Opinion
No. 2991299.
Decided May 25, 2001.
Appeal from Mobile Probate Court (99-1890).
Joseph R. Sullivan, Kenneth A. Watson, and Wendi B. Molz of Miller, Hamilton, Snider Odom, L.L.C., Mobile for appellant.
Lawrence M. Wettermark of Galloway, Smith, Wettermark Everest, L.L.P., Mobile; and Florence A. Kessler, Office of the Mobile County Attorney, for appellee.
Gulf Caribe Maritime, Inc., a corporation organized under the laws of the State of Washington, with its principal place of business located in Mobile, Alabama, appeals to this court from a judgment of the Probate Court of Mobile County denying its petition for a refund of ad valorem taxes. Gulf Caribe contends that it is entitled to a refund of the amount of ad valorem taxes it paid for the tax years 1997 and 1998.
Gulf Caribe's appeal is properly before this court because an appeal from a petition seeking a refund of ad valorem taxes filed pursuant to § 40-10-160, Ala. Code 1975, is not one of the seven designated actions listed in § 12-22-21, Ala. Code 1975, that can be appealed from the probate court to the circuit court or the Alabama Supreme Court. SC Realty v. Jefferson County, 638 So.2d 1343 (Ala.Civ.App. 1993). Further, this court has exclusive jurisdiction of appeals from administrative agencies. § 12-3-10, Ala. Code 1975; See also,Kimberly-Clark Corp. v. Eagerton, 433 So.2d 452 (Ala. 1993).
Alabama levies a personal property ad valorem tax on numerous items of personal property. Section 40-11-1(b)(3), Ala. Code 1975, provides that the subjects of ad valorem taxation include
"[a]ll steamboats, barges, vessels, and watercraft of every name and kind however propelled, plying waters of this state, and the owners thereof shall return same for taxation to the assessors in the county wherein he resides; and, if such steamboat, barge, vessel, or watercraft is owned by a corporation, then in that county where its principal office is located; in the case of the owner's being an individual not residing in this state or being a corporation with no principal office in this state, then in the county or counties where used; all such steamboats, barges, vessels, or watercraft whether owned by a resident or nonresident of this state, which have acquired a permanent situs in this state. All transfer boats, steamboats, or barges used by any railroad in transferring cars and passengers must be assessed and taxed in the county or counties where used, or where the owner resides, regardless of where such vessel may be registered."
In the tax years 1997 and 1998, Gulf Caribe paid ad valorem taxes on the full value of the "Caribe Pioneer," a 110-foot tugboat, and the "Chem Caribe," a 274-foot barge. On September 16, 1999, Gulf Caribe petitioned the Probate Court of Mobile County for a refund of the ad valorem taxes it had paid. See § 40-10-160, Ala. Code 1975. In its petition for refund Gulf Caribe claims that, had the Mobile County Revenue Department correctly apportioned the ad valorem taxes in 1997 and 1998 for the tugboat and the barge, it would be due a substantial tax refund. The Revenue Commissioner responded, stating that the exemption Gulf Caribe sought was not authorized by the Alabama statute.
The probate court conducted an evidentiary hearing and the parties submitted briefs. On May 10, 2000, the probate court entered a judgment denying Gulf Caribe's petition for refund. Gulf Caribe filed a postjudgment motion pursuant to Rule 59, Ala.R.Civ.P., and the probate court held a hearing on that motion. On July 19, 2000, the probate court denied the postjudgment motion and Gulf Caribe appealed.
The facts are basically undisputed. Gulf Caribe pays ad valorem taxes to Mobile County on personal property, including the tugboat and barge at issue in this appeal. The tugboat and barge are owned by Gulf Caribe and leased to Chemex Corporation, a company with facilities located both in Ponce, Puerto Rico, and Mobile, Alabama. Chemex leases docks for the vessels' use in Puerto Rico. Gulf Caribe owns no property in Puerto Rico. The vessels spend their time almost exclusively traveling between the two ports. Chemex pays Gulf Caribe a daily rate per voyage for the vessels to transport railcars containing chemicals from Mobile to Ponce; on the return trip they transport empty railcars and hazardous waste bound for Kansas, Missouri, North Carolina, and South Carolina.
On each trip, the vessels follow basically the same route. In Mobile, they begin their voyage at the Alabama State Docks and travel down the Mobile ship channel or the Mobile River and past the territorial waters of Alabama. The vessels continue across the Gulf of Mexico to the Straits of Florida; from there it travels through the Atlantic Ocean, north of Cuba and the Dominican Republic; through the Mona Passage; and then through Puerto Rican territorial waters to Ponce, Puerto Rico, which is located on the southern side of that island. The tugboat and barge do not travel in any canals or bays or other inland waters of Puerto Rico. During 1997 and 1998, the vessels made approximately 18 round-trips between Mobile and Ponce each year. During those trips the vessels remained in Ponce for an average of two days per trip. According to Gulf Caribe's calculations, the vessels were in Puerto Rico for approximately 10% of the year in each of these two years and were in Alabama between 22% and 32% of each of these tax years. The rest of the time these vessels were in international waters.
1997 and 1998 are the two years in which a partial refund is being sought.
During the time the vessels were docked in Ponce, the Gulf Caribe personnel on board spent most of their time servicing and repairing the vessels, and loading and discharging railcars transported on the vessels. In addition, at one point during the two years Gulf Caribe paid to repair a dock with which one of the vessels had collided.
Gulf Caribe conducts its business through its office in Alabama. All employees, including the crew members for the vessels, are hired through the Alabama office; federal and state taxes are paid through the Alabama office. All maintenance on the vessels is done in Alabama and all repairs, except those of an emergency nature, are made in Alabama. Over 90% of supplies purchased for the vessels are purchased in Alabama; when the vessels dock in Ponce, a Gulf Caribe employee telephones Alabama to arrange for supplies to be ordered and ready, awaiting the return of the vessels.
