Court ruling on HMT may mean a tax refund

Published: April 01, 1996, By MacArthur, Malcolm D.

In a decision that may result in monetary refunds to thousands of American businesses, including some converters, the US Court of International Trade recently struck down the Harbor Maintenance Tax (HMT) as unconstitutional to the extent it is applied to waterborne exports. As a result, companies that have exported any product by water in the last two years may be eligible to recover significant amounts of the previously paid federal HMT.

Since 1991 all exporters using US harbors have been paying a quarterly HMT to the US Customs Service of 0.125% of the value of water-borne cargo. To many companies, the HMT represents a significant cost of doing business.

Although the Dept. of Justice is expected to appeal the decision to the Court of Appeals for the Federal Circuit, and perhaps to the Supreme Court, there is a reasonable likelihood that the finding of unconstitutionality will be affirmed.

The holding on the HMT's unconstitutionality is found in the case of U.S. Shoe Corp. v United States, the "lead case" for approximately 125 other similar cases that have been filed. Because the fee applies directly to the value of the cargo being exported and is paid by the owner of the cargo, not the operator of the ship actually using the port, the Court of International Trade considered the fee to be a tax for purposes of raising revenue. As such, the court pronounced the tax in violation of the constitutional prohibition against any "tax or duty...laid on articles exported from any state" set forth in Article I, Section 9, clause 5. The court found no merit in any of the government's arguments that attempted to defend the tax.

The court also held that an exporter or shipper need not first protest the tax with the Customs Service before filing a complaint for refund with the court.

The statute of limitations for an exporter to file a complaint for the recovery of fees is two years. Once a complaint is filed, the case will be stayed pending final disposition of the lead U.S. Shoe case. But, in filing a complaint, any claim for a refund will have been preserved.

The Customs Service will not process or grant any claims for a refund of the HMT on constitutional grounds until after all appeals (including potential review by the Supreme Court) are resolved. We expect, however, that these appeals would move through the court system rather quickly.

The decision is a major victory for exporters. We believe that it will be affirmed on appeal and that the basis for jurisdiction over refund claims will be clarified by the federal circuit.

In another decision of interest to converters, a US District Court recently ruled that supervisors who exercise sufficient control over an employee's taking of medical leave may be held individually liable for violations of the Family and Medical Leave Act.

In the case, the plaintiff employee was suspended and then fired for not providing her employer sufficient information concerning her absence from work to take care of her sick children. She sued not only the company but also the managers in her supervisory chain of command for violation of the Family and Medical Leave Act.

Courts generally have held that individuals cannot be personally liable under Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, and the Americans With Disabilities Act. These statutes, the court noted, "define an employer engaged in an industry affecting commerce who employs a certain number of people and any agent of such person."

In contrast, the Family and Medical Leave Act extends employer status to "any person who acts, directly or indirectly, in the interests of an employer to any of the employees of such employer."

Because the Family and Medical Leave Act tracks the definition used in the Fair Labor Standards Act, the court said that statute must guide its decision. The Fair Labor Standards Act case law indicates that even if an individual supervisor does not exercise exclusive control over day-to-day affairs of the employer, he is personally liable under the Act if he possesses control over the aspect of employment alleged to have been violated. In similar fashion, the court said, "The Family and Medical Leave Act extends to all those who control, in whole or in part" the employee's ability to take a leave of absence and return to her position."

Malcolm D. MacArthur is legal counsel to the Flexible Packaging Association, other trade groups, and corporations.