Amicus Curiae Brief — United States v. United States Shoe Corp.

QUESTION PRESENTED

Whether application of the Harbor Maintenance Tax

(26 U.S.C. §4461) to goods loaded for export at ports of the

United States violates the Export Clause of the United States

Constitution?

TABLE OF CONTENTS

Supplemental Statement of Statutory

Harbor Maintenance Trust Fund Unaudited Final

Income Statement (through 9/30/97) ........

TABLE OF AUTHORITIES

Cases Page

Alamo Rent-A-Car v. Sarasota-

Manatee Airport Auth.,

906 F.2d 516 (llth Cir. 1990) .............. 19

Diginet, Inc. V. Western Union ATS, Inc.,

958 F.2d 1388 (7th Cir.1992) .............4.. 13

Evansville-Vanderbaugh Airport Authority

Dist. v. Delta Airlines,

Ce ft ec 14,15,16

Fairbank v. United States,

EEE ee 14,17

Massachusetts v. United States,

4, 11,12,14,15,16,18,21

Moon v. Freeman,

379 F.2d 382 (9th Cir. 1967) ............... 13

National R. Passenger Corp. v.

City of New York,

695 F.Supp. 1570 (S.D.N.Y. 1988),

aff'd, 882 F.2d 710 (2d Cir. 1989)............ 21

United States v. City of Columbia,

914 F.2d 151 (8th Cir. 1990) ............... 11

- iii -

United States v. City of Huntington,

991 F.2d 71 (4th Cir. 1993),

cert. denied, 114 S.Ct. 1048 (1994) ........... 10

United States v. International Bus.

Mach. Corp., 517 U.S. 843,

Tf eC a ae eee 14,15,16

United States Shoes Corp., v. United States,

114 F.3d 1564 (Fed. Cir. 1997) ............. 12

United States v. Sperry Corp.,

Sy es SE co's sc 6k c OH. 18,19

United States Constitution Page

Commerce Clause, U.S. Const. Art. I,

By Gar ccacdsiccisn tee een. fieiete 15

Export Clause, U.S. Const. Art. I,

DU ceavteteaenanbaabencue 8,11,14,16,18

Statutes Page

DO Ue UD cc ek ocedeediivewae 9,11,18

SPE “edecdiaseamine 9,11,16,17,19,20

fF! =—5x ee ee ae ee 17

Water Resources Development Act of 1986

Pub. L. N. 99-662, (Nov 17, 1986)........... 9,20

Regulations Page

PEPE. BET wo cccclesdvcccctecdesds 9,11

Miscellaneous Page

Budget of the U.S. Government for

er Be « oS'S 6b 0 6 UC oc HS 'e' 10,12,13,14,21,22

Budget of the U.S. Government for

Pt. i. 66 Heine ebaebeeseseeeeees 14

Corps of Engineers Briefing Book and

Fact Sheets on the HMT and Fund at |

ere 20

Department of Treasury HMT Unaudited

Final Income Statement (through 9/30/97) 13, 21

Army Corps of Engineers Estimated Receipts

of Harbor Maintenance Fee from Cargo

Transporting Major Ports (1992) .......------ 20

H.R. Rep. No. 91-601, 91st Cong.,

"lA 11

H.R. Rep. No. 228, 99th Cong.,

ist Sess., (1985), reprinted in

EE EE nec cccceecececes 4

H.R. Rep. No. 251(1ID), 99th Cong.,

) « ee 14

-V-

S. Rep. No. 126, 99th Cong.,

2d Sess. (1986), reprinted in 1986

a ee ee ee 9,20

S. Conf. Rep. No. 228, 99th Cong.,

2d Sess., reprinted in 1986

Se ee ce go iccuiceee cn 9,10

Third Annual Rept. to Cong. on the HMT and

Fund for Fiscal Year 1994............. 13,17,18

3u the Supreme Court

of the United States

OCTOBER TERM, 1997

No. 97-372

UNITED STATES OF AMERICA, Petitioner,

v.

UNITED STATES SHOE CORPORATION, Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Federal Circuit

BRIEF OF AMICI CURIAE ALUMINUM

COMPANY OF AMERICA, ALCOA INTERNATIONAL,

S.A., ALCOA INTER-AMERICA, INC., ALCOA

MEMORY PRODUCTS, INC., H-C INDUSTRIES, INC.

