Cruise Industry Takes Legal Action Against Skagway Over Controversial New Tax Policy

The cruise industry has initiated a lawsuit against Skagway, Alaska, in response to a new tax policy affecting how the borough taxes excursion sales. Previously, Skagway collected local sales tax only on the base price of tours that begin and end within its jurisdiction, excluding commission fees charged by cruise lines for arranging these excursions. However, an ordinance passed late last year mandates that all commissions paid by tourists on excursions booked through cruise lines are now subject to taxation.

The purpose of this tax adjustment, according to Skagway officials, is to standardize the taxation of tours regardless of where they are booked—whether in Skagway, online, or elsewhere. Despite this reasoning, the Cruise Line International Association (CLIA) contends that the ordinance violates both state and federal laws, arguing it leads to double taxation and places additional financial burdens on cruise passengers and local businesses.

A tax attorney, Steven Mahoney, stated that the ordinance incorrectly imposes taxes on commissions associated with transactions that occur outside of Skagway. For example, if a customer in Europe books a kayaking tour through a Skagway company online, the new policy would tax the commission fees for this transaction, even though it was arranged remotely.

The lawsuit emphasizes that, according to U.S. and Alaska Constitutions, municipalities can only levy taxes on activities that are substantially connected to the local community, suggesting that taxing these commissions oversteps legal allowances and disrupts interstate commerce.

The CLIA seeks the annulment of the ordinance as well as legal fees incurred during the lawsuit. Skagway’s Borough Manager, Emily Deach, acknowledged the intent behind the change is to level the playing field for tour sales, aligning them with other service tax regulations within the borough. The tax policy received backing from some local officials and residents, emphasizing the cruise industry’s economic contributions to the community, which welcomed over 1.2 million cruise passengers last year.

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