Last fall we voters passed a head tax to raise some money from tourism. The assembly seems to think the money must be spent on things that will benefit the cruise ship industry. Our assembly may want to do that, of course. But as a matter of law they sure don't have to.
In a case decided by the United States Supreme Court in 1981, coal companies challenged the Montana Coal Severance Tax on the grounds that the amount collected by Montana was vastly greater than the cost of the services Montana provided to the coal industry. The tax generated a lot of revenue for the state.
Both the Commerce Clause and the Due Process Clause of the U.S. Constitution require taxes to be fairly apportioned to the activity at issue, and one test is whether the tax is ``fairly related to services'' provided by the taxing authority. The coal industry argued that the coal tax was not ``fairly related'' to their activity. The industry had their own security forces, built their own roads and hardly used any state services. The Court rejected their argument.
After pointing out that ``nothing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit,'' the court held that the tax was valid if the measure of the tax was ``reasonably related'' to the extent of contact with the state by the taxpayer. ``The relevant inquiry . . . is not the amount of the tax or the value of the benefits allegedly bestowed'' as measured by the costs to the government. ``The only benefit to which the taxpayer is constitutionally entitled is the substantial benefit of doing business in an organized and civilized society.'' The Montana tax was ``fairly related'' because it was based on the value of the coal; as the value reaped by the coal companies increased, so did the tax.
The head tax is exactly related to the amount of contact the cruise ships have with the city. It is based on the number of visitors to Juneau. Each one of these visitors is protected by local police. Each one will receive emergency medical services, or search and rescue, or evacuation from a glacier, if necessary. Each one can use the library; can use the trails at the Glacier and in North Douglas and Eaglecrest; can use the bus system. Each one enjoys the amenities we have paid for - from the lamp posts on Front Street to the recreational facilities we pay for by our sales tax.
What would Alaska be like right now if the state had been required to spend oil revenue only on the oil industry? There would never have been any surplus oil revenue to fund other state services. There would be no Permanent Fund. There would be no Permanent Fund Dividend.
Lest the reader worry that we are picking on the cruise ship industry, let me mention some of the ways that they are singled out by the state and federal governments. As foreign-owned ships, they pay no U.S. income tax on the profits from the cruises. They get this exemption on the theory that they pay income tax in their country of registry. However, most the ships are registered in Panama or Liberia, who have no income taxes. As we have learned, they don't have particularly good environmental laws, either. Next, even though our state Supreme Court has ruled that foreign ships are properly subject to Alaska's corporate income tax, our legislature decided to exempt them it. Further, they aren't subject to the Jones Act, they don't have to pay their employees even minimum wage or worry about OHSA regulations. Finally, they are allowed to run full-fledged gambling casinos in state waters.
By contrast, an American owned cruise ship (like Goldbelt or Cruise West) is subject to federal income tax; state income tax; federal wage and safety laws, the Jones Act, and state environmental laws. And gambling would be illegal on their ships.
So I wouldn't worry about the burden on the cruise ship industry. The assembly should save the money it is planning to spend on a study about how much the cruise ship industry costs municipal government. That issue is irrelevant. The tax is a general revenue tax; it should be used to benefit Juneau and all its residents.
The case discussed is Commonwealth Edison v. Montana, 453 U.S. 609 (1981) Deborah Vogt has practiced tax law for many years. She is a former assistant attorney general and was Deputy Commissioner of Revenue.
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