Alaska Head Tax Update

A year after Alaskans passed a $50-per-passenger tax, the state hasn’t figured out how to spend the money, officials said.

The Alaska government has collected more than $42 million from the Commercial Passenger Vessel Tax that took effect Dec. 17, 2006, said Joanne Bales, deputy director of the state’s Department of Revenue, tax division.

The new law also imposes a graduating corporate income tax on ships starting at 1 percent and increasing every $10,000 – topping off at 9 percent for income over $100,000, Bales said.

The tax was added to passengers’ ticket prices, but harder than collecting the money was figuring out how to spend it.

Complexities in the law mandate parts of the money go to a general fund, so non-port communities get a share, but that could violate federal laws. The first five ports of call for a cruise ship are supposed to get $5 per passenger, but some cities have opted out of this provision, said John Fox, Royal Caribbean government relations vice-president.

Working out the Kinks

“The money hasn’t been spent yet,” said Bales. “Everyone wants to make sure that there is no violation. It’s a new tax type.”

She said the newness of the law, and the local legislature’s busy schedule has also hindered picking which projects the tax revenue should be spent on.

One minor appropriation sent $3.8 million of the money to five ports of call, she said, but wasn’t sure exactly what was funded by the appropriation.

There is one for-sure way the Commercial Passenger Vessel Tax money will be spent. Under the new law, $4 of the $50 tax must go toward a new troop of regulatory officers called Ocean Rangers.

They’re supposed to be state environmental officers onboard ships and ensure various regulations are met; but their exact duties and powers have yet to be decided, said John Hansen, president of the Vancouver, British Columbia-based North West Cruiseship Association. Hansen pointed out that the environmental standards are already checked by the Environmental Protection Agency, the Centers for Disease Control, the Alaskan Department of Environmental Conservation (DEC) and the U.S. Coast Guard.

There’s also the issue of paying for a ranger’s cabin aboard the ship. The $4 per passenger collected is reportedly not enough to cover cabin fees, salary and training for the Ocean Rangers.

The rangers will be the DEC’s Conservation’s “eyes and ears,” said Shannon M. Stambaugh, the department’s environmental program manager for wastewater discharge programs.

“Ocean Rangers report any questionable results to the department, and only DEC can actually enforce on a potential violation,” Stambaugh said.

Getting Going

There are few Ocean Rangers yet, partly because they must be U.S. Coast Guard-licensed marine engineers, and not many people have that distinction.

Alaska’s DEC retained a contractor last year to supply the rangers, who are observers aboard cruise ships and have no enforcement abilities. It was not clear if the rangers will ever be state employees, or will remain with private contractors.

A DEC request for proposals asks for companies willing to help shape the new program. The project includes crafting checklists and procedures that the new Ocean Rangers would follow. It also includes creating a training manual.


John Binkley, president of the Alaska Cruise Association, said he didn’t think the tax, which was tacked on to passengers’ ticket prices, would affect the amount of people cruising in Alaska. He did, however, hear some early reports that passenger spending on shore was slightly down.

Hansen agreed that cruise traffic to Alaska has been steady, largely because of increased capacity. He said Alaskan cruise passenger volume has doubled in the nine years he has worked in the region.

Data is expected to show that close to a million cruise passengers visited Alaska in the 2007 season, generating more than $1.3 billion for the region.

Alaskan growth may taper off as ports reach their capacity, Fox said.

“If you look at the cruise industry in Alaska, relative to growth in the rest of the world, it’s really becoming more and more insignificant,” Fox said.

Not Just a Head Tax

The Commercial Passenger Vessel Tax is far more than just a head tax. It also requires cruise lines to pay a 33 percent tax on onboard gambling revenue while in Alaskan waters.

The gambling tax hasn’t been fully implemented yet, Bales said. Other forms of onboard revenue are not subject to additional taxes.

The new law is in effect, and ships are supposed to be keeping track of their gambling revenue for tax purposes, but just how the revenue is supposed to be reported and collected is not yet clear, Bales said. The Department of Revenue hopes to have draft regulations on the issue available for public comment before December, she said.

Slow to Change

Under Alaskan law, legislators cannot make significant changes to the measure until at least late 2008. By that time, the practical rules governing how the law works may have been worked out

“We’ll see how the legislators decide to deal with it,” Hansen said.

Some 52 percent of voters approved the ballot measure despite the cruise industry’s reported $2 million in advertisements opposing the 2006 bill.

Binkley declined to criticize the industry for not more vigorously opposing the law: “It’s always easy to look back in hindsight and judge what you could do better.”

He said the key in the future was to build a strong dialogue between shoreside businesses, government officials and the ships.

Fox agreed, saying governments often look for a “silver bullet” when tackling an issue, and that the situation is always more complex.

The cruise industry 1s squeaky-clean environmentally when compared to the majority of marine traffic in Alaska, he said.

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