Alaska Cruise Port Sued Over New Tax on Excursions

It seems like cruise ports in Alaska keep clashing with the cruise industry lately, as yet another legal battle unfolds.   Cruise Lines International Association (CLIA) has filed a lawsuit against Skagway, Alaska over an additional cost added to shore excursions.

Skagway Getting More Tax Money from Tours

For a long time, Skagway would charge a local sales tax on tours that started and ended right there in town.

But there was a key detail: this tax didn’t include the commission fees that cruise lines often add to the tour price. These fees are what the cruise lines get for organizing and making it easy for you to book these excursions right through the company.

Well, that’s changed. Late last year, Skagway decided to squeeze a little more money out of cruise passengers. They passed a new rule saying they want to collect sales tax on the entire amount you pay for a tour, including those commission fees.

Skagway officials say their goal is just to tax all tours consistently, no matter if you book them in town, online, or from somewhere else. They are saying they are treating cruise line shore excursions just like any other local business.

Cruise Industry Experts Say It’s Illegal

CLIA, however, sees this very differently. They’re arguing that Skagway’s new tax rule breaks both Alaska state law and even the U.S. Constitution. They’ve filed a lawsuit against Skagway’s borough manager and treasurer earlier this month, basically saying the town has gone too far.

The cruise industry’s main arguments are:

• No Real Connection: One of their biggest points is that local taxes are supposed to be for things that have a “substantial relationship” to that community. So, if you’re, say, a tourist outside the U.S. booking a Skagway kayaking tour online, CLIA argues that Skagway shouldn’t be able to tax the commission fee on that sale. The booking and the service of arranging it didn’t actually happen in Skagway.  According to KHNS, a tax attorney not involved in the case put it simply in saying that taxing that small amount a cruise line makes from arrangements made elsewhere is “problematic.”
• Interfering with National Business: The U.S. Constitution also has rules about local taxes not getting in the way of business that happens across state lines. The cruise industry feels that taxing transactions involving multiple places, or even ships moving between different ports, could violate these rules.
• Risk of “Double Taxation”: CLIA has stated that this new rule could lead to “double taxation and placing undue financial strain on cruise guests and Alaska businesses alike.” They’re concerned this will just add extra costs that passengers and local businesses will end up paying.

Skagway Stands Firm

Despite the lawsuit, Skagway is not budging. They say they’re just trying to modernize their tax collection for tours. Some local residents point out that the cruise industry, which brings over 1.2 million passengers to Skagway each year, should be contributing more to their small community.

But it’s a careful balance.  Local businesses want to benefit from cruise ship tourism while still maintaining a vibrant local community.   And then there are some who are worried about deterring cruise ships in the first place. 

A recent plan to limit cruise ships in Juneau Alaska has failed to reach the ballot, but these efforts seem to keep coming back. 

What’s Next for This Tax Battle?

CLIA’s lawsuit is asking the court to strike down this new tax rule and also wants Skagway to pay their legal fees. This isn’t just a small local issue; the outcome could really impact how cruise excursions are taxed in other port towns around the world, but especially in Alaska.