Repeal of tonnage tax for Puerto Rico denounced
The U.S. Chamber of Commerce has waded into a controversy over the tax treatment of carriers in the U.S. mainland-Puerto Rico trade.
The chamber denounced a measure in the Technical Corrections Act before Congress that would repeal the tonnage tax option for U.S.-flag ocean carriers hauling cargo between the mainland and the commonwealth.
The tonnage tax gives carriers a choice to pay a fixed fee based on the size of their vessels and the number of days the vessel was operated in “international trades” in lieu of normal corporate income tax. Vessels calling Puerto Rico and Guam could also take advantage of the tonnage tax.
The chamber said the plan to rollback the tonnage tax in the Puerto Rico trade would increase shipping costs and make U.S. ships less competitive in the global marketplace.
The tonnage tax option was originally enacted as part of the JOBS Act of 2004.
The chamber said the idea was “to level the playing field for U.S. flagged ships that have to compete against heavily subsidized foreign carriers transporting products which are often produced at a reduced cost overseas — lowering their potential cargo tax liability. Those same carriers are traditionally allowed by their home countries to pay tax based on alternative tonnage regimes so the chamber believes U.S. flagged carriers including those in the Puerto Rico trade lane should be allowed to use the tonnage regime also.”
However, carriers moving cargo to and from Puerto Rico are protected by the Jones Act and must be U.S.-flag vessels, built in U.S. shipyards, and use U.S. crewmen, so they enjoy considerable protection in the trade between the U.S. mainland and the island.
The chamber said the most damaging aspect of the proposal “is a provision to make the repeal retroactive. The chamber consistently opposes retroactive tax increases because they are inherently unfair to businesses which follow the stated law, are detrimental to economic and job growth, and are a failure from a due process perspective.”
The tonnage tax was a big benefit to the Puerto Rico carrier Horizon Line, which said in its 10-K annual report for 2006 that “the impact of the tonnage tax election resulted in income tax expense of approximately $43.5 million during 2006.”
William G. Gotimer Jr., executive vice president and general counsel of Puerto Rico carrier Trailer Bridge, said his company also said it would take advantage of the tonnage tax. He said he thought all carriers in Puerto Rico trade, if they haven’t already, would eventually use it. Other major carriers in the trade include Crowley and Sea Star.
“At the very moment we need to help make U.S. carriers more competitive in the global marketplace this tax plan is not only penalizing our own shipping companies it is doing so retroactively, breaking the legal and financial arrangements the Congress put in place and making it harder for American companies to expand, grow and plan for the future,” said Martin Regalia, vice president of economic policy and chief economist for the U.S. Chamber. “American jobs are on the line with every tax increase that is proposed and the Chamber intends to fight against every flawed plan like this one.” ' Chris Dupin
Repeal of tonnage tax for Puerto Rico denounced
