Date: Wed, 31 Dec 1997 20:50:25 GMT Server: WebSitePro/1.1g (S/N WPO-2024) Accept-ranges: bytes Content-type: text/html Last-modified: Tue, 30 Apr 1996 16:47:40 GMT Content-length: 8757
By David Serko, Senior Partner, Serko & Simon and Contributing Editor, WWS/World Wide Shipping.
In a recent decision by a three-judge Court of International Trade ["CIT"] panel in the case of United States Shoe Corp. v. United States ["U.S. Shoe Corp."], written by Chief Judge DiCarlo and a concurring opinion by Judge Musgrave, it was held that Harbor Maintenance Fees assessed on exports are an unconstitutional tax. The court said those who paid the tax are entitled to refunds, but the extent to which refunds will be made and how they will be achieved is not certain, as the case will likely be appealed to the Court of Appeals for the Federal Circuit, and possibly to the U.S. Supreme Court.
Since April 1, 1987, except for a few exemptions, waterborne imports, exports, domestic
shipments and passengers have been assessed the Harbor Maintenance Tax ["HMT"] as "fees"
for "any port use" of navigable waterways that are maintained by the federal government. The
HMT was originally .04% ad valorem. It was increased to .125% ad valorem, which equates
to $1,250 per million dollars of value, in 1990.
The issue presented in U.S. Shoe was whether the HMT assessed on exports
violated the prohibition of the Export Clause of the U.S. Constitution which provides:
Although acts of Congress are presumed to be constitutional, a law which is repugnant to the
Constitution is void, the CIT said, citing to Marbury v. Madison (1803). It went
on to say that a law enacted pursuant to the Commerce clause must still be within the
boundaries established by other portions of the Constitution, including the Export Clause. In
this case, the CIT held that even if the HMT was passed pursuant to the Commerce Clause, it
could not overcome the power of the Export Clause "to keep all exportation free of any tax
burden."
As for the argument that the HMT was not designed primarily to enhance the general revenue
of the United States but to provide benefits to users of the ports and harbors, as a user fee, the
CIT stated that in order for the HMT to survive on that basis, according to case law, it had to
be shown that:
The CIT found that the HMT did not discourage or regulate the use of ports or harbors and
that there was little indication that Congress had intended to establish the HMT as a user fee.
In practice, there was no relationship between the fees charged and the services enjoyed. In
fact, the HMT is designed to fund envisioned projects rather than services already enjoyed and
there has been a substantial surplus in the fund in excess of the costs incurred.
The CIT held that the "fees" ostensibly designed to recoup the cost of maintaining our national
ports and harbors were taxes, which have been collected in violation of the Constitution's
Export Clause.
Having found the HMT to be unconstitutional, the CIT then turned its attention to the issue of
how exporters could secure refunds of past payments.
The government argued that a refund could only be granted if the exporter filed timely protests
against the payments of the HMT. According to the protest statute administered by Customs,
protests are due within 90 days of a "Customs decision." The government contended that in
this case, the "decision" was Customs' acceptance of the HMT quarterly payments. This
approach would, effectively, create a 90 day statute of limitations for refunds. Using the
government's rationale, exporters would only be able to seek a refund for the most recent
quarterly payment, as far as past payments are concerned.
The majority opinion of the court, once again, disagreed with Customs' position. The
majority concluded that Customs' function in the collection of these payments is ministerial,
and that there is no protestable decision for Customs to make in this regard.
The majority opinion of the court, instead, said that exporters had a right to refunds of
payments made within two years preceding the filing of a suit in the CIT.
In his concurring opinion, Judge Musgrave went even farther. He said that recovery of the
unconstitutionally imposed tax should not be limited to the two year period. Judge Musgrave
would have allowed for a "restitution of all (HMT) heretofore
exacted" on exports.
As noted above, the case will most likely be appealed, so that, despite the exporters' victory in
U.S. Shoe, any refunds will not be immediate. There are a number of possible
outcomes to the appeal process, including an affirmation either of the CIT majority or the
minority opinion, modification, remand or reversal.
The question then arises, what should be done in the meantime? Exporters can commence suit
to protect their right to future refunds on payments made within the two years immediately
preceding their filing of summonses in the CIT. Even though the CIT held that denial by U.S.
Customs of protests contesting HMT payments are not a prerequisite to the CIT asserting
jurisdiction over claims for refunds by exporters, it would be prudent to continue to make the
quarterly HMT payments and to file timely protests of the payments. Once denied, the denied
protests themselves should be the subject of summonses filed in the CIT.
In the event that there is ultimate agreement with Judge Musgrave's view that all HMT
payments on exports are subject to refund, exporters would do well to gather and retain their
records concerning payments dating back to the inception of the HMT, and consider filing for
refunds now. Denial by Customs of the requests for refunds may also be the basis for protests,
which, once denied, would provide additional grounds for filing summonses in the CIT.
In pursuing each of these efforts, i.e., claims for payments within two years, protests of
ongoing payments and requests for refunds back to the first payments made, exporters might
protect to the greatest extent the possible refunds to which they might eventually be entitled.
EMail: David Serko, Joel Simon, General Inquiries
All material copyright © 1996 by Serko & Simon
The "Fees"
The Case
The Government's Arguments
The government argued that, in assessing the HMT, it was proceeding under the grant of
authority provided by another provision in the Constitution, the Commerce Clause. The
government asserted that the primary purpose of the HMT was not to enhance the general
revenue, but rather was part of a regulatory scheme, the Water Resources Development Act, to
maintain the waterways and otherwise ensure the safety and efficiency of the U.S. ports and
harbors. It also claimed that the HMT was assessed only as a fee to defray the cost to the
government for related administrative work.
The CIT Disagrees
a) regulation was the primary purpose, or, alternatively, that
b) the HMT was the means to reimburse the government for services provided.
The CIT on Refunds
The Concurring Opinion: Go Back to Day One
What Can Be Done Now to Protect Future Refunds?
(The foregoing is not, nor is it intended to be construed as, legal advice,
which may only be provided to clients of the firm on a case by case basis.)