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The massive tax reform bill approved by the U.S. Senate no longer includes a provision that for the first time would have taxed foreign-flagged cruise ships on part of their income derived from cruise operations.
Also, the Senate eliminated a measure in the bill that would have charged corporate income taxes on certain foreign airlines.
Originally, the bill applied income tax to the operations of foreign-flagged ships within the 12-mile reach of territorial waters of the U.S.
Sen. Dan Sullivan (R-Alaska) had the provision tabled, arguing that it would hurt Alaska tourism, about half of which comes from cruise ships. A spokesman for the senator told NBC News that the tax would disproportionately impact the Alaska economy.
A budget document from the Congressional Joint Committee on Taxation projected the cruise tax would have raised about $100 million a year in revenue.
The airline tax proposal, which had been put forth by Sen. Jonathan Isakson, a Republican from Delta’s home state of Georgia, would most notably have impacted Gulf airlines Emirates, Etihad and Qatar Airways.
For close to three years, Delta and fellow U.S. legacy carriers United and American have lobbied the federal government to sanction the Gulf carriers, which they accuse of violating international aviation agreements for accepting a combined $50 billion in state subsidies since 2004.
U.S. Travel Association executive vice president Jonathan Grella praised the removal of the measure.
“This is the most significant moment in the three-year war on open skies,” he said. “Bipartisan lawmakers have wisely rejected this last-ditch effort to stymie connectivity and choice.”
The Senate proposal had called for the collection of income taxes from foreign carriers for routes that stop in the U.S. The rule would only have applied to airlines based in countries or territories that do not have a tax treaty with the U.S. and to where U.S. airlines fly no more than twice weekly.
According to an analysis by the Wall Street Journal, the provision would have applied to 14 countries and territories, among them Qatar and the United Arab Emirates, which are home to Qatar Airways, Emirates and Etihad.
Others impacted by the proposal would have been the British Virgin Islands, Cape Verde, Ethiopia, Fiji, French Polynesia, Jordan, Kuwait, Malaysia, Samoa, Saudi Arabia, Serbia and Suriname.
The measure would have cost foreign air carriers an estimated $200 million over the next 10 years, according to the Joint Committee on Taxation.
In the U.S. and other countries, foreign airlines are made exempt from paying taxes on international routes so they don’t have to pay income taxes in their home country and abroad.
Isakson’s proposal was cut from the Senate tax bill because it was found to violate the Byrd rule, Politico reported. The Byrd rule prohibits extraneous provisions from budget bills that are being voted on under a fast-track process called reconciliation, in which only a simple majority is needed for passage and filibusters aren’t allowed.
Among the organizations that opposed the Senate measure was IATA, which warned that that reciprocity between governments on taxation is crucial to the global airline industry. The provision, IATA said, would have upended decades of precedent on the taxation of international aviation.
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