Ketchikan repeals sales tax exemption for cruise ships

Ketchikan is joining other Southeast Alaska communities like Sitka, Juneau, and Skagway in collecting sales tax on goods and services purchased on board cruise ships while they’re docked in the First City. Ketchikan’s city and borough governments recently passed laws to repeal their preexisting exemption on sales tax for cruise ships.

At their meeting on Monday, the Ketchikan borough assembly discussed if cruise ships should pay sales tax. Up to this point, the dozens of cruise ships that dock in Ketchikan every year carrying millions of passengers are exempt from paying local sales tax in their onboard shops and restaurants and Borough Attorney Glenn Brown said it’s been a “burr under the saddle” for local businesses.

“It’s been a longstanding inequity for local brick-and-mortar businesses that sell similar items to what is sold aboard the vessel, where you have essentially one one operating tax-free and one not,” Brown said.

Brown explained that this borough ordinance would repeal that exemption, subjecting the cruisers to the same sales tax as everyone else in the Ketchikan area. Brown’s report estimated the additional sales tax revenue to the borough would be between $200,000 and $300,000.

“This is drafted so when they are in the territorial waters of the borough, its taxable sales aboard the vessel,” said Brown.

Assembly member Glen Thompson brought up the question of compliance. How do you enforce that a cruise ship is actually following the rules? Brown said, basically, you audit them.

But even then, Brown said there are other ways a cruise ship could skirt paying the tax.

“There is some anecdotal evidence from Juneau that some of the cruise lines in response to the removal of the exemption closed their stores, closed their restaurants aboard the vessel. So it’s really hard to tell what the market will do in response to the removal of this. There may be some sales that no longer occur,” he said.

Assembly member Jaimie Palmer owns a small business in town. She said that if cruisers can’t spend money at the on-board store and have to buy local, that’s even better.

“I just want to let everyone know we’ve already been called idiots online for considering this,” she said. “There was an article today I saw that said we were really dumb to do this, and it’s going to make all the ships bypass us, which clearly its not because the other communities north have been doing it for a while. And I fully support this, and think it’s about time. And if there’s other exemptions like this out there that I hope that we find them and remove them also.”

Assembly member Sharli Arntzen said that the onboard tax levels the playing field for local businesses serving tourists.

The ordinance passed the borough assembly 6-1.

The vote came just four days after the Ketchikan City Council approved their ordinance to repeal the same exemption. City Manager Delilah Walsh said in a letter that the intergovernmental initiative was borne out of council members Riley Gass and Mark Flora saying that Ketchikan needs to maximize visitor revenue to help the city’s struggling finances.

The ordinance passed through the city council with very little debate.