Where the facts of a case are undisputed and the trial court is called upon to determine a question of law, no presumption of correctness attaches to the trial court's determination and this court's review is de novo. Monroe v. Valhalla Cemetery Co., 749 So.2d 470 (Ala.Civ.App. 1999).
In its brief, Gulf Caribe asserts that the probate court erred in affirming the Mobile County Revenue Commissioner's denial of its petition for refund, because, it argues, the ad valorem tax imposed on the full value of the barge and the tugboat, i.e., — not apportioned to take into account the time the vessels are outside Alabama — violated the Commerce Clause of the United States Constitution. Gulf Caribe citesJapan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979), in support of its contention. Gulf Caribe also contends that in its judgment the trial court relied upon the "home-port doctrine" as opposed to the "apportionment doctrine" and contends that the "home-port doctrine" has been abandoned since Japan Line was decided. Gulf Caribe contends that the probate court erred in affirming the denial of its petition for refund because, it says, the ad valorem tax imposed on its vessels was not fairly apportioned to reflect the time the vessels spent in Puerto Rico. In its judgment, the probate court found Gulf Caribe had failed to present authority to support its contention that the Commerce Clause and the Due Process Clause require a domiciliary state (in this case, Alabama) to apportion property taxes assessed against vessels that, although travel in international waters, travel the inland waters of only the domiciliary state. The probate court declared that without such authority, Gulf Caribe cannot establish its right to the exemption. Quoting Central Railroad Co. of Pennsylvania v. Pennsylvania, 370 U.S. 607, 612 (1962), the court held that the rule was well established that "tangible property for which no tax situs has been established elsewhere may be taxed at its full value by the owner's domicile." In its judgment, the probate court noted that only 5% of the total mileage of the vessels represented travel in Puerto Rico and that the vessels spent less than 10% of their time in Puerto Rico in each of these tax years. According to the Central Railroad court, a tax situs in a nondomiciliary state may be established in one of two ways: 1) the taxpayer may establish that its property moved through that state in a fixed and regular route; or 2) the taxpayer must prove that some of its property was habitually employed in the state in substantial numbers over irregular routes. Id. The trial court stated that Gulf Caribe has failed to meet either test.
Pursuant to the "home-port doctrine," the vessels could only be taxed at the domicile of their owner, unless the vessel becomes so completely incorporated with the personal property of a nondomiciliary state that it loses its situs at the home port. See Hayes v. Pacific Mail S.S. Co., 17 How. 596, 15 L.Ed. 254 (1855).
Gulf Caribe does not claim that it falls within a tax exemption; it acknowledges that it owes a tax. Gulf Caribe asserts that because the ad valorem tax is not fairly apportioned to reflect the time the vessels were actually located in Alabama the tax violates the Commerce Clause of the United States Constitution. The Commerce Clause grants Congress the exclusive power to regulate commerce with foreign nations and among the states. The clause does not, however, abrogate each state's power to tax for the support of its own government. Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318 (1977). In 1977, the United States Supreme Court adopted a four-part test for determining whether a state tax imposed on interstate commerce will survive a Commerce Clause challenge. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). Such a tax is constitutional if it "is applied to an activity with substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided." Id. at 279. The Supreme Court's subsequent decision in Japan Line, supra, reinforced the constitutional restriction placed upon the states by the Commerce Clause. The Japan Line Court struck down California's imposition of an ad valorem tax on cargo containers owned by a foreign entity and used exclusively in international commerce but fully taxed in the domiciliary country. The court in Japan Line identified two factors (in addition to those enumerated in Complete Auto Transit) a court must consider in determining whether a tax unduly burdens interstate commerce: the risk of multiple taxation and the potential impairment of our nation's ability to speak with "one voice." Id. at 446-49. The Japan Line Court held that application of the tax to instrumentalities of foreign commerce resulted in multiple taxation and interfered with federal uniformity; thus, it violated the Commerce Clause. Id. at 451-54.
Four years after the Supreme Court handed down Japan Line, it limited its holding in that case by the opinion in Container Corp. of America v. Franchise Tax Board., 463 U.S. 159 (1983). In Container Corp., the state of California had required Container Corporation to include all foreign subsidiary income as part of its "unitary" business income. Container Corporation complained that the inclusion of the foreign subsidiary income in California's apportionment tax scheme violated the guidelines set forth in Japan Line, because the income of the foreign subsidiaries had already been taxed in the countries in which those subsidiaries were located on an unapportioned basis. TheContainer Corp. Court held that, despite the resulting double taxation, the circumstances presented by Container Corp. were easily distinguishable from Japan Line for a number of reasons, including 1) the tax challenged by Container Corporation was an income tax and not a tax on property; 2) the double taxation, although real, was not inevitable under the California taxing scheme; and 3) the tax fell on a domestic corporation, not a foreign owner of an instrumentality of foreign commerce. The Court in Container Corp., also clarified and relaxed the second prong of the test set forth in Japan Line — that a state taxing scheme should not prevent the Federal Government from speaking with one voice. The Container Corp. Court restated that test as "whether a state tax implicates foreign policy or violates a clear federal directive." 463 U.S. at 194. Further, as pointed out by the United States Supreme Court in Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298 (1994), the Japan Line Court expressly left open the question whether Japan Line had any application to "`domestically owned instrumentalities engaged in foreign commerce.'" Barclays, 512 U.S. at 334 (O'Connor, J., concurring in part and concurring in the judgment and quoting Japan Line, 441 U.S. at 444 n. 7).
As a matter of due process, the domiciliary state has jurisdiction to tax the personal property of its own corporations unless some portion of the property has acquired a taxable situs elsewhere. Central Railroad, 370 U.S. at 611-12. The question whether an instrumentality of commerce has acquired a tax situs in another state is purely a question of due process. Braniff Airways, Inc. v. Nebraska State Bd. of Equalization Assessment, 347 U.S. 590, 599 (1954).
