Valdez tax case winds up before US Supreme Court

OIL TANKERS: Shipping company says tariff is unconstitutional.

February 16, 2009 

The city of Valdez and a major operator of oil tankers will clash in the U.S. Supreme Court in early April over whether the city can levy property taxes on ships visiting Valdez to pick up cargo.

At stake are millions of dollars in taxes that Valdez officials say they need for local government and schools, but which the tanker company contends are unconstitutional collections.

Polar Tankers Inc. appealed to the nation's highest court -- and justices accepted the case in December -- after the Alaska Supreme Court ruled in favor of Valdez last April.

Polar operates five double-hull tankers for parent company Conoco Phillips, the state's top North Slope oil producer.

Bill Walker, an attorney for Valdez, said he was surprised to see the tax case reach the U.S. Supreme Court.

"When we prevailed in the Alaska Supreme Court, we thought that would be the end of it," he said. "This is a very big deal for the city."

While other tanker operators including BP, Exxon Mobil and Tesoro have reached long-term settlements on the tax with Valdez, Conoco for years has paid the tax under protest while pressing legal efforts to kill it.

Valdez, a town of about 4,500 people at the southern terminus of the trans-Alaska oil pipeline, began taxing tankers and other large vessels in 2000 as a way to make up for declining property tax revenue from the aging Alyeska oil storage and loading complex.

This year the city expects to collect some $8 million in vessel taxes -- a big part of the city's overall budget of about $40 million, said Valdez City Manager John Hozey.

Property taxes related to the oil pipeline and tankers are the city's main sources of revenue, though it has a variety of other revenue streams such as a raw fish tax, a hotel and motel tax, and certain fees. The city has no sales tax.

U.S. Supreme Court justices will hear arguments April 1 on the Polar Tankers case.

Bill Tanner, a Conoco spokesman at the company's Houston, Texas, headquarters, said Thursday he couldn't comment.

In court papers, lawyers for Polar Tankers object to the tax on several constitutional and fairness grounds.

They say the tax violates the "tonnage clause" of the Constitution, which "bars state and local governments from taxing the privilege of using ports and harbors."

The Valdez tax is discriminatory in that it was written to target essentially one type of vessel -- the mammoth oil tankers -- plus tugs and other vessels that escort or assist the tankers, Polar's lawyers write. The tax applies to vessels more than 95 feet long, and exempts large commercial fishing boats.

Such a tax, the lawyers add, drives up the cost of commerce vital to people in other states.

Lawyers for the city of Valdez counter that the tax does not violate the Constitution's tonnage clause because it is not a true tonnage duty -- a tax on a vessel, based on its tonnage, for entering or leaving a port.

Rather, the city's lawyers argue the Valdez tax is "an unremarkable property tax" based on the a vessel's market value, as tempered according to the number of days the ship spends in port.

They add that the tax is relatively minor, with Polar Tankers having 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."

"It is an unremarkable property tax," the lawyers wrote in a November brief opposing Polar's appeal to the high court. The tanker company "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 Valdez lawyers argue the tankers and their crews use local roads, police and medical services, the airport and other city features.

They also invoke the 1989 wreck of the tanker Exxon Valdez, which precipitated a huge cleanup that strained the city for three years.

Representatives for the city and company declined to say exactly how much Polar Tankers has paid since the tax began, but available information suggests it could exceed $10 million.

If the Supreme Court rules against the city and strikes down the vessel property tax, it's possible the city could owe refunds to Polar, said Valdez attorney Walker.

But the city isn't liable for refunds to BP, Exxon and Tesoro under the tax settlements with those shippers, Walker and Hozey said.

Valdez has hired Theodore Olson, a former U.S. solicitor general, to argue its case to the high court on April 1.

The case has attracted Outside interest with organizations such as the World Shipping Council, the Cruise Lines International Association and the Council on State Taxation filing "friend of the court" briefs backing Polar Tankers.

Find Wesley Loy online at adn.com/contact/wloy or call 257-4590.

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