Exporters due harbor maintenance tax refunds.

• Author: Rousso, Ada

Enacted in the Water Resources Development Act of 1986 (effective April 1, 1987), Sec. 4461 has imposed a tax on the value of commercial cargo (including passenger transportation) connected with any port use of Federally maintained navigable waters. This harbor maintenance tax (HMT) rate was originally set at 0.04% of the value of the cargo or passenger transportation charges. Effective Jan. 1, 1991, the rate was increased to 0.125%. Shippers, importers and exporters are liable for the tax. The U.S. Customs Service, rather than the IRS, collects the revenue.

Congress enacted the HMT out of concern that U.S. port development was lagging behind other nations and contributing to the U.S. trade imbalance. Congress saw the fee as a way to finance port development without drawing on Federal government general funds. As applied to exporters, however, the tax has run afoul of the Export Clause of the U.S. Constitution, which provides that: "No Tax or Duty shall be laid on Articles exported from any State."

Litigation Reaches Supreme Court

As a test case, the Court of International Trade selected a suit by United States Shoe Corporation, seeking a refund of HMT paid during the third quarter of 1994, from 2,400 similar suits that challenged the HMT's constitutionality as it applied to exports. The issue centered on whether the HMT, in essence, constitutes a fee for use of a Federally maintained navigable waterway port, or a tax levied on a percentage of the value of goods loaded or unloaded at a port. The lower court had agreed with the taxpayer that the HMT was not a fee for use, but an export tax; accordingly, the court granted summary judgment to the corporation. The court also enjoined Customs from collecting the tax; however, a motion to stay the decision pending appeal was granted.

On appeal, the Federal Circuit affirmed the lower court's decision. Reasoning that a user fee would be levied on the direct user of the harbor, and not on the exporter, the court pointed out that the HMT was based solely on the value of the cargo loaded for export and bore no reasonable relationship to the cost or the use of port facilities; therefore, the court held that the HMT cannot be viewed as a fair approximation of use. In addition, the court noted that the statute refers to the HMT as a tax, it is in the tax code and the Sec. 4461 exemptions indicate that the HMT is a tax.

In its petition to the Supreme Court, the Service argued that the appellate decision...