AND THE STOLLE CORPORATION

IN SUPPORT OF RESPONDENT

SUPPLEMENTAL STATEMENT OF STATUTORY

PROVISIONS INVOLVED

The parties exclude several relevant sections of 26

U.S.C. §4462 from their statement of the constitutional and

(a)(4) Commercial vessel. -

(A) In general. - The term “commercial vessel”

means any vessel used -

a in transporting cargo by water for

compensation or hire, or

_ i) _ in transporting cargo by water in the

business of the owner, lessee, or operator of the

vessel.

***

(b) Special rules for Alaska, Hawaii, and

possessions. -

(1) Im general. - No tax shall be imposed under

section 4461(a) with respect to -

(A) cargo loaded on a vessel in a port in

the United States mainland for transportation to

Alaska, Hawaii, or any possession of the United

States for ultimate use or consumption in Alaska,

Hawaii, or any possession of the United States,

_(B) cargo loaded on a vessel in Alaska,

Hawaii, or any possession of the United States for

transportation to the United States mainland, Alaska,

Hawaii, or such a possession for ultimate use or

consumption in the United States mainland, Alaska,

Hawaii, or such a possession,

(C) the unloading of cargo described in

subparagraph (A) or (B) in Alaska, Hawaii, or any

-2-

possession of the United States, or in the United

States mainland, respectively, or

(D) cargo loaded on a vessel in Alaska,

Hawaii, or a possession of the United States and

unloaded in the State or possession in which loaded,

or passengers transported on United States flag

vessels operating solely within the State waters of

Alaska or Hawaii and adjacent international waters.

(2) Cargo does not include crude oil with

respect to Alaska.- For purposes of this subsection, the term

“cargo” does not include crude oil with respect to Alaska.

(3) United States mainlaad. - For purposes of

this subsection, the term “United States mainland” means the

continental United States (not including Alaska).

(c) Coordination of tax where transportation subject

to tax imposed by section 4042. - No tax shall be imposed

under this subchapter with respect to the loading or

unloading of any cargo on or from a vessel if any fuel of

such vessel has been (or will be) subject to the tax imposed

by section 4042 (relating to tax on fue! used in commercial

transportation on inland waterways).

(d) Nonapplicability of tax to certain cargo. -

(1) Im general. - Subject to paragraph (2), the tax

imposed by section 4461(a) shall not apply to bonded

commercial cargo entering the United States for

transportation and direct exportation to a foreign country.

(2) Imposition of charges. - Paragraph (1) shall

not apply to any cargo exported to Canada or Mexico -

ofie

(A) during the period -

(i) after the date on which the

Secretary determines that the Government of

Canada or Mexico (as the case may be) has

imposed a substantially equivalent tax, fee, or

charge on commercial vessels or commercial

cargo utilizing ports of such country, and

(ii) subject to subparagraph (B),

before the date on which the Secretary

determines that such tax, fee, charge has been

discontinued by such country, and

(B) with respect to a particular United

States port (or to any transaction or class of

transactions at any such port) to the extent that the

study made pursuant to section 1407(a) of the Water

Resources Development Act of 1986 (or a review

snes PURER CO ceutten SAUTE <f Guat Act) finds

A (ij) the imposition of the tax

imposed by this subchapter at such port (or to

any transaction or class of transactions at such

port) is not likely to divert a significant

amount of cargo from such port to a port in a

county contiguous to the United States, or that

any such diversion is not likely to result in

significant economic loss to such port, or

(ii) the nonapplicability of such tax

at such port (or to any transaction or class of

transactions at such port) is likely to result in

significant economic loss to any other United

States port.

(ec) | Exemption for the United States. - No tax shall be

imposed under this subchapter on the United States or any

agency or instrumentality thereof.

(f) Extension of provisions of law applicable to

customs duty.-

(1) Im general.-Except to the extent otherwise

provided in regulations, all administrative and enforcement

provisions of customs laws and regulations shall apply in

respect of the tax imposed by this subchapter (and in respect

of persons liable therefor) as if such tax were a customs

duty. For purposes of the preceding sentence, any penalty

expressed in terms of a relationship to the amount of the

duty shall be treated as not less than the amount which bears

a similar relationship to the value of the cargo.

