Court Upholds Hawaii’s "Green Fee": New Cruise Tax to Start on New Year's Day 2026

This legislation, which for the first time in US history extends a dedicated climate and environmental levy ("Green Fee") to cruise passengers, was judicially approved despite massive intervention from the global cruise industry (represented by the Cruise Lines International Association, CLIA) and the US federal government (Department of Justice). The court denied the request for a preliminary injunction, arguing that blocking the tax would grant the cruise industry unjustified preferential treatment over land-based hotels, which are already subject to this tax.

This report exhaustively analyzes the legislative origins of Act 96, the complex constitutional arguments (Tonnage Clause, Rivers and Harbors Act), the economic shockwaves for the maritime sector, and the profound environmental precedents this ruling sets for global tourism. While the tax goes into effect on New Year's Day 2026, appeals filed on December 29, 2025, indicate that the legal battle before the Ninth Circuit Court of Appeals is entering a new, even stormier phase.

1. Introduction: The Ecological and Fiscal Genesis of Act 96

The introduction of Act 96 did not occur in a vacuum but represents the legislative culmination of a years-long debate on "overtourism," climate resilience, and the equitable distribution of environmental costs. The devastating Maui wildfires in August 2023 acted as a catalyst, burning the urgency of an independent funding source for climate protection measures into the legislative consciousness.

1.1 The Legislative Mechanism: Expanding the "Transient Accommodations Tax" (TAT)

In May 2025, Governor Josh Green, M.D., signed Senate Bill 1396, which entered the statute books as Act 96. The architectural sophistication of this law lies in its structure: Instead of creating a new "entry fee"—which would have been constitutionally high-risk—the state expanded the existing "Transient Accommodations Tax" (TAT).

This tax, traditionally levied on overnight stays in hotels and vacation rentals, now defines cabins on board cruise ships as "transient accommodations" provided the ship is located in Hawaiian waters.

The fiscal data effective January 1, 2026, is as follows:

• Base Tax Rate: An increase in the state TAT by 0.75 percentage points to 11%.
• Municipal Surcharge: Individual counties (e.g., Honolulu, Maui, Kaua'i) are authorized to levy an additional surcharge of up to 3%.
• Total Burden: This adds up to a potential tax load of 14% on the prorated portion of the cruise fare for the days spent in state waters.

1.2 Fiscal Objectives

The projected revenue of approximately $100 million annually is legally earmarked. It does not flow into the general budget but into specific funds to combat the effects of climate change. This includes:

• Measures against coastal erosion and sea-level rise.
• Wildfire prevention (removal of invasive grasses, creation of firebreaks).
• Protection of coral reefs from anthropogenic stresses.

This report will demonstrate below why this specific link between tax collection and climate protection became the central point of contention in federal court.

2. The Legal Arena: CLIA et al. v. Suganuma

The legal battle, which began in August 2025 and culminated in a preliminary ruling on December 23, 2025, is one of the most significant constitutional conflicts in maritime law in recent decades. The plaintiff front was strategically broad to represent not only the interests of multinational corporations but also those of the local economy.

2.1 The Protagonists of the Conflict

The Plaintiffs: The alliance of plaintiffs represents the vertical integration of the cruise economy:

• Cruise Lines International Association (CLIA): As the global umbrella organization, CLIA argued on behalf of industry giants such as Carnival, Royal Caribbean, and Norwegian Cruise Line.
• Honolulu Ship Supply Co.: A local service provider. The company argued that the tax would reduce the number of ship calls, eroding its business foundation.
• Aloha Anuenue Tours LLC & Kaua'i Kilohana Partners: Local tourism operators who argued that rising travel costs would dampen demand, posing an existential threat.

The Intervenor: In a move underscoring the political sensitivity of the case, the US Department of Justice intervened on the side of the plaintiffs in November 2025. Federal attorneys described the tax in sharp rhetoric as a "scheme to extort American citizens" and saw federal exclusivity over interstate commerce at risk.

The Defendants: On the opposing side stood the State of Hawaii, represented by Attorney General Anne Lopez and Tax Director Gary S. Suganuma. Their defense was based on the principle of federalism and state taxation sovereignty.

