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US Congress Looks At Maritime Tax Issues

by Mike Godfrey, Tax-News.com, Washington

06 February 2012


The United States House of Representatives Ways and Means Subcommittee on Oversight has held a hearing on harbour maintenance funding and maritime tax issues, with a focus on the Harbour Maintenance Trust Fund (HMTF) and Harbour Maintenance Tax (HMT), and the tax treatment of foreign shipping operations.

The HMT is a federal tax, existing since 1986, and is imposed on shippers based on the value of the goods being shipped through ports. Users of US coastal and Great Lakes harbours pay a tariff of USD1.25 per USD1,000 in cargo value passing through those waters. The tax applies to imported and domestic waterborne cargo, as well as the ticket value of cruise ship passengers.

Revenues are transferred to the HMTF to pay for the dredging of federally maintained harbours to their authorized depths and widths. In recent years, however, it was said that HMTF expenditures have remained flat, while HMT collections have increased with rising imports, creating a large surplus in the trust fund.

The HMTF’s uncommitted balance has continued to grow and reached an estimated USD6.1bn at the beginning of this year. In fiscal year 2010 alone, USD1.2bn in HMT was collected, while only USD793m was spent on dredging and related maintenance. Despite the accumulating balances in the HMTF, many US harbours are under-maintained, resulting in the full channel dimensions of America’s busiest ports being available less than 35% of the time.

There has been concern previously that the tax may be diverting US-bound cargo away from US ports, particularly north to Canada or south to Mexico, as shippers can avoid paying HMT by routing cargo through non-US seaports.

Another potential concern with the structure of the HMTF arises with respect to what is known as “short sea shipping”. Some have argued that the HMT itself is a major reason why very little non-bulk commercial cargo is transported using inland and coastal waterways. Currently, the use of short sea shipping, which involves the movement of cargo along coastal and inland waters, is primarily limited to bulk cargo while commercial non-bulk cargo is moved throughout the US via other modes of transportation.

In announcing the hearing, Ways and Means Subcommittee on Oversight Chairman Charles Boustany (R - Louisiana) said: “Years of chronic underfunding have severely limited ship traffic, prevented valuable cargo from moving efficiently, and adversely affected national, regional, and local economies. Funds collected by the HMTF should be utilized promptly and exclusively to keep our harbours open for business.”

Subcommittee on Select Revenue Measures Chairman Pat Tiberi (R - Ohio) added that “today’s tax code places preference on investment in foreign shipping operations over investment in domestic operations. The tax code also discourages the use of local shipping channels as a means to move non-bulk cargo throughout the US and the Great Lakes region. The Subcommittees should examine how to design tax policies that help create US maritime jobs and that ensure the long-term growth of the domestic maritime industry.”

In fact, the proposed Short Sea Shipping Act of 2011, introduced to the House by Tiberi in April last year, would amend the tax code to exempt from HMT commercial cargo (other than bulk cargo) loaded at a port in the US mainland and unloaded at another such port after transport solely by coastal route or river, or unloaded at a port in Canada located in the Great Lakes system; or at a port in Canada and unloaded at a port in the US mainland.

In his testimony, Steven Fisher, Executive Director of the American Great Lakes Ports Association, confirmed that a number of US national shipping organizations have endorsed elimination of HMT on domestic short sea shipping services, adding that it also actually encourages greater road congestion, resulting in more fuel consumption and air pollution.

Finally, and unrelated to HMT, US shipping companies must currently maintain investments in qualified foreign shipping assets made between 1975 and 1986 to avoid anti-deferral tax treatment for their qualified foreign shipping income. Some have questioned whether this requirement with which US shipping companies must comply has encouraged these companies to invest capital in their foreign operations – capital that otherwise could have been used to expand domestic operations and to create US jobs.

Morten Arntzen, President and CEO of the Overseas Shipholding Group, was concerned that the US should repeal unfair restrictions on the ability of domestic shipping companies to defer tax on offshore income, as “US shipping companies simply cannot thrive if we are burdened with tax code provisions which do not apply to other US corporations, or if access to capital, particularly our own earnings, is impeded”.

He added, therefore, that “US shipping companies still must maintain investments in foreign shipping assets made decades ago, pre-1987. Any net decrease in those investments results in an immediate tax. This vestigial quirk in the tax law has caused capital of US shipping companies to be left offshore, effectively preventing those companies from investing their earnings back into the US economy.”

TAGS: tax | business | marine | law | corporation tax | excise duty | offshore | legislation | tax rates | United States | tax reform | trade

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