Breaking Down the Alaska Head Tax

| July 23, 2010

The New Alaska Head Tax reduces your cruise cost more than you probably thought - up to $26.50 per person.

The revision of the Alaska head tax as proposed by Governor Sean Parnell and passed last June pleased the cruise industry - enough to make them drop a lawsuit, anyway. But many people are asking "how much difference can $11.50 make when you are talking about a $1000 per person cruise?" The first answer is "you are actually saving more than you probably think." But the follow up is, "but it still isn't enough." In fact, this tax is still very lucrative for the state of Alaska and hardly any of the funds collected have been spent. Gov. Sean Parnell >>>

Juneau attorney Joe Geldof

The original 2006 tax was backed by politically-motivated non-office holding Juneau residents, like attorney Joe Geldhof, who wanted "to offset the wear and tear on the state's infrastructure by the dozens of cruise ship visits every summer." Ironically, cruise ships bring 90% of visitors to Alaska. So this "wear and tear" is really the price of prosperity. In 2010 the number of cruisers dropped by about 15%, equaling $150 million in revenue. Altogether, cruising is said to generate over $1 billion in spending by tourists in Alaska every year.

That law imposed a $46 per passenger state tax - plus an additional $4 per passenger charge for state-employed Ocean Rangers to cruise onboard the ships to "observe health, safety and wastewater treatment and discharge operations onboard the ships while in Alaskan waters. So, Alaska took in about $8,000 to $12,000 from each ship just to place an Ocean Ranger onboard that ship.

The cruise industry grew especially upset with this initiative when the economy tanked in 2008. Demand for Alaska cruises dried up suddenly and with these taxes and fees the cruise lines couldn't price them competitively enough. They grew even more upset when they saw how the money was being spent.

Even though Republicans are said to be the "pro-business," party, Sarah Palin turned out to be far more community oriented. The original law mandated that 75% of the funds would be spent on projects directly related to the cruise tourism.

Even when the collected fund had reached a slushy $200 million just sitting in the bank, with $150 million mandated to go to cruise tourism related projects, Palin reportedly vetoed three projects passed by the state legislature for port city improvements and approved two projects in two cities relatively obscure to cruise tourism; one of them being Wasilla which I have never seen on a single cruise itinerary.

Micky Arison, CEO or Carnival Corp. led the cruise lines in filing a lawsuit against the state of Alaska contending the corporate taxes were illegal. Of Sarah Palin he said, "she doesn't seem to want to focus, (nor does) anyone else in Alaska. She needs to concentrate on Alaska and stop running for president." Ironically, Palin had been "discovered" by the national Republican Party during a cruise to Alaska by several conservative pundits (specifically Bill Kristol) who met her during a port stop in Juneau.

    Here is what Palin vetoed:
  • A port project in Ketchikan ($1 million for a port berth replacement)
  • A $1.2 million emergency relief center in Juneau designed to help cruise passengers in the case of a critical shipboard mishap.
  • $2 million for a passenger vessel lighting facility in Sitka

Sarah Palin
Wasilla Alaska

At the same time, Palin approved $800,000 to improve the Alaska Zoo in Anchorage and $430,000 for a railroad station in Wasilla. Wasilla is not on any regular cruise itinerary I have ever seen. It is about 1000 miles from Juneau and farther north than Anchorage with a city center about five miles inland.

It was not until Palin left the office and was succeeded by Republican Sean Parnell (elected as Lieutenant Governor and stepping in when Palin stepped down - he is running for Governor in the next election) that Alaska and the cruise lines had a meeting of the minds. It began when Parnell attended the Seatrade convention in Miami in March of 2010, and received a thorough dressing down from Stein Kruse of Holland America from the stage during a public conference.

The next day Parnell met with several cruise lines and subsequently introduced a measure to reduce the head tax by $11.50. The state legislature agreed to pass it after a great deal of deal making between Juneau, Ketchikan and other districts. The new measure goes into effect in October, 2010, to be in effect for the 2011 Alaska season. How much difference will it really make?

