Sen. Jay Rockefeller (D.-W.Va.) has introduced legislation to change the way cruise lines are taxed by the federal government.
The law would end the exemption from income taxes in Section 883 of the tax code, which provides companies in the shipping business that are incorporated abroad an exemption from taxes earned on shipping if they meet certain tests.
The major cruise companies are incorporated abroad: Carnival Corp. in Panama, Royal Caribbean Cruises Ltd. in Liberia and Norwegian Cruise Line Holdings in Bermuda.
Rockefeller said that for practical purposes, they are U.S. companies. He also said that when the Section 883 was passed, it was expected that the cruise lines would be taxed by their countries of incorporation, but that has not happened.
"Given that these companies — whose headquarters and CEOs are located in the United States — are largely transporting U.S. passengers to and from locations in the U.S. with the assistance and oversight of U.S. agencies, this special tax treatment is clearly unjustified," Rockefeller wrote in a summary of the bill.
The Section 883 exemption is intended to prevent shipping companies from being taxed in multiple countries on the same income, and to avoid the associated administrative burden.
Major cruise firms currently pay U.S. income tax only on land-based operations, such as cruise-tour excursions in Alaska. They pay additional taxes at ports and in foreign countries.
The legislation would levy a 5% excise tax on cruise income. It would apply on cruises that embark or debark passengers in the U.S. If a majority of the passengers on a ship board or leave at a U.S. port, 100% of the income would be subject to tax. If not, 50% would be taxed.
Other things being equal, the bill if enacted would raise hundreds of millions of dollars for the federal government, with a corresponding impact on cruise company costs and profits.
Rockefeller would earmark the tax proceeds for transportation infrastructure, comparing it to excise taxes on airline tickets and gasoline. Follow @tstravelweekly on Twitter.