Tariff ruling opens paths to refunds: What should you do?

Perceived complexities surrounding tariff refunds might have weighed on the minds of respondents to a recent poll conducted by Plastics Machinery & Manufacturing (PMM) parent company EndeavorB2B and its ExecutiveEDGE business intelligence division. Only 32 percent of overall respondents said they are already pursuing a refund or expect to do so. But among manufacturers, interest in pursuing a refund was higher — 51 percent. 

With a refund process still being developed, a Feb. 24 blog post by the Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates law firm discussed some of the steps importers can take in the meantime: “Companies may want to move quickly to review the status of customs entries that may be eligible for refunds, take steps to preserve their rights, review commercial contracts and assess potential litigation exposure.” 

Customs and Border Protection (CBP) recently said it will need 45 days to stand up a system for processing applications, and Connor estimated it might take around six months. 

Documentation is essential  

How difficult the process will be for companies to try to claw back their money remains to be seen. 

In his dissent of the Court’s 6-3 ruling, Justice Brett Kavanaugh warned, the refund process for tariffs “is likely to be a mess.” 

Recent blog posts by Skadden and by Jonathan R. Todd, an attorney, partner and vice chairman of the Transportation and Logistics Practice Group for the Benesch law firm, reflected the uncertainty around the idea of refunds. 

For example, in a March 12 blog post, Todd acknowledged some of the thornier issues raised by the cancellation of the IEEPA tariffs: “Some even weightier unknowns are not completely resolved, including whether the United States will challenge the availability of refunds, whether technical arguments will bar payment of refunds for all IEEPA tariffs paid, and whether filing lawsuits will be required for recovery.”

In an earlier post, he also noted, “We’ve heard from importers who have also expressed reservations against filing suit unless absolutely necessary for fear of political repercussions or drawing attention from downstream customers who may assert contract or unjust enrichment claims.” 

The Skadden post warns of the possibility that customers downstream of the company that incurred the tariffs might want some of their own money back: “If and when refunds become available, companies eligible for refunds could face litigation from impacted counterparties and/or customers should they choose not to apply for a refund. Alternatively, if they successfully receive a refund, companies could face litigation from other businesses and consumers seeking a share of the refunds. 

“It is critical that concerned companies review their commercial contracts and thoroughly consider any attendant litigation risks.” 

However, depending on the terms of their contract, when one company paid a tariff before passing on its costs to downstream customers, one party’s gain could be the others’ loss.

“If you don't have an obligation to pass those savings through the pipeline, let's say, by virtue of the contractual promises made, the contract terms and conditions, then that is essentially your gain,” said Connor, who encouraged companies to make their claim on refunds. 

Does your company need the refund now? 

According to Connor, the situation comes down to pay me now, or pay me later. 

With hedge funds already offering to invest in potential tariff refund claims, one of the first questions for manufacturers to consider is when they want or need the money. Immediate money won’t be dollar-for-dollar, but availability could benefit some companies unwilling to wait out the government’s ramp-up of the refund process, Connor explained. 

While she does not know how much money investors might be willing to pay for a company’s potential refund, Connor said any money now is more valuable than money later.

She characterized that mindset this way: “Pay me. I’ve already paid it. I’ve already expensed it. It’s gone. I’m happy to take 50 cents on the dollar. Write me a check.” 

To determine whether that bird-in-the-hand attitude is right for your company, consider your cash-flow and liquidity position. A refund — and even a claim on a refund — is an asset, Connor said.

“There are people willing to buy that, the way you could factor your receivables.” 

Waiting for the refund portal to open 

According to Todd’s March 12 blog post, CBP announced a framework for the formal process of claiming refunds on March 6 but told the Court of International Trade (CIT) it was targeting implementation in 45 days. 

The process would use CBP’s Automated Commercial Environment (ACE) computerized platform, already in place for processing other tariff claims, according to Todd and Connor.

As Todd wrote, “CBP is developing a new functionality in its ACE platform to streamline and consolidate refund payments on an importer basis. Essentially, importers will file declarations in ACE listing all entries on which IEEPA duties were paid. ... The timeline for how quickly declarations will be processed remains unknown.”

To recover money, users would need to register through ACE for the Automated Clearing House (ACH), which CBP explained in a blog post around a week prior to the IEEPA ruling it has adopted to process electronic claims. 

According to Todd and Connor, applications for refunds will require documentation.

“Filing of a declaration with ACE will require accurate details on customs entries and IEEPA duties paid,” he wrote.

Connor said ACE provides historical information about tariffs, so companies should be able to pull together the information they’ll need to file a claim.

“You’ll then need to organize that and submit that through either the CBP portal — what is going to be a CIT-administered CBP portal, that's the current discussion — or they are saying they will pull it from the ACE account for you,” she said. 

Importers that are uncomfortable handling the process themselves can turn to firms like Connor’s to pursue their claim.

One strategy she doesn’t advise?

Standing pat.

In times of change, inertia won’t help. 

“If we can forecast what we think this was going to cost you, then assuming you executed it the way you told us, we can also calculate what it costs you off all your customs forms and your ACE accounts and accounts and things like that, and pull it together in a way that I think saves people time and money, but at the end of the day, it's an answer you need to know if you're going to submit something for reclamation or go through the probate process,” she said.