Hawaii Cruise Ship Tax Survives, but Its Voyage Will Be Stormy

US District Court Judge Jill A. Otake cleared Hawaii’s implementation of a new tourist tax on cruise ship passengers in a ruling last week in Cruise Lines International Association Inc. v. Suganuma. This new tax, aimed at tackling climate change, will take effect Jan. 1.

Although the tax will proceed as planned, it remains susceptible to challenges—especially if it disproportionately affects cruise ship companies. Along with the harm it could inflict on the state’s economy, this raises questions about the tax’s long-term future.

The new tax was imposed by expanding Hawaii’s Transient Accommodations Tax to include cruise ship berths. The Cruise Lines International Association, and some local businesses that worked with cruise lines, challenged the tax. They alleged that the tax violated the Tonnage Clause of the US Constitution and the Rivers and Harbors Appropriation Act of 1884.

And in a rare move, the Department of Justice sought and was allowed intervention in the case, rather than being a mere amicus. It then joined the challenge by also moving for a preliminary injunction against implementing the tax.

Hawaii urged the suit to be dismissed due to the Tax Injunction Act, which prevents federal courts from entertaining suits against state taxes if a “plain, speedy, and efficient remedy may be had in the courts of such State.” Plaintiffs countered that the Hawaii court process to resolve tax appeals is neither speedy nor efficient, citing the Hawaii prohibition against declaratory judgments in tax matters.

But the US District Court for the District of Hawaii acknowledged a US Court of Appeals for the Ninth Circuit case finding that the Hawaii court system provided an adequate remedy. The district court accordingly dismissed the Cruise Lines International Association’s challenge to the tax.

The challenges from the local business plaintiffs fared no better, as the court concluded that although their harms weren’t speculative, the legal rights they asserted were really those of the cruise lines—so their claims had to rise or fall with the cruise lines’ claims. However, the federal government’s complaint dodged this grenade because the government isn’t a taxpayer and thus couldn’t avail itself of the state remedies.

The court then analyzed the tests necessary to issue a preliminary injunction: likelihood of success, irreparable harm, balance of equities, and public interest. The Tonnage Clause and the Rivers and Harbors Act prevent charges for the privilege of entering, trading in, and lying in a port. Hawaii argued that the new tax was a generally applicable charge on transient accommodations, appropriately applied to accommodations floating on water as well as those on dry land.

The court noted a paucity of precedent on the issue, so it was unwilling to find a clear constitutional violation on the record before it. Many of the challengers’ arguments on the other prongs of the preliminary injunction test depended on there being a constitutional violation, and the court noted that it would be a big deal to enjoin a state’s tax given the uncertainty in the law. Thus, the court denied the motions for preliminary injunction by the private plaintiffs and by the government.

Hawaii declared that it was “very pleased” with the court’s order allowing the tax to take effect on Jan. 1 as planned. But what is the state so happy about? Uncle Sam’s challenge to the tax hasn’t gone away, and the government may well pursue a permanent injunction.

Also, both the cruise lines and the government filed notices of appeal from the denials of preliminary injunction (and moved for an injunction pending appeal, which the court denied the same day). There are still court remedies available to the private plaintiffs or individual cruise line operators once the tax takes effect.

In the meantime, the Hawaii Department of Taxation will need to be very careful in implementing the tax. As the court wrote, “[E]ven though the State Tax and County Surcharges may be calculated differently for cruise lines than for land-based short-term accommodations establishments, Plaintiffs have not clearly shown that such differences represent discriminatory treatment toward cruise ships.”

It also noted that the court still “acknowledges that there are serious questions going to the merits precisely because the law about the Tonnage Clause isn’t fully settled and how Act 96 will function in practice is unclear.” This all means that if the tax ends up burdening cruise ship accommodations more than land-based lodging, this discrimination could trigger a finding that the tax is a duty of tonnage and should be struck down.

The tax’s economic effects are still unknown. Will there be widespread harm to local businesses that deal with the cruise lines, as the local business plaintiffs suggested? Will there be a more broad-based backlash against Hawaii as a tourist destination?

For now, the tax remains standing and will take effect as planned. But the devil’s in the details—and those may yet sink the tax as the industry and the government continue their assaults. Meanwhile, one wonders why so much public money is being spent on marketing Hawaii as a tourist haven if the state government is more focused on milking the tourists like cattle.

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

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Thomas Yamachika is president of the Tax Foundation of Hawaii.

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