HARBOR MAINTENANCE FEE
HMT UPDATE
6/01
Wondering what all the fuss is about the HMT and imports? Check our web
site for a recent posting which provides the latest information
regarding both imports and exports.
HARBOR MAINTENANCE TAX UPDATE
5/01
There is much in the trade press these
days regarding an issue many thought resolved - refunds of the harbor
maintenance tax (HMT) on exports. We provide in this memorandum an
update regarding the refunds for exports plus information in the newly
developing area of the potential for refunds on imports.
Exports:
Between the U.S. Shoe and Swisher cases,
it is now clear that the HMT on exports was unconstitutional and could
be challenged in a number of ways which were successful. Swisher
challenged the HMT relying on the standard method of challenge -
protests. U.S. Shoe challenged the HMT relying on the inherent
jurisdiction of the court. Both were successful and, in many instances,
the refunds have already been issued.
Subsequent cases addressed interest,
saying none would be paid if refunds were obtained relying on U.S. Shoe.
Whether interest will be paid if protests were filed remains unclear.
The latest development in the export
context is a new Customs regulation which, in effect, cuts off all
refund claims not already filed. In reliance on a comment by one of the
judge's, Customs changed its regulations to provide a one year statute
of limitation for all export refund claims. Since no one has paid HMT
for several years, such action effectively cuts off all claims not
already filed. The new regulation is not retroactive so any pending
claims are unaffected.
Customs is currently focused on the
claims arising out of the Swisher decision and is obligated to process
those refunds by June 18, 2001. Customs has approximately 2,700
administrative refund claims on which it will start the refund
processing thereafter. One open question is exactly how much supporting
documentation exporters will be required to provide so that their claims
are deemed complete and refunds are issued.
Imports:
One area where there has been recent
movement has to do with the possibility of HMT refunds on imports. On
April 18, 2001, the Court of Appeals for the Federal Circuit (CAFC)
overturned the decision of the Court of International Trade (CIT)
dismissing the lawsuit brought by Thomson Consumer Electronics
(Thomson). Thomson filed its claim relying on the inherent jurisdiction
of the courts (called 1581(i) or residual jurisdiction). Thomson claimed
the HMT violated the U.S. Constitution regarding the Port Preference and
Uniformity clauses. Thomson also asserted that since the HMT on exports
was invalid, the HMT on exports and the HMT on imports could not be
severed and so if one was invalid, so was the other. Rather than
deciding the case, the CIT dismissed saying it lacked jurisdiction
because the proper basis to challenge the HMT assessment on imports was
said to be by way of a protest (1581(a) or the traditional method of
challenging assessments on imports).
The CAFC held that Customs had no
authority to decide whether or not the HMT was constitutional and so the
filing of a protest would be a futile act. The court went on to state
that Thomson is not required to undertake a futile act and so the CIT
decision was reversed. The CAFC also made a point of stating it has not
made any determination as to whether or not the HMT on imports is
unconstitutional (which many think unlikely) as the merits of that claim
must first be decided by the lower court.
While it may well be several years before
the HMT litigation regarding imports is finalized, importers may wish to
take advantage of the Thomson decision by filing complaints at the CIT
to preserve the issue. They can claim two (2) years of HMT payments at
time of filing. Importers might also keep in mind that a future court
could determine that the filing of protests is required and so
undertaking both steps in tandem may be the safest way to proceed.
HMT REFUNDS
4/01
Effective March 28, 2001, Customs issued interim rules for those seeking
refunds of harbor maintenance taxes, see T.D. 0125.
INTEREST ON HMT - IS IT DEAD?
01/01
With the holding in IBM v. US, the courts
made clear that HMT refunds could be obtained but no interest would be
paid. Then the court issued its decision in Swisher v U.S. relying on
standard protest jurisdiction - 1581(a). The IBM case relied on 1581(i)
or residual jurisdiction. The granting of a protest allows the award of
interest pre-judgment. 21 plaintiffs who received their refunds relying
on the IBM case, recently sought to amend those judgments to include an
award relying on the Swisher case. The court denied their motions saying
the cases have to come to finality. If the plaintiffs wanted to keep
open the option of recovering interest, they should not have signed the
judgments and accepted the benefits. While Swisher allows for an award
of interest back to date of filing, HMT payments date all the way back
to 1987. Interest back to date of HMT payment is not likely to be
allowed absent further litigation.