The Texas Court of Appeals addressed an issue similar to the one presented here in Jet Fleet Corp. v. Dallas County Appraisal District, 773 S.W.2d 744 (Tex.Ct.App. 1989). In Jet Fleet, the corporate taxpayer challenged a tax on the full value of its aircraft as violating the Commerce Clause and the Due Process Clause of the United States Constitution. The taxpayer was both domiciled and had its principal place of business in Texas. The taxpayer also had office space and terminal space in New Jersey and Louisiana. The taxpayer engaged only in charter flights and its aircraft were not located outside of the state more than 20% of the year. Applying the test set forth in Complete Auto, the Jet Fleet court upheld the tax. The Jet Fleet court pointed out that the taxpayer's charter service was based in Texas and that most of its operations emanated from Dallas County, Texas; it concluded, therefore, that the taxpayer had a substantial nexus with the taxing state. Id. Secondly, the Jet Fleet court held that the tax was not discriminatory because the state statute in question applied the tax to all personal property located in Texas for longer than a temporary period, or located out of Texas temporarily while its owner remained in the state, or used in the state continually, whether regularly or irregularly. The final prong of the Complete Auto test required the Jet Fleet court to determine whether the taxpayer had acquired a taxable situs in another jurisdiction. The Jet Fleet court concluded that the taxpayer had not, noting that the record included no evidence pertaining to the specific amount of time the planes remained in nondomiciliary states, the activities performed in those states, or whether those states had provided the taxpayer with services, benefits, or protections.
The Mississippi Supreme Court also considered a similar set of facts in a case where an unapportioned ad valorem tax was imposed on trucks leased from an Alabama corporation and tagged in Alabama, but stored in Mississippi. Fifty percent of the mileage of the trucks was within the state. See Thomas Truck Lease, Inc. v. Lee County, 768 So.2d 870 (Miss. 1999). The Thomas Truck case cited Northwest Airlines, Inc. v. State of Minnesota, 322 U.S. 292 (1944), as authority for its position that it possessed the authority to impose an ad valorem tax on property domiciled within the state, whether or not that property was involved in interstate commerce. The Mississippi Supreme Court decided Thomas Truck in 1999, and, in that decision, appeared to adopt the home-port doctrine. The United States Supreme Court denied certiorari review in that case. The Mississippi Supreme Court reasoned that even assuming, arguendo, the Commerce Clause required a constitutional analysis of the ad valorem tax, the tax would pass constitutional muster. The Thomas Truck court went on to address the appellant's apportionment challenge to the tax. In defining "apportionment," that court explained that the central purpose behind the apportionment requirement is to ensure that each state taxes only its fair share of an interstate transaction. The court explained that there was no single apportionment formula that has been approved. Instead, the court explained, citing Goldberg v. Sweet, 488 U.S. 252, 260-62 (1989), the inquiry when determining whether a tax was fairly apportioned was whether the tax was internally and externally consistent. To determine whether a tax is internally consistent, the court must be assured that if every state imposed an identical tax no multiple taxation would occur. To determine whether a tax is externally consistent, the court must be assured that the state has taxed only that portion of the revenues from the interstate activity that reasonably reflects the "in-state" component of the activity being taxed. Thomas Truck, 768 So.2d at 876. The court declared the tax to be internally consistent, reasoning that no multiple taxation would occur if other states imposed an identical tax. The Thomas Truck court also determined that the tax was externally consistent, i.e., that it taxed only that portion of the revenues from interstate activity that reasonably reflects the in-state component. 768 So.2d at 877. In Thomas Truck the court noted that the tax was levied against only 30% of the value of the vehicles and that the vehicles traveled 50% of their miles in the state; the court, therefore, concluded that the tax reasonably reflected the in-state activity of the vehicles. Alabama law is sparse on the subject; there have been no recent cases addressing the state's power to tax personal property involved in interstate commerce. In 1893, our supreme court decidedNational Dredging Co. v. State, 99 Ala. 462, 12 So. 720 (1893), in which it considered the proper tax situs for certain dredging equipment owned by a Delaware corporation; the equipment had been used continuously in a large project in Mobile Bay for the preceding two years. The National Dredging Court concluded that the dredging equipment had become so enmeshed with tangible property in Alabama for revenue purposes, that its taxable situs was in Alabama rather than in Delaware, its domiciliary state. In 1939, the Alabama Supreme Court cited National Dredging with approval, finding that a tax situs was not established for property in a certain location temporarily, but that it could be established by a showing that the property would be in Alabama for such an indefinite period as to connote permanency. Tennessee Coal, Iron R.R. v. State, 239 Ala. 19, 193 So. 143 (1939). We have found no other Alabama cases since 1939 (and the appellant's brief does not refer us to any) addressing the issue of the taxable situs of movable personal property. In 1994, in addressing a constitutional challenge to the Alabama use tax, our supreme court held: "Exemptions from taxation are to be strictly construed against the person or party claiming the exemption and in favor of the right to tax." Ex parte Fleming Foods of Alabama, Inc., 648 So.2d 577, 578-79 (Ala. 1994).
Turning to the facts presented by Gulf Caribe in its appeal, we note that the domiciliary state is entitled to tax the full value of a taxpayer's tangible personal property for which no other tax situs has been established. Central R.R., 370 U.S. at 612. A mere showing of the continuous use of tangible movable property in other jurisdictions is insufficient to exclude the taxing power of the domiciliary state. Ott v. Mississippi Barge Line Co., 336 U.S. 169 (1949). Gulf Caribe had the burden of proving that it has established a tax situs elsewhere than Alabama. Central R.R., 370 U.S. at 613.; Ex parte Fleming, supra. The domiciliary state may require its own corporations to pay nondiscriminatory property taxes even though those corporations are involved in interstate commerce; the Commerce Clause is violated only through multiple taxation of the same interstate operations. Central R.R., 370 U.S. at 612; Standard Oil Co. v. Peck, 342 U.S. 382 (1952). It is quite obvious that no risk of multiple taxation exists unless there is some jurisdiction, in addition to the domiciliary state, in which a tax situs has been established. The Central Railroad Court provided a two-pronged test to be applied to determine whether a tax situs had been established in a nondomiciliary jurisdiction. 370 U.S. at 613. That Court provided that a tax situs is acquired if (a) the vehicles (or vessels) are operated along fixed and regular routes and on regular schedules, or (b) the vehicles (or vessels) are habitually employed in the nondomiciliary state in large numbers. 370 U.S. at 614-15. Finally, when an apportionment tax is imposed by a nondomiciliary jurisdiction it must be just and equitable. American Refrigerator Transit Co. v. Hall, 174 U.S. 70 (1899). In addition, such a tax must be reasonably related to the opportunities, benefits, and protections afforded by the taxing jurisdiction. Ott v. Mississippi Barge Line, supra. Moreover, those opportunities, benefits, and protections must be available throughout the year. Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292 (1944).
Applying these principles to the facts as shown by the record, we conclude that Gulf Caribe has failed to prove that it established a tax situs in Puerto Rico. The voyages made by the vessels were not fixed and regularly scheduled; these vessels were chartered on an "as needed basis" to transport railcars containing chemicals to Puerto Rico and return empty railcars and hazardous waste to Alabama. See Jet Fleet Corp., supra; cf. Braniff Airways v. Nebraska State Bd. of Equalization Assessment, supra (Court upheld apportionment on the basis that Braniff was a commercial airline that transported freight and passengers to nondomiciliary jurisdictions 18 times each day on a fixed and regular schedule). The scheduling of the trips was based both upon the needs of Chemex, the customer that leased the vessels, and upon the maintenance requirements of the vessels, instead of a regular schedule. It is clearly established that Gulf Caribe failed to meet the second prong of the test established by Central Railroad; its vessels did not habitually occupy the ports of Puerto Rico in substantial numbers. There is no evidence to support a finding that vessels owned by Gulf Caribe habitually occupied ports in Puerto Rico in substantial numbers. The tugboat and the barge were the only Gulf Caribe-owned vessels that traveled to Puerto Rico. When those vessels departed the port at Ponce, Puerto Rico, there was no arriving vessel to take their place. We therefore conclude that Gulf Caribe failed to present sufficient evidence to establish that it had a tax situs in Puerto Rico; therefore, Alabama, the domiciliary state, is entitled to assess the vessels for ad valorem tax purposes at their full value. Gulf Caribe has conceded that Puerto Rico has made no attempt to tax the vessels and in the final analysis it does not appear that a nondomiciliary apportionment tax imposed by Puerto Rico would be just and equitable under the circumstances. The record reflects that all maintenance, except emergency repairs, was performed in Mobile Bay. All Gulf Caribe employees, including the captains, mates, and deckhands for the vessels in question, were hired in Mobile. Income taxes, payroll taxes, and health insurance premiums were paid in Alabama through Gulf Caribe's Mobile office. Ninety percent of the supplies used on the vessels were purchased in Alabama, and Gulf Caribe personnel typically telephoned Alabama from Puerto Rico to arrange to have supplies purchased and available for them upon the return of the vessels. We agree with the conclusion reached in the judgment of the probate court, which provided:
"Here, the Caribe Pioneer and Chem Caribe are present in Puerto Rico only to load and unload their cargo. Only 5% of their mileage was traveled in Puerto Rico, and less than 10% of their time in either year was spent there. The fact that Gulf Caribe spends money on emergency repairs, or on the occasional medical treatment of a sick crew member, or that employees of Gulf Caribe attend occasional meetings in Puerto Rico does not make Puerto Rico anything other than a port of convenience. . . ."
When the evidence is considered as a whole, it becomes clear that Alabama, as the domiciliary state, provided the vessels with the opportunities, benefits, and protection the due process clause requires as a prerequisite to taxation. Gulf Caribe's asserted need for apportionment to avoid a potential double taxation has no factual basis. The record reflects that the majority of the time the vessels spend during the tax year is spent on ocean waters and Gulf Caribe's requested apportionment would allow it to escape altogether approximately 75% of the ad valorem tax on the vessels.
Because Gulf Caribe failed to carry its burden of establishing a tax situs in Puerto Rico, the judgment of the probate court is affirmed.
AFFIRMED.
Yates, P.J., and Pittman, J., concur.
Crawley, J., concurs in the result.
Murdock, J., dissents.
The central issue in this case is whether Gulf Caribe has established a taxable situs in Puerto Rico so as to make the imposition of the full ad valorem tax assessed by the Mobile County Revenue Commissioner constitutionally impermissible under the Due Process Clause and the Commerce Clause of the United States Constitution. As the majority opinion correctly states, to establish a tax situs a taxpayer would have to put forth either: (1) proof that the instrumentality in question travels through that state along fixed and regular routes; or (2) proof of habitual employment within that state of a substantial number of the instrumentalities in question, albeit on irregular routes. Central R.R. v. Pennsylvania, 370 U.S. 607, 614-15 (1962); see also Jet Fleet Corp. v. Dallas County Appraisal Dist., 773 S.W.2d 744, 746 (Tex.Ct.App. 1989).
Gulf Caribe and the Revenue Commissioner agree that the only way for Gulf Caribe to establish a tax situs in Puerto Rico is by proving that the tugboat and the barge travel through Puerto Rico along fixed and regular routes; the second option, that of habitual employment of a substantial number of instrumentalities in Puerto Rico, is not available to Gulf Caribe, given the facts of this case. The Revenue Commissioner and Gulf Caribe differ in their opinions whether Gulf Caribe's contact with Puerto Rico, approximately 18 stops in one year, each of 2 days average duration, are sufficient to meet the Central R.R. test.
