Tariff refunds are now a very real possibility … and a giant ‘mess’

By Elisabeth Buchwald, CNN

(CNN) — The chances of businesses getting tariff refunds grew significantly on Wednesday after the Trump administration’s case to keep most of his levies in place was met with deep skepticism from multiple conservative and liberal justices.

The big question now: How would potential tariff refunds work?

The federal government has collected nearly $90 billion in revenue from the tariffs being challenged, according to US Customs and Border Protection data as of September 23. That number is set to keep growing at least until a verdict is announced, which could be months from now.

The who

It’s unclear who might be eligible for a refund if the justices rule against the Trump administration.

Justice Amy Coney Barrett, a Trump appointee, raised the issue Wednesday, pressing Neal Katyal, the former solicitor general representing the small- and medium-sized businesses challenging the law.

“If you win, tell me how the reimbursement process would work. Would it be a complete mess?” she said.

Katyal said the five businesses he’s representing should undeniably be entitled to a refund if the justices rule in their favor, but for other businesses, he said it would be “a very complicated thing.”

“So, a mess,” Barrett interjected.

“It’s difficult, absolutely, we don’t deny that,” Katyal responded.

Businesses outside the five that Katyal represents may not necessarily be eligible for automatic refunds. Instead, they may have to file separate appeals with lower courts for the chance at a refund, said Thomas Beline, a trade attorney and partner at Cassidy Levy Kent.

“So, what I’d be looking at as an importer would be my importations over the last several months and when the entries will liquidate,” he said, referring to the process CBP undergoes to determine an importer’s finalized tariff payment.

Before that, importers make what’s considered an estimated tariff payment. It can take CBP several months to arrive at a final figure because of how complicated the tariff code is.

Beline recommends importers ask for liquidation extensions or file protests with CBP, which prevent entries from fully settling and could make it easier to get a refund.

The when and the how

Katyal on Wednesday brought up the administrative process Beline described. He also highlighted a 1998 Supreme Court decision on harbor maintenance fees that resulted in importers getting tariff refunds.

But in the 1998 decision, it took two years for $730 million in tariff payments to be returned to the importers — and that amount is a drop in the bucket compared to the tens of billions of dollars under consideration in the current Supreme Court case.

“Given the high volume of expected refunds, it would not be surprising if CBP implemented a streamlined or automated process, as seen in prior duty refunds, with importers possibly needing to update payment details via a CBP form,” said Ashley Akers, a senior counsel at the Holland & Knight law firm and a former Justice Department trial lawyer. “It is also possible but unlikely that CBP would issue automatic blanket refunds without specific claims.”

Ultimately, the refunds that businesses receive could come with statutory interest, she said.

Enter Wall Street

For months, investment banks, including Oppenheimer and Jefferies, have approached importers in an attempt to broker deals where they sell their potential stake in a potential tariff at a discount in exchange for immediate cash. If the Supreme Court sides against the Trump administration, these investment banks would get a cut of the total tariff refund businesses forfeited. Representatives for Jefferies and Oppenheimer declined to comment.

In marketing materials viewed by CNN that Oppenheimer distributed in July, the firm said the “market rate” for what businesses could receive upfront was 20% to 30% of the payments made to cover the tariffs being challenged.

“This solution provides the ability to de-risk the outcome and receive a guaranteed payment now, without having to wait for final court rulings,” the marketing material prepared by the firm’s special assets team said.

Additionally, Oppenheimer said selling a refund stake would allow businesses to avoid making a public legal filing that may be required to get the funds, thus avoid drawing the possible “ire from the Trump administration.”

Kyle Peacock, principal at Peacock Tariff Consulting, said businesses attempting to buy tariff refund stakes have been “aggressive” in how they’ve pitched his clients, over 100 of whom have sold their tariff refund stakes

“There’s a very scare mentality that’s happening,” said Peacock, who has listened to several calls with clients with businesses involved in buying refund claims. When business are speaking to his clients, they’re saying, ‘You’ll never get this so take this little bit of money, or you won’t get anywhere.’”

Companies pounce on importers, especially when Trump threatens to enact a new tariff like the additional 100% levies on Chinese goods last month. Their target customer, he said, appears to be importers that are “more credit-stretched.”

It’s those types of customers that ended up accepting what Peacock considered “extremely low offers” of 5% to 7% of a potential tariff refund down the line. And in the end, instead of the 100% tariff threat, Trump lowered Chinese tariffs by 10%.

After Wednesday’s oral arguments, many of Peacock’s clients that sold refund claims are feeling a bit of “seller’s remorse,” he said, and ones that didn’t are generally feeling “more cautiously optimistic.”

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