MORE HMT LITIGATION
12/00
I.B.M. has file an appeal to the U.S.
Supreme Court over the question of whether exporters are entitled to
recover interest on HMT refunds. The Court of Appeals for the Federal
Circuit said no.
HARBOR MAINTENANCE TAX
UPDATE
12/00
In Swisher International,
Inc. v. United States, No. 99-1227 (February 28, 2000), the Court of
Appeals for the Federal Circuit confirmed that there is no statute of
limitations which applies to harbor maintenance tax refunds. The case
was appealed to the U.S. Supreme Court which refused to hear it.
In an attempt to deal with
the lack of a time limit, the Customs Service has now proposed a one
year limitations period which would start to run from the date of the
quarterly payment to Customs. The proposed change has no effect on HMT
payments made on imports. Exporters are, therefore, advised to file
their refund claims as quickly as possible.
HMT UPDATE
03/00
There was unexpected good news for
exporters in late February when the
Court of Appeals for the Federal Circuit ruled that all harbor
maintenance tax (HMT) payments made since 1986 (when the law was
enacted) are subject to refund, even those outside the two (2) year
statute of limitations generally governing the jurisdiction of the Court
of International Trade (C.I.T.). The court reached its decision because
there is no time limit governing when an HMT refund request has to be
filed. The case has been returned to the C.I.T. to calculate the amounts
due the exporter. Once that judgment is entered, it is expected the case
will again be appealed.
If finally upheld on appeal, an
administrative procedure is likely to be established (possibly through
Customs) allowing claims for additional HMT refunds. Whether it will
literally extend to all HMT payments not previously refunded remains to
be seen.
Now we hear that the question of
replacing the HMT monies with some other funding source is turning to
earmarking certain monies collected by Customs, a decidedly unpleasant
turn of events given the inability to find the $1.4 billion needed to
fund Customs' new computer system.
HMT INTEREST OVERTURNED
3/00
The Court of Appeals for the Federal Circuit has overturned a CIT
decision finding that exporters are entitled to be paid interest for any
harbor maintenance taxes refunded, instead finding the U.S. was immune
from interest payment because there was no law authorizing it.
CHALLENGING CUSTOMS
1/00
By Su Ross, ©1999 Los Angeles Daily Journal
Supreme Court Hears Arguments in Two Import-Export Cases The 1999
U.S. Supreme Court session was quite surprising for practitioners in the
import-export arena. At the beginning of the year, the first
import-export case was argued before the Supreme Court since the early
1970s. The case involved the harbor maintenance tax. See United States
Shoe Corporation vs. United States, 523 U.S. 360, 118 S.Ct. 1290 (1998).
The HMT was assessed as a percentage of value on imports into, and
exports out of, the United States and was intended to fund improvements
at America's ports and waterways. See 26 U.S.C. § 4461. U.S. Shoe
challenged the HMT assessment on exports only. Despite the Government's
argument that the HMT was a permissible user fee, relying on the export
clause of the U.S. Constitution (U.S. Const., art. I, §9, cl. 5), the
Supreme Court found the HMT to be a tax on exports and declared it
unconstitutional.
Still pending is the question of whether interest has to be paid on
the HMT amounts being refunded. Interest was found to be due by the
Court of International Trade (a specialized lower court), but that
decision has been appealed to the U.S. Court of Appeals for the Federal
Circuit. See International Business Machines Corp. v. United States,
Court No. 94-10-00625, 1998 Ct Intl Trade LEXIS 73 (1998). The judgment
in U.S. Shoe found interest was due, but that portion of the decision
was stayed pending the outcome of the IBM case, an outcome that carries
substantial consequence for the government in that as of early September
1999, some $732 million previously paid in HMT fees had been refunded.
Using different procedural devices, the HMT was challenged on imports
in Thomson Consumer Electronics, Inc. v. United States, Court No.
95-32-00277, 1999 Ct. Intl. Trade, LEXIS 81, Slip Op. 99-84 (1999) and
Amoco Oil Co. v. United States, Court No. 95-07-00971, 1999 Ct. Intl.
Trade LEXIS 89, Slip Op. 99-91 (1999). In both cases, the basic argument
was that the HMT on imports is not severable and so, if invalid on
exports, it is equally invalid on imports. Further, assessing the HMT
solely on imports violates the Uniformity and Port Preference Clauses of
the Constitution (as some 20 States do not have ports). These arguments
were rejected by the Court of International Trade which found the HMT to
be validly assessed on imports.