3. Constitutional Analysis: The Arguments

The core of the dispute revolved around whether Act 96 represents a permissible exercise of state taxation power or an unconstitutional interference with free maritime traffic.

3.1 The "Tonnage Clause"

The plaintiffs' central argument relied on the Tonnage Clause (Article I, § 10, Clause 3 of the US Constitution). They argued that the "Green Fee," although formally declared as an accommodation tax, is de facto a fee for the privilege of calling at port. Counter-argument: Hawaii countered that the tax is not levied on the ship (tonnage) but on the service of accommodation on board. Since the ship functions as a "floating hotel" during the port stay, it is legitimate to tax it analogously to a land-based hotel.

3.2 The Rivers and Harbors Appropriation Act of 1884

Supported by the federal government, the plaintiffs cited 33 U.S.C. § 5(b), which prohibits non-federal entities from levying taxes on vessels operating on "navigable waters." They argued Act 96 violates this statute by tying a financial burden to the mere presence of the ship.

3.3 The First Amendment: "Compelled Speech"

CLIA argued that Act 96 forces cruise lines to display notices about the tax, viewing this as a violation of free speech ("Compelled Speech") by being forced to disseminate a state message they disagree with.

4. The December 2025 Court Ruling: Reasoning and Implications

In her decision on December 23, 2025, comprehensively analyzed on December 29, 2025, Judge Jill A. Otake denied the motion for a preliminary injunction.

4.1 The Doctrine of Non-Discrimination

The decisive point was the comparison between land and sea. Judge Otake noted that hotels in Hawaii have long been subject to the TAT. Blocking Act 96, she argued, would grant the cruise industry "preferential treatment" over land-based accommodations. The court saw no discrimination against maritime trade, but rather the elimination of a previous inequality.

4.2 "Likelihood of Success on the Merits"

The judge denied that the plaintiffs had a high probability of winning the main case. While acknowledging "serious questions," she weighted the state's public interest in revenue generation and climate protection higher than the potential economic harm to the plaintiffs.

4.3 The Tax Injunction Act (TIA)

A key procedural aspect was the TIA, which prohibits federal courts from blocking state taxes as long as a clear legal remedy exists in state courts. Consequently, the private plaintiffs (CLIA, local companies) must pursue legal action through Hawaiian courts. The federal government, however, is not subject to the TIA.

5. Economic Analysis: Impacts from January 1, 2026

With the law coming into effect, Hawaii's tourism economy faces a stress test.

• Financial Burden on Consumers: The tax load is passed directly to the consumer. For a couple on a 7-day cruise (approx. $4,000 fare) spending 5 days in Hawaiian waters, the additional tax could amount to roughly $400. Industry representatives warn this could deter price-sensitive families.
• Logistic Challenges: Cruise lines must synchronize GPS logs with billing systems to prorate the tax accurately (Geofencing). Retroactive charges for already booked passengers could lead to conflicts on board.
• Local Value Chain: The court acknowledged that potential reductions in port times by cruise lines to avoid taxes could cause non-speculative harm to local service providers, though this was deemed secondary to the state's right to tax.

6. Global Context: Hawaii as a Pioneer

Act 96 positions Hawaii at the forefront of a global movement ("Regenerative Tourism"). Compared to destinations like Galapagos (entry tax approx. $100-200) or Venice (access fee), Hawaii's solution is legally more complex due to the US Constitution. The expected revenue aims to close the gap in conservation investment (previously only ~$9 per tourist vs. ~$373 in Galapagos). Funds will flow into removing invasive grasses to prevent fires (like in Lahaina) and restoring coral reefs.

7. Outlook: A Stormy Voyage

Although January 1, 2026, marks the starting signal, the final legal word has not been spoken. Both CLIA and the US government have filed appeals with the Ninth Circuit Court of Appeals. Risks: If the tax is later declared unconstitutional, Hawaii might have to refund hundreds of millions of dollars. Market Adaptation: Cruise lines may adjust itineraries—spending less time in port or moving ships to other regions like Mexico.

Conclusion: The verdict is a milestone in American environmental federalism. It signals that states can find creative ways to involve global industries in local climate costs. However, while the first tax bills are printed in January 2026, lawyers are preparing for the next round in a battle that could potentially reach the Supreme Court.