The Ship Passenger Excise Tax is a Federal Tax imposed on certain voyages by commercial passenger vessels in U.S. waters. It applies to "covered voyages," defined under Section 4471 of the Internal Revenue Code (IRC). A voyage is considered "covered" if it:
Extends over one or more nights, meaning it lasts more than 24 hours.
Departs and returns to a U.S. port with one or more intermediate stops
This tax aims to standardize taxation within the maritime industry and ensure that operators contribute to federal revenues, similar to taxes in other transportation sectors, such as aviation and rail.
The tax rate is set at $3 per passenger per covered voyage. This amount is uniform across all operators and passengers, regardless of the ticket price or services offered on board. The flat-rate structure simplifies calculation and collection, ensuring consistency in the application of the law
For example, if a cruise ship carrying 1,000 passengers embarks on a seven-day voyage that meets the criteria of a covered voyage, the operator must remit $3,000 to the IRS for that trip alone. These payments must be reported quarterly using Form 720.Understanding the terminology in the Ship Passenger Excise Tax outlined under Chapter 36, Subchapter C of Title 26 of the U.S. Code is essential for compliance. Here are key terms:
Covered Voyage: A commercial passenger voyage extending over one or more nights or lasting more than 24 hours. The tax applies when such voyages start and end in U.S. ports with at least one intermediate stop.
Passenger Vessel: Defined as any vessel with accommodations for more than 16 passengers, distinguishing large commercial cruises from smaller recreational boats.
Exempt Voyages: Short voyages of less than 12 hours between U.S. ports or involving vessels with fewer than 17 passengers are generally exempt from the tax.
Tax Rate: The flat rate of $3 per passenger applies to every covered voyage, making tax calculation straightforward regardless of the voyage’s duration or fare.
Form 720: The required form for reporting and remitting excise taxes, including the Ship Passenger Excise Tax, submitted quarterly.
The responsibility for collecting and remitting the tax lies with the cruise operators, not the passengers. The operator must:
Calculate the total tax based on the number of passengers.
Collect the tax at the time of ticket purchase or booking.
Report and remit the tax quarterly through Form 720.
The burden of compliance includes accurate record-keeping of passenger counts and voyage durations. Failure to comply can result in penalties and interest on unpaid taxes
Several exemptions exist to reduce the tax burden on operators under specific conditions:
Short Duration Voyages: Journeys lasting less than 12 hours between two U.S. ports are exempt from the tax. This encourages shorter regional cruises and ferry services to remain competitive without the additional tax burden.
Small Vessels: Vessels with accommodations for fewer than 17 passengers are not subject to the tax. This exemption supports smaller tour operators and luxury charters, allowing them to avoid the administrative complexity of tax collection.
Non-Gambling Cruises: According to IRS rulings, voyages with no gambling services on board may qualify for exemptions, particularly if they are shorter than 24 hours or involve special itineraries
Non-Commercial and Government Vessels: Ships operated by government agencies or non-commercial organizations are typically exempt from excise taxes as they do not engage in profit-driven operations.
Operators seeking exemptions must document and justify their claims thoroughly. For instance, if a cruise operator runs a sightseeing voyage lasting eight hours, the operator should maintain detailed logs to verify the duration and port-to-port travel time.
WRAP:
By reading this blog, you should now have a clear understanding of the Ship Passenger Excise Tax, including its purpose, applicable rates, exemptions, and filing requirements. Equipped with this knowledge, cruise operators can ensure compliance, effectively manage tax obligations, and utilize available exemptions to reduce their tax burden.
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