As promised, Senator Jay Rockefeller announced that he has introduced legislation seeking to eliminate the Section 883 exemption for cruise industry income derived from cruises that embark or disembark passengers in the U.S. Senator Rockefeller stated in a press release:
“The cruise industry can’t operate for free here in the U.S. 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 and stop expecting everyone else to foot the bill.”
Over the last year, Senator Rockefeller has raised concerns that the cruise industry has used the infrastructure of U.S. ports, the resources of the U.S. Navy and Coast Guard, and more than 20 U.S. agencies, but has paid virtually no U.S. taxes. At the same time, the U.S. Coast Guard is substantially under-funded and is increasingly called upon to assist cruise lines which are experiencing fires and engine failures.
Efforts to repeal the exception have been a long time coming. Earlier this year, as the disabled Carnival cruise ship Triumph was being towed back to the U.S. at U.S. taxpayer expense, Forbes published an article: Ship Isn't The Only Thing That Stinks At Carnival: Low Tax Rate Stirs Ire.
The cruise industry enjoys a substantial tax advantage over shore-side hotels, restaurants and amusement parks by incorporating their businesses and registering their cruise ships in foreign countries. This permits the cruise lines to sell their cruises at artificially low prices. Although Carnival and Royal Caribbean are based here in the U.S., they are registered in Panama and Liberia respectively to avoid U.S. taxes.
Rockefeller's proposed legislation would eliminate the tax exemption for cruise lines and impose a 5 percent excise tax on gross income if passengers get on or off a ship in the U.S. The tax would be targeted to improve the transportation infrastructure.
Avoiding taxes is a cornerstone of the cruise industry's business model. Expect CLIA and the cruise lines to mount a heavy PR campaign to try and kill the new bill.
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Below - watch a NBC special where Senator Rockefeller and I are interviewed about Carnival's avoidance of U.S. taxes: