Gromer v. Standard Dredging Co.

1912-04-22

Headline: Court allows Puerto Rico to tax dredging boats and machinery working in San Juan harbor, reversing a lower court and making it harder for contractors to escape territorial taxes by claiming federal reservation immunity.

Holding: The Court reversed the lower court and held that Puerto Rico may tax the dredging company’s boats and machinery in San Juan harbor because federal reservation language did not prevent territorial taxation of such property.

Real World Impact:

Lets Puerto Rico tax dredging boats and machinery located in San Juan harbor.
Reversed lower court injunction, limiting contractors’ ability to avoid territorial taxes.
Requires contractors to pay local taxes when equipment is in harbor for work.

Topics: harbor taxes, territorial taxation, federal contracts, maritime property, Puerto Rico law

Summary

Background

A Delaware dredging company brought a dredge, a tug, two dump scows, a coal scow, and a launch into San Juan harbor to perform a contract with the United States to dredge the harbor and channel. The Treasurer of Puerto Rico assessed $1,200 in taxes (on a $75,000 valuation) for 1908–09, embargoed part of the property, and threatened sale to collect the tax. The company sued to block the tax; the lower court granted and made permanent an injunction against collection.

Reasoning

The central question was whether Puerto Rico could tax that equipment while it was in the harbor doing work under a federal contract and whether federal law reserved harbor waters so as to bar local taxation. The company relied on the Foraker Act and a 1902 statute to say harbor areas were reserved to the United States. The Court majority held those statutes made property reservations (who owns what land) but did not strip the territorial government of its ordinary power to tax property located in the harbor. The Supreme Court therefore reversed the lower court’s injunction and directed dismissal of the company’s bill.

Real world impact

The decision means Puerto Rico may collect taxes on vessels and equipment situated in its harbors while doing work, even when the work serves the United States. Contractors working temporarily in a territorial harbor cannot automatically avoid local taxes by pointing to federal reservations. The ruling resolves the dispute in favor of the island government in this case.

Dissents or concurrances

Three Justices dissented, agreeing Puerto Rico has general taxing power but saying the company’s equipment had not acquired a taxable situs in Puerto Rico because it was brought in temporarily for a single contract and remained domiciled in Delaware, so the lower court’s injunction should have been upheld.