Justices Reject Alaskan City’s Tax on Oil Tankers

(CN) - An Alaskan city violated the Constitution by imposing a property tax that singled out oil tankers, the U.S. Supreme Court ruled Monday. "This case lies at the heart of what the Tonnage Clause forbids," Justice Breyer wrote for the 7-2 plurality.

The tax was imposed by Valdez, a port city at the end of the Trans Alaska Pipeline System. It's not far from Prince William Sound, the site of the 1989 Exxon Valdez oil spill.

The city's tax applied to ships longer than 95 feet, including two dozen oil tankers, but excluded fishing boats and local ships.

Polar Tankers Inc., a ConocoPhillips subsidiary, argued that the tax discriminated against oil tankers.

The Alaska Superior Court rejected the tax as an unconstitutional violation of the Constitution's Due Process and Commerce clauses, but the state high court overturned that decision.

Reviewing the case, the U.S. Supreme Court again reversed based on the Tonnage Clause, which bars states from charging ships for the privilege of using their ports.

During oral arguments, plaintiff counsel Charles Rothfeld took a discrimination line of argument. "The city does have the authority to tax oil tankers, but in this case it has singled out oil tankers," Rothfeld said.

Government attorneys countered that the city is free to impose a property tax on whomever it chooses.

Justice Breyer noted that the Tonnage Clause forbids "a charge for the privilege of entering, trading in, or lying in a port." The clause was intended to prevent coastal cities from exploiting their favorable geographic position by taxing ship owners.

Valdez's ordinance appears to have been designed to impose exactly the kind of fee barred by the Tonnage Clause, Breyer said.

"The ordinance applies the tax to no other form of personal property," he added. "Moreover, the tax's application and its amount depend upon the ship's capacity.

"Because the imposition of the tax depends on a factor related to tonnage and that tonnage-based tax is not for services provided to the vessel, it is unconstitutional."

Justice Stevens, in a dissenting opinion joined by Justice Souter, argued that the tax has the "critical characteristics of a legitimate property tax."

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