Cruise lines are signaling a fight against Hawaii's tourism tax

Travel Weekly

16-05-2025

A battle may be brewing over a new 11% tax on cruise lines in Hawaii after the cruise industry warned state officials that it considers the legislation a violation of the U.S. Constitution.
The state legislature signed off on a bill May 2 that would for the first time tax cruise lines, based on the number of days their ships are docked in Hawaii, with the proceeds then funneled toward environmental causes. The legislation also increases the existing Transient Accommodations Tax applied to short-term rentals and hotels from 10.25% to 11%.
The fee will be burdensome to both cruise lines and their passengers, Norwegian Cruise Line Holdings said, with Hawaii's per-passenger port fees and taxes expected to increase from $200 to $350. And several travel advisors and policy experts said they anticipate the tax could be a tourism deterrent.
Before the law was voted on, CLIA hinted in written testimony to Hawaiian lawmakers that if the bill passed, the state would face legal action from the cruise industry. But the legislature was steadfast, and Gov. Josh Green celebrated what he called the "green fee," which his office called a "priority piece of legislation for his administration."
"The impact of travel to Hawaii will cover our needs as we deal with climate change and superstorms and all of the things that we've known to be true after the wildfires," Green said in a video he shared on social media. "We're grateful. This is a true legacy moment so that we can deal with our environmental needs."
The legislation earmarks the funds for natural resource protection, climate-resilient infrastructure, management of park and beach destinations and the mitigation of tourism's environmental impact.
CLIA's April 2 letter to the Hawaii House Finance Committee argued that the law would violate the U.S. Constitution's Tonnage Clause, which says states can't tax ship tonnage without congressional approval. It also cited federal law that restricts non-federal parties from imposing taxes and fees on vessels sailing in U.S. waters.
"We strongly urge the committee to ensure that taxes and fees proposed under the measure are allowable under federal law and do not expose the state to potential liability or risk of legal challenge," said the letter. "For these reasons, we respectfully request that the committee amend this measure to avoid conflicts with federal law."
Peter Walsh, a Florida-based attorney who specializes in maritime law, said that in a potential legal battle, the cruise industry may also argue that the green fee violates the commerce clause of the U.S. Constitution.
"Individual states are prohibited from enacting legislation that places an undue burden on interstate or foreign commerce," Walsh said. "We also have to remember that maritime law … historically limited the ability of states to regulate ships engaged in foreign or interstate travel, reserving much of that authority to the federal government."
Gauging the impact of the tax
CLIA did not provide comment on the passage of the legislation, but an NCLH spokesperson said the tax would negatively impact cruisers, cruise lines and communities in Hawaii.
"The added financial burden not only affects our guests but also presents challenges for us as cruise operators -- impacting local businesses and communities that depend on a thriving cruise industry," the spokesperson said.
Norwegian Cruise Line is the only cruise line that offers weekly sailings in the Hawaiian Islands, on its Pride of America ship.
Jay Johnson, president of Coastline Travel Group, said he doesn't expect the tax to deter people from cruising in Hawaii, but he does think it could keep cruise lines from the destination if their operating expenses grow.
"Tourism has become low-hanging fruit for governments to tax because it does not affect local citizens, thus making it easier to pass if a local vote is required," Johnson said. "Raising the tax for local citizens is never popular. But by claiming it won't affect local citizens, only tourists, then it becomes much more palatable for voters to agree to the tax."
However, Jonathan Helton, a policy researcher with the Grassroot Institute of Hawaii, a think tank supporting small government, said that cruise passengers are likely to be hit with higher prices due to the tax, which may have an impact.
"Obviously, people will still come to Hawaii," he said. "It's beautiful. But at the margins, higher prices are going to encourage people to look elsewhere for a vacation."
He sees a better model in charging out-of-state visitors fees to visit certain Hawaiian destinations, such as parks.
Walsh said that Hawaii's decision to tax cruise lines could affect locations far beyond the state's borders.
"Hawaii's move could set a precedent for other coastal destinations, and it's crucial that both travelers and cruise companies understand the implications," he said.
The state's passage of the tax comes shortly after the cruise industry successfully negotiated a decrease to a similar cruise tax proposed in Mexico late last year. Originally planned to be $42 per passenger, the country will now charge $5 per cruiser in its first year, according to the Florida-Caribbean Cruise Association, maxing out at $28 a head in 2028.