Dec 14, 2025
January first twenty twenty six, a new Hawaii tax was supposed to kick in. Not on residents, not on local businesses. This tax was on visitors, specifically cruise passengers. And then basically at the buzzer, a federal appeals court blocked it from starting. So today, I wanna talk about a simple question with a surprisingly sharp edge.
Can a
…State,
treat a cruise ship like a floating hotel and tax it like one? Because Hawaii tried, the cruise line sued and the US federal government, which is not exactly famous for jumping into the state tax fights, joined them. Here’s the story. Welcome to the resilience report. My name is Aaron.
Today, Hawaii tried to tax cruise ships for climate, then the feds hit pause. Okay. So here’s a quick map of the situation. Hawaii already has taxes on tourism lodging, hotels, vacation rentals, yeah, the usual stuff. In twenty twenty five, Hawaii lawmakers added what’s basically a climate and tourism surcharge.
Point seventy five percent, which raises the total state transient accommodation tax from ten point two five percent to eleven percent. Now That increase is already being collected from hotels and vacation rentals. The big change though is this. Hawaii wanted to apply that same lodging tax to cruise ships docking in Hawaii for the first time. The state’s logic was straightforward.
If you’re sleeping in Hawaii, you’re using Hawaii, even if you slept on a ship. The state calls it lodged while docked. And the way it was framed, it would have effectively put something like an eleven percent daily charge on the portions of a passenger’s fare attributable to the days the ship is in Hawaii. There’s another detail that matters here. law also authorized counties to add a further surcharge up to three percent, which could push the total even higher.
Okay. And then the lawsuits hit. So what happened? Here’s a timeline for this. May of twenty twenty five, last year, Hawaii signs the green tourism tax into law.
Including the cruise ship piece with collections set to start January twenty twenty six. So then December twenty third twenty twenty five. A federal district court judge says the cruise ship tax can go ahead even with the lawsuit pending. December twenty fourth of last year cruise companies appealed to the ninth circuit. December thirty first, two appeals court judges blocked the cruise ship portion from starting.
And so at the beginning of this year, the cruise ship tax was supposed to begin. It doesn’t. So this is not Hawaii repealing it. This is the courts frozen. Hotels and vacation rentals are still paying the higher rate.
Cruise ships are the carve out for now. So why Hawaii wanted this? If you’re Hawaii, the argument is basically tourism cannot be free. Tourism is not free.
Tourism uses infrastructure, roads, waste systems, emergency response, and ports. And in Hawaii’s case, tourism also puts pressure on landscape that are already getting hammered by climate impacts, coastal erosion, sea level rise, storms, Reef stress,…all of it. So Hawaii is trying to create a climate funding stream that scales with the number of visitors. That’s the moral pitch.
Visitors help pay for what the visitors consume. the practical side of the pitch is the state expected to raise almost a hundred million dollars a year from the cruise ship extension. That’s actually real money. Now I’m going to be a little skeptical here because projected revenues from new taxes are always aggressive and optimistic.
Demand changes, industries respond, courts get involved, and enforcement gets really, really messy. But even if you haircut that estimate, we’re still talking about a material funding source. So the cruise industry’s argument. Cruise lines international Association, CLIA, led the case.
Their main argument comes in two flavors.…First, economics. They say the tax would make cruises more expensive which means fewer passengers, fewer ships, less visitors spending on excursions once people get off the boat. Their court filing language is basically higher prices reduce demand. Demand reduction reduces visits.
And then Hawaii loses money both directly and indirectly. Well, that’s plausible at a margin, but it’s also kind of the point of every single tax that’s out there. Right? This will hurt business. That’s always the first line.
Okay. The second point is legality. They argue this is not a normal hotel tax. Because ships are not hotels and because ports are not hotel lobbies. They say Hawaii is effectively charging vessels for entering a state port, and that runs into constitutional limits.
