SB2698 would change how Hawaii taxes and charges cruise ships that dock in the state’s commercial harbors. The bill creates a new per-passenger “head fee” on cruise ships, to be collected by the Department of Transportation at each port entry and deposited into a newly created Cruise Ship Special Fund. That fund would be used only for port facility and capital improvement projects that support cruise ship operations, as authorized by the director of transportation.
The bill also removes cruise ships from the state’s transient accommodations tax framework. It deletes the statutory definitions of “cruise fare,” “cruise ship,” and “cruise ship cabin” from the transient accommodations tax law, and strikes the provision that would have taxed cruise-fare receipts as gross rental proceeds. In effect, cruise ships would no longer be subject to the transient accommodations tax under chapter 237D, while the new passenger fee would become the primary cruise-specific charge established by this measure. The bill also makes conforming changes to the climate change and tourism destination management funding provisions tied to transient accommodations tax revenue.
The bill’s impact on state law is significant because it rewrites both transportation and tax statutes. It adds new sections to chapter 266 for the cruise ship fee and special fund, amends chapter 37 to remove cruise-fare revenue from the list of TAT-related revenues used for climate and tourism projects, and amends chapter 237D to eliminate cruise-related tax definitions and the cruise-fare tax provision. The bill also includes an appropriation from the new special fund for fiscal year 2026-2027 and states that the changes to the tax provisions are retroactive to January 1, 2026.
The general sentiment reflected in the voting history is strongly favorable. The bill advanced through multiple Senate committees with unanimous or near-unanimous support, including Transportation, Economic Development and Technology, Ways and Means, and Judiciary, all passing it with amendments and no recorded opposition. That pattern suggests broad agreement on the bill’s overall direction, even though the measure was still being negotiated in conference at the time of the last action.
The main point of contention appears to be the policy shift away from taxing cruise fares under the transient accommodations tax and toward a dedicated passenger fee on cruise ships. Supporters likely view the bill as a way to ensure cruise-related revenue is directed to port infrastructure and operations, while critics could object to the new fee structure, the retroactive tax changes, or the removal of cruise ships from the broader tourism tax base. The bill text itself leaves the per-passenger fee amount blank, which suggests that the exact fiscal burden was still unresolved during drafting and may have been a subject of negotiation.
Impact
SB2698 would amend Hawaii’s transportation and tax laws by imposing a new cruise ship passenger head fee, creating a dedicated special fund for cruise-related port improvements, and repealing the existing transient accommodations tax treatment of cruise fares. It would also revise related budget language so cruise-related revenues are no longer included in the climate change and tourism destination management funding formula. The bill affects cruise ship operators, passengers, the Department of Transportation, and the Department of Taxation, and it would redirect cruise-related revenue toward port facilities and capital improvements rather than transient accommodations tax programs.
Sentiment
The available voting record shows strong support for the bill in the Senate, with each committee vote passing unanimously or nearly unanimously and with amendments. There is no transcript evidence of floor debate or public testimony in the materials provided, but the committee outcomes suggest the measure was broadly acceptable to lawmakers at the committee stage. The fact that the bill proceeded to conference indicates continued negotiation, likely over the fee amount and the final structure of the cruise tax changes.
Contention
The central policy dispute is whether cruise ships should be taxed through the transient accommodations tax or through a separate per-passenger fee. Opponents of the bill may argue that removing cruise fares from the TAT reduces tourism-related revenue or creates a special treatment for cruise operators, while supporters may argue that a dedicated fee better matches the use of port infrastructure and local impacts. The retroactive effective date for the tax changes and the blank fee amount are also likely areas of concern because they affect certainty, implementation, and revenue estimates.