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Court of Appeals Affirms Harbor Maintenance Fee on Exports as Unconstitutional

June 24, 1997

On June 3, 1997, the Court of Appeals for the Federal Circuit affirmed a lower court decision that the Harbor Maintenance Fee on goods exported from this country is unconstitutional. This means that more than $700,000,000 collected since the fee was instituted in 1987 may be recoverable. The Harbor Maintenance Fee (HMF) was established by Congress under the Water Resources Development Act of 1986 as an ad valorem "user fee" assessed on goods being laden or unladen at U.S. ports. The fee was initially set at a rate of 0.04% (0.0004), effective April 1, 1987, and then increased to 0.125% (0.0125), effective January 1, 1991.

Although both amounts may be relatively small, the cumulative effect on frequent shippers can be significant. In 1994, the United States Shoe Corporation challenged the fee in the Court of International Trade (CIT). The basis of U.S. Shoe's suit was that the HMF was not really a "user fee" but a tax, and therefore illegal as applied to exports because the "Export Clause" of the United States Constitution prohibits all taxes on exports. The U.S. Shoe suit was soon followed by numerous similar suits by other exporters, all challenging the constitutionality of the fee. In accordance with its standard procedures for such situations, the CIT designated one case, United States Shoe v. The United States, as a "test case" for resolving the issues at hand and suspended action on all of the other cases.

The United States Customs Service defended the HMF by asserting that the CIT did not have jurisdiction; that even if it did, U.S. Shoe had not followed the mandatory Customs protest procedures before filing its suit; and that in any case the HMF was not a tax but a "user fee."

The CIT ruled in favor of U.S. Shoe on all issues, holding that it did have jurisdiction over the case, that there was no need for U.S. Shoe to first file protests of each fee payment before filing suit, that the HMF was an unconstitutional tax as applied to exports, and that Customs was to immediately cease collecting the fee on all exports and refund U.S. Shoe's payments, plus costs and interest.

Customs obtained a stay in the execution of the judgement and appealed the decision to the Court of Appeals for the Federal Circuit (CAFC), which has now affirmed the CIT decision in every respect, and once again ordered Customs to refund the fees paid by U.S. Shoe and stop collecting further fees on exports.

Customs has just responded by issuing a press release announcing that it would once more seek a stay of the judgment pending a decision by the Solicitor General as to whether to appeal the case to the Supreme Court. During the stay, Customs will continue to collect the fee and will not process or issue any refunds. Moreover, it is presently Customs' position that even the appeal is lost, Customs will only refund fees to exporters that have filed suits with the Court of International Trade, and only for the fees paid in the two years immediately preceding those suits.

At this point there is no way of knowing if Customs will appeal the decision, or if the Supreme Court will even hear the case. Moreover, one issue still unresolved by the courts at any level is the question of how far back Customs would be required to go in refunding fees. Unfortunately, U.S. Shoe was not an ideal "test case" for all the issues at hand, because U.S. Shoe sought refunds under a provision limiting its recovery to the fees paid in the two years immediately preceding its suit. Other exporters, whose cases have been pending the outcome of the "test case," have sought the return of all fees paid on export on the basis that their very collection was illegal. Despite the numerous briefs filed in both court actions arguing that position, neither the CIT nor the CAFC addressed the issue because the case before them did not require it. Consequently, it is highly probable that another "test case" will be designated in the future from those already filed to resolve that single issue.

The one thing that is certain at this point is that the best way for an exporter to protect its interests is to file a suit in the CIT. Moreover, because the statute of limitations issue remains unresolved, the sooner such a claim is filed, the greater the likelihood of recovering monies paid in years past.

Greenberg Traurig has attorneys admitted before the Court of International Trade and experienced in these matters, and would be pleased to respond to any questions or concerns your company may have with respect to the Harbor Maintenance Fee.

This GT ALERT is issued for informational purposes only and is not intended to be construed or used as general legal advice. Greenberg Traurig attorneys provide practical, result-oriented strategies and solutions tailored to meet our clients’ individual legal needs.