U.S. Supreme Court Rules NO TAX on Tankers in Valdez

By MarEx 2012-12-18 14:33:00

Conoco Philips challenged City of Valdez on property taxation of its tankers calling the Port of Valdez.

In a 7-2 decision, the Supreme Court struck down the tax on oil tankers assessed by the city of Valdez, saying it was unconstitutional. The port town at the end of the Trans-Alaskan Pipeline with a population of about 4,500 people began taxing approximately 24 tankers and four other vessels beginning in 2000.

Conoco Philips is the largest producer of North Slope oil and owns Polar Tankers Inc., which operates five double-hull tankers. The City of Valdez will have to return the millions of dollars in taxes it has collected since the assessment began. The city manager for Valdez estimates it has collected about $8 million per year since 2000, which is approximately 20 percent of its annual budget.

However, since the tax was challenged the monies paid have been held in escrow to ensure the city could not spend it while the lawsuit made its way through the courts. The tax on tankers was imposed because the city was losing money on the declining oil storage revenues.

The court’s decision was based on two fundamentally different points of view on the constitutionality of the tax. The lead opinion, written by Justice Stephen Breyer, found that 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. The opinion is the first written on the tonnage clause since 1935.

Chief Justice John G. Roberts said that 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. "If states wish to use their geographical position to tax national maritime commerce, they must get Congress's consent," Roberts wrote.

But, the city of Valdez argued the tankers and their crews use local roads, police, the airport and other city services and should contribute to their upkeep. The city, which does not have a sales tax, relies mostly on a raw fish tax, a hotel and motel tax, and fees for its operating revenue.

In their dissent, justices John Paul Stevens and David Souter wrote that they believe the constitutional ban on tonnage charges refers to charging a fee for arriving and departing from a port. The state already taxes "a wide variety of property used in producing oil," they wrote. "No federal interest is served by prohibiting Alaska or its political subdivisions from taxing the oil-bearing ships that are continually present in the state's ports."