Tax measure would assist U.S. vessel operators

Tax measure would assist U.S. vessel operators

House of Representatives approves legislation backed by American maritime labor

      The House of Representatives June 17 approved a labor-backed tonnage tax for U.S.-flagged merchant ships.
      The tax, which would replace most income taxes paid by U.S. shipping companies engaged in foreign trade, was included in the American Jobs Creation Act of 2004, a broad tax reform measure that sailed through on a 251-178 vote. The tonnage tax provision was sponsored by Rep. William Jefferson, a Louisiana Democrat.
      Under the Jefferson provision, qualified U.S.-flagged vessel operators can elect the tonnage tax as an alternative to income tax. The tax on a ship of 10,000 deadweight tons or larger would be 40 cents for every 100 net tons up to 25,000 net tons and 20 cents for every 100 tons thereafter.
      Rep. Jefferson said the tax option would make it easier for U.S.-flagged ships to compete against foreign-flagged ships for commercial cargoes worldwide and generate jobs for U.S. merchant mariners, longshoremen and others.
      Rep. Jefferson said he had persuaded House Ways and Means Committee Chairman Bill Thomas (R-CA) to report the Jefferson amendment with the bill for a floor vote by explaining that the tonnage tax "would not only help maintain the shipping industry's international trade activities, but would improve its economic conditions, ultimately providing more jobs for Americans."
      The legislation also included a provision to restore Subpart F tax deferral on income derived from the operation of U.S.-owned foreign-flagged ships. The deferral was repealed in 1986.
      To qualify for the tax deferral, shipowners must have at least two U.S.-flagged and manned ships in their fleets.
      "This is one of the most significant maritime policy developments in the U.S. in the last 25 years," one lobbyist told Trade Winds weekly. "It represents a realization by the U.S. Congress that there is a need for a level playing field for U.S. companies that want to invest in shipping."
      Also commenting was Warren Dean, an attorney in Washington. The tax bill "is hugely significant," he told the weekly Journal of Commerce. "For the United States not to have a presence in international shipping is a real hole in our economy--and a dangerous one," Dean said. "All great powers have had fleets of ships. No major power has survived for long without a presence in shipping. Historically, that's how you defined great powers."
      Last April 6, when the Senate Finance Committee was considering a tax reform measure, the presidents of four seagoing unions endorsed the vessel tonnage tax, restoration of Subpart F tax deferral with the U.S.-flag proviso, and income tax exemption on up to $80,000 of earnings each year by individual U.S. merchant mariners working overseas. In a letter to Sen. Charles Grassley, the Iowa Republican who chairs the committee, the labor leaders offered support of an amendment sponsored by Sen. John Breaux (D-LA) and Sen. Trent Lott (R-MS).
      The maritime tax breaks "can encourage the competitive operation of U.S.-flag vessels with American crews, adding significantly to America's commercial sealift capability," the union presidents said. Signing the letter were American Maritime Officers National President Michael R. McKay, Seafarers International Union President Michael Sacco, International Organization of Masters, Mates and Pilots President Timothy Brown and Marine Engineers Beneficial Association President Ron Davis.
      The tonnage tax, the restoration of Subpart F tax deferral, and the income tax exemption for merchant mariners were not included in the legislation approved by the Senate in May 2004, and the mariners' tax break was not included in the new measure approved by the House.
      Differences between the House and Senate bills must now be reconciled by House and Senate conferees, whose final measure must then be presented for approval in each chamber.

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