The cruise industry is suing Skagway over a new policy that makes a controversial change to how the borough taxes excursions sold by cruise companies.

Skagway charges its local sales tax on tours that start and finish in the borough. Historically, that excluded commissions that cruise lines slap on top of tour prices in exchange for arranging the excursion.

But late last year, Skagway approved an ordinance to change its tax code to collect taxes on the full price that tourists pay — including the commission retained by cruise lines.

The borough said the purpose was to tax all tours consistently, regardless of whether they’re booked in Skagway, online, aboard a ship or from a different location entirely.

But the industry believes the ordinance violates state and federal law. The Cruise Line International Association, one of the industry’s largest trade groups, filed a lawsuit against the borough in Alaska state court over the issue earlier this month.

The group said in a statement that the ordinance risks “double taxation and placing undue financial strain on cruise guests and Alaska businesses alike.”

“Under Alaska law … the Skagway ordinance is illegal. It’s not appropriate, and it should be reversed,” said Steven Mahoney, an Anchorage-based tax attorney who is not involved in the litigation.

Mahoney said the lawsuit is rooted in Skagway’s attempt to tax the industry’s commission fees, even on tours booked from other locations. A European customer could, for instance, purchase a Skagway kayaking tour online from Europe. The Skagway ordinance would tax the commission fee on that sale even though neither the transaction nor the service of booking the tour occurred in Skagway.

The industry argues the U.S. and Alaska Constitutions say municipalities can only tax activities that have a “substantial relationship to that community.”

Mahoney said the U.S. Constitution also prohibits states or localities from interfering in interstate commerce. When an entity does business between two locations in the U.S. on a vessel, typically, that transaction can’t be taxed locally, he said.

The industry group’s lawsuit requests that the ordinance be lifted and that the cruise line association get compensation for its legal fees.

Skagway Borough Manager Emily Deach said in an email that she is not aware of other communities with the same sales tax code. Regardless of being alone, the borough’s goal is simple.

“The bottom line is that Skagway made this change to treat tour sales by the cruise lines the same as other sales of products and services within the municipality,” Deach said.

The policy has met with local support. Deb Potter, a Skagway assembly member, welcomed the move at a December meeting.

“I think this is great work on the part of our staff to modernize and streamline a way of collecting sales tax from tours that better reflects a modern-day tourist,” Potter said.