Hawaii Tax on Cruise Ships Must Focus on Parity to Stay Afloat

Hawaii’s new cruise ship “green fee” was set to take effect Jan. 1, but the US Court of Appeals for the Ninth Circuit temporarily blocked its enforcement in a New Year’s Eve ruling. The fee expands the levy paid by hotels on gross rental proceeds from transient accommodations to cover the same activities on cruise ships. This brings accommodation parity. And as long as Hawaii can stay consistent on its argument, the tax should hold up in court.

To survive any potential constitutional scrutiny, Hawaii should emphasize that this is a general, nondiscriminatory tax on temporary lodging—not a levy keyed to the ship itself. The more it analogizes cruise cabins to hotel rooms, identical in function if not construction, the weaker other policy arguments become.

The new law, enacted as an expansion of the state’s existing transient accommodations tax, imposes an 11% levy on the portion of a cruise fare attributable to nights spent docked in Hawaiian ports. At the center of the fight is whether a state can tax tourists for sleeping on the water in its harbor the same way it taxes them for sleeping in a hotel on its land.

Notwithstanding the Ninth Circuit’s temporary stay, the state seems to have a better argument than the cruise industry does. Cruise ships are basically mobile resorts that dock, unload thousands of passengers, and function as self-contained hotels while tied up in port. Cabins are booked just like hotel rooms, priced per night, and bundled with meals and entertainment. The cabins also are subject to territorial jurisdiction just like any hotel room on land.

If a visitor books a short-term rental on Oahu, they pay Hawaii’s transient accommodations tax. If that same visitor instead sleeps on a ship moored just offshore, why should the economic activity, but not the tax posture, stay the same?

The cruise industry’s ability to frame the tax as a “duty of tonnage”—a constitutionally forbidden state charge on vessels for simply entering or using a port—is key to its argument. The tonnage restriction aims to curtail states’ capacity to encumber trade by charging for access to ports. But that argument would only hold water if Hawaii were taxing the ship for access, which it’s not.

The duty of tonnage restriction prohibits states from imposing taxes or duties on vessels, their owners, or their passengers, when those duties effectively operate as a charge for entering or lying in a port. That principle is further reinforced by the Rivers and Harbors Appropriation Act of 1884, which has a similar ban on port taxes, tolls, or fees not tied to specific services or those that enhance the safety and efficiency of commerce without undue burden.

So if the green fee is posed as a consumption tax that must be paid as a condition of access to the port or for the privilege of being aboard the vessel, it may be prohibited. However, if the levy charges passengers for services rendered and conveniences provided, it wouldn’t violate the Tonnage Clause or the Rivers and Harbors Appropriation Act.

Other coastal states could do far worse than to follow Hawaii’s lead and anchor their policy in neutrality rather than novelty.

Photographer: Mario Tama/Getty Images

Luckily for Hawaii, the green fee taxes the portion of the cruise fare associated with overnight stays while docked in Hawaiian ports. It’s prorated by time on land, not ship size or navigation rights. There’s no charge for entering the harbor, anchoring, or conducting any maritime trade. There’s just a tax on the same thing Hawaii already taxes onshore—the temporary lodging of paying guests.

That makes this a textbook consumption tax on the guests, not a port fee or a tax keyed to the boat’s presence as a boat. The target isn’t maritime activity; it’s tourism revenue generated by passengers who eat, sleep, and relax in Hawaii’s jurisdiction.

Hawaii should earn points for clever policy drafting—even if it’s currently sidelined while the courts sort out whether cleverness equates to constitutionality. It didn’t create a constitutionally questionable bespoke tax that targets cruise ships. Instead, it simply brought cruise ships into an existing system that already applied to land-based property.

This equilibrium will be key for Hawaii to survive potential constitutional scrutiny, and that will be the challenge as the Ninth Circuit considers whether the tax crosses constitutional lines.

The prospect of additional litigation isn’t mere speculation. In the appellate action just resolved, the Department of Justice joined the plaintiff cruise lines in challenging the fee—an unusual step. Federal courts have traditionally been cautious about interfering with state tax policy, but given the potential economic ramifications for cruise lines, it’s a fair bet the US Supreme Court would grant certiorari on a challenge to this or a similar decision.

As a whole, Hawaii’s position isn’t just legally defensible; it’s strategically sound. More than that, Hawaii’s approach offers a blueprint for other coastal states to follow suit. And states could do far worse than to follow Hawaii’s lead and anchor their policy in neutrality rather than novelty.

A well-drafted accommodations tax that applies equally to land-based and waterborne lodging sidesteps the legal minefield of targeting ships or charging for harbor access—while bearing the potential to capture a fair share of tourist-generated revenue. If cruise ships are bringing thousands of overnight guests into a state’s jurisdiction and serve as a kind of base of operations for their tourist market activities, it’s hardly a radical imposition to treat those beds like any other taxable stay.

Cruise ships move millions of tourists to port every year. Lawmakers from cruise-heavy jurisdictions such as Florida, Alaska, and California should take note. Hawaii may be steering into uncharted waters, but if the courts uphold its course, other coastal states won’t be far behind.

The case is Cruise Lines International Association Inc. v. Suganuma, D. Haw., 1:25-cv-00367, opinion 12/23/25.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social.

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