High court will rule on harbor levy Appeals court calls channel maintenance tax unconstitutional

Assessing exports banned

Worth millions to city

U.S. argues charge is merely a user fee


November 01, 1997|By Lyle Denniston and Suzanne Wooton | Lyle Denniston and Suzanne Wooton,SUN STAFF

WASHINGTON -- The Supreme Court agreed yesterday to rule on the constitutionality of a federal harbor tax that has generated millions of dollars to pay for dredging shipping channels in Baltimore Harbor, the Chesapeake Bay and the C&D Canal.

Since Congress enacted it 11 years ago, the tax on cargo destined to leave U.S. ports has brought in nearly $700 million from exporters alone, and $3 billion overall from all port users, including importers. The money pays only for keeping open the waterways in harbors and their approaches, and cannot pay for construction on the docks.

A federal appeals court in Washington ruled in June that the tax is unconstitutional when assessed against exports. The Constitution flatly bans any export tax, the appeals court noted, and the 1986 levy operates as a tax on exporters. The appeals court rejected the federal government's argument that the tax is merely a user fee and constitutional.

More than 4,000 cases challenging the tax are pending in federal courts. The Supreme Court took on one of those cases, involving United States Shoe Corp.

The U.S. Army Corps of Engineers in Baltimore received more than $80 million over a recent three-year period to pay for channel dredging in the harbor, the bay and the C&D Canal. Baltimore has 126 miles of shipping channels, more than any other U.S. port.

The corps used the money to maintain existing depths of channels, not to widen or deepen them.

Many ports, including Baltimore, favor the tax and the fund it produces because they fear that dropping the tax would leave port maintenance costs to compete for general federal budget funds.

"The bottom line is the port industry feels we need funding for dredging, and we want to make sure it's a separate fund," said Tay Yoshitani, executive director of the Maryland Port Administration, which oversees six marine terminals in Baltimore. don't want to fight every year for general fund money. That would be a disaster."

The harbor maintenance tax applies to many kinds of users of U.S. ports; it was struck down only as it applies to exporters. The same tax rate -- .00125 percent of the value of cargo -- is paid by importers as well as exporters.

Some users are exempt from the tax: the federal government, the owners of ships moving in and out of those ports, shippers of fish and aquatic animals, and owners of most cargo shipped to Alaska, Hawaii or a U.S. possession. The tax is collected by the U.S. Customs Service, with the money then transferred to the Treasury for the harbor maintenance fund.

In nullifying the tax for exporters, the appeals court said: "The direct users [of ports] -- the ship owners -- do not contribute to the maintenance of the port, and it is only indirect users -- the export companies -- that are required to pay."

That court added: "The exporter is not the direct beneficiary and is not assured harbor maintenance at the harbor where the exporter's goods are located," because the tax revenue is paid into a national fund, rather than returned to the specific port where it was collected.

Thus, exporters must pay for harbor maintenance across the country, the appeals court noted, thus making it clear that the tax is designed solely to raise revenue, and not as a legitimate fee for use of ports.

The harbor tax has increasingly sparked criticism as the maintenance fund has built up a surplus.

Part of the dispute turns on the differing value of goods. At some ports, high-priced goods move in containers on ships that do not require deep waters and, thus, do not need extensive channel dredging. Because the tax is pegged to cargo value, shippers at such ports pay more than do shippers at ports where lower-value goods move on vessels requiring deeper depths and more dredging.

Critics also note that while the tax applies to cargo at northern U.S. ports, no similar tax is imposed at competing ports in Canada, putting the U.S. ports at a cost disadvantage.

A Supreme Court hearing on the tax's validity will be held in February, and a ruling is expected by summer.

Pub Date: 11/01/97

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