Sunday, October 11, 2009

Is this cruise tax a head tax, an excise tax, or both?

In the October 6, 2009 Anchorage Daily News editorial "Cruise industry muddies water on head tax," Chip Thoma defends head taxes imposed on cruise passengers. With a head tax, every person pays the same monetary amount, regardless of income. (The tax is paid per person, or per head.) A head tax is also called a poll tax or a lump-sum tax.

This particular tax is also an excise tax. An excise tax is one that is paid on the consumption of a product. In this case, the product is passage on a cruise. Other excise taxes, such as taxes on fuel, cigarettes, or alcohol, are NOT head taxes.
Cruise tourism has been in the news lately, including stories of a lawsuit advanced by the Alaska Cruise Association claiming that the 2006 voter-approved passenger excise tax is illegal. Some recent history will explain what is really going on.

Over a decade ago, Juneau voters approved a local initiative requiring that cruise passengers pay a $5 excise, or head tax. Despite dire industry predictions that the tax would ruin business, more than $40 million dollars has been collected and spent on cruise passenger improvements. Significantly, cruise passenger visitation to Juneau has doubled since the tax was levied, to 1 million a year.

Throughout the world, cruise ports charge taxes to pay for necessary improvements and services for ships and passengers, including wharves, roadways, bathrooms and medical response. Without reasonable taxes, port residents would be forced to shoulder all these improvements. Having passengers pay for needed infrastructure that welcomes 1,000-foot ships and many thousands of cruise tourists daily in a compressed season makes sense for everyone.

In 2006, Alaska voters approved a state initiative by 52 percent to 48 percent that charges cruise passengers a $50 head tax. The tax generates $50 million per year and pays for cruise ship infrastructure in a dozen Alaska cruise ports. The tax also pays for state Ocean Rangers to monitor shipboard pollution control.

Importantly, the cruise companies do not pay any of this head tax. The total tax is paid by passengers when they purchase Alaska cruise tickets. Media reports this summer revealed that Alaska cruise passengers were completely unaware of the head tax. And when asked, most thought the $50 was reasonable and the purposes for the head tax appropriate.

With the economic recession, the gloom-and-doom spokesmen for the cruise industry predicted catastrophe this year. Blame for the upcoming disaster was placed squarely on the 2006 passenger head tax. But the reality was quite different.

The ships were full in 2009. The million passengers who sailed to Alaska this summer spent their discretionary money on budget bus tours, short tram rides and T-shirts, operations that all recorded record revenues. Expensive side trips were down, like flightseeing and whale watching, a result expected in an economic recession.

The obvious lesson is that passengers this summer were happy to visit Alaska, but were unwilling to spend for expensive extras. Another salient point is that the $50 head tax didn't keep anyone from sailing on cruise ships to Alaska in 2009.

A disappointing aspect about cruise taxation is the continual duplicity of the industry. The Miami-based cruisers whine about the tax but refused to comment on cruise-related projects approved for funding this year in the Legislature. Instead, the cruise lines recently filed a lawsuit claiming the tax and some of the funded projects are illegal.

The hypocrisy by the cruisers has been constant. Cruise lobbyists claim the $50 passenger tax greatly impacts their bottom line, yet the 2009 cruise passengers who pay the entire tax are blissfully unaware of it. The industry persists in their divide-and-conquer tactics toward local ports, promising dire consequences to local revenues if the head tax is not repealed. But that very head tax pays for local port projects and allows for more safe and efficient cruise ship visits.

In any discussion of state-to-industry relationships, there are adversarial points that need careful listening and proper resolution. In the case of the cruise industry, the clear reality is that a fair tax on passengers must be charged to pay for vessel-related infrastructure and services. Alaskans also demand that no pollution will be tolerated from the dozens of floating ship-cities. Alaskans want a say in how our communities and productive marine waters are used.

Alaskans statewide are tired of the overblown cruise industry rhetoric. The industry should be active in the legislative finance process that determines project funding instead of filing Hindenburg-style lawsuits.

Juneau resident Chip Thoma is president of Responsible Cruising in Alaska. He has been involved in cruise ship regulation issues for 12 years.

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