U.S. HARBOR MAINTENANCE TAX ON EXPORTS IS RULED UNCONSTITUTIONAL
By:
Eduardo Cukier
New York
In United States Shoe Corp. v. United States, (Ct. Int'l Trade Oct. 25, 1995), the United States Court of International Trade (the "Court") held that the U.S. Harbor Maintenance Tax, 26 U.S.C. 4461-62 (the "HMT"), when imposed upon merchandise exported from the United States, violates the Export Clause of the U.S. Constitution. The Export Clause provides that "[n]o Tax or Duty shall be laid on Articles exported from the United States." U.S. Const. art. I, 9, cl. 5.
Congress established the HMT as part of the Water Resources Development Act of 1986 (the "Act"). The Act imposes an ad valorem tax on any port use of federally maintained navigable waterways. For these purposes, port use constitutes the loading or unloading of commercial cargo on or from a commercial vessel at a port. The HMT is applied to imports and exports, domestic shipments and to passengers. Presently, the amount of the HMT imposed is 0.125% of the value of the commercial cargo involved.
United States Shoe may yield important benefits to most exporters. The facts of the case are basic. United States Shoe Corp. paid the HMT on articles exported during the period April 1 through June 30, 1994, and timely sued for a refund, claiming that imposition of the HMT violated the Export Clause. The United States argued that the HMT is not a tax but a valid user fee imposed within Congress's constitutional authority to regulate foreign and interstate commerce. The United States further claimed that the Export Clause cannot circumscribe Congress's plenary power to regulate interstate commerce. The Court disagreed, reasoning that even if the HMT were a user fee imposed under the commerce power, it is still subject to the restrictions of the Export Clause if it, in effect, serves as a tax or duty. The Court's rationale was that the Export Clause is to be interpreted broadly.
In determining whether the HMT is in effect, a tax on exports, the Court noted that the Constitution would not necessarily prohibit the HMT if the primary purpose of the Act as a whole is regulatory and revenue is obtained incidentally to that regulation. However, the Court also noted that for the HMT to withstand a constitutional challenge under the Export Clause, it must defray the costs of services rendered pursuant to the regulation of commerce and must not be excessive.
The Court concluded that the primary purpose of the Act is not regulatory and that, as a result, the HMT is a tax. It found that its primary purpose was not to control the amount or manner of port use, or to influence commercial practices or enforce compliance with a legislative goal, but to fund extensive maintenance projects. Thus, the Court concluded that Congress intended to use the HMT as a tax to pay the cost of developing, operating and maintaining port projects.
In so finding, the Court reasoned that the HMT violates the Export Clause because it lacks sufficient nexus to the port services rendered and because it is excessive. In reaching that conclusion, the Court noted that the exaction of the HMT is tied to the value of the cargo with no mechanism to ensure that the fees collected will be used only, or even primarily, for the cost of port maintenance associated with the shipping that is taxed. It also noted that application of the HMT has produced a substantial surplus in excess of costs incurred. The Court thus ruled that the HMT, as applied to exports, is a tax prohibited by the Export Clause because it is not a user fee imposed pursuant to the regulation of commerce.
The Court determined that it had jurisdiction to decide the case even though U.S. Shoe did not first obtain a protestable decision from U.S. Customs, i.e., a decision on the matter by U.S. Customs that would be appealed to the Court. Under the Court's ruling, a claimant may bring suit directly to the Court on these constitutional grounds within two years after the cause of action first accrues. The decision in U.S. Shoe may be appealed to the Court of Appeals for the Federal District.
