On December 12, 2008, the U.S. Supreme Court granted the taxpayer’s petition for certiorari in City of Valdez v. Polar Tankers, Inc., Docket No. 08-310. While the case involves the imposition of a property tax, the Supreme Court’s holding may have potentially significant implications regarding the emerging use of the “throwout rule” for corporate net income tax purposes. Sutherland along with Walter Hellerstein will host a conference call on January 7, 2009, to discuss the constitutional infirmities associated with the throwout rule.
The dispute arises from a personal property tax imposed by Valdez, Alaska, on certain large vessels that used docking facilities in the City. In application, the tax applied exclusively to vessels engaged in interstate commerce. The City determined the portion of a vessel’s value subject to tax in the City by using the “port days” method of apportionment (i.e., multiplying the total assessed value by a ratio based on the number of days spent in Valdez divided by the total number of days spent in all ports). Thus, all days spent by a vessel on the high seas are subject to Alaska's throwout rule. The Alaska Supreme Court held that the tax was constitutional over Commerce Clause, Due Process Clause, and Duty of Tonnage Clause objections. City of Valdez v. Polar Tankers, Inc., 182 P.3d 614 (AK 2008).
Polar Tankers raised two questions in its petition to the U.S. Supreme Court:
(1) Whether the application of a throwout rule in a property tax context leads to multiple taxation and taxation of extraterritorial values in violation of the Commerce and Due Process Clauses of the U.S. Constitution.
(2) Whether the imposition of a property tax falling exclusively on vessels that use local ports violates the Tonnage Clause of the U.S. Constitution, which prohibits levies that are effectively imposed for the privilege of using ports and harbors.
If the court were to uphold the use of the “port days” method for property tax purposes, there could be wide-ranging implications regarding the apportionment factor throwout rule that is being applied by New Jersey, Illinois and other states in the income tax context and that is supported by the Multistate Tax Commission.
On Wednesday, January 7, at 3 p.m. (EST), Sutherland will host a conference call to discuss the ramifications of the case and the possibility of filing an amicus curiae brief by the February 2, 2009, deadline.
To RSVP for this conference call, please click here. Call-in information will be sent to participants prior to the call.
If you have any questions or would like to speak with a Sutherland attorney regarding this issue, please contact Maria Todorova via email at firstname.lastname@example.org.