Export Clause: Limitation on Congress’s Taxing Power
Released: 2012-10-18T00:00:00

The Export Clause states that "No Tax or Duty shall be laid on Articles exported from any State." The clause is perhaps among the lesser-known provisions of the U.S. Constitution. Nonetheless, it is an important one for Congress because it is one of the few limitations on Congress's taxing power. The Clause's prohibition typically becomes relevant in discussions about certain energy and transportation-related taxes (such as the coal excise tax and harbor maintenance tax).

Scope of the Prohibition

The Export Clause is an absolute prohibition on taxing exports by the federal government. Whether a tax discriminates against exports is irrelevant—even a generally applicable tax that applies to all goods equally is unconstitutional as applied to exports.

The Clause prohibits any federal tax or duty that is imposed on goods during "the course of exportation" or targeted at exports, as well as those imposed on services and activities "closely related" to the export process. A situation where a good may be found to be in the course of exportation is when it is loaded onto an export vessel and title is transferred from the producer to a foreign purchaser. Once a good is in the course of exportation, it does not matter that there may be some theoretical possibility it might not actually be exported—the good cannot be taxed.

On several occasions, the Supreme Court has found a tax to be impermissible when it was essentially imposed on an export good even though it was not directly imposed on it. For example, in a 1915 case, Thames & Mersey Marine Ins. Co. v. United States , the Court held that a federal stamp tax on insurance policies against marine risks could not be applied to policies covering exports. The Court explained that "proper insurance during the voyage is one of the necessities of exportation" and "taxation of policies insuring cargoes during their transit to foreign ports is as much a burden on exporting as if it were laid on ... the goods themselves." In a more recent case, United States v. IBM Corp., the Court recognized Thames & Mercy as still good law, which led it to conclude that a tax on insurance premiums paid to foreign insurers not subject to the federal income tax could not be applied to insurance for exports. Additional taxes that have been found to be essentially imposed on the good itself are those imposed on charter contracts and a federal stamp tax on bills of lading for export shipments. Other than these examples, there is not much guidance on when an activity or service is protected from tax because it is "closely related" to the export process.

Importantly, the Clause does not prohibit a generally applicable tax from being imposed on goods prior to export. In other words, goods that are exported are not exempted "from the prior ordinary burdens of taxation which rest upon all property similarly situated." Thus, for example, a manufacturing tax on filled cheese was permissible even though the specific cheese at issue was manufactured under contract for exportation and was in fact exported. Similarly, a stamp charge of 25 cents per package of tobacco intended for export was upheld when the stamp charge, which indicated the tobacco was otherwise exempt from tobacco excise taxes, was designed to prevent fraud with respect to the excise tax exemption. This purpose led the Court to conclude the stamp charge was not a tax on exports.

Tax v. User Fee

The Export Clause only prohibits the imposition of "taxes" and "duties." It does not prohibit user fees. Thus, the distinction between a tax and user fee is important. Congress's choice to call something a tax or a fee will not be determinative in assessing the provision's constitutionality. Rather, a court will likely examine the provision's substantive characteristics to determine if it is a fee or tax. Thus, it is possible that a charge referred to in statute as a "fee" could be recharacterized by a court to be a "tax" if it failed to meet the characteristics of a user fee (described below), and vice versa.

A case that illustrates this distinction is United States v. U.S. Shoe Corporation . At issue in that case was the harbor maintenance tax (HMT), which imposes a charge on cargo passing through U.S. ports in order to fund harbor maintenance projects. The question was whether the HMT was a tax, in which case it could not be imposed on exports, or a user fee that would fall outside the Export Clause's scope. The Supreme Court held that the HMT was a tax and therefore could not be imposed on goods in the process of exportation. In so doing, it exhibited a willingness to engage in substantive analysis to determine whether a government charge was a user fee or a tax. To make the determination, the Court relied on a prior case, Pace v. Burgess . According to that case, the primary characteristics of a user fee for purposes of the Export Clause are that it, unlike a tax, is (1) proportional to the government services or benefits received by the payor and (2) not determined solely on an ad valorem basis (i.e., not solely based on the quantity or value of the goods or services on which it is placed). Applying that analysis here, the Court determined there was not a close enough relationship between the services rendered by the U.S. ports and the charges levied under the HMT since the HMT was solely determined on an ad valorem basis. Even though the HMT was considered a tax in this context, the Court made clear this should not be interpreted to mean that exporters are exempt from user fees intended to defray costs associated with harbor maintenance. Rather, it meant that any such fee "must fairly match" their use of port services and facilities.

Modern Application of the Clause

After decades of no serious Export Clause challenges, several taxes were found in the late 1990s to be unconstitutional as applied to exports. In the 1996 IBM case, the Supreme Court struck down the tax on insurance premiums paid to foreign insurers that are not subject to federal income tax as applied to insurance for exports. In 1998, the Court in U.S. Shoe struck down the imposition of the HMT as applied to exports. Later that same year, a federal district court ruled that imposing the excise tax on domestically mined coal in the stream of exportation clearly violated the Export Clause.