** *

(g) Special rules. - Except as provided by regulations -

** *

(2) Exception for intraport movements.-

Under regulations, no tax shall be imposed under

section 4461(a) on the mere movement of cargo

within a port.

(3) Relay cargo. - Only 1 tax shall be

imposed under section 4461(a) on cargo (moving

under a single bill of lading) which is unloaded from

one vessel and loaded onto another vessel at any port

ae

in the United States for relay to or from any port in

Alaska, Hawaii, or any possession of the United

States. For purposes of this paragraph, the term

“cargo” does not include any item not treated as

cargo under subsection (b)(2).

(h) Exemption for humanitarian and

assistance cargos. - No tax shall be imposed under this

subchapter on any nonprofit organization or cooperative for

cargo which is owned or financed by such nonprofit

organization or cooperative and which is certified by the

United States Customs Service as intended for use in

humanitarian or development assistance overseas.

(i) Regulations. - The Secretary may prescribe such

additional regulations as may be necessary to carry out the

purposes of this subchapter including, but not limited to,

regulations -

(3) exempting any transaction or class of

transactions from such tax where the collection of

such tax is not administratively practical, and

ys @ providing for the remittance or

mitigation of penalties and the settlement or

compromise of claims.

INTEREST OF AMICI CURIAE

Amici curiae (“Amici”) file this brief with the consent

of all parties.’ Amici seek to apprise the Court of interests

other than those presented by the parties and to direct the

Court’s attention to the broader implications of the Court’s

ruling. For the period covering the fourth quarter of 1992

through and including the third quarter of 1996, Amici paid

in excess of $2.5 million in harbor maintenance taxes

(“HMT”) on exports. Amici seek to recover these payments

in several lawsuits filed in the Court of International Trade

(“CIT”). These cases have been stayed pending resolution

of this “test” case. Amici, along with several other

companies, filed amicus briefs with the CIT and with the

Court of Appeals for the Federal Circuit and participated in

oral argument before the CIT in this case.

Because the HMT imposes a burden on exports, the

imposition of the tax is a matter of serious concern to Amici.

Amici and related entities are significant exporters of

merchandise from the United States, having exported,

primarily by sea, in excess of $1.2 billion worth of goods

from the United States in 1996 and again in 1997. Because

it is imposed on exporters, the HMT burdens Amici’s

exportation of goods by ship into the stream of international

commerce and impairs the ability of Amici to transact

business and compete in international markets.

. Pursuant to Rule 37.6, Amici state that no

counsel for a party has authored this brief in whole or in

part, and that no person or entity, other than Amici, their

members, or their counsel, has made a monetary

contribution to the preparation or submission of this brief.

oF

SUMMARY OF ARGUMENT

Exports, and the access to ports that make exports

possible, are matters of national interest. They not only

benefit the ship owners and operators who transport

merchandise to other countries and the companies that export

merchandise overseas, but also a host of other parties,

including manufacturers, sub-suppliers, dock and stevedoring

providers, transporters who bring merchandise to ports,

logistics and communications companies that arrange foreign

shipments of merchandise and the cities and states

throughout the country that derive benefits from the jobs and

profits created by export transactions. It is no doubt in

recognition of these benefits to the general welfare that for

over two hundred years, the costs of port dredging were

funded out of general tax revenues.

By placing the burden of funding a core governmental

function such as port dredging on a limited class of indirect

beneficiaries of such activity, as the HMT does, the

Congress has unfairly and discriminatorily impeded the

ability to export free of restrictive taxes and duties that the

Export Clause was designed to prohibit. If this Court allows

Congress to succeed in this approach under the guise of the

faulty user fee rationale being argued by the United States,

it will open the door to the wholesale shifting of funding of

general welfare activities through unconstitutional taxation of

a limited class of indirect beneficiaries -- a result squarely

prohibited by the Export Clause.

Moreover, there is no broad user fee exception to the

Export Clause. Even if there was, the HMT is not a valid

user fee. It fails the user fee criteria developed by this

ey: . ter Constitutional provisi hic]

are less restrictive than the Export Clause by: (1) being

imposed in a discriminatory manner; (2) failing to offer

benefits to taxpayers commensurate with the amount of tax

paid; and (3) generating revenue far in excess of the cost of

any conceivable harbor maintenance project. Indeed, the

Government’s own federal budget does not include the HMT

in its listing of user fees.

