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 Serko & Simon Publications

Exporters Win Round One In Harbor Maintenance Case: Now, Protect Your Right To Refunds!


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.

The "Fees"

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 Case

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:

"No Tax or Duty shall be laid on Articles exported from any State."

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

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:

a) regulation was the primary purpose, or, alternatively, that
b) the HMT was the means to reimburse the government for services provided.

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.

The CIT on Refunds

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.

The Concurring Opinion: Go Back to Day One

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.

What Can Be Done Now to Protect Future Refunds?

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.


(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.)

EMail: David Serko, Joel Simon, General Inquiries

All material copyright © 1996 by Serko & Simon