Later in the same Supreme Court session, the second trade-related
case was argued before the Supreme Court, United States vs. Haggar
Apparel Company, 143 L.Ed. 2d 480, 119 S.Ct. 1392 (1999). The basic
dispute was over whether the operations Haggar performed on the jeans it
processed in Mexico qualified as assembly or manufacturing. The
difference was important in determining the value on which duty would be
calculated. If the process was a manufacturing operation, duty would be
assessed on the full value of the finished jeans. However, if the
operation was qualified as an assembly process, duty would be due only
on the value added in Mexico.
The trial and appellate court both dealt with the issues and found in
favor of Haggar. The result turned on how the courts interpreted the "permapressing"
performed in Mexico was interpreted.
Permapressing became the focal point of the case because of the way
in which the tariff provision relied upon by Haggar was worded.
Harmonized Tariff Schedule provision 9802.00.80 and 19 U.S.C. § 1202
provide a duty exemption for:
Articles... assembled abroad in whole or in part of fabricated
components, the product of the Unites States, which ... (c) have not
been advanced in value or improved in condition abroad except by being
assembled and except by operations incidental to the assembly process
such as cleaning, lubricating and painting.
Subheading 9802.00.80 HTSUS, 19 U.S.C. § 1202.
The relevant regulation described processes that did not qualify for
partial duty exemption under HTSUS 9802.00.80:
Any significant process, operation, or treatment other than
assembly...shall not be regarded as incidental to the assembly and shall
preclude the application of the exemption to such articles...Chemical
treatment of components or assembled articles to impart new
characteristics, such as showerproofing, permapressing, sanforizing,
dying or bleaching of textiles.
19 C.F.R. § 1016(c) (1998).
The U.S. Customs Service contended that permapressing took the jeans
out of the assembly provision because permapressing is specifically
named as a disqualifying operation and so that the resulting garments
were manufactured in Mexico not assembled. Haggar argued the exact
opposite and won before the Court of International Trade, Haggar Apparel
Co. vs. United States, 938 F. Supp. 868 (1996), relying on arguments
explaining that permapressing as done today is no longer the harsh
chemical treatment it was once thought to be and so Customs'
regulatory determination was no longer accurate.
The question of the deference to be given to Customs'
interpretation of HTSUS 9802 was raised again by Customs before the
appellate court, which nonetheless affirmed the decision. United States
v. Haggar, 127 F.3d 1460 (1997). Customs then appealed to the Supreme
Court, which granted Certiorari.
What makes Haggar notable, beyond its being the second trade case in
one term argued before the Supreme Court, was the deference question.
The question posed to the Supreme Court was whether Customs had
undertaken sufficient rule-making in enacting the relevant regulations
so that judicial deference should be given to its interpretation, an
issue raised for the first time by this case. This type of deference is
known as Chevron deference (Chevron U.S.A. Inc. vs. Natural Resources
Defense Council, Inc., 467 U.S. 837 (1984),
Relying on the holding in Chevron, courts generally give the
regulations promulgated by an agency judicial deference, provided those
regulations are the result of proper rule-making and reasonable
interpret and implement an otherwise ambiguous statutory provision.
The Supreme Court in Haggar found that if Congress speaks directly
regarding a question, the court must give deference to Congress'
specific intent pursuant to Chevron. However, if an agency's statutory
interpretation fills a gap or defines a term, that interpretation is to
be given judicial deference, provided the Administrative Procedures Act
(5 U.S.C. Section 553) has been complied with.
In the case of the regulations in question, Customs had indeed
published them in proposed form, accepted comment, and then issued final
regulations. In those regulations, permapressing was specifically named
as a chemical treatment, which qualified the resulting garments as
having been manufactured, rather than assembled. As a result, the
Supreme Court remanded the case to the Federal Circuit for further
consideration, as the appellate court had only dealt with the question
of Chevron deference and rejected it. On remand, the Federal Circuit was
directed to consider whether the regulations themselves actually warrant
deference.
The question of Chevron deference was raised again by Customs in Mead
Corp. vs. United States, 1999 U.S. App. LEXIS 17831 ( Fed. Cir. July 28,
1999). Customs issued a ruling to Mead regarding the tariff provision
and rate that would apply to its day-planners. Mead took issue with
Customs' decision. By complying with the requisite procedures, Mead
was eventually able to bring the matter before the Court of
International Trade, which granted Customs' motion for summary
judgment affirming the original classification decision.
