The state’s tax on transient accommodation proceeds will likely rise next year.
Last week, the state Legislature voted to pass Senate Bill 1396, a measure that increases Hawai‘i’s Transient Accommodation Tax rate to raise funds for climate change mitigation projects.
And, for the first time ever, the bill will also levy taxes on cruise ships: cruise operators will also begin paying an 11% tax on all cruise fares, prorated based on how many days per voyage a ship is docked at a Hawai‘i port.
Currently, the minimum TAT rate in the state is 10.25%, with each county levying its own 3% surcharge.
The measure has been controversial among tourism- and rental-based organizations, which have warned that Hawai‘i businesses cannot survive the rising cost of doing business.
“Currently, Hawaiʻi has the highest tax on admissions in the nation, and evidence from 2023 and 2024 suggests that higher taxes lead to reduced spending by visitors in other areas rather than an increase in their overall expenditure per trip,” read an April 2 letter by Antoinette Davis, executive director of the Activities and Attractions Association of Hawaii.
Norwegian Cruise Line has also been opposed to the language within the bill which included cruise ships in the state’s definition of transient accommodations. In an April letter to the legislature, NCL argued that cruise ship cabins should be considered separately from hotel rooms or other short-term rentals — after all, a hotel guest only pays for the accommodation, but the cost of a cruise ship cabin includes “sleeping quarters, food, beverages, entertainment, transportation, excursions, fees for dockage, port entry, wharfage, security, amongst others,” NSL wrote.
Furthermore, NCL argued that the bill violates the U.S. Constitution’s Tonnage Clause, which prohibits non-federal governments from imposing taxes that effectively charge for entering a port.
But the office of Gov. Josh Green has indicated consistent support of the measure throughout the legislative session. Green’s office repeatedly submitted testimony on the bill recommending a 1% TAT increase, estimating that it would generate up to $90 million in the 2027 fiscal year.
At the same time, the Department of Land and Natural Resources estimated that the ecological functions provided by the Ko‘olau Forest Reserve on O‘ahu — flood prevention, drinking water recharge, carbon storage and more — have a net value of up to $14 billion, while coral reefs are estimated to annually protect against $836 million in damage caused by ocean swells every year.
“Despite the enormous value of our forests and oceans, Hawai‘i invests less than 1% of the total state budget into their protection and management,” wrote DLNR chair Dawn Chang. “Without adequate investment, the increasing impacts of climate change, wildfires, invasive species, and overuse threaten to erode the assets that sustain our economy and communities.”
Chang also identified more than 80 possible climate change projects that could be funded within DLNR’s Division of Forestry and Wildlife alone, such as a $5 million firebreak project on the Mānā Plains on Kaua‘i, or a $1 million project on Maui to eradicate fire-prone pampas grass.
The bill is now on Green’s desk, awaiting his signature.
Aloha State Daily requested comment from the Hawaii Tourism Authority.