The probate court, as one basis for its judgment, determined that Gulf Caribe failed to meet the Central R.R. test because Gulf Caribe had not shown that the tugboat and the barge traveled through Puerto Rico on scheduled and regular routes. The majority affirms the trial court's judgment, holding that Gulf Caribe failed to establish a tax situs in Puerto Rico. Although I believe that the United States Supreme Court may one day develop a test addressing the situation posed by this case — how to apportion taxes on the instrumentalities of interstate commerce involved in commerce over the high seas — it has yet to do so. Therefore, I, like the majority, am forced to conclude that Gulf Caribe failed to establish a tax situs in Puerto Rico; that is, it failed to meet the Central R.R. test because it failed to prove that the tugboat and the barge traveled through Puerto Rico on a "fixed and regular route."
The probate court also determined that the "home-port" doctrine applied. Although the United States Supreme Court has not clearly overruled the doctrine, it has questioned its continued viability. See Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 443 (1979). I believe that the Court will, when clearly presented the issue, overrule what it has already characterized as an "anachronistic" and quite possibly "abandoned" doctrine. Japan Line, 441 U.S. at 443.
The Central R.R. test, as it was written in response to questions concerning the apportionment of taxes on railroad cars involved in interstate travel, clearly states that the instrumentality in question must travel through the state on regular and fixed routes. Naturally, a railroad car must travel through a state and must travel on fixed and regular routes — railroad tracks. The application of the Central R.R. test to vessels traveling inland waterways poses no difficulty as inland waterways travel through a state and are clearly regular and fixed routes. Likewise, application of the test to air travel poses little difficulty. Application to cases involving trade over the high seas, however, where the oceangoing vessel travels to and from a port on the shores of a state, is much more difficult, because the oceangoing vessel, in many cases, would not traverse any inland waterways and, therefore, would not travel "through the state."
The vessels in question are instrumentalities of interstate commerce. A state may tax such vessels without impermissibly burdening interstate commerce when the tax "[(1)] is applied to an activity with a substantial nexus with the taxing State, [(2)] is fairly apportioned, [(3)] does not discriminate against interstate commerce, and [(4)] is fairly related to the services provided by the State."Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977) (emphasis added). As a corollary, a domiciliary State is precluded from imposing an ad valorem tax on such vessels "to the extent [they] could be taxed by another State" under the four-pronged Complete Auto test.Central R.R. v. Pennsylvania, 370 U.S. 607, 614 (1962) (emphasis in original; further noting that the limitation on a domiciliary's taxing authority is not limited to such property as is actually subjected to tax elsewhere).
A territory or possession of the United States, such as Puerto Rico, is considered a state for purposes of the regulation of interstate commerce. See Puerto Rico Maritime Shipping Auth. v. Interstate Commerce Comm'n, 645 F.2d 1102, 1105 (D.C. Cir. 1981).
The "rule of apportionment" recognized in Complete Auto replaced the "home-port doctrine" enunciated in Hays v. Pacific Mail S.S. Co., 58 U.S. 596 (1855). Under the "home-port doctrine," a vessel was subject to ad valorem taxation in full at the domicile of the owner, and nowhere else. (It was only if the vessel became so completely incorporated with the personal property of a nondomiciliary state — so as to acquire an "actual situs" there — that the vessel was not subject to taxation by the domiciliary state.) Since the United States Supreme Court's decision in Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979), however, no decision in any jurisdiction has held that the "home-port doctrine" continues to govern the taxation of vessels used in interstate commerce. The analysis of the Supreme Court in Japan Line explains why:
"The `home port doctrine' enunciated in Hays was a corollary of the medieval maxim mobilia sequuntur personam (`movables follow the person,' see Black's Law Dictionary 1154 (rev. 4th ed. 1968)) and resulted in personal property being taxable in full at the domicile of the owner. This theory of taxation, of course, has fallen into desuetude, and the `home port doctrine,' as a rule for taxation of moving equipment, has yielded to a rule of fair apportionment among the States. This Court, accordingly, has held that various instrumentalities of commerce may be taxed, on a properly apportioned basis, by the nondomiciliary States through which they travel. E.g., Pullman's Palace Car Co. v. Pennsylvania, 141 U.S. 18 (1891); Ott v. Mississippi Valley Barge Line Co., 336 U.S. 169 (1949); Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954). In discarding the `home port' theory for the theory of apportionment, however, the Court consistently has distinguished the case of oceangoing vessels. E.g., Pullman's Palace, 141 U.S., at 23-24 (approving apportioned tax on railroad rolling stock, but distinguishing vessels `engaged in interstate or foreign commerce upon the high seas'); Ott, 336 U.S., at 173-74 (approving apportioned tax on barges navigating inland waterways, but `not reach[ing] the question of taxability of ocean carriage'); Braniff, 347 U.S., at 600 (approving apportioned tax on domestic aircraft, but distinguishing vessels `used to plow the open seas'). Relying on these cases, appellants argue that the `home port doctrine,' yet vital, continues to prescribe the proper rule for state taxation of oceangoing ships. Since containers are `functionally a part of the ship,' Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 815 ([2d Cir.] 1971), appellants conclude, the containers, like the ships, may be taxed only at their home ports in Japan, and thus are immune from tax in California.
"Although appellants' argument, as will be seen below, has an inner logic, we decline to cast our analysis of the present case in this mold. The `home port doctrine' can claim no unequivocal constitutional source; in assessing the legitimacy of California's tax, the Hays Court did not rely on the Commerce Clause, nor could it, in 1854, have relied on the Due Process Clause of the Fourteenth Amendment. The basis of the `home port doctrine,' rather was common-law jurisdiction to tax. Given its origins, the doctrine could be said to be `anachronistic'; given its underpinnings, it may indeed be said to have been `abandoned.' Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 320 (1944) (Stone, C.J., dissenting)."
Japan Line, 441 U.S. at 442-43 (emphasis added; footnote omitted).