ARGUMENT

1. The HMT is an Impermissible Tax

A. Background.

For almost two hundred years, the costs of

developing, operating and maintaining the Nation’s harbors

and ports were paid from general tax revenues. S. Conf.

Rep. No. 228, 99th Cong., 2d Sess. (1985), reprinted in

1986 U.S.C.C.A.N. 6705 at 6709. In 1986, Congress

enacted the Water Resources Development Act, Pub. L. 96-

662 (Nov. 17, 1986) (the “WDRA”), which included the

HMT -- at the time, a 0.04% tax on merchandise loaded at

any port. The rate was increased to 0.125% in 1991. 26

U.S.C. § 4461 et seq. The Senate Report described the

HMT as “a new fax to cover a portion of Federal spending

on harbor maintenance.” S. Rep. No. 126, 99th Cong., 2d

Sess. (1986), reprinted in 1986 U.S.C.C.A.N. 6639, 6644

(emphasis supplied).

Indeed, the HMT has all the hallmarks of a tax. It

funds a core government function which confers benefits

upon the public at large. It is imposed on exports on an ad

valorem basis, 26 U.S.C. §4461(b), contains penalties for

failure to pay, 19 C.F.R. §24.24(h) and 26 U.S.C. §

4462(f)(1), and serves a revenue raising purpose. The HMT

is simply not a user fee.

B. The HMT Confers Senefits on the Public at

Large Which Should be Funded from the

General Revenue.

The HMT is imposed in order to fund port dredging,

to ease vessel access into and out of United States ports.

See S. Conf. Rept. No. 228, 99th Cong., 2nd Sess.,

reprinted in 1986 U.S.C.C.A.N. 6705, 6714 (additional

views of S. Lautenberg). Yet, the HMT is not imposed on

ship owners and operators, the direct beneficiaries of the

port dredging activities, but rather on a limited class of

indirect beneficiaries - exporters. There are numerous other

indirect beneficiaries of port dredging, including

manufacturers, sub-suppliers, dock and

providers, transporters who bring merchandise to ports,

logistics communications companies who arrange foreign

shipments of merchandise and the cities and states

throughout the country that derive benefit from the jobs and

profits created by export transactions. Thus, port dredging

generates substantially wider benefits than traditional user fee

services which are more focused and narrow in benefit.”

Because port dredging provides general benefits and

be tax based. See United States v. City of Huntington, 991

F.2d 71, 74 (4th Cir. 1993), cert. denied, 114 S.Ct. 1048

(1994) (rejecting argument that fees charged for core

government functions, including fire and flood protection and

street maintenance, constituted user fees in less stringent

context of intergovernmental immunity from taxation). See

. See, e.g., Budget of the U.S. Gov’t for FY

1998, Analytical Perspectives, ch. 4, User Fees and Other

Collections at 61.

SB

also Massachusetts v. United States, 435 U.S. 444, 448 n.3

(1977), citing, H.R. Rep. No. 91-601, 91st Cong., 1st Sess.

at 3-4, 38 (1969) (noting that since the public at large

benefits from the existence and operation of the military, the

costs imposed on the national air system by the military

should be paid from the general revenues).

Accordingly, the HMT is a tax and thus violative of

the Constitution's Export Clause, Art. 1, sec. 9, cl. 5,

which broadly prohibits the imposition of a tax or duty on

articles exported from any state. If the Court reverses the

courts below and sustains the HMT under the faulty “user

fee” rationale advanced by petitioner, it will be a green light

to Congress that general benefit public welfare activities can

increasingly be funded by imposing the financial burdens on

a limited class of indirect beneficiaries. As to exports, this

result is flatly prohibited by the Export Clause.

C. The Nature and Operation of the HMT

Indicate it is a Tax.

The HMT has all of the attributes of a revenue raising

tax. The statute authorizing collection of the HMT, which

is codified in the Internal Revenue Code, repeatedly calls the

levy a tax. 26 U.S.C. §4461-62.

Failure to declare anu pay the HMT can subject an

exporter to penalties. See 19 C.F.R. 24.24(h); 26 U.S.C.

§4462(f)(1). While taxes are subject to penalties for failure

to pay, most user fees, on the other hand, do not result in

such penalties, but rather an inability to use the service being

provided by the Government. United States v. City of

Columbia, 914 F.2d 151, 155-56 (8th Cir. 1990) (noting that

ét<

failure to pay tax results in civil or criminal penalties while

failure to pay a user fee vesults in termination of services).

