Cruise Lines Claim Inclusion in Hawaii's New Hotel Tax Bill is Unconstitutional

Hawaii’s new 11 percent hotel tax for supporting environmental preservation and climate change relief would extend to cruise lines, also, which has led the cruise industry to warn of a potential legal battle. 

We covered the news about the potential bill before it was approved by the Hawaiian House of Representatives on May 2. Governor Josh Green is expected to sign the bill and put it into law by July 9, but it will become effective on January 1, 2026. 

The bill would apply to cruise lines for the first time; currently, the hotel tax only extends to hotels and short-term rentals, increasing the daily tax rate by 0.75 percent, which could generate as much as $100 million in revenue. 

Hawaii is the first state in the nation to set aside tax revenue for the purpose of climate change mitigation. 

According to our sister publication, Travel Weekly, CLIA had sent lawmakers in Hawaii a letter in April hinting of potential legal action should the bill be passed—the organization would argue that the measure is unconstitutional, violating the Tonnage Clause, which prohibits states from taxing ship tonnage without congressional approval. 

“To that end, SB1396, HD2 seeks to establish a funding mechanism to address environmental impacts from visitors to Hawaii through an expansion of the Transient Accommodations Tax (TAT) to include the cruise industry as well as an increase to the current TAT rate,” said Michael McGarry, Senior Vice President, Government Affairs for Cruise Lines International Association (CLIA) in the April 2 letter to Hawaii’s legislature. “However, application of this tax to cruise ship cabins violates the Tonnage Clause of the US Constitution as well as federal law, 33 U.S.C. § 5(b)(2).”

"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," the letter continues. "For these reasons, we respectfully request that the committee amend this measure to avoid conflicts with federal law."

Norwegian Cruise Line Holdings said that Hawaiian per-passenger port fees and taxes could increase from $200 to $350 if the bill is passed and warned that higher fees might drive customers to cruise elsewhere. 

There is likely to be a legal challenge to the newly passed bill following Green signing it into law. 

Yet Governor Josh Green and the Hawaiian legislature overwhelmingly support the bill, since the revenue generated from increasing tourism taxes will go towards preservation and climate change mitigation measures throughout the state. 

“We had a $13 billion tragedy in Maui and we lost 102 people,” said Governor Green on the issue. “These kind of dollars will help us prevent that next disaster.”

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