How much do I get, and when do I get it?

By Rodney C Schonland -- Logistics Management, 11/1/1998

Since the Supreme Court decision in U.S. Shoe v. United States, which invalidated the Harbor Maintenance Tax (HMT) on exports, there has been much confusion about the refund process. Exporters need answers to these pressing questions: When will I get my refund? How much will it be? How far back in time will my refunds go?

The legal issues surrounding the HMT refunds are complicated and some still are under court review. This column will provide an update on where those issues stand and information on how exporters can obtain the refunds to which they are entitled. (Note: The information in this column is general in nature and is not intended to be legal advice. Specific questions should be directed to an attorney familiar with the HMT.)

To be eligible to receive HMT refunds, the exporter must have been paying the tax, must have maintained some records to verify that it paid the tax, and must have filed a complaint in the U.S. Court of International Trade (CIT), which has exclusive jurisdiction over this dispute.

As for how far back refunds will apply, the basic rule is that refunds will apply on taxes paid as much as two years prior to the date a complaint was filed with the CIT. For example, a complaint filed on July 1, 1998, would protect the right of an exporter to receive refunds of all payments made after July 1, 1996. Previous administrative protests or letters to the U.S. Customs Service by themselves are not sufficient to protect your right to a refund. There is some question concerning whether the date of payment, the date of accrual of the quarterly tax liability, or the date of shipment should be the starting point for the two-year limit. It is possible that an exporter or the federal government will ask the court to take up this question during the refund process. Be aware that if the court decides that the date of shipment or date of accrual is the starting point, the refunds might not cover some payments made after July 1996.

The issue of whether interest will be paid, from which date, and at which rate still is being decided by the appeals courts. There will indeed be interest paid, and it probably will be sent sometime in 1999 to exporters that will already have received refunds.

On Aug. 28, 1998, Judge Jane Restani of the CIT ruled: 1) that all those seeking refunds, for the period dating two years prior to the date of their complaint, must file a claim refund form with the U.S. Customs Service; 2) that customs then must review its own records and notify the claimant of how much it believes that claimant is entitled to receive; and 3) that if the claimant agrees with customs, it may enter into a judgment for that amount to effect payment and "sever" any other issues from its complaint for later consideration by the court.

All such claims that were filed by Oct. 15 are being processed in the order that the underlying court complaints were filed. Claims filed after Oct. 15, however, are being processed in the order that they are received. Approximately 8,000 complaints were filed in the court, and U.S. Customs has been ordered to process 500 claims per month. Exporters that filed court complaints early in the process, therefore, stand a good chance of having a government check in their hands before the end of this year. (This assumes that the exporter's claim agrees with customs' records.)

If the exporter disagrees with the amount shown in customs' records, then the exporter must submit relevant records, including proof of payment, to customs authorities. Reviews of disputed claims are to begin no later than March 15, 1999. If the differences cannot be reconciled, the exporter then can request a resolution from the CIT.

What about payments made prior to the two-year window from the complaint date? The mechanism for dealing with these circumstances is in Judge Restani's order of Aug. 28. In that decision, she ruled that claims for the refund of HMT payments made earlier than two years prior to a complaint date are to be severed from the original complaint and re-filed. These modified complaints will be held pending the ruling on two CIT test cases dealing with statutes of limitations and jurisdiction of the court over the HMT. That could be some time hence: Both cases likely will be appealed, possibly to the Supreme Court.

The first of those cases is Swisher Int'l v. United States, in which the plaintiffs ask that if the law is unconstitutional, why aren't funds illegally taken by the government being reimbursed in full, rather than only within narrow time windows? If the CIT finds for Swisher and that decision is upheld in all the appeals, the HMT will be declared void ab initio, and there will be no statute of limitations. That means the taxpayer would be entitled to a full refund of any payments it can document, regardless of the date of filing of the complaint. Because that issue will not be decided for some time, claimants should make sure any pending complaints are amended to add that issue and permit it to be severed at the time the first refund is received. Otherwise, the claimant might be foreclosed from the full refund compensation by the form language of the judgment order.

The other case is Stone Container Corp. v. United States. A decision for the plaintiff may permit refunds for payments made as far back as October 1992. This is because a class-action motion had been pending before the CIT between October 1994 and May 1996, which "tolled" the statute of limitations. Thus, anyone who filed a complaint within two years after the May 1996 decision not to certify a class action would be deemed to have withheld his or her filing as of October 1994 and would have two years after the May 1996 decision to take advantage of the extension. For example, a complaint first filed in June 1996 would be treated as if it had been filed in October 1994 and the claimant would be considered to have been a constructive member of that "class." Any refund, therefore, would cover HMT payments as far back as two years prior to October 1994.

These two important cases would allow exporters to increase their HMT refunds while making the process more accessible, even to those who have not yet filed a case at the CIT. The only way to take advantage of those possible outcomes, however, is to file a complaint at the CIT now, even if the potential refund for the last two years alone is not significant.

All this is complicated. Exporters should work with their attorneys to evaluate their specific circumstances. All shippers, meanwhile, should watch the progress of litigation of other claims concerning HMT payments on imports, domestic movements, and foreign trade zone (FTZ) admissions.

Finally, exporters should find it reassuring that, despite the often stifling bureaucracy and regulatory costs imposed on international trade, the judicial system does work to protect taxpayers, with beneficial results. The CIT in particular is to be commended for moving with even-handed alacrity to enforce those results.