entering, trading in, or lying in a port, because the vessel tax was a fairly apportioned tax on personal property rather than a tonnage duty.
Valdez v. Polar Tankers, Inc. , Alaska Supreme Court, No. 6254, April 25, 2008, ¶200-503
Other References:
Explanations at ¶20-065