The Federal Circuit took note of the Haggar case and held that a
ruling by the Customs Service is an interpretation of a tariff
provision. It does not involve input from any party except the importer
to whom the ruling is issued. A ruling is issued only when requested by
an interested party. It involves no public debate prior to issuance
(although it is subject to public comment after the fact if an
appropriate petition to overturn the results is filed - a rare but not
unheard of event). A ruling is confined to the specific facts presented.
It does not clarify the law or the rights of an importer.
Conversely a regulation undergoes notice and comment and provides a
mechanism for input from the interested public. It may be amended or
changed later in response to subsequent public input. Therefore, the
appellate court found that rulings are not entitled to Chevron
deference. Customs has not yet decided whether it will appeal this
decision to the Supreme Court.
Many practitioners think the holding in Haggar will force them to
carefully monitor each regulation as it is proposed by Customs to ensure
it is a reasonable interpretation of congressional intent so as to
preserve the issue for trial. Many others think it does not mean that
each and every regulation is subject to challenge because it wrongly
interprets congressional intent. In the end, what both Haggar and Mead
do is provide practitioners with yet one more tool to use in challenging
Customs' decisions.
HMT UPDATE
10/99
Even after the finding that the harbor
maintenance tax (HMT) an unconstitutional tax on exports, a number of
outstanding issues remained. IBM is prosecuting a case questioning the
government's liability to pay interest and how it is to be calculated.
Stone Container deals with the question of the applicable statute of
limitations. Is it two years under the law's general provisions or is
the HMT void from inception?
Thomson and Amoco challenged the HMT on
imports. Thomson just argued the law's general two (2) year statutory
provision. Amoco made the same argument but raised it via a protest. In
both cases, the basic argument was the HMT on imports is not severable
and so, if invalid on exports, is equally invalid on imports. Further,
assessing the HMT solely on imports violates the Uniformity and Port
Preference Clauses of the Constitution.
The focus of the non-severability
argument is that Congress would not have enacted the HMT on imports
alone. An additional argument is that assessing the HMT on only imports
violates international treaty obligations. Also, the argument was made
that not all ports are water ports thereby excluding cargo loaded in 20
states. The tax is also not assessed on domestic movements. As a result,
because it is not geographically uniform, the HMT violates the
Uniformity and Port Preference Clauses.
As of late August/early September 1999,
Customs had refunded about $732 million to about 3,4000 exporters. Both
the Thomson and Amoco claims were recently dismissed. Thomson's on the
technical ground that no protest was first filed. In the Amoco case, the
court rejected all the arguments mentioned above. At the same time, the
European Union is threatening a WTO complaint about the continuing
imposition of the HMT strictly on imports.
Additionally, the Court of International
Trade has now decided the BMW case. BMW sought a finding the HMT was not
applicable to shipments entered into a foreign trade zone (FTZ). The CIT
found the HMT applied because there was no exception in the law. The
court also found the HMT is not a duty so the provisions of the FTZ law
did not bar its application.
HMF REPLACEMENT PROPOSED
8/98
The Clinton Administration finally rolled out its proposal to replace the
Harbor Maintenance Fee (HMF). (Challenge of the fee against imports is being
considered at the WTO.) The HMF was previously assessed against importers and
exporters based on the value of their goods. The fee against exporters was
overturned by the courts. The Harbor Services User Fee will be assessed against
carriers, who are expected to pass the cost on to their customers. It will be
calculated based on a ship's net tonnage with an adjustment for cargo space not
otherwise included. Bulk ships and tankers will be taxed per port of call, while
container and cruise ships will be taxed per voyage.
As announced, it appears container ships will be taxed at twice the rate for
tankers, five times the rate for dry bulk ships and seven times the rate for
cruise ships. Justification for the disparity is given as a response certain
ships operating across the largest number of ports with time-sensitive
movements. Assuming some form of this new tax is adopted, its validity remains
in doubt because the largest amount of money would be raised from West Coast
ports which have the least need for dredging. As a result, the new fee does not
closely match where the expenditures are being made. Will it withstand a court's
scrutiny?