Here’s where this goes from tourism policy debate to federalism fight. The weirdest part of this is the US federal government joined a lawsuit. This is the part that makes the story bigger than Hawaii. The US federal government backed the cruise companies, in the reporting we’ve reviewed, the federal government has challenged the measure along with the cruise industry, and the federal side argues that Hawaii’s cruise tax violates the US constitution, by taxing ships for entering state ports. That’s not the Department of Justice just showing up to protect cruise lines out of kindness.
That’s the federal government’s protecting the federal government’s control over maritime commerce. So here’s the real translation. If states can tax ships this way, it opens a door. And the feds do not like doors that open on maritime regulation. Because maritime relation is one of the most federalized areas of law in the country.
So the federal involvement is a signal that this is not just about Hawaii’s budget. It’s about precedent. So what are the legal issues here? Let’s do the legal. Hawaii is saying while you’re docked here, you’re acting like lodging.
You are benefiting for being here, and that’s taxable. The cruise lines are saying, you’re not taxing lodging. You’re tax navigation. You’re taxing port entry. That’s constitutionally restricted.
A lot of these fights circle around the same idea. States cannot impose certain kinds of charges that look like a toll for entering a port. Because if every coastal state and every port authority every local government could slap a fair based tax on ships just for showing up, Maritime commerce gets chopped into million pieces. And even people who dislike cruise ships can probably see the structural argument. So now the counterpoint is also real.
States already tax a lot of things around tourism. Ports charge fees. Cities charge hotel taxes. Airports charge all kinds of charges that are effectively baked into your ticket. So the question becomes, what is this tax really doing?
Is it a lodging tax on a passenger’s stay or a ship entry tax dressed up as a lodging tax? So courts care about that distinction, and that’s why this has ended up at an appeals court. The last minute freeze. So…December twenty third, a district court judge says the tax can proceed. Cruise lines then appeal.
And on December thirty first, the ninth circuit issues an order blocking the cruise ship portion from going into effect while the appeal continues. This matters for two reasons. Number one, it’s pretty hard to unring a bell. If the tax actually starts, money starts getting collected, refunds become a mess, passengers complain, cruise lines reprice. Courts tend to freeze things when they think starting and then unwinding would create chaos.
Two, this is a signal, not a ruling. A freeze is not Hawaii loses. It’s hey. We’re pausing this until we decide. In other words, nobody should take this particular injunction yet as a final verdict.
But, politically, it still feels a little bit like a loss. Because it stops the program on day one. So what happens next? The cruise ship tax is frozen while the case continues. No final decision date.
And the expectation is that these cases can take about a year So a final ruling might not land until late twenty twenty six. Hawaii’s attorney general’s office says they’re confident that the law is lawful and will be upheld when the appeal is heard on the merits. So for now, Hawaii gets the climate surcharge from hotels and vacation rentals.
But the cruise portion is still in limbo, and that’s a big chunk of the revenue story. So the bigger theme? Here’s the underlying tension. Hawaii is trying to price the real cost of tourism in a place where climate impacts are not abstract. They’re actually real.
Cruise lines are defending a model where they want predictable costs and minimal local taxation that scales with passenger spending. And the federal government is defending federal control over maritime commerce because the alternative is fifty states inventing fifty different ways to tax ships. My take is this. The economics argument is the least interesting part of it. Cruise companies already price dynamically.
If demand is hot, they pass the costs along. If demand is soft, they eat costs. Either way, that machine keeps running. The real fight is jurisdiction and precedent. If Hawaii wins, other places try this.
If Hawaii loses, states and cities will look for other tools, port fees, environmental mitigation charges, per passenger head taxes, negotiate agreements. That need for money just doesn’t go away. It just changes form. So how can Hawaii tax cruise ships like lodging? Right now, not yet.
January first twenty twenty six was supposed to be the start December thirty first stopped it. And the next move belongs to the courts. So if you want one line to remember, it’s this. Hawaii is asking tourists to pay for climate impact. Cruise Lines and the federal government are saying the constitution sets limits on how you do that.
If this goes Hawaii’s way, it becomes a template. If it doesn’t, it becomes a warning and the climate voice loses. Either way, the cruise industry just told each and every coastal state we’re actually willing to litigate. And Hawaii just told the world, well, we are willing to try