Supreme Court Hears Arguments on Tanker Tax From Alaskan City

WASHINGTON (CN) - The U.S. Supreme Court heard arguments Wednesday over a tax the Alaskan city of Valdez imposed on oil tankers but not on local fishing boats. During arguments, Justice Ruth Bader Ginsburg challenged the lawyer for Valdez, saying, "I don't know of any property tax that is focused on only one type of property."

Valdez is a port city that lies at the end of the Trans Alaska Pipeline System, where oil tankers are loaded. It is near Prince William Sound, the site of a notorious oil spill from the tanker Exxon Valdez in 1989.

The city approved an ordinance which imposes a tax on ships longer than 95 feet, but excludes fishing ships and local ships that only use Valdez port. This leaves 24 oil tankers and four other vessels subject to the tax.

The tax makes up 11 percent of the city's revenue and is calculated using the ship's worth, and the ratio of time spent at Valdez in relation to other ports.

The case arrived in the U.S. Supreme Court after the Alaska Supreme Court approved the tax.

Charles Rothfeld, who represents petitioner Polar Tankers Inc., argued predominantly along the lines of discrimination: "The city does have the authority to tax oil tankers, but in this case it has singled out oil tankers."

He also questioned the rationality of the tax, claiming it is calculated without regard for the actual use of the port, but is instead levied so the ships pay a disproportional amount in property tax when compared to Valdez property owners.

Theodore Olson, a former U.S. Solicitor General who is representing Valdez, argued that the city can tax whomever it pleases, citing section 43.56 of the Alaska code. "There is no constitutional impediment for a city or state to impose a property tax," said Olson.

In response, Rothfeld claimed the ordinance violates the Tonnage Clause and Commerce Clause of the U.S. Constitution because it discriminates predominantly against large vessels engaged in interstate commerce. He says consumers in other states are paying Alaskan taxes through the heavy tax on oil tankers.

Olson replied with the example of computer chips made in Silicon Valley, California where California imposes a state property tax on those chips which are then sold to consumers in other states.

At one point, Chief Justice John Roberts reproached Rothfeld, the lawyer representing the tanker owner, for his focus on the civil rights argument of discrimination instead of more strongly making the economic case for a burden on interstate commerce, asking Rothfeld if he was not "giving up a lot" through his tactic.

Professor Ferdinand Schoettle, a visiting professor at George Mason Law School remarked, "the tonnage argument has no validity. To violate the Tonnage Clause, there would have to be a tax on tonnage". He added, "If Rothfeld didn't mention it once, it would be showing some wisdom".

Schoettle, who has degrees in both law and economics, said a decision in favor of the tankers under the Commerce Clause would be a standard application of that clause with the court striking down a tax that is clearly discriminatory.

"The tax is totally exported here," said Schoettle, "which we don't want in a free market economy."

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