IEEPA tariffs and refunds
By Mark A. Loyd, JD, CPA and Helen V. Cooper, JD, CPA
Beginning last year, the tariffs levied by the President were adjusted as deals were negotiated with trading partners. The tariffs disproportionately affected certain industries in Kentucky that rely on international trade. Kentucky exports $47 billion in goods annually and relies on $94 billion in imports.
Recently, the Supreme Court in Learning Res., Inc. [Learning Resources] v. Trump and the consolidated case Trump v. V.O.S. Selections, Inc. [V.O.S. Selections] held the Trump administration’s tariffs imposed using the International Economic Powers Act (IEEPA) unlawful. Looking closely at the text of IEEPA, the Supreme Court determined that the authority to regulate provided by IEEPA did not include a delegation of authority to impose tariffs. The implication of the ruling is that any delegation of Congress’s power to tax must be expressly stated.
The Court’s decision leaves taxpayers with more questions than answers and will potentially generate years of conflict as the government, global trade partners and domestic importers unwind the effects of these tariffs.
What are tariffs?
Tariffs (also called duties) are taxes levied on imported goods. The power to impose tariffs is a branch of the taxing power vested in Congress through the Constitution. The President can only levy a tariff if Congress delegates the power through statute. In the United States, the importer of record pays the tariff on imported goods. The cost can then be passed on to customers by increasing the cost of imported goods.
What is the major questions doctrine?
Learning Resources represents the latest in a line of “major questions” cases in which the Government has “claimed broad, expansive power on an uncertain statutory basis.” Where a federal agency’s authority is challenged, the major questions doctrine asks whether the legislature intended to confer that authority on the legislature by applying enhanced statutory scrutiny. The purpose of the major questions doctrine is to prevent Executive Branch encroachment on the legislature.
Refunds of IEEPA tariffs?
On January 20, 2025, the President issued an Executive Order declaring a national emergency related to two existential threats: [1] the influx of illegal drugs from Canada, Mexico, and China that created a public health crisis; and [2] large and persistent trade threats that had “hollow[ed] out” the American manufacturing base and “undermined critical supply chains.” To address the national emergency, the President imposed global, reciprocal tariffs using the authority granted to the President under IEEPA. IEEPA provides the Executive Branch with emergency powers to, among other things, regulate importation and exportation.
The Supreme Court’s ruling did not address a remedy for the tariffs paid and passed on to customers over the last year. However, in prior litigation, the government represented that if the IEEPA tariffs were invalidated, then refunds would be paid and interest would apply. Customs and Border Protection is required by statute to pay interest on any refund of excessive duties.
In response to the Supreme Court’s decision, thousands of companies affected by the tariffs have filed lawsuits seeking refunds in the Court of International Trade (CIT). On March 4, the CIT ordered that “[a]ll importers of record are entitled to the benefit of the Learning Resources decision.” According to the Order, there will be no contrary conclusions because CIT has exclusive subject matter jurisdiction over tariff refund disputes and the judge in that case was named by CIT as the only judge with decision-making authority. Thus, the Order signals an intention to allow relief to all parties affected by the IEEPA tariffs, not just the plaintiffs in the instant case.
After Learning Resources, what’s going on with these new section 122 tariffs?
Following the Learning Resources decision, the President imposed a new round of global tariffs at a rate of 10 percent on all imports beginning February 24. The new tariffs were issued under the authority of Section 122 of the Trade Act of 1974 (Section 122), which has to date, never been used to impose a global tariff. Section 122 permits the President to order tariffs up to 15 percent to address out of balance payments, however, these tariffs must be ratified by Congress within 150 days. The administration has signaled an intent to further increase these tariffs to 15 percent. This new levy was immediately challenged in CIT by a coalition of two dozen states, including Kentucky.
The IEEPA allowed the President to impose tariffs at different rates by country, which presented a key negotiating strategy as countries were encouraged to negotiate rates similar to their competitors. Unlike IEEPA, Section 122 only permits the President to establish a standard rate globally. This changes the dynamic for negotiations with trade partners of the United States.
State sales tax refunds
As the IEEPA tariffs had a downstream effect on the cost of goods, many states issued guidance concerning the sales tax effect. Kentucky’s Department of Revenue took the position that tariffs passed on to customers in a retail sale are included in the sales and use tax base as “gross receipts.” According to the Department, because tariffs are imposed on manufacturers or importers and not purchasers, then passed through in the sales price, they remain part of taxable gross receipts and these duties are not excluded from gross receipts like a tax imposed directly on a purchaser pursuant to KRS 139.010(17)(c)(3). Based on this guidance, many retailers have paid sales tax on now invalidated tariffs. Do these retailers now have a valid refund claim? States can be anticipated to resist providing refunds of state sales and use taxes paid on illegally imposed tariffs.
“I dreamed all last night that everyone I ever sold a car to came back for a refund. And there you were, handing out the checks!” Dad in Breaking Away (1979).
The imposition of IEEPA tariffs created a lot of uncertainty for trade partners of the United States and companies importing products into the United States. Now that the Supreme Court has concluded that the President did not have the power to impose IEEPA tariffs, the question becomes whether and how and to whom refunds may be obtained.
About the authors: Mark A. Loyd, JD, CPA, is a partner of Dentons Bingham Greenebaum LLP in Louisville and chairs its Tax and Finance group. Loyd chairs the Society’s Editorial Board and serves on the KyCPA Board of Directors. He can be reached at mark.loyd@dentons.com.
Helen V. Cooper, JD, CPA, is a partner of Dentons Bingham Greenebaum LLP in Louisville. She can be reached at helen.cooper@dentons.com.
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