The City and Borough of Juneau is asking a federal judge to throw out a lawsuit by cruise line representatives alleging the city misused tens of millions of dollars in revenue from passenger fees because the court doesn’t have the authority to rule on the matter.
Attorney Robert Blasco, outside counsel for Juneau, wrote in a June 7 motion to dismiss the suit that the U.S. District Court of Alaska lacks jurisdiction to hear the suit that claims the city violated the U.S. Constitution by spending funds from vessel passenger fees on general government services.
Cruise Lines International Association Alaska, or CLIA, which represents 12 cruise companies that operate in the state including some of the world’s largest cruise ship companies, filed the suit in April requesting a permanent injunction to the fees that total $8 per cruise passenger.
Blasco cited the 1948 federal Tax Injunction Act, which prevents federal district courts from stopping collection of any state tax when the case can be heard in state court.
“The Tax Injunction Act strips the federal courts of jurisdiction to enjoin or restrain the levy, collection, or assessment of state taxes, including local taxes authorized by state law, where plaintiffs can obtain adequate remedy in state court,” he wrote.
The 14-page dismissal motion focuses almost entirely on the court’s jurisdiction as it pertains to the Tax Injunction Act, and does not rebut or significantly address the claims of misuse of head tax revenue CLIA cited in bringing the suit.
The industry association contends the city spent more than $41 million collected from Juneau’s $5 per person Marine Passenger Fee and $3 per passenger Port Development Fee over roughly the past 15 years on projects and expenses not related to the cruise industry.
That is potentially a problem because the Commerce Clause of the U.S. Constitution prohibits state and local taxes or fees imposed strictly on individuals engaged in interstate travel unless the money collected is used for projects or operations that benefit the travelers or are necessary to accommodate them.
The vast majority of Alaska-bound cruises embark from Seattle.
The State of Alaska also collects head taxes from cruise passengers and distributes that money to cruise ship ports-of-call communities. A state audit of how local governments have historically spent head tax revenue found with minor exceptions that the money was handled in accordance with the Commerce Clause. The audit did not investigate how local head tax revenues are spent.
Juneau and Ketchikan — Alaska’s most visited cruise port communities — are the only locales with their own head taxes. However, Ketchikan is not a defendant in the suit.
CLIA’s complaint alleges $22 million collected from the passenger fees, also known as “head taxes,” funded general government operating expenses; while another $11 million funded capital projects in the borough that “provide no direct benefits to the cruise lines’ vessels and passengers.”
Likely the most visible illegitimately funded project, according to CLIA, is a manmade island being built in Gastineau Channel that includes a whale statue and is nearly a mile from the cruise ship docks. That is using $10 million in head taxes, CLIA claims.
The dismissal motion contends that because the fees are imposed on all large cruise line passengers — nearly 1 million of which visit Juneau each summer — they qualify as taxes under the Tax Injunction Act.
Blasco also wrote that because CLIA asserts the money in question was used for general government purposes, the Tax Injunction Act applies again.
“The Ninth Circuit and other courts have repeatedly found assessments that were (spent) on such general uses as those alleged by (CLIA) to be taxes under the Tax Injunction Act,” he wrote.
On the other hand, CLIA argues that because the head taxes are only levied on passengers of commercial vessels over 200 tons and those with overnight accommodations, they discriminate against large cruise ships, therefore requiring the revenue to be dedicated for cruise-related expenses.
• Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.