Like a traditional revenue raising tax or duty, the

HMT is imposed on an ad valorem basis.‘ Because of its

ad valorem nature, there is little or no connection between

benefits received by the taxpayer and the iM." paid. See

Massachusetts v. United States, 435 U.S. 444, 445 (1977)

(in imposing a tax to support the services the government

provides to the public at large, a legislature need not

consider the value of particular benefits to the taxpayer, but

may assess the tax solely on the basis of the taxpayers’

ability to pay).

. Typical examples of user fees include the fees

for admission to national parks, the sale of postage stamps

and electricity and premiums for deposit insurance. Budget

of the U.S. Gov't for FY 1998, Analytical Perspectives, ch.

4, User Fees and Other Collections at 61. Failure to pay a

user fee such as the admission fee for a national park simply

precludes the user from accessing the park - it does not

subject the user to penalties like the HMT.

7 The Government contends that by imposing

the HMT on an ad valorem basis, Congress correlated the

amount of the fee to the benefits received because shippers

of higher value cargo receive greater benefits in the form of

higher profits. Petitioner’s Brief at 28. However, as

recognized by the Court of Appeals, the profit margin on the

sale on goods is in no way a function of the value of the

goods; rather, it is a function of mark-up. See United States

Shoe Corp., v. United States, 114 F.3d 1564, 1574 (Fed.

Cir. 1997).

-12-

mt hance See ae

raising purpose. See, e.g., Diginet, Inc. v. Western Union

ATS, Inc., 958 F.2d 1388, 1399 (7th Cir. 1992) (a fee which

generates revenues which are used to offset unrelated costs

or confer unrelated benefits is a tax). The fact that the

current balance of the Harbor Maintenance Trust Fund so

greatly exceeds any actual, foreseeable or even conceivable

amount necessary for harbor dredging shows that the HMT

has a revenue raising purpose. See Moon v. Freeman, 379

F.2d 382, 392 (9th Cir. 1967) (accumulation of substantial

amounts of revenue is indication that levy is impermissible

burden on exports). The surplus in the Harbor Maintenance

Trust Fund is in excess of $1.1 billion. Department of

Treasury Unaudited, Final HMT Income Statement as of

September 30, 1997, attached hereto at pages 23-24.

Gov't for FY 1998, Analytical Perspectives, ch. 16, Federal

Programs by Agency and Account at 423. See also, Third

Annual Report to Congress on the Harbor Maintenance Trust

Fund for FY 1994 ("3d Report") at 5, J.A. a, ep Rather,

the budget projects HMT outlays to remain approximately

the same through FY 2002. Id. (projecting outlays as

follows: FY 1997 - $519 million; FY 1998 - $490 million;

FY 1999 - $468 million; FY2000 - $473 million; FY2001 -

$482 million; FY 2002 - $484 million). Budget of the U.S.

The revenue raising purpose of the HMT is equally

apparent through the manner in which the federal budget

treats the Harbor Maintenance Trust Fund. The Trust Fund

is an “on budget” fund; as such, its annual surpluses have

been a credit to the federal budget deficit. Budget of the

-13-

United States Government for FY 1997, Analytical

Perspectives, ch. 16, at 257 (noting that trust fund income

exceeds outgo and that surpluses offset the need for the

Government to borrow from the public to finance the Federal

funds deficit). See also Budget of the U.S. Gov't for FY

1998, Analytical Perspectives, ch. 17, Trust Funds and

Federal Funds at 294. From the onset, Congress was well

aware of the effect the HMT would have on the federal

deficit. “The increase in net budget receipts [from harbor

maintenance taxes} will reduce the potential Federal budget

deficit by a like amount...” See H.R. Rep. No. 251 pt. III,

99th Cong., Ist Sess. 19 (1985).

These factors point to the inescapable conclusion that

the HMT is a tax. Because the Export Clause broadly

prohibits the imposition of such a burden on goods in export

transit, see United States v. International Business Machines

Corp., 517 U.S. 843, _, 116 S.Ct. 1793, 1797, 1803

(1996), the HMT is unconstitutional as it applies to exports.

Ill. Even Under the Massachusetts Test, the HMT

Constitutes a Tax.

