Billions in Tariff Refunds Hang on Litigation: Explained (1)

As lawsuits over the legality of Trump’s tariffs move through the courts, thousands of companies are waiting to find out whether the levies they’ve been paying will be refunded.

US Customs and Border Protection collected $46.9 billion in revenue based on 22 presidential actions between Jan. 20 and May 30, the agency said in its latest monthly update. A sizable portion of those funds could go back to companies if a court ultimately decides the tariffs were unlawful.

Trump cited a 1977 presidential emergency powers law as the legal basis of some of his key tariff measures—including duties on China, Canada, and Mexico levied in response to fentanyl trafficking and illegal immigration, and a nearly universal 10% global tariff. But no president has ever before imposed tariffs under that law, the International Emergency Economic Powers Act. Two lower courts have agreed with plaintiffs that the tariff measures overstep the authority granted in IEEPA, and the cases are now being appealed.

Industries hard-hit by the tariffs, like apparel manufacturing, are keen to see how litigation unfolds. “We’ve gotten a lot of questions from members about it,” said Nate Herman, senior vice president of policy at the American Apparel & Footwear Association.

How does Customs refund overpayments?

The typical customs process includes a 314-day liquidation period during which an import duty can still be adjusted if there was an error. Importers also get an additional 180-day protest period to file for an adjustment of their tariff payment.

If Customs agrees with the adjustment the importer is asserting, they’ll pay the company back for the excess payment, plus interest.

To ease the burden of earlier tariff measures he’d imposed, Trump said in April companies would get a refund on tariffs they’d paid which were “stacked” on top of others—for example, tariffs on auto parts and steel being applied to the same item.

The government didn’t issue those refunds automatically—it asked companies to submit a post-summary correction, calculating the refund owed themselves, said Angela Gamalski, a partner in Honigman’s regulatory practice.

Customs had to write rules describing how refunds would work for the tariff-stacking refunds, and that could be the case again if IEEPA tariffs become refundable, she said.

And if IEEPA tariff refunds do become available, it’s not yet clear whether Customs would automatically calculate the refunds itself, or require importers to submit requests, said Luis Arandia, a partner at Barnes & Thornburg who focuses on international trade.

CBP “cannot speculate on pending or ongoing litigation,” said Trish Driscoll, a spokesperson for the agency. Guidance from CBP is issued on its public messaging service, she said.

What happens next?

Plaintiffs—including a wine importer and an educational toy company— are challenging the legality of the tariffs, arguing that IEEPA does not give the president tariff authority.

Decisions by the US Court of International Trade and the US District Court for DC in May are being appealed, with the Federal Circuit set to hear the V.O.S Selections, Inc. v. Trump case en banc July 31. The cases could be appealed up to the US Supreme Court.

The Supreme Court said June 20 it wouldn’t expedite one of the cases.

If the court that issues the final decision declares the tariffs unlawful, the decision could retroactively invalidate the tariffs that have been paid.

“There’s a huge spectrum” of potential outcomes of a court decision, Gamalski said. The tariffs could be stopped going forward but left in place retroactively, for example.

Are refunds only available to plaintiffs?

A legal challenge to China tariffs imposed in Trump’s first term is still working through the courts. In that case, companies filed claims saying they were also harmed by the measure if they wanted to get a refund, said Andrew McAllister, co-leader of Holland & Knight’s customs and products importation team.

It’s unclear whether the same will be true of the IEEPA cases. They could follow the pattern of the earlier tariff litigation. On other hand, the question courts are considering is whether the president has legal authority to impose the tariffs at all under IEEPA. If the measures are found to be unlawful, they may be considered universally unlawful, indicating anyone who paid them could be eligible for a refund.

The Court of International Trade suggested the outcome of the case would apply to anyone who paid an import duty under the IEEPA tariffs.

“There is no question here of narrowly tailored relief; if the challenged Tariff Orders are unlawful as to Plaintiffs they are unlawful as to all,” it said in a May 28 opinion.

Will businesses join the litigation?

Companies aren’t rushing to add their name to a lawsuit yet, in part because they are still well within the roughly year-and-a-half window for adjusting their tariff under normal procedure. But if the cases aren’t resolved by the time that window closes, “this point just gets really challenging,” Gamalski said.

Companies could ask Customs for an extension of the liquidation period, McAllister said.

In the meantime, attorneys are telling their clients to be prepared by using their customs data to calculate what they’re paying IEEPA tariffs on.

“If the opportunity comes up to join a class, if the opportunity comes up to get a refund, you do not want to miss an opportunity or a window that might not be open for very long,” while collecting the necessary data, Gamalski said. “That would be terrible.”