Horizon Lines, Inc. responded to a challenge to Puerto Rico's tonnage tax eligibility. Included as part of the American Jobs Creation Act of 2004, the tonnage tax allows corporations to pay a tonnage tax as opposed to the regular U.S. corporate income tax on the taxable income from vessels operating in international trade. The purpose of the 2004 Act was to provide tax incentives for job creation. The tonnage tax is intended to provide a sustained corporate tax incentive for certain operators of U.S.-flag vessels, thereby helping to revitalize the U.S.-flag vessel industry and creating more American jobs.
In considering the tonnage tax election, Horizon Lines sought and received expert external tax, legal and accounting analysis and opinion on eligibility for the tonnage tax with respect to its vessels serving Puerto
Rico, Guam and Asia. Horizon Lines elected to adopt the tonnage tax provisions of the 2004 Act in September 2006, effective for its 2005 tax return, as well as for its 2006 and future tax years.
It is Horizon Lines' position that Congress was correct in 2004 in applying the tonnage tax to trade with Puerto Rico. Based on the original intent of the legislation, the legislative history and the realities of the
marketplace, there is no sound policy or technical reason for Congress to eliminate the application of the tonnage tax.
Horizon Lines has been joined in opposition to the proposed elimination of the tonnage tax option in the Puerto Rico trade lane by the US Chamber of Commerce, all major trade unions servicing the US maritime industry, and the government of Puerto Rico, all of whom have filed public comments in opposition to the proposed legislative change.