Juneau needs to take a time out on cruise sales tax

Juneau hosts a million cruise passengers a year.


“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.” — Charles Dickens

Win Gruening

Several weeks ago, the Juneau Empire Readers’ Council wrote an editorial that chastised Assembly members for drafting an ordinance (modeled on one in Ketchikan) that would exempt passengers from paying sales tax while aboard a cruise ship within the City and Borough of Juneau boundaries. The readers’ council states the ordinance deserves careful attention. I wholeheartedly agree.

The issue is a relevant one and worthy of discussion. But the editorial did little to shed light on the subject. Instead, it chose misleading and incomplete information to illustrate its case.

In claiming the exemption is “ignorant” and the cruise lines are engaged in “corporate hypocrisy,” the readers’ council has once again demonstrated an animosity toward the cruise industry and furthered their quest to demonize it. This kind of hyperbolic invective does little inform the public – it’s foolish and unnecessary.

Let’s place the issue in perspective. Cruise ship passengers are already paying sales tax. Eight million dollars in sales taxes annually, to be exact. They pay sales tax on all their purchases and their tours on shore while in Juneau.

These revenues are on top of the $13 million in marine passenger fees Juneau receives from cruise ship passengers (whether they get off the ship or not). These “head taxes” are not charged on any other “non-cruise” visitor coming to Juneau.

Cruise lines are not suddenly “refusing to collect sales tax” as the editorial states. Historically, city has never required collection of on-board sales tax because there have been and continue to be legal impediments to doing so. Assembly Finance Committee staff recommended existing practice be codified by exempting these specific on-board sales from tax after a study was completed last year. Only recently, has the city decided to move forward on implementing collection of the tax.

The editorial conveniently doesn’t mention the industry appealed city staff’s decision and provided a lengthy legal analysis supporting exemption. Despite that, the city’ Legal Department has disputed this – hence the need for an ordinance.

By choosing to dismiss the legal aspects of this debate the editorial has instead focused on how unfair it would be to ignore collecting sales taxes on board a ship when these same taxes are collected elsewhere in the borough.

Except they aren’t.

There are dozens of sales tax exemptions in the city tax code. Among them are various banking services, optometrists, chiropractors, realtors, nonprofits and lobbyists, just to name a few. There are various reasons for these exemptions but I could make the argument any one of them is “unfair” on its face.

The editorial asks why a fisherman must collect sales tax for fish sold at the dock if a cruise ship would not be required to when a passenger makes a purchase aboard a ship.

One could also wonder why the Juneau Arts and Humanities Council and Sealaska Heritage are not required to collect sales tax on their retail sales when every other store in Juneau is required to do so. Is that fair? They are competing directly with private businesses in downtown Juneau, often selling similar products, and yet enjoy a distinct competitive advantage.

On the other hand, it is hard to see how a coffee kiosk, pool-side bar or salon on a cruise ship competes with any downtown business. The sales tax derived from these limited activities operating while in port would be minimal and, in any case, these services are not open to the public (as is the fisherman’s business).

The editorial suggests the cruise industry is cheating Juneau taxpayers by requesting that existing tax collection practices be continued to avoid the complications associated with the collection of on-board taxes – taxes that would be minimal at best. It’s likely this would result in an accounting exercise that could easily cost more than the amount that would be collected. How wise is that?

City staff interprets the city boundary to include the waters surrounding Juneau meaning cruise ships transiting area waters from Tracy Arm to Berners Bay would be subject to the sales tax. How does a cruise ship correctly identify every on-board purchase subject to tax based on the GPS position of the ship? Add the complication of pre-paid purchases and the accounting issues involved would be a nightmare – especially when expecting cruise lines to report and remit monthly to the city.

If city begins collecting these additional taxes on all cruise ships, Juneau will be the sole municipality in Alaska with this requirement. Is that a distinction Juneau needs right now?

The Assembly should move ahead in passing this ordinance. Why give cruise lines one more reason to cut short their stays in Juneau?

Win Gruening was born and raised in Juneau and retired as the senior vice president in charge of business banking for Key Bank in 2012. He is active in civic affairs at the local, state, and national level.