Harbor Maintenance Tax ruled unconstitutional--what happens now?

By Rodney C Schonland -- Logistics Management, 5/1/1998

On March 31, the Supreme Court ruled, 9-0, that the Harbor Maintenance Tax (HMT) on exports was illegal. That ruling, which was cheered by many and regretted by some, left many unanswered questions for all. For most shippers, though, the most pressing question today is how to get refunds.

For exporters that have been paying the tax and filing both protests and complaints in the Court of International Trade, the refunds should start to flow as soon as the U.S. Customs Service and the U.S. Treasury Department implement appropriate internal procedures. Those agencies should develop such a plan within 30 days from the date of the Supreme Court decision, though it is likely to take longer than that. In any event, the refunds will be forthcoming. They should include interest accruing from the time of payment.

For exporters that have been paying the tax but have not been filing protests or complaints, a conversation with an attorney is in order. They still may be able to obtain some relief, since payment of an unconstitutional tax could be considered an illegal taking under the color of law. Such government action is subject to review by the courts. But--and here's the rub--review by which court? And how far back can a claimant reach?

The venue probably would be a federal district court. Whether or not such a course of action would be successful is hard to say. The first cases will be the trail blazers. As for time limits on claims, I believe that any exporter that has paid the Harbor Maintenance Tax should be able to file claims as far back as the statute of limitations will allow. This should be five years from the time of payment. If you are considering filing such a claim, then time is of the essence due to the statute of limitations' "ticking clock."

What about domestic shippers? Domestic cargo, such as barge shipments that move via the inland waterways or coastal traffic, has always been--and will continue to be--subject to the HMT. Data provided by both the U.S. Customs Service and the U.S. Army Corps of Engineers, however, indicate that the majority of domestic shippers have not been paying this tax. Informal conversations with customs officials, meanwhile, suggest that the agency has not taken any enforcement actions against non-paying domestic shippers due to a concern over statutory authority. It seems likely that this situation will be corrected shortly, so domestic shippers should contact their legal counsel and arrange to make the payments they owe. Tax evasion, whether through ignorance of the law or for any other reason, is neither sound legal strategy nor prudent corporate policy.

Imports were not affected by the Supreme Court's decision. The European Union (EU), however, has mounted a challenge to the HMT as it applies to imports via a complaint to the World Trade Organization (WTO). As a signatory to the General Agreement on Tariffs and Trade (GATT), the United States agreed that it would not raise tariffs. The EU contends that the Harbor Maintenance Tax actually is a raise in tariffs for three reasons: only imports are taxed, the tax is not in proportion to the services provided, and the tax is based on a percentage of the goods' value but there is no cap on the amount an importer must pay.

The EU's challenge is not without precedent. A similar case against the United States' Merchandise Processing Fee for imports was successfully argued several years ago. As a result, a cap of $485 per entry was enacted. I expect that something similar will happen in this case, but when this issue will be resolved is only speculation at this point.

The Supreme Court may have handed down a decision on the constitutionality of the Harbor Maintenance Tax, but all the issues and questions are far from being answered. Look for the HMT to be in the news--and the courts--for quite a while.

Mr. Schonland is a Boston-based attorney who specializes in international trade, transport, and U.S. Customs law. He also is a licensed customs broker. He may be reached at 79 Milk St., Suite 1109, Boston, MA 02109. Phone: (617) 292-4551.