How the tariffs could be refunded if the court sides against Trump

It has been slightly over six weeks since the Supreme Court heard oral arguments in the challenge to President Donald Trump’s power to impose sweeping tariffs in a series of executive orders earlier this year. During the lengthy debate over those tariffs on Nov. 5, the justices appeared doubtful that the president has such authority under the International Emergency Economic Powers Act, the 1977 law on which he relied.

That skepticism prompted Justice Amy Coney Barrett to look ahead at the possible repercussions of a ruling for the challengers. Specifically, she asked Neal Katyal, who represented a group of small businesses at the November hearing, to “tell me how the reimbursement process would work. Would it be a complete mess? … It seems to me like it could be a mess.”

Katyal first emphasized that the government had agreed that his clients “would get their refunds [if the court sided against the Trump administration]. So, for us, that’s how it would work.” For others who had paid the tariffs, he appeared to agree with Barrett that “[i]t’s a very complicated thing.” But although it may be difficult, he continued, that shouldn’t preclude the Supreme Court from ruling in his clients’ favor.

Barrett’s exchange with Katyal raises a number of questions about what would happen if the court strikes down the tariffs. First and foremost is whether importers that have already paid the tariffs – totaling more than $200 billion so far this year, the Trump administration announced on Monday – would be entitled to refunds. And if they are, how might that refund process work?

There are no clear answers, but history and several of the Supreme Court’s past decisions may provide some guidance.

Katyal suggested that the Supreme Court could mitigate the impact of its ruling by “limit[ing] its decision to prospective relief” – that is, by holding that the tariffs would only apply going forward, so that refunds would not generally be available. He pointed to the court’s 2022 ruling in Office of the U.S. Trustee v. John Q. Hammons Fall 2006, LLC, in which the justices determined the remedy for an earlier decision holding a bankruptcy law unconstitutional when it allowed Chapter 11 debtors to be charged different fees depending on where they filed their cases. They considered three options: refund the fees for the debtors who had paid more; retroactively charge additional fees to the debtors who had paid less; or simply require everyone to pay the same fees going forward.

By a vote of 6-3, in an opinion by Justice Ketanji Brown Jackson, the court chose the third option. Jackson explained that the constitutional violation prompting the need for a remedy “was nonuniformity, not high fees.” Although the debtors bringing the new case, who were seeking a refund, “understandably complain about their higher payments,” Jackson wrote, “our task is not necessarily to reduce them; it is to remedy the disparity.” Moreover, Jackson added, the “monetary disparity” was “short lived and small,” making up only about 2% of the group of debtors who had paid the higher fees.

Notably, Justice Neil Gorsuch dissented, in an opinion joined by Justices Clarence Thomas and Amy Coney Barrett. Gorsuch maintained that the debtors should get a refund. He described the majority opinion as “perform[ing] a remedial root canal, permitting the government to keep the cash it extracted from its unconstitutional fee regime.” “Never mind,” Gorsuch wrote, “that a refund is the traditional remedy for unlawfully imposed fees.”

Based on the facts, it’s unclear how this precedent would play out in the tariffs case. This is especially so because, unlike in Hammons, importers have paid a great deal of money, and it would seem difficult to construe such payments (at least in total) as “short lived and small.” And if the court were to rule for the challengers, the need for the remedy would stem from its decision that the tariffs were invalid – and therefore should not have been charged at all – rather than a dispute over how much they should have been.

Katyal also referred to United States v. U.S. Shoe Corporation, a challenge to a federal harbor maintenance tax, which required exporters, importers, and domestic shippers to pay the government 0.125% of the value of commercial cargo shipped through U.S. ports, as an example of a case in which “the refund process took a long time.” The challenger in that case sought a refund, arguing that the tax violated the Constitution’s export clause, which bars taxes “on Articles exported from any State.” The Court of International Trade agreed with the challenger and held that it was entitled to a refund.

In a unanimous decision authored by Justice Ruth Bader Ginsburg, the Supreme Court upheld the CIT’s ruling that the tax violates the Constitution as applied to exporters. That said, the court did not address the refunds process. Following the court’s ruling, exporters who had filed lawsuits challenging the fees received these, and Judge Jane Restani,  a judge on the CIT, established a claims-resolution procedure for the exporters who could show that they had paid the tax to apply for refunds; through that process they eventually received $730 million from the government over two years. 

A “friend of the court” brief filed in support of the challengers by several trade policy researchers recounted another scenario in which the federal government had refunded tariffs. The researchers pointed to Congress’ renewal of the Generalized System of Preferences, a program intended to encourage economic development in poorer countries by allowing them to export some products to the United States at lower tariff rates, in March 2018, months after the program expired on Dec. 31, 2017. Congress made the renewal of the program retroactive to Jan. 1, 2018, and required the government to issue refunds of the tariffs paid during that period on merchandise that would have otherwise been eligible under the program. “In response,” the researchers wrote, “CBP issued” a message “providing for the automatic processing of such refunds for all importers who had” complied with certain administrative requirements. “If instructed by the Court to do so,” the researchers contended, “CBP could use such a system to refund most of the IEEPA tariffs.”

But the tariffs paid during the period in which the GSP lapsed were significantly smaller than those at issue in the cases now before the Supreme Court. As a result, the GSP refund program likely would have been less logistically and administratively complicated than a similar program for Trump’s tariffs.

Katyal offered another way that the Supreme Court could (perhaps) blunt the impact of its ruling. He pointed to the Supreme Court’s 1982 decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., in which a plurality of the court held that a broad grant of power in the Bankruptcy Act of 1978 to bankruptcy judges without life tenure was unconstitutional. It then considered whether that holding should apply retroactively, to the date on which the law went into effect, or instead only prospectively.

Justice William Brennan, the author of the plurality opinion, concluded that the decision should apply only going forward. He explained that the question at the center of the case “presents an unprecedented question of interpretation of” Article III of the Constitution. “It is equally plain,” he continued, “that retroactive application would not further the operation of our holding, and would surely visit substantial injustice and hardship upon those litigants who relied upon the Act’s vesting of jurisdiction in the bankruptcy courts.”

In Northern Pipeline, Katyal emphasized, the court put its decision on hold for just over three months – from June 28 to Oct. 4 – “to let the congressional process unfold” – that is, to give Congress time to adopt a fix.  If the court rules for the challengers in the tariffs case, he posited, “[t]here may be a congressional process here as well.”

Of course, whether Congress has the will to adopt such a program would remain to be seen.

Even as importers wait for a decision from the Supreme Court, some of them have already sought to position themselves to receive a refund if the court determines that the tariffs are invalid. In a ruling on Monday, the Court of International Trade turned down a request from a group of importers for a temporary order that would suspend liquidation – the final accounting of money that an importer owes Customs and Border Protection – of entries for which IEEPA tariffs were imposed. The importers argued that without such an order, even if the Supreme Court ultimately strikes down the tariffs, they might not be able to get their money back once liquidation occurs.

The CIT explained that the federal government has indicated – both in the case before it and others – that if there is a final decision striking down the tariffs, “‘liquidation will not affect the availability of refunds.’” And having taken this position, the court emphasized, the government cannot later make a contrary argument.