Cruise lines threaten suit

Company lawyer: Head tax flouts U.S. Constitution and federal law

Posted: Wednesday, April 06, 2005

A cruise ship attorney warned Alaska legislators Tuesday that cruise operators will likely sue the state if it charges a $50 head tax on cruise ship passengers.

The state would spend "tens and tens of thousands of dollars" defending the head tax proposed by Rep. Carl Gatto, R-Palmer, said Susan Burke, a Juneau attorney who represents the NorthWest CruiseShip Association.

She said the tax, which could generate $40 million per year, flouts the U.S. Constitution and the National Marine Security Act.

If Alaska wants new revenue, it should consider a statewide sales tax instead, other cruise line representatives told the House Committee on Community and Regional Affairs at a hearing on the cruise ship head tax Tuesday.

To date, despite their vociferous objections, cruise lines haven't sued cities such as Juneau and Ketchikan, which use local head taxes to pay for cruise ship-related infrastructure and other local costs.

"They've implied that they think some things have been inappropriate but they've never taken legal action," said Juneau City Manager Rod Swope.

By 2005, Juneau expects it will have collected at least $19.5 million from its $5 per passenger head tax, and all of that money has been dedicated to projects, like new restrooms and a proposed seawalk, that benefit cruise ship passengers, Swope said.

"We have more projects than available money," he said.

In order to comply with the National Marine Security Act, any vessel tax must provide services to vessels that enhance the safety and efficiency of interstate and foreign commerce.

The state has also approved a 2006 ballot initiative that uses a tax distribution formula for cruise ship tax revenue very similar to what Gatto's bill proposes.

The Department of Law determined it is possible to construct a legally defensible tax on cruise ships "as long as it is used to recoup, through taxes, related government expenses," according to a 2004 memo to Gatto written by Michael Tibbles, a former legislative director for Gov. Frank Murkowski and now a deputy commissioner in the Department of Administration.

But the cruise lines say the state doesn't have any significant expenses of its own that qualify under the federal law. The state doesn't operate the harbors, for example.

"It's difficult for me to conceive of anything the state of Alaska could possibly spend this money on," Burke said.

"In all, we believe the (cost) to the state is not as much as what we bring to the state," said Don Habeger, regional vice president for government and community relations for Royal Caribbean Cruises.

Gatto said it is not the cruise lines' role to establish the legality of tax spending. "It's a court decision. If indeed it's illegal, (they) win off the hook."

Gatto's bill would distribute 10 percent of the tax proceeds to each of Alaska's five ports of call. If the port of call is an independent city located within a borough, the revenue would be split 50-50 between the two entities.

The bill would also create a "regional cruise ship impact sub-account" that would distribute 25 percent of the tax income to communities that are affected by cruise ship activities but are not ports of call.

The state would funnel the remainder of the tax proceeds to a special commercial vessel passenger tax account in the general fund.

The threat of a legal challenge is the latest salvo from the cruise industry in a battle over taxation that has been brewing for several years in the Legislature.

The industry is already suing the state over its approval of a citizen-sponsored initiative on the 2006 ballot that would charge a $46 head tax and a tax on gambling, among other measures.

Gatto's bill will probably not get all the way to a final vote during this legislative session, he said.

"It usually doesn't get very far," Gatto said. Referring to previous versions of the bill, he said, "For two years, it sat in its first committee."

He hopes to move the bill through the House this year and get a vote in the Senate next year.

• Elizabeth Bluemink can be reached at elizabeth.bluemink@juneauempire.com.



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