September 1998 Issue

U.S. SHOE GIVES THE BOOT TO EXPORT AD VALOREM USER FEES

By Roy Whitehead, Jr., JD, LLM, associate professor, University of Central Arkansas

Courts continue to carefully examine government-imposed user fees to determine if they are a disguised tax. For example, the Harbor Maintenance Tax (HMT) imposed a 0.125% user fee, at the time of loading, on the value of the cargo shipped out of U.S. ports. The fee was deposited in the Harbor Trust Fund to pay for harbor maintenance and development projects. The Export Clause of the Constitution states, "No tax or duty shall be laid on articles exported from any state" (Article I, section 9). The clause does not rule out a user fee provided the fee lacks the attributes of a tax or duty and is, instead, a charge designed as compensation for government provided services, facilities, or benefits (Pace v. Burgess, 92 U.S. 372).

U.S. Shoe Corporation challenged the Harbor Maintenance Tax as unconstitutional under the Export Clause. In United States v. U.S. Shoe Corporation, No. 97-372 (March 31, 1998), the Supreme Court said that the guiding precedence for determining what constitutes a bona fide user fee in Export Clause cases is that the fee "is in no sense a duty on exportation," but rather "compensation given for services [in fact] rendered." The court said that the connection between the fee the government charges and the services rendered must be closely related. The court decided that the 0.125% ad valorem fee based solely on the value of the cargo "does not correlate reliably with the Federal harbor services used or usable by the exporter." The court noted that the extent and manner of port use depends on other facts like the size and tonnage of the vessel, the length of time it spends in port, and the services it requires.

The court ruled that in order to "guard against the imposition of a tax under the pretext of fixing a fee," and because the charged fee bore no proportion to the value of the harbor services rendered, HMT had violated the Export Clause. The court cautioned that the holding does not mean that exporters are exempt from user fees fairly designed to defray costs of harbor services and development. It does mean, however, that the fees must fairly match the exporters' use of port services and facilities. As a result, Congress must revisit the Harbor Maintenance Tax, 26 U.S.C., section 4461(a), and set a fee based on the value of services rendered to the exporter. *

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