Tax News

CCH (cch.taxgroup.com) reports:

  The U.S. Supreme Court heard oral argument on April 1 regarding whether an Alaska city's personal property tax on large vessels docking at private facilities violates the U.S. Constitution. The city of Valdez imposes a tax on 100% of a vessel's assessed value, times a ratio based on the number of days spent in Valdez divided by the total number of days spent in all ports, including Valdez, where the vessel has acquired a situs for taxation. An oil tanker operator challenged the tax in court, asserting that it violates the Due Process and Commerce Clauses of the U.S. Constitution because it creates a risk of multiple taxation, and the Constitution's Tonnage Clause, which prohibits taxes that "operate to impose a charge for the privilege of entering, trading in, or lying in a port."

  The Alaska Supreme Court rejected these challenges. The state high court held that the port-days formula is fair and does not create a risk of duplicative taxation. Furthermore, the court held that a fairly apportioned property tax is not a tonnage duty and, therefore, does not violate the Tonnage Clause. (TAXDAY, 2008/04/30, S.1) The tanker operator requested review by the U.S. Supreme Court and that request was granted.

  Most of the argument, and the justices' questions, focused on the Tonnage Clause. The issue of whether the tax is properly apportioned was touched upon only briefly. Charles Rothfeld, counsel for the tanker operator, argued that the Valdez tax is apportioned in a way that improperly taxes values that are not present in Valdez, specifically on the time that tankers spend on the high seas. Responding to a question from Justice Ginsburg, Rothfeld said that the fact that property may not be subject to tax somewhere else (e.g., on the high seas) does not give a non-domiciliary jurisdiction authority to tax property that is not physically present in that jurisdiction. Such a result would be prohibited by the Due Process Clause, he argued.

  Many commentators and state tax practitioners had expressed a hope, prior to the argument, that the Court's analysis might address controversial apportionment practices, such as throwback and throwout. However, the Court's focus on the Tonnage Clause may mean those hopes will be disappointed. A decision is expected by the end of June.

  Subscribers can view a transcript of the argument.

Polar Tankers, Inc. v. Valdez, U.S. Supreme Court, Dkt. 08-310, oral argument April 1, 2009