CONFUSED ABOUT THE SUPREME COURT'S HARBOR TAX RULING? HERE ARE ANSWERS

CONFUSED ABOUT THE SUPREME COURT'S HARBOR TAX RULING? HERE ARE ANSWERS

On March 31, a unanimous U.S. Supreme Court ruled that the Harbor Maintenance Tax on waterborne exports is unconstitutional. As a result of this decision, exporters who have paid the tax and who have filed lawsuits in the U.S. Court of International Trade seeking refunds on constitutional grounds stand to recover hundreds of millions of dollars in HMT refunds and interest.

Delighted exporters across the country are asking all sorts of questions, such as: ''What must I do to get a refund?'' and ''How soon can I expect to see my money?''

This column tries to answer these and other questions that have arisen as a result of the Supreme Court ruling.

Q. Should I file HMT returns for the first quarter of 1998?

A. No. The Supreme Court's decision triggered a 1995 Court of International Trade order enjoining the Customs Service from collecting any more export HMTs. This injunction had been ''stayed'' pending a final decision on the constitutionality of the tax.

The time for seeking a rehearing of the Supreme Court's decision (which was not going to happen) expired before the May 1, 1998, due date for first-quarter 1998 export HMT returns.

Q. Must an exporter start a Court of International Trade lawsuit to obtain an export HMT refund?

A. Yes. The Supreme Court indicated that the mere payment of the export HMT, or Customs' acceptance thereof, is not a protestable ''decision of the Customs Service.''

COURT SAYS EXPORTERS

SHOULD FILE LAWSUIT

Rather, the court said, exporters should bring a lawsuit before the CIT, invoking that court's ''residual'' jurisdiction in order to seek refunds of the tax.

At present, there is no indication that Customs will approve any administrative claims for export HMT refunds currently pending before the agency.

The court's decision could pose problems for exporters who followed Customs' advice in Treasury Decision 94-91 to file administrative protests against payments of the HMT, if those exporters did not also file a CIT lawsuit.

ACTIONS MUST BE TAKEN

WITHIN TWO YEARS

Q. When must an HMT lawsuit be filed?

A. This is a key question that will largely determine the amount of export HMTs that will be refunded.

By law, actions brought under the CIT's residual jurisdiction must be commenced within two years after the plaintiff's cause of action ''accrues.''

However, the courts have not indicated when an exporter's claim for a refund of HMTs accrues.

It could be the date the exports are made, the date payment was made (a more likely possibility), the day payment was due or some other date altogether.

This crucial statute-of-limitations question was not an issue in the United States Shoe ''lead'' case regarding the constitutionality of the export HMT. There may be future proceedings before the CIT, in another lawsuit, to resolve the issue.

Another question to be resolved is whether exporters' time to file HMT refund lawsuits was ''tolled'' (extended) during the approximately 18 months that an unsuccessful motion to designate a class action was pending before the CIT.

It seems likely that exporters will have little difficulty recovering HMT refunds in cases where their lawsuits were filed within two years of the exportation of goods. There may be additional issues, however, if the lawsuit was filed more than two years after taxes were paid.

Q. Will exporters receive interest on their HMT refunds?

A. Yes, says the CIT. In the United States Shoe case, the CIT issued an opinion suggesting that exporters would receive interest on their HMT judgements, pursuant to 26 U.S.C. Section 2411, running from the date the taxes were paid until the date a refund is authorized.

INTEREST PAYMENTS

OPPOSED BY GOVERNMENT

However, it should be noted that the government strongly opposed the payment of any interest, and that the CIT's decision on the matter was issued after the United States Shoe case was appealed. The government may therefore want to seek further judicial review of the ''interest'' issue.

Q. What will be the mechanism for seeking HMT refunds in court?

A. Final procedures have not yet been worked out, but CIT Judge Jane A. Restani apparently hopes that non-controversial refund claims can be settled by means of a ''claim form'' procedure. On April 6 she gave the government 30 days to propose a standard ''claims form'' for HMT refunds, and to specify the proof of HMT payment that exporters should provide in order to secure refunds.

The government's proposals, together with the judge's own proposals and comments, will be published in an upcoming issue of the Customs Bulletin, and public comments will be solicited. The CIT will also hold a hearing to receive comments from parties that participated in HMT litigation and other interested parties.

The court also anticipates that older or controversial HMT refund claims can be ''severed'' from the claims settled using the ''claim form'' procedure.

Finally, the court may appoint a steering committee for counsel to assist it in supervising the claims form procedure.

The court has indicated its intent that the bulk of claims be resolved within 18 months after initiation of the claims procedure.

Q: Is there any hope of recovering older HMT payments?

A. All lawsuits commenced under the CIT's ''residual'' jurisdiction will be subject to the two-year statute of limitations. However, the period is ultimately defined by the court.

Some exporters contend there is a ''protest'' procedure that can be used to get around this statute of limitations. This theory of jurisdiction did not gain favor with the CIT in the United States Shoe case.

However, the facts of that case did not provide a good basis for finally resolving the issue.

EXPORTERS COULD TAKE

ANOTHER SHOT AT THEORY

Exporters likely may take one more shot at pursuing this alternate jurisdiction theory, perhaps in cases involving exporters who paid HMTs late.

Q. What about the HMT on imports, passenger carriage and inland waterway cargo movement?

A. The decision striking down the export HMT does not automatically invalidate the HMT as imposed on imports, passenger carriage or inland waterway cargo movements.

In its 1997 Carnival Cruise Lines decision, the CIT ruled that the provisions of the HMT statute were ''severable,'' so that a decision striking down the export HMT did not automatically invalidate other export HMT charges.

However, the Supreme Court's rejection of the export HMT probably spells doom for the import HMT since, under World Trade Organization rules, a fee - in this case held by the courts to be a ''tax '' - that is imposed on imports but not on exports unfairly discriminates against import trade.

The European Union has already filed a WTO complaint against the import HMT and is virtually certain to prevail if the complaint moves forward.

Look for Congress to scrap the current ad valorem import HMT as soon as it can develop some alternate formula for funding port maintenance.