The cruise industry's long-standing exemption from taxes on most U.S. income is under assault again, but this time the fire is coming from an unlikely direction: Republicans in the U.S. Senate.

Congress wants to deliver a $1.5 trillion tax cut by Christmas, but to fund lower individual tax brackets and a sweeping reduction in the corporate tax rate, legislators are hunting for loopholes to close.

The Senate has included a partial repeal of Sections 873 and 883 of the tax code, which exempt foreign companies from paying U.S. taxes on income derived from shipping activity, including cruises.

Nearly all major cruise lines sailing from U.S. ports are incorporated in foreign countries despite having headquarters here. Carnival Corp. is incorporated in Panama and Royal Caribbean Cruises Ltd. in Liberia.

As such, they only pay U.S. income taxes on sources of income derived from U.S. land activities, such as the operation of lodges in Alaska, a relatively small figure. Carnival Corp., for example, paid $49 million in taxes in 2016 on income of $2.8 billion, an effective rate of just over 1.7%.

The Senate bill would expand that modestly by taxing cruise lines on the percentage of their income earned cruising in U.S. territorial waters up to 12 miles offshore. Analysts last week said that the proposal in effect would apply only to the first and last days of a cruise.

A revenue analysis by the Congressional Joint Committee on Taxation calculates that the plan would raise about $100 million a year.

"Assuming this bill goes through," Patrick Scholes, an analyst at SunTrust Robinson Humphrey, wrote in a recent note to investors, "we believe this amounts to a small impact on a per-company basis."

By Scholes' estimates, the new tax would cost Carnival about $50 million a year, Royal Caribbean about $30 million and Norwegian Cruise Line Holdings about $16 million.

Cruise companies refer questions on federal legislation to their trade association. In a statement, CLIA said, "We have not yet seen the actual legislative text, so it would be premature at this time to speculate. However, we are engaged with key policy makers to ensure a vibrant business environment for the cruise industry."

The Senate Finance Committee began work on the bill last week. There were at least 355 amendments filed to the original bill. After passing out of committee, the bill would have to pass the full Senate and be reconciled with the House tax bill, passed on Nov. 16, which doesn't have a cruise tax in it.

The last time the cruise industry had to defend its tax-exempt status was in 2013 when Democrats controlled the Senate. West Virginia's Jay Rockefeller, then-chairman of the Commerce, Science and Transportation Committee, introduced a bill that would have imposed a 5% excise tax on the income generated from using U.S. ports to start and finish voyages.

The 2013 bill came after hearings looking into the engine room fire on the Carnival Triumph and the cost of government assistance in the episode.

"The cruise industry can't operate for free here in the U.S.," Rockefeller said at the time. "It costs money to send the Coast Guard to tow their drifting ships, and it costs money to maintain the ports they use. Cruise lines need to start paying their fair share of taxes."

The cruise lines maintain that countries grant reciprocal exemptions from income taxation to shipping companies because of the complexities of taxing income derived from international ship movements.

If a foreign country in which a cruise line is registered grants an equivalent exemption to U.S. shipping lines, then the cruise line is tax exempt under Section 883 of the Internal Revenue Code.

CLIA argued in 2013 that Rockefeller's bill would jeopardize American jobs by putting the U.S.-based industry at a competitive disadvantage. The legislation did not become law. Rockefeller retired after 2014, the year Republicans won the Senate majority.

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