Murkowski seeks tax break for cruise lines

Posted: Tuesday, May 04, 2004

ANCHORAGE - Sen. Lisa Murkowski wants to give the cruise industry a break from paying taxes on the airline tickets, hotel rooms and shore excursions it sells in the United States.

The one-year delay in paying the taxes was a provision the Republican senator recently added to a pending bill with the support of senators from two other states where cruise ships dock, the Anchorage Daily News reported.

Murkowski said she sought the tax delay because congressional budget analysts told her the effect on the flow of revenue to the government - the "score" - would be less than $1 million, an insignificant figure, her spokesman said.

But a spokesman for Carnival Corp., the world's largest cruise line operator, said the tax delay would save it $15 million. Royal Caribbean would save $8 million to $10 million, according to figures in its annual report.

Murkowski said she stands by her original reasoning.

"Well, it was one of those things where we understood the score on that was going to be minimal and it was going to give several of the cruise ships time to get their paperwork in order," Murkowski said last week. "The reporting requirements were going to take some time. They weren't ready."

At Murkowski's request, the Senate Finance Committee added the cruise line tax break to a corporate tax bill that supporters call JOBS: Jump-start Our Business Strength.

Tom Dow, vice president of public affairs for Carnival Corp., said the cruise lines need the tax delay because the Internal Revenue Service gave them only 30 days to comply with the new tax regulations after they were adopted in August.

"We're not objecting in principle to paying the tax," Dow said. "The relief we're seeking is a reasonable amount of time" to change accounting procedures.

Advocates of tougher corporate tax rules say the cruise industry has been sailing through an enormous tax loophole for years and should comply with the new rules.

"People have been complaining about it for decades," said Bob McIntyre, president of Citizens for Tax Justice, a Washington watchdog group. "It's hard for them to be surprised that somebody finally did something about it."

Carnival, Royal Caribbean and the other major cruise lines operating in the United States are almost entirely exempt from U.S. taxes. Their corporations and ships are registered in countries like Panama and Liberia, which have agreements with the United States to not impose taxes on each other's international shipping and travel.

The cruise lines would continue to operate largely free of U.S. taxes under the regulations the IRS adopted last year. But the new tax regulations say the cruise lines must begin paying federal taxes on their profits from other services they sell to their customers, like airline tickets, hotel stays, flightseeing trips and fishing charters.

"Our problem with this whole business is that we didn't have any systems in place to track the specific off-the-ship activities, distinguishing what happens in the U.S. versus international locations," Dow said.

Carnival is the parent corporation to a number of cruise lines, including Cunard Line, Holland America Line and Princess Cruises.

Carnival constitutes nearly 60 percent of the Alaska cruise industry.

Carnival's non-cruise divisions, Holland America Tours and Princess Tours, which own hotels and provide bus tours in Alaska, are U.S. subsidiaries and subject to U.S. taxes on income.

In all, Carnival Corp. paid $29 million in taxes last year, which includes what the non-cruise divisions paid in U.S. taxes and what the company paid to foreign governments. The company had revenues of $6.7 billion.

The cruise industry actively contributes money to candidates both in Alaska and nationally, and has given at least $13,000 to Murkowski's election campaign. That includes $2,000 from Dow and $9,000 from groups associated with Carnival.

Dow said Washington state's two Democratic senators, Maria Cantwell and Patty Murray, joined Murkowski in pressing for the provision, as did Sen. Bob Graham, D-Fla.

The legislation containing the tax delay, the JOBS bill, also includes financial incentives to build a gas pipeline from the North Slope to the Lower 48. The Senate is scheduled to take up the bill this week.

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