The Government contends there is a broad user fee

exception to the Export Clause. The unqualified language of

the Export Clause makes clear that all burdens on exports

are prohibited, even if they are not for the purpose of raising

revenue. See IBM, 517 U.S. 843, ___, 116 S.Ct. at 1802;

Fairbank v. United States, 181 U.S. 283, 292-93 (1901).

When user fees have withstood scrutiny by the

Court, the Constitutional provision in question was not the

Export Clause. See, e.g., Massachusetts v. United States,

435 U.S. 444 (1977) (examining levy in the context of state

tax immunity doctrine); Evansville-Vanderbaugh Airport

506~

Authority Dist. v. Delta Airlines, 405 U.S. 707 (1972)

(examining levy under implied constraints of commerce

clause). The Court has developed a three-part test in the

context of these other constitutional provisions to determine

whether a levy constitutes a tax or a user fee. Evansville,

405 U.S. 707, 716-717; Massachusetts, 435 U.S. 444, 466-

470. However, the test developed in these cases cannot just

simply be applied to cases arising under the Export Clause,

as there are meaningful textual differences between Export

and other Constitutional clauses. See JBM, 517 U.S. 843,

__, 116 S.Ct. at 1795.

Assuming, arguendo, that the Court were to look to

the Massachusetts and Evansville criteria for guidance, the

HMT does not qualify as a valid user fee. Under the

Massachusetts test, in order to constitute a user fee, a levy:

(1) must not be discriminatory; (2) must be based on a fair

approximation of use; and (3) must not be excessive in

relation to the cost of the government benefit conferred.

Massachusetts, 435 U.S. at 464. The HMT fails all three

prongs of this test.

A. The HMT Is Discriminatory.

First, to qualify as a user fee, an assessment must not

be imposed in a discriminatory manner. See Massachusetts,

435 U.S. at 460, 466-67 (a nondiscriminatory measure

defrays the cost of a federal program by recovering a fair

approximation of each beneficiary’s share of the cost). The

HMT is imposed in a discriminatory manner because it

discriminates against exports and not all who benefit from

harbor maintenance services pay the tax.

The HMT imposes an ad valorem tax on commercial

goods in export transit, but is not imposed on goods shipped

x

to certain domestic ports or any ports of possessions of the

United States. 26 U.S.C. §4462(a), (b). For example, the

exporter of a shipment of goods in export transit bound from

the Port of Los Angeles to Japan pays the HMT. However,

there is no HMT liability for the exact same shipment of

goods, in the very same vessel, making the exact same

amount of use of the Port of Los Angeles, if the goods are

bound for Hawaii, Alaska or any possession of the United

States. 26 U.S.C. §4462(b).

The HMT also exempts from its application goods

loaded on a vessel in certain domestic ports and ports of any

U.S. possession for transportation to any U.S. state or

possession (i.e., from a port in Alaska or Hawaii to Los

Angeles). 26 U.S.C. §4462(b). These and numerous other

Statutory exceptions establish that the HMT discriminates

against exports® -- unlike the situation in Massachusetts and

Evansville where the fees were nondiscriminatory. See

Massachusetts, 435 U.S. at 467 (registration tax did not

discriminate against state functions since it applied not only

to private users of airways, but to civil aircraft operated by

the United States); Evansville, 405 U.S. at 717 (use and

service fee did not discriminate against interstate commerce

where both interstate and intrastate flights were subject to

same charge).

These exceptions also establish that the HMT

impedes international commerce. The Export Clause

“specifically prohibits Congress from regulating international

commerce through export taxes.” See IBM, 517 U.S. 843,

__, 116 S.Ct. at 1802. With respect to Amici, the HMT

does just that. Because it is imposed on exporters, the HMT

burdens Amici’s exportation of goods into the stream of

- 16-

In Fairbank v. United States, 181 U.S. 283 (1901),

the Supreme Court struck down a ten cent tax on bills of

lading which accompanied any exported goods. Bills of

lading for domestic goods were only taxed at the rate of one

cent. The Supreme Court observed “a discrimination is

made between the tax upon an ordinary internal bill of lading

and that upon one having respect solely to matters of

export.” Fairbank, 151 U.S. at 290. The HMT also makes

an unconstitutional discrimination between port uses for

goods in export transit and identical port uses for goods

bound for domestic destinations.