Stein Kruse of Holland America

Going forward the tax money will be distributed to each port city, with any remainder to be put into a fund to benefit only maritime-related projects. Every port city visited by a cruise ship gets $5 from this fund - limited to the first seven ports on any itinerary, but few ships reach more than three ports of call.

The Juneau Dock Area

But two cities also charge an additional head tax to every cruise ship: Juneau charges $8 and Ketchikan charges $7 per passenger. An important part of this new bill says the State of Alaska pays these city taxes directly rather than the cruise line. Since these are the two most popular ports in Alaska, this brings the effective state tax down to $19.50 per cruise ship (going to those two cities), a total deduction of roughly $26 per passenger.

Now we are starting to talk about some real money. Except that there are still some major issues.

In addition to this "head tax" there is still the state "corporate tax" that only applies to cruise lines, plus a "casino tax" where they have to pay 33% of their casino profits to the state. Regular casino gambling is not legal in Alaska, Indian reservations are limited to pull-tabs and bingo, and they have no state lottery, pari-mutuel or racetrack betting.

Plus - what is not mentioned very often is that the "Ocean Ranger" tax is still there, so add $4.00 back into the mix, bringing the tax up to $38.50, or $23.50 for the ships that go to Juneau and Ketchikan.

Now, how much do these additional corporate and gambling taxes add? The corporate tax was enough to compel the cruise lines to file a lawsuit saying the tax was illegal because it singled out just cruise lines - arguing (correctly in my view) that a corporate tax cannot target just one industry. However, the cruise lines agreed to drop that lawsuit in exchange for the 2010 tax reduction. So that "illegal" corporate tax still remains.

Who benefits from the 2010 Alaska Head Tax?

Every port city get $5 per passenger visit directly from the state tax fund, and both Juneau and Ketchikan also get their individual head taxes, so Juneau get $13 for every cruise ship visitor and Ketchikan gets $12.

In addition, other cities still charge the cruise lines directly for port usage and other assessments, but these were not put into the revised tax bill. Also keep in mind that these cities get the benefit of the tourism industry, which if lost would cause them considerable damage.

How Much Difference is There for You?

A line item typically called "taxes and fees" is added to every basic cruise fare. All of these Alaska taxes are essentially charged to you, the cruiser, according to Princess and Holland America spokespersons. Now these taxes have dropped from between $11.50 to $26.50 depending on which port cities you visit.

The cruise lines are still paying the head tax, the corporate tax and the gambling tax. Let's look at Golden Princess going roundtrip to Juneau Skagway, Ketchikan, and Victoria Island, British Columbia.

In 2010 the taxes come to $135.57 per person. But in 2011 the taxes & fees are $109.19. The difference is $26.38. Let's see where that comes from; the Juneau ($8) and Ketchikan ($7) city taxes are now taken off of the State tax. Add in the $11.50 discount passed by Gov. Parnell and you have about $26 in savings.

In reality it's a complex formula including the corporate and gambling revenue taxes which cannot be calculated until the end of the cruise season, but must be estimated before the ship sails. These taxes and fees are still pretty high, but in the end cruisers are getting a much bigger discount than just the $11.50 you heard about in most articles.

In the end, it is the Alaska taxpayers who have given up the most, but they are still getting more than most cruise regions, so they had far more they could afford to "lose." Juneau and Ketchikan are getting a bigger share of the head tax than they did before, although they are still getting the same amount of money per visit.

But now all of the collected money should go directly to benefit the cruise tourism industry in the state, so arguably we get the benefit of all the money that has been collected. This remains to be seen, however, as projects are proposed and passed by state legislatures one at a time.

So far we can't tell you any specific projects the new tax money has funded, because most of the money is still sitting in the bank, but it is a pretty sure thing that the same projects requested before; the Sitka lights, the Juneau emergency center and the Ketchikan berth replacement, will be back on the docket soon.

This ship grounding shows the need for an emergency shelter

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