The Supreme Court went on to discuss California's attempt to tax foreign-owned shipping containers passing through that state in international commerce. It stopped short of permitting California to impose a tax on the containers; California simply did not have any authority to tax the containers in question, because they were foreign-owned and were employed in international commerce. As the Supreme Court observed, "[w]hen construing Congress' [Article I] power to `regulate Commerce with foreign Nations,' a more extensive constitutional inquiry is required." Japan Line, 441 U.S. at 446. The opinion of the Court, however, left little doubt that the containers would have been taxable under the rule of apportionment if they had been instrumentalities of interstate commerce:
In distinguishing between the ability of a state to tax a foreign-owned vessel employed in international commerce and a domestically owned vessel, the Supreme Court expressed concerns regarding the risk of multiple taxation and the potential impairment of our Nation's ability to speak with "one voice" in international affairs. Id. at 446-49.
"[California] contend[s] that cargo shipping containers, like other vehicles of commercial transport, are subject to property taxation, and that the taxes imposed here meet Complete Auto's fourfold requirements. The containers, they argue, have a `substantial nexus' with California because some of them are present in that State at all times; jurisdiction to tax is based on `the habitual employment of the property within the State,' Braniff, 347 U.S., at 601, and appellants' containers habitually are so employed. The tax, moreover, is `fairly apportioned,' since it is levied only on the containers' `average presence' in California. The tax `does not discriminate,' thirdly, since it falls evenhandedly on all personal property in the State; indeed, as an ad valorem tax of general application, it is of necessity nondiscriminatory. The tax, finally, is `fairly related to the services provided by' California, services that include not only police and fire protection, but also the benefits of a trained work force and the advantages of a civilized society.
"These observations are not without force. We may assume that, if the containers at issue here were instrumentalities of purely interstate commerce, Complete Auto would apply and be satisfied, and our Commerce Clause inquiry would be at an end."
Japan Line, 441 U.S. at 445 (emphasis added; footnote omitted).
In his separate writing in this case, Judge Crawley notes that he "believes that the Court will, when clearly presented the issue, overrule what it has already characterized as an `anachronistic' and quite possibly `abandoned' doctrine. Japan Line, 441 U.S. at 443."
Because the containers in Japan Line were instrumentalities of foreign commerce, and not "instrumentalities of purely interstate commerce," the four-pronged test of Complete Auto did not apply. The vessels at issue in the present case, however, are "instrumentalities of purely interstate commerce." I conclude, therefore, that the four-pronged test of Complete Auto, including the rule of apportionment, does apply in this case, and that the "home-port doctrine" is not applicable.
The probate court and the revenue commissioner rely in part upon Alabama Supreme Court decisions in National Dredging Co. v. State, 99 Ala. 462, 12 So. 720 (1893), and Tennessee Coal, Iron R.R. v. State, 239 Ala. 19, 193 So. 143 (1939). These cases, however, were decided at a time when the "home-port doctrine" prevailed. As noted, that doctrine has now yielded to the rule of apportionment, and these Alabama cases, therefore, do not govern the disposition of the present case.
As the domiciliary state for the vessels at issue, however, Alabama need not be concerned with the potential for fair apportionment of taxes on the vessels between it and another jurisdiction unless, as a threshold matter, Gulf Caribe has demonstrated that the vessels have a "substantial nexus" with — also known as a "taxable situs" in — another "state," in this case Puerto Rico. Unlike the majority, I believe the evidence submitted by Gulf Caribe made such a showing, and I therefore must dissent.
Not unlike the present case, in Japan Line, the containers at issue were each in the State of California only about 3 weeks out of every 52. See Japan Line, 441 U.S. at 445 n. 8 (accepting taxation of 3/52 of Japan Line's containers at full value as a proxy for taxing all of Japan Line's containers at 3/52 value). The appellant argued that the vessels satisfied the "habitual employment of the property within the State" test articulated in Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954), as a measure of whether a "substantial nexus" exists. I believe the same argument has merit in the present case.
I also find instructive the reasoning of the United States Supreme Court in Ott v. Mississippi Valley Barge Line Co., 336 U.S. 169 (1949). In Ott, the Supreme Court upheld the authority of the City of New Orleans and the State of Louisiana to tax, on an apportioned basis, tugboats and barges engaged in interstate commerce along the Mississippi River. The taxpayer operated a fleet of vessels that called on the Port of New Orleans only for the purpose of loading and unloading cargo, and, on occasion, to make necessary and temporary repairs. Ott, 336 U.S. at 171. The Court noted that "turnarounds" were accomplished as quickly as possible so that the vessels were present in Louisiana for relatively short periods. I find the contacts between Gulf Caribe's vessels and the Puerto Rican port to be quite similar to the contacts that were held in Ott to establish a taxable situs. See also Standard Oil Co. v. Peck, 342 U.S. 382 (1952). Thus, the following observation of the Supreme Court in Ott is apposite:
The time the vessels were physically located at a Louisiana dock ranged from 2.2% to 17.5% of the year. Ott, 336 U.S. at 171 n. 1.
"In the trips to Louisiana a tugboat brings a line of barges to New Orleans where the barges are left for unloading and reloading. Then the tugboat [picks] up loaded barges for return trips to ports outside that state. There is no fixed schedule for movement of the barges. But the turn-arounds are accomplished as quickly as possible with the result that the vessels are within Louisiana for such comparatively short periods of time as are required to discharge and take on cargo and to make necessary and temporary repairs."
Ott, 336 U.S. at 170-71 (emphasis added).
