Federal judge upholds Hawaii’s new climate change tax on cruise passengers

A federal judge has cleared the way for Hawaii to implement a pioneering climate change tax on cruise ship passengers, rejecting an industry challenge to the first-of-its-kind levy in the United States.

U.S. District Judge Jill A. Otake denied a request on Tuesday to block enforcement of the new law, which will impose an 11% tax on gross fares paid by cruise passengers starting in 2026. The tax will be prorated based on the number of days vessels spend in Hawaiian ports.

Hawaii Governor Josh Green signed the groundbreaking legislation in May as part of the state’s efforts to address climate change impacts, including eroding shorelines and increased wildfire risk. The measure is expected to generate nearly $100 million annually for climate resilience projects throughout the islands.

The tax package not only increases rates on hotel and vacation rental stays but extends taxation to the cruise industry, which has previously operated without comparable fees. Counties are also authorized to collect an additional 3% surcharge, potentially bringing the total tax rate to 14% of prorated cruise fares.

Cruise Lines International Association (CLIA), the industry’s leading trade group, filed a lawsuit challenging the tax alongside several local businesses that service cruise ships or depend on their passengers. Their legal challenge argues that the tax violates the U.S. Constitution by effectively taxing cruise lines for the privilege of entering Hawaiian ports.

“Cruise tourism generates nearly $1 billion in total economic impact for Hawaiʻi and supports thousands of local jobs, and we remain focused on ensuring that success continues on a lawful, sustainable foundation,” CLIA spokesperson Jim McCarthy said in a statement following the ruling.

Industry representatives have expressed concerns that the tax will harm Hawaii’s tourism economy by making cruises to the islands less affordable. Hawaii’s tourism sector, a cornerstone of the state’s economy, has faced various challenges in recent years, including the COVID-19 pandemic and the devastating Maui wildfires in 2023.

Court records indicate that the plaintiffs plan to appeal the decision. They have asked Judge Otake to grant an injunction pending appeal, requesting a ruling by Saturday afternoon due to the law’s January 1 implementation date.

The legal battle has attracted attention from the federal government, which has intervened in the case. U.S. government representatives characterized the tax as a “scheme to extort American citizens and businesses solely to benefit Hawaii” that conflicts with federal law.

Hawaii Attorney General Anne Lopez defended the legislation, stating that the state will continue to support the law, which requires cruise operators to “pay their fair share of transient accommodation tax to address climate change threats to the state.”

Climate change poses particular challenges to Hawaii as an island state. Rising sea levels threaten coastal communities and infrastructure, while changing weather patterns have increased the risk of drought and wildfires. The August 2023 Maui wildfires, which devastated the historic town of Lahaina and killed at least 100 people, highlighted the islands’ vulnerability to climate-related disasters.

The cruise industry’s challenge comes at a time when many tourist destinations worldwide are reconsidering their approaches to mass tourism, with several European cities and ports implementing new taxes or restrictions on cruise ships due to environmental and overcrowding concerns.

If upheld through appeal, Hawaii’s climate tax could establish a precedent for other tourist destinations facing similar environmental challenges, potentially inspiring comparable legislation elsewhere in the United States and internationally as governments seek funding mechanisms for climate adaptation and mitigation.