Explaining the reasoning behind his proposed tax bills, Senator John D. Rockefeller stated that the cruise lines need to pay their fair share of taxes as they benefit from the resources of the U.S. Navy and Coast Guard, as well as from the services of more than 20 U.S. agencies, and the infrastructure of ports and transportation.

Referring to how international shipping enjoys a special tax exemption under Section 883 of the Internal Revenue Code, a statement accompanying the announcement of the tax bill said that the exemption was granted on the assumption that non-U.S. corporations would be taxed on their income from operating ships internationally in their home countries. However, as this has proven not to be the case for the cruise industry, the Rockefeller bill seeks to eliminate the Section 883 exemption for cruise industry income derived from cruises that embark or disembark passengers in the U.S.

This income would be treated as being U.S. sourced and effectively connected with a U.S. trade or business, so it would be subject to U.S. taxes at the same rate as other income. (The corporate income tax rate is 35 percent.)

In addition is the proposed excise tax on cruise industry income to fund infrastructure. The Rockefeller bill would impose 5 percent excise tax on gross income from cruises embarking or disembarking passengers in the U.S.

For cruises where a majority of passengers embark or disembark in the U.S., 100 percent of the gross income from that voyage would be subject to excise tax.

For cruises that call at a U.S. port, but do not embark or disembark a majority of the passengers in the U.S., 50 percent of the gross income from that voyage would be subject to excise tax.

The way the proposed tax reads, not only would cruises sailing to and from U.S. ports be subject to the excise tax, but also ships from operators around the world, when the ships call in the U.S.

According to Sen. Rockefeller, the excise tax is similar to passenger taxes in the aviation industry and gas tax for motor vehicles.