Tax Lawyer's Blog

Article I, Section 10, Clause 3 of the United States Constitution states:

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay.

This is the Tonnage Clause and on Monday it was the subject of a U.S. Supreme Court decision for the first time in 74 years.

Politics AP reports that the U.S. Supreme Court in a 7-2 decision (PDF) said a special tax imposed by the city of Valdez, Alaska on oil tankers is unconstitutional because it violates the Tonnage Clause:

The court on Monday struck down as unconstitutional a tax imposed on oil tankers by the city of Valdez, the port town of 4,500 at the end of the trans-Alaska oil pipeline. Polar Tankers Inc. operated five double-hull tankers for its parent company, Conoco Phillips, Alaska’s biggest North Slope oil producer. An estimated 24 oil tankers and four other vessels were covered by the tax.

Conoco Phillips lawyer Charles Rothfield said the decision was based on two fundamentally different points of view on the constitutionality of the tax:

Justice Stephen Breyer’s View:

The lead opinion, written by Justice Stephen Breyer, found the tanker tax was unconstitutional because it does not apply to other, similar property – just oil tankers. The vessels subject to the city tax are “not taxed in the same manner as other personal property,” Breyer wrote, and is therefore the kind of tax forbidden by the “tonnage clause” of the Constitution without the consent of Congress.

Chief Justice John Robert’s View:

[But] Chief Justice John Roberts said the lack of a uniform tax on all similar property doesn’t matter. The Constitution prohibits states from assessing tonnage charges on ships unless approved by Congress. That particular clause of the Constitution, which also bars states from entering treaties with foreign countries or engaging in war, essentially bans ports from assessing taxes on vessels entering the port, based on their tonnage. It doesn’t prohibit dockage fees or other assessments for using the port or its services.

“If states wish to use their geographical position to tax national maritime commerce, they must get Congress’s consent,” Roberts wrote.

Mr. Rothfield is worried that the decision will have the broad effect of making local governments unable to assess property taxes on vessels within their taxing jurisdiction.

As a result of the ruling Valdez will now have to return several millions of dollars it had collected from the oil companies since the imposition of the tax in 2000.

Other Posts:

Tonnage Clause Day at the Supreme Court – Supreme Court Monitor

You Haven’t Forgotten the Tonnage Clause, Have You? - Volokh Conspiracy

Alaska Upholds City of Valdez Tax on Large Vessels – Maritime Reporter

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