Hawaii Cruise Tax Faces Industry Legal Threats

Hawaii is preparing to implement a new law that would extend its hotel tax to include cruise ships, marking a major policy shift aimed at funding climate change relief and environmental preservation efforts. The legislation, passed by the Hawaii House of Representatives on May 2, is expected to be signed into law by Governor Josh Green by July 9 and take effect on January 1, 2026.

Under the new measure, cruise lines will for the first time be required to pay Hawaii’s 11 percent Transient Accommodations Tax (TAT), previously applied only to hotels and short-term rentals. The change would increase the daily rate by 0.75 percent, potentially generating up to $100 million annually in new revenue earmarked specifically for environmental and climate resilience projects across the islands.

Hawaii will become the first U.S. state to dedicate lodging tax revenue exclusively to climate mitigation, a move widely applauded by environmental advocates. However, the cruise industry is strongly opposing the legislation and has signaled the possibility of a legal battle over what it sees as unconstitutional provisions.

The Cruise Lines International Association (CLIA) sent a letter to Hawaiian lawmakers in April, warning that applying the tax to cruise cabins could violate the U.S. Constitution’s Tonnage Clause, which bars states from imposing taxes on a ship’s capacity without federal approval. CLIA also cited federal statute 33 U.S.C. § 5(b)(2) in arguing that the tax could expose Hawaii to lawsuits and significant financial liabilities.

Michael McGarry, CLIA’s Senior Vice President of Government Affairs, stated in the letter that while the cruise industry understands the need to address tourism’s impact, the current bill creates legal conflicts. He urged lawmakers to amend the legislation to avoid violating federal laws. CLIA maintains that although they support sustainability initiatives, any regulatory framework must remain within constitutional bounds.

Norwegian Cruise Line Holdings added its voice to the opposition, warning that the proposed tax changes could raise the total cost per passenger from $200 to $350 when combining the hotel tax with existing port fees. The company expressed concern that the increased financial burden might drive cruise passengers to seek alternative destinations, ultimately hurting Hawaii’s tourism economy.

Despite industry resistance, Governor Green and many state lawmakers remain steadfast in their support for the legislation. They emphasize the urgent need for reliable funding streams to prepare Hawaii for future environmental threats, especially following the devastating 2023 wildfires in Maui that resulted in 102 deaths and billions of dollars in damage.

“We had a $13 billion tragedy in Maui and we lost 102 people,” Governor Green said, reinforcing the necessity of bold preventative measures. He and other supporters argue that the tax revenue will play a crucial role in building resilience and protecting both residents and visitors in the years ahead.

As the final signing deadline approaches, industry watchers anticipate that cruise lines will challenge the law in court, potentially setting the stage for a broader national debate over state authority, tourism funding, and environmental accountability.

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