After that streak of taxes being struck, a different result was reached in several recent cases brought by coal producers and exporters alleging that a reclamation fee imposed by the Surface Mining Control and Reclamation Act of 1977 on exported coal violates the Export Clause. The reclamation fee is based on each ton of "coal produced" by surface and underground mining. Neither the statute nor the agency regulations define the term "coal produced." The coal producers and exporters argued that the term refers to the process of extracting and selling coal, and therefore the imposition of the fee on coal sold to foreign purchasers violates the Export Clause. The government argued the term only refers to the extraction, and not the sale, of coal. In 2008, the Court of Appeals for the Federal Circuit agreed with the government and upheld the reclamation fee statute as constitutional. The court, using the principle of statutory construction that "every reasonable construction must be resorted to, in order to save the [challenged] statute from unconstitutionality," found that interpreting the term "coal produced" to refer to "coal extracted" is reasonable.

Claims for Damages Under the Export Clause

Courts have found several taxes to be unconstitutional as applied to exports, including the coal excise tax and the harbor maintenance tax (see the text box above). One question that arises in these situations is what remedy exists for taxpayers who paid an unconstitutional charge imposed by the government.

Taxpayers who overpay a federal tax are typically required to seek a refund from the IRS using the refund process found in the Internal Revenue Code (IRC). The question here is whether there is another option: can taxpayers bring suit in the Court of Federal Claims under the Tucker Act seeking damages from the government in the amount of unconstitutional taxes paid? The Tucker Act grants the court jurisdiction over claims against the United States, including those founded in the Constitution. This same question may arise in the event that a government charge outside the IRC refund procedure was invalidated (e.g., if a non-IRC "fee" was recharacterized by a court to be a "tax"): could a person who paid the unconstitutional charge bring suit under the Tucker Act outside of any applicable administrative refund procedure?

Taxpayers may prefer the Tucker Act because it bypasses two limitations in the IRC refund process. First, the Tucker Act has a longer statute of limitations than the IRC—six years from the time the tax is paid, compared to three years from such time. Thus, taxpayers could seek damages for taxes paid in the several years preceding those for which they could receive IRC refunds. Second, the IRC sometimes gives priority to producers' refund claims, while the Tucker Act does not. As a result, the Tucker Act could allow parties farther down the supply chain (e.g., exporters) to bring claims alleging they deserved damages because they bore the economic burden of the tax through higher prices.

A threshold issue is whether the Court of Federal Claims can hear these suits. The Tucker Act only confers jurisdiction—it does not create an enforceable right against the United States for monetary damages. Rather, the right must be found in another source of law, which here would be the Export Clause. Thus, a key question is whether the Export Clause provides a right to monetary damages when the government violates it. If the answer is yes, the next question is whether such a claim can be made independent of an IRC (or other administrative ) refund claim.

In 2000, the Court of Federal Claims held that the Export Clause provided a separate cause of action so that taxpayers could bring a suit for damages independent of an IRC refund claim. The court based this conclusion on its findings that the Export Clause was a money-mandating provision, as required for Tucker Act jurisdiction, and that the cause of action founded in a violation of the Export Clause was self-executing.

However, in a 2008 decision, United States v. Clintwood Elkhorn Mining Co. , the Supreme Court held that taxpayers seeking refunds for the unconstitutionally imposed coal excise tax must comply with the IRC refund process. Notably, the Court did not address whether the Export Clause provides a cause of action that could be brought under the Tucker Act, finding that the IRC refund provisions would apply regardless. Thus, that question remains unanswered.

The taxpayers in Clintwood Elkhorn had filed administrative refund claims for the three tax years open under the IRC's statute of limitations and filed suit in the Court of Federal Claims seeking the amount of taxes paid for the three previous years that were open only under the Tucker Act's longer limitations period. The Supreme Court held that the plain language of the relevant IRC provisions, Sections 7422 and 6511, clearly required taxpayers to file a timely refund claim with the IRS before bringing suit. The Court stated that it had basically decided the issue in a 1941 case where it had reasoned that the Tucker Act's statute of limitations was simply "an outside limit" which Congress could shorten in situations requiring "special considerations," such as tax refunds since suits against the government to recover taxes would hinder administration of the tax laws. As the Court had explained in that case, the IRC's refund provisions would have "'no meaning whatever'" if taxpayers who did not comply with those provisions could still bring refund suits under the Tucker Act.

Further, noting that it was clear from its past cases that unconstitutionally collected taxes could be subject to the same administrative requirements as other taxes, the Court rejected the taxpayers' argument that something unique about the Export Clause required different treatment. The Court explained that while the government may not impose unconstitutional taxes, it may create an administrative process to refund them because of its "exceedingly strong interest in financial stability," regardless of whether the tax violated the Export Clause or some other provision of the Constitution. The Court also rejected the taxpayers' claim that the IRC refund scheme could not apply to facially unconstitutional taxes, finding the plain language of Section 7422 clearly included them.

Looking to the implications of Clintwood Elkhorn , it seems clear that any tax collected in violation of the Export Clause that is subject to the IRC refund process may only be refunded through that process. Because these issues are matters of statutory construction, Congress has the option to modify the refund procedures for taxes imposed in violation of the Export Clause, if it so chooses (e.g., as it did by providing an alternative refund process for the coal excise tax post- Clintwood Elkhorn ). With respect to whether the Export Clause provides it own cause of action for purposes of Tucker Act jurisdiction, the Court in Clintwood Elkhorn did not address this issue. The Court of Federal Claims has previously answered the question affirmatively, thus indicating that claims for taxes or any fees recharacterized as taxes imposed in violation of the Export Clause that fall outside the IRC (or another administratively mandated) refund process may be brought in that court, unless another provision of law removes jurisdiction.