Legal snarls likely to trail Alaska vote The corporate income tax and gaming tax provisions of the ballot initiative passed by Alaska voters could impact Royal Caribbean’s 2007 earnings by 4 cents per share, according to research by A. G. Edwards. The brokerage also echoed Carnival Corp.’s own projected 3-cent per share hit. A Royal Caribbean spokesman told Seatrade Insider his company is 'still reviewing the situation.' Though AGE analyst Tim Conder believes the industry will be able to pass through the $50 head tax with ‘limited impact to demand,’ he predicts legal challenges to various gray areas in the measure. For example, it’s unclear how the $46 of the tax to be divided among ports will be allocated. Some ports already levy a higher tax than the portion they would receive from the new legislation and the petition bill says they can’t get both. In Conder’s opinion, the assessment of state corporate income taxes on Alaskan-generated pretax income will be ripe for legal challenge. He points out that, from a federal perspective, under IRS Section 883 cruise pretax income is only subject to federal taxes if it is generated on U.S. soil (such as tours) or on a cruise to nowhere that originates and ends at a U.S. port. Otherwise, as long as a foreign-flag ship stops at a foreign port, pretax income generated at sea is not subject to federal tax. AGE estimates the state accounts for 10% of total cruise revenues for each company or 2007 Alaska non-gaming pretax income for CCL and RCL of $242.4m and $65.4m, respectively, so $22.8m and $6.1m from the companies would go to Alaska coffers (state corporate taxes approximate 5.2% on the first $90K of pretax income and 9.4% above that, AGE said.) As for the new 33% tax on gaming proceeds, Conder notes that cruise operators until now were allowed to operate casinos while under sail even though they were in state, not international, waters. ‘We believe generation of the revenues “at sea” along with the treatment of Indian casino revenues in Alaska could become the basis for challenging this provision in court,’ Conder said. He calculates $12.8m of Carnival’s and $4.5m of Royal’s cruise revenues in 2007 will derive from Alaskan ‘at sea’ gaming so $4.2m and $1.5m would go to Alaskan coffers. Conder predicts one of the most disputed aspects of the initiative will be the required disclosure of commissions paid on excursions. ‘Expect both legislative and legal action here,’ he said. As for the wastewater discharge monitoring aspect of the measure, cruise lines contend they already are regulated and inspected so the new requirement for permits and the $4 head tax to pay for independent pollution monitors are ‘redundant and unnecessary.’ Conder said the provision’s interpretation could be modified by the legislature ‘but will most likely be challenged in court.’