HMF REFUND STATUS
7/98
The question of when exporters can expect their Harbor Maintenance Fee
(HMF)
refunds remains open. The government contends it should not be required to
calculate and pay any refunds until all the legal issues are decided. The
government also arbitrarily selected a handful of HMF claims in order to
determine whether its own records could be used to confirm those claims. It was
successful only 50% of the time. Therefore, it is expected the government's
proposed claim form will soon be approved for distribution to litigants.
The major issues under review are interest and whether there is a time bar to
claims' filing. The government contends interest is not due but lost before the
trial court. It also claims that a two year statute of limitations applies.
Exporters argue because the HMF is an illegal tax, it is void from its date of
enactment, so exporters should be able to obtain refunds regardless of when
their HMF was paid. The lower court has yet to rule about the statute of
limitations. Appeals are expected on both issues.
Another challenge to the HMF as applied to imports is being mounted on the
grounds it is illegal as 1) not severable from the import tax, 2) a violation of
the equal protection and port preference clause of the U.S. Constitution, and 3)
a violation of U.S. WTO obligations. In the meantime, Customs has announced it
will not accept HMF protests for domestic movements, commercial vessel
passengers and admission into foreign trade zones.
HMF FOUND UNCONSTITUTIONAL
4/98
In a decision amazing for its speed and its unanimity, the U.S.
Supreme Court has declared the harbor maintenance fee (HMF) an unconstitutional
tax on exports by a vote of 9 - 0 . As a result, any exporter who filed a claim
with the Court of International Trade (CIT) under the two year jurisdictional
statute can expect refunds - maybe!
The CIT has issued an order stating the government is to develop
a claim form. The refunds will be issued with interest. The claim form is to be
completed within thirty (30) days and the bulk of the refund claims are to be
processed within 18 months. The claims will be processed even if there are
issues on appeal regarding the statute of limitations, interest or any other
issue.
It is expected the claim form the government develops may also
be applied to those who have protests pending. When the claim form is finalized
and the requirements to prove a claim are issued, those details will be
published in the Customs Bulletin.
SUPREME COURT TO HEAR HMF CASE
11/97
The U.S. Supreme Court has agreed to hear the government's appeal
of the harbor maintenance tax case. A decision is expected by early next summer.
In the meantime, exporters should continue to pay the tax, seek refunds from
Customs and file court action. Up to now the courts have uniformly held any
exporter has two years from date of payment in which to file an action seeking
refund of all sums paid. However, until the decision is final (and it is not
yet), all options should be kept open by seeking refunds from Customs, too.
HMF REFUNDS
8/97
Depending on the source, Customs either has already filed or is
about to file a Notice of Appeal with the U.S. Supreme Court seeking a hearing
on the case involving the harbor maintenance fee (HMF) on exports. Exporters
have won before both lower courts which have held the HMF is an illegal tax on
exports. A similar case was filed regarding imports: Sarne Corp. vs. U.S.. It
was dismissed with a finding that Sarne could point to no specific harm caused
to it by the way in which the Harbor Maintenance Trust Fund is administered. It
is not clear whether the import case will be appealed. On the export side, it is
not clear the Supreme Court will agree to hear the case because it recently
decided U.S. vs. Int'l Business Machines Corp. and found a non-discriminatory
federal tax on exports to be unconstitutional.
HMF LOSES AGAIN
6/97
Late last week the appellate court issued its ruling confirming
the lower court decision that the harbor maintenance fee (HMF) is an
unconstitutional tax on exports. The court also found there is no discretion for
Customs to exercise, so exporters wishing to receive HMF refunds need not
protest first. All exporters need do is file complaints at the Court of
International Trade (CIT) within two (2) years of having made their
payments.
It is expected the government will appeal the decision, although
it is not clear whether the Supreme Court will agree to hear the case, having
recently ruled regarding unconstitutional taxes on exports in another matter. In
the meantime, exporters should continue to file both protests with Customs and
complaints at the CIT.
The HMF challenge to imports failed with the judge finding that
relief from the HMF on imports must come from Congress and not the
court.
HARBOR MAINTENANCE FEE UPDATE
It was originally thought that oral argument on the harbor
maintenance fee (hmf) case (U.S. Shoe) would take place before the end of 1996.
Now it seems likely the time frame is February 1997. Even once argued, it is
unclear how long the Court of Appeals for the Federal Circuit will take to reach
the decision whether or not it agrees with the lower court that the hmf on
exports is unconstitutional. Individual exporters should continue to file their
protests at time of payment while also seeking relief directly from the Court of
International Trade for these same payments.
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