Opinion ID: 2567700
Heading Depth: 4
Heading Rank: 2

Heading: The vessel tax is fairly apportioned.

Text: The superior court concluded that the city's port-day apportionment formula by which the tax is calculated violates the Due Process and Commerce Clauses because the formula creates a risk of multiple taxation and is therefore not fairly apportioned. We disagree. The central purpose behind the apportionment requirement is to ensure that each State taxes only its fair share of an interstate transaction. [16] There is no single correct method of apportionment; rather, a tax is deemed fairly apportioned if it is both internally and externally consistent. [17] Because both parties agree that the vessel tax is internally consistent (i.e., if all taxing jurisdictions used the same formula, a vessel would be taxed for one hundred percent of its value), we address only external consistency. External consistency is the principle that looks to the economic justification for the state's claim upon the value taxed, to discover whether a state's tax reaches beyond that portion of value that is fairly attributable to activity within the taxing state. [18] According to Hellerstein & Hellerstein, the external consistency test in substance is nothing more than another label for the fair apportionment requirement. [19] The superior court concluded that the vessel tax was not fairly apportioned because the apportionment formula created a risk of duplicative taxation. A tax may be invalid even if it creates only a risk of duplicative taxation. In Central Railroad of Pennsylvania v. Commonwealth of Pennsylvania, the Supreme Court stated that a domiciliary State is precluded from imposing an ad valorem tax on any property to the extent that it could be taxed by another State, not merely on such property as is subjected to tax elsewhere. [20] We have similarly stated that the Commerce Clause is triggered only upon an affirmative showing that property taxed by one jurisdiction has another taxable situs and could be taxed elsewhere.  [21] Polar admits that Valdez is a proper taxing situs. But Polar nonetheless argues that Valdez's taxing authority is subordinate to the taxing authority of Polar's domicile and that Valdez's apportionment scheme is unfair because it impinges on the domicile's taxing authority, creating the risk of multiple taxation. Polar asserts that California is its commercial domicile. Under the home port doctrine, a vessel was subject to property taxation in full at the domicile of the owner and not elsewhere. [22] But the Supreme Court in Japan Line, Ltd. v. County of Los Angeles recognized that the home port doctrine has yielded to a rule of fair apportionment among situs states. [23] The Court there noted that if the containers at issue in Japan Line were instrumentalities of purely interstate commerce, a rule of fair apportionment would have been applied. [24] Therefore, a rule of fair apportionment must be applied to the taxation of Polar's ships. As we discuss below, an apportionment formula is fair if it apportions the full value of a ship between the taxing jurisdictions in which it is regularly present in proportion to the number of days during the tax year that the ship is present in each jurisdiction. Our determination that Valdez has adopted one of the many potential fair apportionment schemes it could choose from renders Polar's assertion of home port superiority irrelevant. [25] Valdez's apportionment formula apportions the full value of a ship between the taxing jurisdictions in which it is regularly present in proportion to the number of days during the tax year that the ship is present in each jurisdiction. Thus if we assume that a tanker is in port in Valdez for fifty days a year and in port in all jurisdictions including Valdez for 150 days per year, the Valdez apportionment ratio would be 50/150. There is no reason why the days at sea outside the jurisdiction of any taxing authority should be included in the denominator of the fraction. This result is different, however, from Polar's contention that any jurisdiction is taxing for days spent at sea. [26] The port-day formula resembles the formula that was involved in Braniff Airways v. Nebraska State Board of Equalization & Assessment, and whose reasonableness was not challenged. [27] The Braniff formula involved the ratio of aircraft landings in the taxing jurisdiction as compared to all landings in all potential taxing jurisdictions. [28] There is not too much difference between landings and dockings, nor between dockings and days in port. Each of these measures assesses the extent of activity in the taxing jurisdiction relative to the activity in all taxing jurisdictions. This satisfies the goal of apportionment, which is to ensure that each State taxes only its fair share of an interstate transaction. [29] Most importantly the Braniff formula taxed the whole aircraft in accordance with the ratio indicated by the formula without carving out some separate quantum of value for the aircraft's home port. The home port received no special consideration even though the planes likely spent time flying over non-situs states. [30] The formula in Ott v. Mississippi Valley Barge Line Co. [31] also supplies an analogy. In that case the apportionment ratio compared the number of barge miles in Louisiana to the total number of barge miles in all state waters concerning the routes in question. [32] No special status, or even mention, was given to the vessels' home ports. In Ott the vessels' routes were from port to port on navigable rivers. [33] But if instead a vessel's regular route was from St. Louis, Missouri through New Orleans, Louisiana to Tampa Bay, Florida, it is hard to imagine that the denominator would have to include miles traveled on the high seas outside the taxing authority of any state. There are of course many conceivable apportionment formulaé that might be fair. [34] The port-days formula is but one such example. Because the formula is fair, and accordingly a valid formula for Valdez to use, and because Valdez's permissible tax necessarily limits the taxing authority of Polar's domicile, there is no concern about the risk of duplicative taxation. [35] Because the tax is fairly apportioned, the tax is also externally consistent.