The Kentucky case of Union Barge Line Corp. v. Marcum, 360 S.W.2d 130 (Ky.App. 1962), likewise is instructive. The tugs and barges at issue in that case were engaged in commerce along the Ohio River. The taxpayer contended that its property acquired no taxable situs in Kentucky because none of the vessels were permanently in that state; the vessels were engaged only in sporadic loading and discharging of cargo in Kentucky and did not run on scheduled or fixed routes. In rejecting this argument and affirming the apportioned assessment, the Kentucky court held:
"The nature and extent of interstate transportation operations have been the controlling factors in determining whether a particular state may levy a tax upon transient property. We may assume that casual, or sporadic, or occasional movements of the implements of a transportation enterprise into and out of a state do not furnish a sufficient nexus or link between a local taxing power and a foreign corporation. The solution of the problem is really a practical one. If such movements are sufficiently substantial, continuous and constant, then the state necessarily furnishes such benefits and protection as will warrant its demand for a quid pro quo by way of a fairly apportioned tax.
"Appellants contend that their operations do not constitute a definable `system,' nor do they have a `permanence,' which are criteria mentioned in some of the cases. . . . The fact that because of the nature of the business appellants do not operate their boats and barges on a fixed schedule does not necessarily mean that there is not a systematic utilization of Kentucky territory (i.e., the waterways); nor does the lack of a fixed schedule or the fact that the exigencies of traffic affect the scope of operations necessarily mean that such operations are of a nonpermanent nature.
"Appellants conduct a substantial, regular and continuous business through Kentucky. The general route is fixed. The absence of specific schedules simply makes more difficult the determination of a fair apportionment, but it does not negative an habitual and continuous use of Kentucky territory."
Union Barge Line, 360 S.W.2d at 132-33 (some emphasis added; citations omitted).
Citing Central Railroad Co. of Pennsylvania v. Pennsylvania, 370 U.S. 607 (1962), the Revenue Commissioner argues that Gulf Caribe did not maintain "fixed and regular routes" in Puerto Rico and, therefore, has not established a tax situs there. The reference to "fixed and regular routes" in Central Railroad, however, was a function of the particular facts of that case. In response to its own emphasis on the fact that the taxpayer bore the burden of proving an exemption from Pennsylvania's tax, the Supreme Court noted certain facts peculiar to a particular group of railcars owned by the taxpayer — namely, that the cars ran "on fixed routes and regular schedules" — was sufficient to satisfy that burden. 370 U.S. at 613. The focus on such fixed and regular routes did not constitute an announcement of a rule of law that must be met in every case in order to satisfy the "substantial nexus" test underComplete Auto. Indeed, even as to railcars, which by their nature are more susceptible to running on a "fixed route and regular schedule" than other vessels, the Supreme Court explained that "a nondomiciliary tax situs may be acquired even if the rolling stock does not follow prescribed routes and schedules in its course through the nondomiciliary State." Id. at 615. Thus, as to a second group of cars at issue, the Supreme Court observed:
"[T]he cars `never were run in said state in fixed numbers nor at regular times, nor as a regular part of particular trains.' [Nonetheless, h]abitual employment within the State of a substantial number of cars, albeit on irregular routes, may constitute sufficient contact to establish a tax situs permitting taxation of the average number of cars so engaged.
"On the record before us, however, we find no evidence, except as to [a separate group of] cars, of either regular routes through particular nondomiciliary States or habitual presence, though on irregular missions, in particular nondomiciliary States."
Id. (emphasis added; citation omitted).
In contrast to Central Railroad, where the Court noted a failure to show employment of a "substantial number" of cars within the taxing jurisdiction, all of the vessels at issue in the present case were employed in Puerto Rico. Although, as explained in more detail below, I believe Gulf Caribe's vessels also were employed on frequent and regular routes to and within Puerto Rico, at a minimum, it certainly could be said, as it was in Central Railroad, that the vessels in question maintain a "habitual presence, though on irregular missions" in Puerto Rico.
I also find the United States Supreme Court decision in Braniff Airways, Inc. v. Nebraska State Board of Equalization, 347 U.S. 590 (1954), supportive. In Braniff, the Supreme Court considered the taxation of aircraft by the State of Nebraska:
"The home port registered with the Civil Aeronautics Authority and the overhaul base for the aircraft in question is the Minneapolis-St. Paul Airport, Minnesota. All of the aircraft not undergoing overhaul fly regular schedules upon a circuit ranging from Minot, North Dakota, to New Orleans, Louisiana, with stops in fourteen states including Minnesota, Nebraska and Oklahoma. No stops were made in Delaware. The Nebraska stops are of short duration since utilized only for the discharge and loading of passengers, mail, express, and freight, and sometimes for refueling. Appellant neither owns nor maintains facilities for repairing, reconditioning, or storing its flight equipment in Nebraska, but rents depot space and hires other services as required."
347 U.S. at 592 (emphasis added). Against these facts, the United States Supreme Court concluded that there was
"regular contact . . . sufficient to establish Nebraska's power to tax even though the same aircraft do not land every day and even though none of the aircraft is continuously within the state. `The basis of the jurisdiction is the habitual employment of the property within the State.' Appellant rents its ground facilities and pays for fuel it purchases in Nebraska. This leaves it in the position of other carriers such as rails, boats and motors that pay for the use of local facilities so as to have the opportunity to exploit the commerce, traffic, and trade that originates in or reaches Nebraska."
347 U.S. at 601 (emphasis added; footnote omitted). Similarly, I conclude that the record in the present case amply demonstrates that Gulf Caribe uses the local facilities in Ponce, Puerto Rico, "so as to have the opportunity to exploit the commerce, traffic, and trade that originates in or reaches" Puerto Rico.
In Ott, there was "no fixed schedule for movement"; the "turnarounds" of the vessels in the New Orleans port were simply "accomplished as quickly as possible." The lack of a fixed or regular route in Ott and the sporadic timing and limited duration of the visits did not prevent a finding of a "taxable situs" in Louisiana:
"We see no practical difference so far as either the Due Process Clause or the Commerce Clause is concerned whether it is vessels or railroad cars that are moving in interstate commerce. The problem under the Commerce Clause is to determine `what portion of an interstate organism may appropriately be attributed to each of the various states in which it functions.' So far as due process is concerned the only question is whether the tax in practical operation has relation to opportunities, benefits, or protection conferred or afforded by the taxing State. . . .
