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The U.S. Supreme Court’s Feb. 20 ruling in Learning Resources v. Trump dealt a major blow to the Trump administration’s tariff regime, holding that the International Emergency Economic Powers Act, or IEEPA, does not authorize the president to impose sweeping tariffs.
The decision set in motion what could become the largest refund effort in customs history, with an estimated $175 billion in tariff collections potentially at issue.
So, if your business was hit by Trump’s tariffs, does that mean your check is in the mail? Not quite.
To cut through the confusion, Daily Report sat down with Kean Miller partner William Kolarik II, who recently co-authored a legal analysis of the ruling. Here’s what he had to say.
The refund infrastructure is still being built
U.S. Customs and Border Protection is currently developing a new system to process claims and provide refunds. The new system, called CAPE, will have four components:
- An online claims portal
- Mass processing
- Review and liquidation or reliquidation
- Refund delivery
In a March 19 filing with the Court of International Trade, CBP said the claims portal was 73% complete, mass processing 45% complete, review and liquidation or reliquidation 80% complete and the refund component 63% complete.
That means the mechanism for getting money back is not fully operational yet. CBP told a federal judge on March 6 that it hoped to have the system in place in 45 days, meaning it may begin accepting claims as soon as mid-April. When payments will begin being distributed remains an open question.
The agency is tasked with processing an unprecedented volume of refund requests; more than 330,000 importers who made roughly 53 million shipments are eligible for reimbursement.
Who actually gets the refund?
This is where things have the potential to get messy. The refund will generally go first to the “importer of record,” even if the importer passed 100% of tariff cost down the supply chain to manufacturers, distributors or retailers.
According to Kolarik, businesses that are not importers of record should start combing through their various contracts “to determine whether there is any language that would entitle them to all or a portion of these refunds,” putting importers of record or counterparties on notice if they believe they are entitled to some share.
But the reality is that exceedingly few contracts contain specific language related to tariff refunds. Expect controversy along the supply chain.
“As Justice Kavanaugh said in his dissent in Learning Resources, this is going to be a big mess,” Kolarik says.
It’s also important to note that not all of Trump’s tariffs have been ruled unlawful. The current refund effort is focused specifically on tariffs imposed under the IEEPA. This includes tariffs commonly known as “baseline,” “reciprocal,” “fentanyl” or “trafficking” tariffs.
Documentation is everything
For importers of record, the immediate assignment is recordkeeping.
Kolarik says importers should be taking steps to preserve and maintain electronic documentation of each entry: entry number, entry date, country of origin, tariff classification, description of merchandise, type and amount of duties paid, projected liquidation date and so on. They should also keep local copies of records like CBP entry summaries, invoices, packing slips and bills of lading.
“You shouldn’t assume all of this documentation will be available for download on the CBP website or something,” he says. “You need to immediately start putting all of this together.”
Importers should also be sure to enroll in CBP’s ACH refund program, which is the only mechanism by which refunds will be distributed. As of Feb. 6, all CBP refunds are issued electronically—no more paper checks.
There may be tax implications
Even if CBP’s refund system goes off without a hitch, that may not be the end of the story.
Kolarik says businesses should already be thinking about the “tax and financial accounting issues around this.”
First there’s the sales tax piece. In many states, tariffs are included in an item’s taxable sales price, meaning participants in the supply chain may be entitled to sales tax refunds.
Then there’s the income tax piece. If tariffs were deducted as an expense, a refund may constitute taxable income. And if they were capitalized, inventory values or costs of goods sold may need to be adjusted, which could in turn affect prior or current financial statements and tax filings.
Consumers shouldn’t expect much
While importers may get relief, consumers, in most cases, will not.
As economist Loren Scott told Daily Report in November, tariffs are passed on to consumers in the form of higher prices “in the great majority of cases.” Kolarik notes that some importers—FedEx, most prominently—have indicated they will pass refunds on to the shippers and consumers who ultimately bore the charges.
But most ordinary consumers won’t see a dime. If tariffs were simply baked into shelf prices, proving any individual entitlement will be practically impossible.
