Section of Taxation Publications

VOL. 63
NO. 4

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.


The Resurrection of the Tonnage Clause and the Death of Fair Apportionment in Polar Tankers v. City of Valdez, Alaska

Amy Jupin

In Polar Tankers, Inc. v. City of Valdez, Alaska, the Supreme Court recently held that a local personal property tax based on an oil tanker’s carrying capacity was an unconstitutional duty of tonnage. This Note will critique the Court’s decision to invalidate that tax on Tonnage Clause grounds instead of addressing Commerce Clause and Due Process Clause arguments. The plurality opinion focused on the lack of other property taxes levied by Valdez in determining that the tax was not assessed in the “same manner” as other taxes, and thus functioned as a duty of tonnage. The tax applied exclusively to oil tankers and was apportioned based on a “throw-out” formula that taxed the time spent on the open seas or in nontaxing ports. A throw-out formula for tax apportionment excludes activities that are not taxable by any jurisdiction from the denominator.

The Supreme Court correctly invalidated the Valdez tax but created uncertainty by using an incorrect “same manner” Tonnage Clause requirement. Moreover, the Court ignored the more important issue of the arguably unconstitutional throw-out apportionment formula under Commerce Clause and Due Process Clause analyses. The plurality’s “same manner” test does not effectuate the Framers’ intent in enacting the Clause and is not consistent with the Court’s prior Tonnage Clause cases. The dissent’s version of the test, which assesses whether the tax is based on the property value of the ships, provides the correct standard.

The Court has not addressed a challenge to a tax on Tonnage Clause grounds since 1935. By focusing on the Tonnage Clause and avoiding analysis of the tax apportionment formula under the Due Process and Commerce Clauses, the Court left the law of state tax on ships and apportionment of tax on multistate business unclear. Applied to the throw-out formula, the Commerce Clause analysis laid out by the Supreme Court in Complete Auto Transit, Inc. v. Brady and Container Corp. of America v. Franchise Tax Board arguably leads to the conclusion that the throw-out tax apportionment method is unconstitutional. The same conclusion can be reached under the due process test of Moorman Manufacturing Co. v. Bair.

Part II of this Note provides an overview of state taxation under the Tonnage, Commerce, and Due Process Clauses. Part III summarizes the Polar Tankers decision. Part IV.A discusses the Polar Tankers Court’s interpretation of the “same manner” requirement and argues that the dissent’s test should have been used to reach a conclusion of unconstitutionality. Part IV.B discusses Commerce Clause analysis of the tax and concludes that it is not fairly apportioned, discriminates against interstate commerce, and is not fairly related to income generated in the city. Finally, Part IV.C addresses Due Process Clause analysis and argues that the city’s throw-out apportionment formula is invalid because it taxes values not fairly related to activities conducted in the city.

Polar Tankers has important implications for state and local taxes on ships and apportionment of tax between taxing jurisdictions. Although the Court has rarely used the Tonnage Clause to invalidate state or local taxes, other ship taxes may be invalid under the Clause. Moreover, the constitutionality of throw-out apportionment formulae has been a hotly debated subject. New Jersey enacted a throw-out apportionment formula, but only one court has addressed it and found it facially constitutional. Maine and Massachusetts are also considering enacting throw-out tax apportionment formulae. The Supreme Court’s decision in Polar Tankers sends a warning to states with potentially overreaching taxes: Such taxes will face constitutional scrutiny.


Published by the
American Bar Association Section of Taxation
in Collaboration with the
Georgetown University Law Center


If you are an ABA member, you can receive The Tax Lawyer and the Section NewsQuarterly, both quarterly publications, when you join the Section of Taxation. Anyone can subscribe to The Tax Lawyer by contacting the ABA Service Center.