Taxation and State Taxation -- 2021

National Association of Manufacturers v. U.S. Dep't of the Treasury   (Federal Circuit)

Challenging final duty drawback rule

The U.S. Court of Appeals for the Federal Circuit handed manufacturers a significant victory in August 2021, affirming the U.S. Court of International Trade’s (CIT) decision to strike down a federal regulation that stripped manufacturers of a congressionally-mandated export incentive intended to promote domestic manufacturing. The regulation at issue involves “duty drawback”—the refund of taxes, duties, or fees paid on imported goods when the same or similar goods are exported. By way of example, drawback would allow a distilled spirits company that exports vodka from the United States to claim a refund on taxes and duties paid on the same quantity of imported vodka. These incentives encourage domestic production and have been used by the wine industry since 2004 to increase exports. But despite clear instructions from Congress to expand the program as part of a 2016 trade bill, the Treasury Department issued a rule in 2018 intended to stop the program in its tracks. The NAM successfully challenged the rule in the CIT, and the government appealed to the Federal Circuit.

On August 23, a three-judge panel unanimously affirmed the CIT’s holding, finding that the statutory definition of drawback was unambiguous and thus, inappropriate for administrative interpretation and Chevron deference. The Court noted that drawback is “designed to incentivize exports from the United States and allow U.S. exporters to compete more fairly with overseas competitors.” The NAM’s Senior Vice President and General Counsel, Linda Kelly, applauded the decision, stating, “this program helps manufacturers in America level the playing field when they sell to overseas markets. We look forward to working with our members as they expand their operations and add jobs in the United States in light of today’s decision.”

Related Documents:
Opinion  (August 23, 2021)
NAM response brief  (October 1, 2020)