High court strikes down Valdez tanker tax

Tax imposed on tankers in 2000 found unconstitutional by U.S. Supreme Court; Alaska Supreme Court had ruled in favor of tax

The Associated Press

The U.S. Supreme Court on June 15 struck down as unconstitutional a tax that the city of Valdez imposed on oil tankers loading crude oil from the southern terminus of the 800-mile trans-Alaska pipeline.

The court ruled 7-2 that the city has been unfairly taxing tankers that use its port as they load up with crude bound for West Coast refineries.

The city argued that the tax, imposed in 2000, was an unremarkable property tax, and that the tankers and their crews were being taxed for municipal services they use in Valdez.

The 4,500 residents of Valdez rely on the money to pay for government services and schools.

City manager John Hozey said $8 million was budgeted for revenue from the tax in the 2009 budget.

“We’re still trying to determine what this is going to mean for the city and what our options are,” Hozey said.

Polar Tankers Inc., a subsidiary of Houston-based ConocoPhillips and operator of five double-hulled tankers, challenged the tax in the U.S Supreme Court after the Alaska Supreme Court ruled in favor of Valdez.

“We’re pleased we did get the opportunity for a fair and impartial review of our arguments before the U.S. Supreme Court,” ConocoPhillips spokesman Bill Stephens said. “In that court, seven justices agree that Valdez’s tanker tax is unconstitutional.”

Other shippers paying

“The agreements we had with other tanker companies were still valid up until this point. But going forward, now we have to account for the Supreme Court decision,” Hozey said.

ConocoPhillips has paid the tax under protest for several years while pushing legal arguments to kill it.

Justice Stephen Breyer, in his majority opinion, said the tax violates the Constitution’s “tonnage clause” — one of several provisions intended to foster free trade.

The town started taxing tankers and other large vessels in 2000 so it could offset declining property tax revenue from depreciating Alyeska Pipeline Service Co.’s oil storage and loading complex.

Lawyers for Polar Tankers argued against the tax on several constitutional and fairness grounds, including a violation of the “tonnage clause,” which the company has said bars state and local governments from taxing the privilege of using ports and harbors.

Polar also said the tax was discriminatory because it was targeted at essentially one vessel type, oil tankers, and escort vessels. It exempted large commercial fishing boats.

Lawyers for the city had argued the tax does not violate the tonnage clause because it is not truly a tonnage duty, which taxes vessels, based on its tonnage, for entering or leaving a port.

The city’s lawyers contend the tax is “an unremarkable property tax,” and is based on the vessel’s market value. It’s tempered and in line with the number of days the ship spends in port, according to city lawyers.

They claim the tax to be minor because Polar Tankers have paid “well under $2 million in the tax years at issue on vessels worth hundreds of millions of dollars, carrying cargo worth billions of dollars.”

The case is Polar Tankers v. City of Valdez, 08-310.