Cruise destinations are increasingly turning to taxes on ships or passengers to raise revenue to address the impacts of overtourism. Hawaii, Norway, Mexico and Skagway, Alaska, have all finalized new taxes on ships calling at their ports in recent months.
The taxes are sometimes overtly earmarked to help the destinations recover costs associated with the post-pandemic flood of tourists, including their impacts on the local natural environment. In Hawaii, the tax revenue from cruise ships is being earmarked for environmental causes, be it park management or climate-resilient infrastructure. And in Norway, municipalities that want to implement the nation's new 3% tourism tax, which includes a cruise tax, will only qualify if they can show that tourists have caused strain on their municipal resources such as roads or park facilities, according to Forbes.
While the Florida-Caribbean Cruise Association helped negotiate a lower tax rate for Mexico's new cruise tax, CLIA is fighting back by filing a lawsuit challenging Skagway's levy and is threatening to sue Hawaii. "If the cruise industry failed to challenge this surcharge, other states and municipalities could feel unconstrained in adopting similar unlawful surcharges, leading to exorbitant and ultimately untenable cruise fares," a CLIA spokeswoman said.
Economics meet quality of life
When introducing these taxes, destinations play a balancing act: They want to remain welcoming to tourists to reap the economic benefits, but they also want to keep the local residents content, said Jungho Suh, who teaches management at George Washington University.
"The power to attract tourists or visitors to a local travel destination stems from the local community's welcoming hospitality, their friendliness, their kindness to visitors, which are deeply rooted in the local community's overall well-being," Suh said. "Their well-being has been negatively affected by the overtourism issues, especially since the beginning of the post-pandemic era. That's where the policymakers and lawmakers come along, to find that optimal point by understanding the sentiment and consensus of the local community, tourists and commercial cruise lines."
In general, tourists entering a city by cruise spend less on land than other types of travelers, said Robert Rosen, a law professor at the University of Miami who teaches a course on the legal environment of the cruise industry.
Taxes could be a way to make up for that lack of tourist revenue coming in despite thousands of people coming off of a ship, said Daniel Guttentag, director of the Office of Tourism Analysis at the College of Charleston.
Since those paying the taxes are not residents and don't vote locally, lawmakers may sense fewer political repercussions than taxing their constituents, he said.
Politicians "want to make sure they are able to be voted in again," said Cruise.com president Anthony Hamawy. "So, hey, let's go for the tourists. It's a softer hit."
Cruise line consequences
Since cruise lines have other options for visitation, they may begin to avoid taxed destinations.
"There's a great deal of competition to get cruise ships to dock," Rosen said. "In Latin America, Mexico will compete with Guatemala. In the Caribbean, all the islands are competing with each other. So to impose a tax creates a disincentive to visit your country."
CLIA was blunt about "unintended consequences for the local communities," including "lower spending by cruise guests when their cruise fare costs more and reduced visitation by cruise ships."
Taxes may also incentivize cruise lines to dedicate more days to their private destinations or as sea days, said New York University's Richie Karaburun, a clinical associate professor at the Jonathan M. Tisch Center of Hospitality.
When they can't avoid taxes, they'll either absorb the fees or pass them along to customers. The latter is more likely, he said.
"If it's only one destination that adds in $5, $6, they might eat it up," he said. "If all of a sudden four ports added $6, that's $24, and if you look at it, that's $24 times 5,000 people each week. I don't think any cruise line could actually eat this up, and in the end, they're just going to have to put that back into their pricing."