Other exemptions also reveal that the HMT is

discriminatorily imposed. While most goods in export

transit are burdened by the HMT, port uses by the United

States or any agency or instrumentality thereof are not. 26

U.S.C. §4462(e). Likewise, there is an exemption for crude

oil with respect to Alaska, 26 U.S.C. § 4462(b)(2), for

humanitarian and development assistance cargo, 26 U.S.C.

§ 4462(h), and for exports bound to Canada and Mexico

under certain circumstances, 26 U.S.C. § 4462(d)(2).

“commercial navigation” projects by the Army Corps 0

Engineers. 33 U.S.C. § 2238. According to the 3d Report,

“[mJany projects with ‘commercial navigation’ as a project

purpose have other authorized purposes as well. Such

~~ purposes include recreation, hydropower, flood control,

water supply and the like.” 3d Report at 2,J.A. 91, _

The National Oceanic and Atmospheric Administration is

-17-

also allocated $45.5 million for projects with a variety of

purposes, including the creation of navigation charts, marine

weather forecasting and similar services. 3d Report at 1,

TA. CE, _

Consequently, the HMT is discriminatorily imposed,

particularly against exports. On this basis alone, the HMT

fails the Massachusetts test and amounts to an

unconstitutional tax on exports.

B. There is No Relationship Between the

Charge and the Benefits Conferred.

In examining a levy in the context of other

Constitutional clauses, this Court has held that while a user

fee need not be “precisely calibrated” to match the benefit

conferred, a “user fee [must] be a ‘fair approximation of the

cost of the benefits supplied.’” United States v. Sperry

Corp., 493 U.S. 52, 60 (1989), quoting Massachusetts v.

United States, 435 U.S. at 463 n.19. Since this case arises

in the context of the Export Clause, if a user fee type

analysis is adopted, the Court should, at least, require HMT

charges to be “closely calibrated” to match the value of port

use. They are not.

It is impossible to conclude that the HMT bears a

direct relationship, much less a reasonable or fair one to the

benefits exporters derive from port use. First, the amount

of the tax is, in most cases, irreconcilable with any benefit

received from the port use because the tax is calculated on

an ad valorem basis. 26 U.S.C. §4461(b). A vessel

requiring little underwater clearance with a cargo of precious

diamonds receives no benefit from harbor dredging, yet it

bears a disproportionately high share of HMT. On the other

hand, deep draft vessels carrying low value, bulk cargo

- 18 -

value shipper is greater. The HMT does not

specific, relevant factors (such as amount of time in

the harbor, depth of draft of the vessel, depth of the harbor)

in the face of constitutional challenges, see, e.g., Alamo

Rent-A-Car v. Sarasota-Manatee Airport Auth., 906 F.2d 516

(11th Cir. 1990), United States v. Sperry Corp., 493 U.S. 52

(1989), those cases did not involve constitutional challenges

operators, do not pay -- those who export goods into the

stream of international commerce do. See also Alamo, 906

F.2d at 520 (where fee was imposed on the direct

beneficiary of the use of the airport and the challenge was

under the Commerce Clause).

Second, many who clearly benefit from the HMT pay

no tax at all. A vessel requiring deep draft clearance

entering a port for repairs, crew change, re-fueling, or to

avoid a storm, may derive benefits from port use, yet by

refraining from loading or unloading, it pays no tax at all.

The same is true for military and other exempted vessels.

See 26 U.S.C. $4462. Additionally, a cargo vessel that

unloads and departs from a port pays no export HMT

notwithstanding its burden on port resources. 26 U.S.C.

$4462.

-19-

The HMT most directly benefits vessel owners and

operators, yet they have no HMT liability. S. Rep. No.

126, 99th Cong., 2d Sess. 7 (1986), reprinted in 1986

U.S.C.C.A.N. 6639, 6647 (“The tax in title 8 is not on the

harbor, nor is it on the vessel’s operator or owner.”). In

fact, in its report on the Water Resources Development Act

of 1986, Pub. L. No. 99-662 (Nov. 17, 1986), the Senate

Committee on Environment and Public Works noted:

“[t}hese fees and taxes offset services rendered to vessels.”

S. Rep. No. 126, 99th Cong., 2d Sess. 7 (1986), reprinted

in 1986 U.S.C.C.A.N. 6639, 6644.

