Alaska, California, Washington, and Florida tourism economies are supported in part by the cruise industry.
T
he cruise industry would pay higher taxes under the Trump Administration, asserted Commerce Secretary Howard Lutnick in a Fox News Interview on February 19.
“You ever see a cruise ship with an American flag on the back? They have flags of like, Liberia or Panama. None of them pay taxes,” he said. “This is going to end under Donald Trump and those taxes are going to be paid and Americans’ tax rates are going to come down.”
The Cruise Lines International Association (CLIA) immediately pushed back on those remarks, pointing out that the cruise industry pays nearly $2.5 billion in taxes and fees annually in the United States. The trade association representing cruise lines worldwide, CLIA also mentioned in a statement that the cruise industry contributed $65 billion to the U.S. economy in 2023, and supported around 290,000 U.S. jobs.
Many major cruise lines operate their headquarters offices in the United States and employ significant numbers of executive and administrative staff in the U.S. Cruise lines also often buy provisions in U.S. ports from U.S. companies, and they pay commissions to U.S. travel consultants who sell their products. U.S. ports and municipalities may also levy taxes and fees on cruise ship berthing, fuel sales, and other products purchased by cruise lines.
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Changes to how cruise lines are taxed at the federal level would also be politically difficult. It would require legislation (the executive branch has the authority to broker trade deals and levy tariffs, but the power to introduce new taxes lies with Congress) that could receive pushback—especially from states like Alaska, California, Washington, and Florida, whose tourism economies are supported in part by the cruise industry.
States and local governments, however, retain the power to levy taxes and fees on cruise passengers, but major increases can be difficult to maintain. The city of Ketchikan, Alaska, recently ended a sales tax exemption for cruise lines. While cruise ships were previously exempt from the city’s 2.5% sales tax on products sold while the ship was in port, the tax will be levied after April 1, in a move that is expected to net the city up to $300,000 a year. Other Alaska cities, such as Juneau, Sitka, and Skagway already levy local sales taxes on ships while they’re in port.
Earlier efforts to charge a flat “head tax” to all Alaska-bound cruisers fizzled. The Alaska Senate approved a $50 per passenger tax on all inbound cruise passengers in 2006, but after pushback by the cruise lines later agreed to reduce the amount.
Further, federal taxes on the cruise industry could result in higher cruise fares, or make U.S. ports less attractive destinations for cruise lines. Unlike sales taxes levied on individual sales while ships are in port, head taxes levied by state and local governments are typically collected alongside the cruise fare, meaning that passenger outlay for cruises could increase.
CLIA further noted that taxes on international shipping are part of a trade agreement dating back over a hundred years. Foreign-flagged ships (including cruise ships) are exempt from certain taxes while in US ports because US-flagged ships receive the same exemptions when visiting foreign ports.
The vast majority of cruise ships are foreign-flagged. While many of these are often regarded as flags of convenience, it’s also worth noting there are currently no shipyards in the United States building large deep-water passenger ships (the Passenger Vessel Services Act of 1886 requires that such ships must have been built in the United States to be registered in the United States). A handful of smaller expedition and river ships are built in the United States to operate entirely between US ports.
The American Automobile Association (AAA) estimates more than 19 million Americans will embark on a cruise this year. AAA anticipates that 2025 will be the third straight year of record cruise passenger volume.
