Sitka, cruise lines, negotiate taxes after Skagway’s lawsuit

Visitors sit at a picnic table near the Sitka Sound Science Center on June 8, 2022. (James Poulson/Sitka Sentinel)

By Shannon Haugland

Daily Sitka Sentinel

The City and Borough of Sitka and the cruise line trade association have reached agreement on some questions of collecting sales tax on on-board sales of goods and services that occur in Sitka, including Sitka Sound.

But a number of questions remain unanswered, pending the conclusion of a lawsuit filed by the industry against the City of Skagway.

The suit questions whether Skagway has the right to collect taxes on sales that take place outside the city’s boundaries for services that occur within the city boundaries.

A two-page letter in the July 28 Assembly packet from Administrator John Leach summarized what Sitka and and the Cruise Lines International Association have agreed on.

Leach spoke to the Daily Sitka Sentinel last week and today about the negotiation process, and working with the cruise lines to clarify what sales tax must be remitted under city code.

“Throughout this we made it clear we didn’t pass any new laws or apply anything newly created; it’s just application of existing code,” he said.

Leach said the city has heard concerns from the public that the city is not receiving the full sales tax due from cruise lines for tours and excursions in Sitka.

“They’re sold to the ship wholesale,” he said. “The cruise ship puts a commission on that and we’re not getting that full value. We’re getting the value on the price it was sold to the cruise lines at. The reason we don’t get the full value is because of our code.”

The city does not tax commissions on sales.

Still up in the air is the question of collecting sales tax on services (including tours) that occur in Sitka, when the purchase is made elsewhere.

“Let’s say you’re a person sitting in Idaho, you buy a cruise to Sitka, and a shore excursion as part of the package; the nexus of that service takes place here,” Leach said. “Our argument is that you have to pay sales tax because the service is provided here. They’re pushing back on that, and they’re not wrong. That’s what the lawsuit is about in Skagway.”

Sitka is not part of the lawsuit, and Leach in his letter says that the city is waiting to hear what happens with CLIA v. Skagway. “We reserve our right to reopen the topic, pending the Skagway decision,” the administrator said.

Also in the letter, Leach confirmed with the cruise industry that cruise ships must collect sales tax for on- board sales that take place within Sitka. The two parties agreed that the boundary is Sitka Sound, as defined by the Department Fish and Game.

“I don’t understand how it was overlooked for so long,” Leach said.

Leach said he became aware that cruise ships were not collecting sales taxes for goods and services within the boundary when he was contacted by one of the cruise lines, asking for a sales tax account in order to collect and remit.

He also learned through his work on the Port Communities of Alaska association that other communities in Southeast are collecting sales taxes for onboard transactions in the ships’ food and gift shops. As Sitka starts collecting this tax it will mean additional revenue, though he doesn’t expect it to be a lot: some cruise lines close their stores while the ship is in port.

In the letter, Leach thanked Cruise Lines International Association Alaska for the group’s “cooperation and collaborative approach” on this issue.

• This article originally appeared in the Daily Sitka Sentinel.