Court ruling:Exporters won't get interest on HMT refunds

By Staff -- Logistics Management, 3/1/2000

In a move that surprised many industry observers and legal experts, the U.S. Court of Appeals for the Federal Circuit has ruled that exporters that are eligible for refunds of the harbor maintenance tax (HMT) will not receive interest on those refunds.

The U.S. Supreme Court last year ruled that the harbor maintenance tax, assessed at a rate of 0.125 percent per $100 of value on waterborne trade, was unconstitutional when applied to exports. That ruling also ordered the federal government to refund HMT payments made on export shipments. (The tax still applies on domestic and import shipments.)

The federal government eventually accepted the high court's ruling regarding the constitutionality of the HMT. But it continues to dispute decisions issued by the U.S. Court of International Trade regarding how far back the government must refund HMT payments, which statute of limitations should apply to refund applications, and whether or not exporters would receive interest on their refunds.

IBM was chosen by the appeals court as the test case regarding the payment of interest. Numerous other exporters that have filed suits challenging the HMT participated as amici curiae.

The appeals court's decision that the federal government was not obligated by law to pay interest on HMT refunds was unexpected, says Matthew T. McGrath, Logistics columnist and an international trade attorney with Barnes, Richardson & Colburn, a Washington, D.C., law firm that is representing several plaintiffs in the HMT cases. In similar cases involving taxes assessed by the Internal Revenue Service and the U.S. Customs Service, McGrath says, plaintiffs have been entitled to interest payments on their refunds. "There is a line of cases in the Supreme Court that ruled that an illegal or improper taking by the government was the same as an unconstitutional tax, and that merited full restitution--including interest--under constitutional law," he says. In this case, McGrath explains, the Court of Appeals ruled that the HMT represented a very restricted, narrow circumstance that differed from earlier tax cases and that interest therefore was not payable.

That ruling was met with widespread disbelief, says an attorney who is close to the case and requested anonymity. The consensus among lawyers representing the plaintiffs, he reports, was that the court's convoluted decision disregarded established precedent and was "a real stretch" that was designed to save the federal government from having to pay out millions of dollars in interest.

Whether or not the appeals court judges were biased, exporters are unlikely to accept that decision and simply walk away. McGrath expects that IBM will ask for a rehearing. If the Court of Appeals should deny that motion, he says, the issue could very well end up in the Supreme Court. With cases regarding interest, statutes of limitations, and the extent of refunds all waiting to be resolved, he says, legal actions regarding the harbor maintenance tax won't be going away anytime soon.