In a 2-1 decision revolving around careful documentation, record retention, and e-commerce systems, an appellate court upheld the U.S. Court of International Trade’s denial of a claim by Ford Motor for a harbor maintenance tax (HMT) refund. (Ford Motor Company v. United States. Fed. Cir. No. 11-1224. April 2012.)
HMT was created by Congress in 1986 and took effect in 1987. Initially it was a charge of 0.04 percent on the value of international and domestic cargo and cruise ship passenger tickets, and was increased to its current level of 0.125 percent of cargo value in 1990. HMT helps fund maintenance dredging in ports.
Originally HMT applied to imports, exports, and domestic cargo movements, but in 1998, the Supreme Court held in United States v. U.S. Shoe Corp. that it could not be applied to exports.
After HMT was passed, Customs set up separate lock boxes for exports, imports, and domestic shipments at First Chicago Bank.
Each night, information was transmitted from the bank to U.S. Customs’ Automated Commercial System (ACS).
After the Supreme Court held the tax on exports to be unconstitutional, Customs developed a refund process for HMT paid on exports. It had a standalone HMT database created to assist in processing refund claims that contained information downloaded from ACS.
Because only HMT on exports was prohibited, it was necessary to differentiate between taxes paid for exports, imports, and domestic moves.
While processing refunds, Customs discovered widespread inaccuracies in its HMT database as compared to the paper documents it received from First Chicago. In addition to key entry mistakes, some taxpayers:
- Submitted filings that were not carefully prepared, unclear, illegible, or lacking enough detail for correct processing.
- Did not separate export HMT payments from other types and did not send each to the appropriate lock box.
- Sent payments to the wrong lock box, causing bank personnel to process the payment improperly. For example, they might process an import payment as an export payment.
Comparison with paper documents revealed most errors, and Customs made thousands of corrections, but because it no longer possessed paperwork for before July 1, 1990 Customs established different requirements for refunds before and after that date.
For claims before that date, exporters could not rely solely on the database, but had to submit “supporting documentation.”
For post-July 1, 1990 payments, Customs issued a “Harbor Maintenance Tax Payment Report and Certification” listing all export tax payments reflected in its corrected database, but still required supporting documentation.
Ford filed HMT refund claims for both pre- and post-July 1, 1990 payments, and received export HMT refund payments totaling more than $17 million.
At issue in this case was about $2.5 million in payments that Ford alleged it was still owed.
For the pre-July 1, 1990, claims, Ford obtained a report from Customs under the Freedom of Information Act (FOIA) summarizing and listing each quarterly HMT payment made between 1987 and 1992. The FOIA report was prepared with information from Customs’ ACS database.
In addition, Ford submitted an affidavit attesting to the fact that it was only claiming refunds of HMT paid on export shipments and declarations from two Ford employees attesting to the consistency and quality of Ford’s quarterly HMT payment records.
With respect to the post-July 1, 1990 claims, Ford submitted copies of Vessel Movement Summary Sheets from its own files which it said demonstrated it paid HMT on exports for which Customs had no record.
Customs denied Ford’s claims in its subsequent protest, saying it had submitted insufficient supporting documentation.
The trade court also denied Ford’s claim reasoning the FOIA report was derived from a flawed and unreliable database and did not provide proof as required under the refund regulations for the pre-July 1 1990 shipments. It also found with the post-July 1, 1990 payments the record lacked evidence that the vessel summary sheets were ever mailed, transmitted, or delivered to, and ultimately accepted by Customs at the time Ford said it paid the HMT.
On appeal, the majority of the court found that without more evidence, the documents did not clearly prove the payments were made in the amounts sought for refund.
In a 2010 decision (Chrysler Corp. v. U.S.) the court upheld Customs’ decision to bar reliance on its electronic database as experience with older payments had shown the database was unreliable.
Though Ford contended it relied on information and data in Customs’ ACS, the court said both contained the same errors.
Also, it was not persuaded by the two declarations that Ford said demonstrated its refund claims did not contain the kinds of errors commonly found in the HMT database.
“Ford’s declarations demonstrate only that its HMT submissions were carefully prepared and that it did not misidentify or incorrectly consolidate its export HMT payments,” the court ruled. “These declarations do not rule out the possibility of all exporter error,” adding payments might have been sent to the wrong lock box or bank personnel may have committed errors in recording payments.
“Customs was entitled to reject Ford’s pre-July 1, 1990, claims as insufficient because there still was a high potential for error,” the court said.
For the post-July 1, 1990 claims, the court said Ford had not shown documents were submitted to the bank as required by regulation. Without that evidence, it said Ford could not defeat summary judgment.
In a dissent, Judge Kathleen O’Malley agreed with the majority’s interpretation of the regulation, but disagreed that it justified summary disposition of Ford’s refund claims.
Declarations from two Ford employees “raise a genuine issue of material fact regarding the accuracy of its refund claims,” she said.
