Senator Jay Rockerfeller has always been a vocal opponent of the cruise industry. Even calling two special congressional hearings about their safety record. In his most recent one, he stated that he intends on proposing legislation to “close the tax loophole.”

Here’s  some background on the ‘loophole.’ All major Shipping lines, whether it be container, dry bulk, tankers, cruise lines, or other, are all registered in overseas territories. Even if they are headquartered in the US, they’ll flag their vessels, which can be also viewed seen as the companies assets, under flags on convenience. Usually Bahamas, Panama, Marshall Islands, Liberia. Cruise lines legally may have little to no ties to the country they were founded in or headquartered in. This is not a unique facet to the cruise industry that the media and congress are playing it out to be. All other maritime companies (except for the very few that operate US Flagged vessels) have this exact same setup. Therefore, they have to be granted exemptions from what’s declared as the firms Gross Income to avoid multiple taxations in multiple jurisdictions.

This all granted to them under the Federal US Tax code; section 883:

Ships operated by certain foreign corporations. Gross income derived by a corporation organized in a foreign country from the international operation of a ship or ships if such foreign country grants an equivalent exemption to corporations organized in the United States.

So here is where Sen. Rockerfeller comes into play. He stated before congress that the big three (Carnival, Royal Caribbean. and NCL) paid a tax rate of 1.3% on profits of $17 Billion the past seven years.

One needs to only look as far as his recent testimony to see the where the senator stands on this:

‘The cruise industry can’t operate for free here in the US. 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.

* Which Carnival reimbursed them for and which all lines assist other distressed mariners in assistance to the USCG. Legally speaking, the USCG doesn’t technically have a mandate saying that they must always assist.–And actually it wasn’t even the USCG who towed the ships back anyways.

**This money to maintain the ports are all given to each port through city grants and bond measures. Cruise lines don’t, nor should, have any reason to get involved in Port Development in the US. This is something that cities do in order to attract lines in the first place.

This week the Senator proposed the legislation to end this ‘loophole’ structure in the US. He also proposed that cruise lines get charged and additional 5% excise tax that would go to a national transportation infrastructure enhancement program.

I said it before and I’ll say it again, this is not good for the cruising public. The cruise lines will try to cover as much as they can to shield passengers from paying more. The cruise lines earrings after taxes will undoubtedly fall. Cruise fares will have to increase to make up for it. If the 5% excise tax gets added it may also get passed directly to the paying guests. Just like when you buy a plane ticket, you see all those little $3.00, $5.60 taxes get added on. This is what I foresee happening to cruises should this pass.

Here’s a link to the actual tax code for any of my scholarly readers who want to dive head first into leagal-ees. Interesting note, it also applies to aircraft and rail transportation as well.

photo via travel weekly