". . . We can see no reason which should put water transportation on a different constitutional footing than other interstate enterprises."
Nor do I see any reason why there should be any difference in taxation between vessels engaged in purely interstate commerce that accomplish that commerce solely within the territorial waters of two or more states and vessels that accomplish their commerce by way of a route that also takes them through international waters. Thus, I see no basis for allowing a vessel engaged only in interstate commerce between, for example, Mobile, Alabama, and Tampa, Florida, to avoid ad valorem taxation on the full value of its vessel simply because it leaves Alabama's territorial waters, crosses a portion of the Gulf of Mexico, and then enters Florida's territorial waters. Despite its use of international waters, the vessel is a domestic vessel engaged in interstate commerce and, as between Florida and Alabama, its full value may be taxed, just as could a vessel that elected to travel between Alabama and Florida solely by way of the territorial waters of each State.
I also note that the "finding" of the probate court that the vessels did not acquire a taxable situs in Puerto Rico because they supposedly "never moved through Puerto Rico at all [but rather] travel to Puerto Rico, not through it" does not comport with either the record or the law. The undisputed evidence is that the vessels travel through the territorial waters of Puerto Rico (which extend three marine leagues offshore; see 48 U.S.C. § 749) and physically dock on Puerto Rican soil. Moreover, I see no basis in the case law for making a distinction between traveling "to" another state, as opposed to "through it."
336 U.S. at 174 (emphasis added; citations omitted).
Based on the record in the present case, I conclude that ad valorem taxation of the vessels by Puerto Rico would have relation to "opportunities, benefits, and protection conferred and afforded" by Puerto Rico. In each of the two tax years in question, each of the vessels at issue made approximately 18 round-trips between Mobile, Alabama, and Ponce, Puerto Rico. On each of these voyages, the vessels were present in Puerto Rico an average of two days, and on some occasions were docked in Ponce, Puerto Rico, for between three and five days.
More importantly, the vessels were dedicated to carriage solely between Mobile, Alabama, and Ponce, Puerto Rico. In fact, although the vessels were owned by Gulf Caribe, they were leased to Chemex Corporation, a company with facilities in both Ponce, Puerto Rico, and Mobile, Alabama. As quickly as they could be loaded and prepared for a return voyage to Puerto Rico from Mobile, they returned to Puerto Rico, where they docked to a facility leased for their use by Chemex. They traveled to no other destination. Their trips, therefore, were as "fixed" and on as "regular" a route as the nature of the business in which the companies were engaged would allow.
In the words of the Kentucky court in Union Barge Line, "[t]he fact that because of the nature of the business appellants do not operate their boats and barges on a fixed schedule does not necessarily mean there is not a systematic utilization of [Puerto Rico] territory (i.e., the waterways)." 360 S.W.2d at 132-33. The absence of specific schedules may add a step or two to the calculations needed to determine a fair apportionment, but it does not negative the frequent, habitual, and substantial use of Puerto Rican territory.
These were not fortuitous, sporadic, or casual contacts with Puerto Rico. Rather, during the tax years in question and throughout the 10-year history of their operations, Gulf Caribe and the vessels have engaged in frequent, systematic, and substantial contact with Puerto Rico.
As a result, the vessels were either traveling through Puerto Rican waters or docked in a Puerto Rican harbor approximately 10% of each year. After traveling through Puerto Rican waters, the vessels came to rest in a Puerto Rican harbor. They were physically anchored and/or docked to Puerto Rican soil or "property." The vessels "attached" themselves to a Puerto Rican port facility. Gulf Caribe's personnel would unload the vessels' cargo onto this facility.
According to Gulf Caribe's calculations, the vessels were present in Puerto Rico for approximately 10% of the year in each of the two tax years in question; the vessels were present in Alabama from 22% to 32% of each of the tax years. Therefore, the vessels were present in Puerto Rico approximately one-third to one-fourth of the total time that they were present in either of the two jurisdictions with authority to tax their value.
Furthermore, Gulf Caribe and its personnel took advantage of Puerto Rico's physical, economic, and political infrastructure. Gulf Caribe and its personnel made substantial use of public roadways and other public works, as well as private services, in connection with their use of air and ground transportation and hotel accommodations within Puerto Rico. While in Puerto Rico, Gulf Caribe and its vessels and personnel necessarily received the benefit of police and fire protection and other public services provided by Puerto Rico. The record contains evidence of contacts with Puerto Rico relating to the operation, maintenance, and repair of the vessels by both Gulf Caribe personnel and Puerto Rican firms, as well as the purchase in Puerto Rico of parts needed to make repairs, the transportation of Gulf Caribe personnel to and from Puerto Rico, the securing within Puerto Rico of medical services, and the provision of assistance to its customer, Chemex, with repairs to locomotives located in Puerto Rico. Among other things, Gulf Caribe also contracted with Puerto Rican companies to repair property damaged by the vessels in Puerto Rico. Albeit of less duration than the presence of the vessels and their crew, other Gulf Caribe personnel have a regular presence in Puerto Rico for the purpose of attending operational meetings and negotiating contracts.
See Japan Line, 441 U.S. at 445 ("The tax . . . is `fairly related to the services provided by California, services that include not only police and fire protection, but also the benefits of a trained work force and the advantages of a civilized society.").
In short, Gulf Caribe, its vessels, and personnel realize "opportunities, benefits, and protection conferred or afforded by Puerto Rico sufficient to satisfy the demands of due process as a prerequisite for taxation." See Ott, 336 U.S. at 174. Accordingly, I conclude that the Revenue Commissioner could not, consistent with the Due Process Clause and the Commerce Clause, assess ad valorem taxes on the vessels at their full value and without an appropriate apportionment of that value as between Puerto Rico and Alabama. I therefore must respectfully dissent.