Third, there is also no correlation between the amount

of money spent on a port’s maintenance and the amount of

revenue collected from that particular port. The majority of

HMT revenues are paid by exporters in major U.S. ports,

yet monies dispersed from the Harbor Maintenance Trust

Fund benefit other ports more.‘ Indeed, the United States

conceded that “[t]here is no relationship between the amount

of money spent on a port’s maintenance and the amount of

revenue collected from cargo moving in or out of that

particular port.” Corps of Engineers Briefing Book and Fact

Sheets on the HMT and Fund at 1 (Feb. 14, 1990), J.A. 75,

Because the HMT fails to offer benefits to taxpayers

correlative with the amount of tax they pay, the HMT fails

. See, e.g., Army Corps of Engineers Estimated

Receipts of Harbor Maintenance Fee from Cargo

Transporting Major Ports (1992)(draft), J.A. 85, _, (noting

that, of $78,711,000 estimated 1992 taxes on exports and

imports from the Port of Los Angeles, only $162,000 was

returned in port operation expenditures).

- 20 -

the second prong of the Massachusetts test. On this basis

alone, the HMT constitutes an unconstitutional tax.

surplus in the Harbor Maintenance Trust Fund is currently

in excess of $1.1 billion. Department of Treasury

Unaudited, Final HMT Income Statement as of Sept. 30,

SAIL Gn. wh; Salied Eigen ty Agua ent

Account at 423.

« -

IV. The Federal Budget’s Own Treatment of the HMT

Shows it is not a User Fee

Indeed, and perhaps most importantly in light of the

Government’s arguments here, the federal budget does not

even treat the HMT as a user fee. See Budget of the U.S.

for FY 1998, Analytical Perspectives, User Fees and Other

Collections, ch. 4 at 61-66. The Federal Government

characterizes user fee income as “income from its various

business-type activities.” Jd. at 61. The Government’s

listing of user fee income includes such items as the sale of

postage stamps and electricity, premiums for deposit

insurance and rents and royalties for the right to extract oil

from the Outer Continental Shelf, but not the HMT. /d. at

61. | Unlike these business-type activities in which the

Government engages -- in competition with private providers

-- maintaining the Nation’s harbors is a core government

function. Consequently, under the Government’s own

definition, the HMT fails to qualify as a user fee.

CONCLUSION

Because the harbor maintenance tax is an

unconstitutional burden on exports, the decision of the Court

of Appeals for the Federal Circuit, United States Shoe v.

United States, 114 F.3d 1564 (1996), should be affirmed.

Respectfully submitted,

Melvin S. Schwechter

John C. Cleary

Julie A. Coletti

January 15, 1998

-22-

Page ~ cf 2

Year-To-Date

434,037,527.73

214,017. 353.39

734, 533,629.67

§3,.632.430.67

Currest Mosth

Revenue

Tuports 38,632,472.43 $

} D4 fuports . 20, $63,620.09

Tax on Dowestice Oe ae oe

a cs Sescign Teede 6, 644.337.

Total RAevenus ’ 72,002,966. S

Invesetnest Incose

Interese Imvestaents $ 480,029.27 $

Accrued tasewest Too 4,811, 203.07 Ma

Tocal lgvestment lacome 5 $,292.030,.94 3 §&

Teta) Other iacoms 5 76,094,978.63 $

wet Receipes 6 78,094,978 .63 6

Operating Be - Mies. Returns $ o.ce §&

TRANGVERS

eueoc s (3,.422,29¢.00) &

= Corps of (74,130,021.66)

ft — AA — aa 9.00

te Custeas ee

Totsl Out lsys/transfers $ 7%,982,337.68 §

MET INCRRASE/ (DBCREASE) ] 2,542,660.98 §

-23-

790 , 669, 619.06

790, 669,639.06

(26.26)

(20,322,296 .00)

(835. 966, 960.00)

341, 167,369.33

Mc BAL] Mee 8/20/98

Gmamortised Discount

vec Investments

TOTAL ASSETS

FINAL

Rarbor maincensnce Page > 2t 2

Tewec Fund ™

20806)

he ef 09/30/97

2,723.33

s 2.723.332

| 1.167.296, 000.00

(85, 052,226.56)

* 2.342. 236. 773.44

ed

$ 2, 122, 242, 486.76

oe

$ 072, 074, 099.45

343. 167,389.33

eee Se SSS OSE HO CT Cee ee

-24-