Cruise ship industry wants to sink tax

The cruise ship industry is raising legal questions about a proposal by Gov. Frank Murkowski to impose a $5 tax on cruise ship passengers.

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Cruise ship representatives cite a federal law that earlier this year Murkowski and his attorney general said appeared to make so-called head taxes on cruise ships illegal.

While Murkowski's proposal is short on details, industry representatives say what they know about it appears to run afoul of the law, which says Alaska can't balance its books by taxing out-of-state tourists.

"We haven't seen the details, but if the money is meant to go into the general fund, we believe it does not meet requirements of the federal constitution or federal law," said John Shivley, spokesman for Holland American Tours.

Murkowski proposed a head tax of $5 per day for each passenger aboard the many cruise ships that ply Alaska's waters each summer. Administration officials estimate it pencils out to about $40 per passenger and would raise $17 million for state coffers.

On top of that, cruise ships that operate onboard casinos would pay a $1 per passenger gambling tax aimed at raising another $5 million.

Echoing the call by critics who have for years complained that the cruise lines such as Princess and Royal Caribbean don't pay state corporate income taxes, Murkowski said the industry should pay its fair share.

In an interview with The Associated Press on Wednesday, the governor said the state is prepared to defend the tax and ultimately the cruise ships should prepare to contribute to state coffers.

"We expect them to make a reasonable contribution," Murkowski said, dismissing the legal arguments. "They also have a moral obligation."

Several unsuccessful attempts to impose a tax on cruise ships have fallen by the wayside in previous legislative sessions.

And Congress weighed in on the issue in 2002 after Yakutat - a small coastal fishing village - tried to impose a tax on cruise ships that travel up Disenchantment Bay.

The measure, dropped into the Marine Security Act, sharply curtailed the ability of state and local governments to impose taxes on ships or passengers.

Critics of the industry point out that cruise ships don't pay the same business taxes that Alaska companies pay. The state Legislature exempted cruise ships and other foreign-flagged vessels from paying corporate income taxes in 1998, effectively ending debate over whether they were required to contribute here.

Under the federal measure passed last year, taxes could be imposed to fund services provided to the ships such as port facilities or to improve interstate or foreign commerce.

In Alaska, Juneau charges a head tax on cruise ships and uses the money for such things as docking facilities. Ketchikan is considering a similar tax.

But the federal legislation almost threatened to sink a citizen's initiative by Southeast residents who proposed a similar head tax on cruise lines to fund a plethora of state and local expenses.

State Attorney General Gregg Renkes, in writing an August legal opinion of the group's initiative, cautioned the state had limited powers to tax the industry.

In a similar opinion issued in May to Rep. Cheryll Heinze, an Anchorage Republican, Renkes said a state tax had to fund services provided to the vessels.

And cruise ship industry representatives point out that most of the Alaska ports visited are owned by local governments. The state doesn't appear to offer $17 million in services to the ships, which is what the tax would raise, said Tom Dow, vice president of Princess Cruises.

"It does raise the question," Dow said. "If there were millions charged to the cruise lines and there are no services and facilities being provided, that would not be consistent with the law," Dow said.

During the last legislative session, Murkowski spoke out against a cruise ship head tax, saying that it ran contrary to federal law.

That was in response to a proposed $100 per passenger tax on cruise ships sponsored by Rep. Carl Gatto, a Palmer Republican.