Floating island theory rejected: supplies to foreign merchant ships in territorial waters remained subject to domestic sales tax.

Supplies made to foreign merchant ships within territorial waters were held not to be immune from sales tax on the basis of exterritoriality or the floating island theory. The court rejected the argument that a merchant ship should be treated as part of the flag State for domestic tax purposes, holding that a ship entering another country's territorial limits remains subject to that country's jurisdiction during its stay. On that reasoning, the supplies were held liable to sales tax and the petition was dismissed.

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Issues: Whether supplies made to foreign merchant ships within the territorial waters of the State were immune from sales tax on the theory that such ships constituted a floating island of the flag State.

Analysis: The contention based on exterritoriality and the floating island theory was rejected. A merchant ship entering the territorial limits of another country is subject to the jurisdiction of that country during its stay, and the fiction that a ship is part of the flag State cannot be extended to avoid liability under a domestic taxing enactment.

Conclusion: The supplies were held liable to sales tax and the petition was dismissed.

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