Paul Riermaier | Comment

States have expansive power to tax the people and property within their jurisdiction. This taxing power is limited by the United States Constitution; however, taxes that affect the supremacy of the federal government, interfere with a sphere exclusively occupied by Congress, or inhibit interstate commerce are constitutionally beyond a State’s power to tax. The Tonnage Clause of the United States Constitution makes clear that Congress has the exclusive authority to tax and regulate interstate commerce and prohibits states from “lay[ing] any Duty of Tonnage.” This seemingly direct prohibition, interpreted and modified by a century of jurisprudence, now encompasses additional implied prohibitions and exceptions.

The Tonnage Clause, especially when considered in conjunction with the Import-Export Clause, is one method of ensuring that the individual states do not tax maritime trade discriminatorily, to the detriment of the union as a whole, or in contravention of federal schemes. However, this solution is not the only form available; there is also a patchwork option that was developed in the Articles of Confederation and quickly abandoned. Additionally, the European Union has addressed the problem and developed a solution not entirely dissimilar to the U.S. approach, which includes methods designed to provide E.U. Member States with advisory guidance on the acceptability of any taxation scheme.

Tonnage taxation is a powerful tool. It can be used to create preferential tax treatment for companies engaging in maritime activity, ideally luring more economic activity to the tax-friendly jurisdiction. Additionally, tonnage taxation can be used to increase government revenue. Both goals advance different ideals and have different effects. Preferential tonnage rates decrease the cost of doing business and develop the taxing authority’s economy by increasing secondary business activity associated with shipping. Revenue-raising tonnage taxes are more likely to be implemented when a taxing authority takes advantage of its geographical position and companies have few alternatives other than paying the imposed tax.

This Comment will discuss the history of the Tonnage Clause and the United States Supreme Court’s ruling in Polar Tankers, Inc. v. City of Valdez, Alaska (Polar Tankers III), where the Court determined that a municipal tax on certain vessels was unconstitutional. It will then analyze the European Union’s treatment of tonnage taxation in light of the United States’ approach. The United States and the European Union have allocated power and sovereignty differently among their many tax jurisdictions, which has resulted in different methods of treatment of tonnage. Nevertheless, the U.S. system may benefit from importing some aspects of the E.U. system–specifically aspects that clarify which tax methods are constitutional and which methods are not. An understanding of the European Union’s treatment of tonnage taxation should provide greater understanding of the United States’ own system and the difficulties it faces.