Making a Federal Case Out of the Green Fee

by Tom Yamachika, President, Tax Foundation Hawaii

From recent news, you have probably heard that the 2025 Legislature’s enactment of the “Green Fee” bill not only raised taxes on land-based transient accommodations but expanded the tax to sleeping quarters on cruise ships.  This, not surprisingly, did not go over well with the cruise ship industry.  Its trade group, the Cruise Line Industry Association, sued to block the tax from taking effect.

But the lawsuit was unusual.

The lawsuit was filed in federal court in Honolulu.  That is unusual because there is a federal law, called the Tax Injunction Act, prohibiting federal courts from getting involved in state tax cases if there is a “plain, speedy, and efficient” remedy in the state court system.  Normally, state tax cases go through the state judiciary, even if it is alleged that the state tax violates the U.S. Constitution or federal law, and only after the state courts are done with the case may the parties ask the Supreme Court to review it.  To get around this, the cruise lines alleged that the tax appeal system we have here is anything but plain, speedy, and efficient. 

We spoke in this space a couple of weeks ago about some of the quirks and pitfalls in the system. 

The cruise lines, however, seemed to be concerned primarily because the state tax appeal process can’t be engaged without an alleged victim — someone who either has paid the tax where the Department of Taxation has made a formal administrative decision on that tax or has let six months go by without one, or who has not paid the tax and has been assessed by the Department.  They complained that our laws normally allow for a “declaratory judgment,” which is where the courts rule on the legality of something where both sides are in the boxing ring staring each other down but haven’t thrown punches yet, but do not allow for a declaratory judgment when it comes to tax.

Another unusual feature of this case is the U.S. Department of Justice, which has asked our federal court if it can “intervene,” that is, join the cruise lines in suing our state.  That represents a different level of involvement from merely expressing the federal government’s views as an “amicus curiae,” or friend of the court, which is what the Tax Foundation of Hawaii does occasionally.  Civil Beat observed that one of the lead attorneys representing the cruise lines is Bradley Bondi, and, if that last name sounds familiar, it is because his sister Pam happens to be the U.S. Attorney General.  Having the federal government participate in the suit directly may allow the federal court to proceed despite the Tax Injunction Act, according to a legal commentator.

The industry is claiming that the Green Fee legislation violates the U.S. Constitution, Article I, section 10, clause 3, which prohibits States from “lay[ing] any Duty of Tonnage,” meaning any charge for the privilege of entering, trading in, or lying in a port; and the Rivers and Harbors Act, 33 U.S.C. section 5, which bars state “taxes, tolls, operating charges, fees, or any other impositions whatever” on vessels operating in U.S. waters. 

The Federal Government’s position is similar, if not more strident, calling the Hawaii Green Fee a “scheme to extort American citizens and businesses solely to benefit Hawaiʻi.”  One wonders if the Government would be doing the same thing if the fee were to benefit other causes, or if Hawaii were a red state.

At press time, the Government’s motion to intervene as well as the State’s motion to dismiss the suit were still pending.  We hope that the courts are able to sort this case out reasonably and quickly.