Harbor tax's merits argued High court justices appear critical of levy aiding U.S. ports

Legal affairs

March 05, 1998|By Lyle Denniston | Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- A federal tax that has raised billions of dollars to maintain the nation's ports and shipping lanes appeared yesterday to be in serious trouble in the Supreme Court.

At a hearing on the tax's constitutionality, most of the justices who spoke up were sharply critical of the 12-year-old Harbor Maintenance Tax, which has produced revenue for dredging and other work in the port of Baltimore, the C&D Canal and shipping lanes in the Chesapeake Bay.

The tax is set at 0.125 percent of the value of cargo loaded or unloaded from a commercial vessel in any U.S. port. It applies to both goods being loaded for export and imported goods unloaded in port.

The Constitution bans taxes on exports, and thus the tax has been challenged by an array of exporters as unconstitutional. A federal appeals court struck down the tax, but only so far as it applies to exports. The Clinton administration asked the Supreme Court to revive it.

Though labeled a tax by Congress, the measure, the administration contends, is actually a user fee for shippers, paid in return for the benefits of harbor maintenance. If considered a user fee, there would probably be no doubt it was constitutional.

But several justices noted that there is no relationship between the benefits ships receive from port maintenance and the tax paid on the cargo they export.

The tax, they noted, is based not on harbor visits or ship requirements -- such as the depth of water needed -- but on the value of goods loaded for export.

"You're talking about user fees and the harbors," Justice Sandra Day O'Connor told an administration lawyer, Deputy Solicitor General Lawrence G. Wallace. "That would seem to depend on how big the ships were, how deep the harbor had to be. But the tax bears no relation to that."

O'Connor suggested that "a little package of computer chips" that took up little space on a ship would trigger "a huge tax" because of the chips' high value, while a large quantity of wheat would pay "substantially less. That is an odd sort of a user fee."

If the tax were levied on ship owners as a charge for using the docks, "you'd have a good argument," she told Wallace. "But the nature of it makes it hard to see it as a user fee."

Justice Stephen G. Breyer also questioned the user-fee claim, saying that the same theory might mean that the federal income tax "is a user fee for using the country's facilities."

Wallace tried to fend off the justices' challenges by saying the tax was the result of five years of searching by Congress for a way to maintain the competitiveness of U.S. ports while avoiding the risk of retaliation from America's global trading partners.

But Chief Justice William H. Rehnquist said it would not make any difference if "20 wizards sat down and worked out the best possible solution" to U.S. trade competition problems, if the solution they chose was an unconstitutional tax.

Justice John Paul Stevens said that for particularly valuable export goods, the "tax is really excessive in terms of the benefit that gets used."

The justices were far less aggressive in questioning James R. Atwood, an attorney for one of the challengers of the tax, U.S. Shoe Corp. Atwood argued that the tax was set so high that the government could stop charging it against exports, and the tax would still raise enough money to maintain harbors and shipping lanes. The tax has brought in $3 billion and has created a surplus in the maintenance fund.

The case is likely to be decided by early summer.

Pub Date: 3/05/98

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