By Dermot Cole
The 2017 Republican tax law, which Congress approved without a hearing, was going to include a provision to collect about $70 million a year from cruise ship companies that don’t pay federal taxes.
The strongest arguments for a federal tax are that the U.S. Coast Guard responds when cruise ships face trouble, most passengers are U.S. citizens, the companies are based in the U.S. and they should be paying to support the infrastructure that helps protect passengers and the environment. A total of about 1.3 million visitors were expected on cruise ship trips to Alaska this summer, about half traveling on 15 ships owned by Carnival.
An analyst for UBS said the 2017 tax proposal would have meant an effective tax rate for the industry giants of about 2%.
But Alaska Sen. Dan Sullivan pushed an amendment to sink the cruise ship tax, repeating the standard industry claim that any new tax would force the companies to reduce the number of ships traveling to Alaska.
“Sullivan lobbied Senate leadership and other lawmakers in getting the tax increase stripped from the bill, said Matt Shuckerow, a Sullivan spokesman,” CBS reported at the time.
The industry is dominated by companies that are based in the United States, but registered in places like Panama and the Bahamas, taking advantage of an old loophole in federal tax law that allows them to legally avoid most U.S. taxes.
This allows them, as former Sen. Jay Rockefeller put it in a 2013 hearing, “to maintain the fiction that you earn most of your income outside U.S. territory ...”
Carnival and Royal Caribbean had an effective U.S. tax rate at that time of 1.3%, according to Rockefeller’s staff.
The largest cruise conglomerate is Carnival, which owns many other companies, including Princess and Holland America, and calls itself “among the most profitable and financially strong in the cruise and vacation industries.”
In its latest annual filing with the U.S. Securities and Exchange Commission, the company says “substantially all of Carnival Corporation’s income is exempt from U.S. federal income and branch profit taxes” because it is registered in Panama.
This long-standing federal gift to the industry does not extend to the Princess and Westmark hotels or the buses and railcars the company operates in Alaska.
“Our domestic U.S. operations, principally the hotel and transportation business of Holland America Princess Alaska Tours, are subject to federal and state income taxation in the U.S.,” the company states.
The 2017 tax law would have reduced the benefit enjoyed by Carnival and other companies, but Sullivan marshaled the opposition to preserve the loophole.
John Binkley, then president of the cruise line trade group in Alaska, said at the time, “This new tax had the potential to undo all the progress we’ve made recently to attract more and larger ships, which is a great win for the Alaska economy. It would have been a job killer for Alaskans because the cruise lines will move their ships to places where they are most profitable.
“We contacted Sen. Sullivan and he understood how this was so harmful for Alaska and immediately went to work on eliminating it. He was relentless in making certain other senators knew how it negatively targeted jobs in Alaska,” Binkley said.
The cruise ship industry has not forgotten Sullivan’s assistance in preserving the no-tax status for foreign companies.
He has received $17,600 so far in industry-related contributions for his 2020 re-election campaign, more than any other member of Congress, according to OpenSecrets.org, a research group that tracks money in politics.
Sullivan is also the top recipient so far of contributions from sea transport companies and No. 2 from companies that deal in vegetables, fruits and tree nuts, the group said.
Carnival has spent $400,000 this year lobbying Congress. One of its priorities is stopping a bill that would lead to greater compensation for victims of cruise ship accidents.
“The cruise industry trade group, whose PAC (political action committee) attracted large donations from major cruise line employees, has been active in arranging fly-ins to connect company executives and politicians at its annual Congressional Cruise Caucus,” OpenSecrets.org reported.
The bill is in the Commerce Committee, of which Sullivan is a member.
Dermot Cole is a longtime Alaskan, an author of several history books, and a former Daily News-Miner staff columnist who now writes an occasional column on Alaska politics and history. His email address is firstname.lastname@example.org.