The Harbor Maintenance Tax and The Arriving Passenger Fee-Application to Passenger Cruise Lines

Client Advisory

January 2000

In two recent cases, the United States Court of Appeals for the Federal Circuit has upheld the application of the harbor maintenance tax and the arriving passenger fee to passenger cruise lines. Following the decision of the U.S. Supreme Court in 1998 that the imposition of the Harbor Maintenance Tax on exported cargo violated the Export Clause of the U.S. Constitution, cruise lines hoped that the invalidity of that tax would extend to the taxes on passengers. Unfortunately, the Court of Appeals has upheld the validity of both taxes.

As part of The Water Resources Development Act of 1986, Congress enacted the Harbor Maintenance Tax.(1) As drafted, the Harbor Maintenance Tax ("HMT") imposes an ad valorem tax upon importers and exporters of commercial cargo for the use of certain ports. The tax is an amount equal to 0.125 percent of the value of the commercial cargo involved. For purposes of the HMT, the term "commercial cargo" is defined as "any cargo transported on a commercial vessel, including passengers transported for compensation or hire."(2) The Customs Service has been assessing and collecting the HMT for all passengers on cruises that originate, stop, or terminate in a port to which the HMT applies.

Harbor Maintenance Tax

As noted above, the Supreme Court ruled in 1998(3) that the Harbor Maintenance Tax was unconstitutional as applied to exports because of the Export Clause of the Constitution.(4) The first question posed in Carnival Cruise Lines, Inc. v. United States(5) was whether the invalidity of the law as applied to exports rendered the entire statute invalid, or was the invalid export tax "severable" from the rest of the statute.

The Court of International Trade ruled that those portions of the HMT that apply to exports, and are thus unconstitutional, are "severable" from (i.e., they do not affect the validity of) the remainder of the HMT.(6) The Court also ruled, however, that the application of the HMT to passengers also violated the Export Clause.(7) The court reasoned that since the HMT statute equated passengers with cargo, and since the loading of cargo was not taxable under the Export Clause, the loading of passengers must likewise be exempt from tax under the Export Clause.

On appeal, the United States Court of Appeals for the Federal Circuit reversed.(8) The Appeals Court held that the Export Clause does not concern itself with taxes on human beings, reasoning that "[t]he passengers on Carnival's cruise ships are neither 'articles' nor 'goods.' They are people. The application of the Harbor Tax to them would not involve the laying of any tax upon 'Articles' exported from any state. 'Article' and 'goods' relate to items of commerce, not people."

The Court of Appeals then discussed the severability issue. The Court noted that the Water Resources Act contains a broad "severability clause."(9) The Court then analyzed whether the severability clause should be given effect by applying a test set forth in a recent Supreme Court opinion(10) for determining whether a statute is severable: "The more relevant inquiry in evaluating severability is whether the statute will function in a manner consistent with the intent of Congress.... The final test ... is the traditional one: the unconstitutional provision must be severed unless the statute created in its absence is legislation that Congress would not have enacted."(11) Applying this test, the Court of Appeals affirmed the Court of International Trade's holding that the HMT is severable.

Another case involving the applicability of the HMT to passenger cruise lines involved Princess Cruise Lines.(12) This case also involved the application of the Arriving Passenger Fee.(13) Once again, the Court of International Trade had ruled that the application of the HMT to transportation services was unconstitutional in light of the U.S. Shoe decision.(14)

The Court of Appeals for the Federal Circuit, relying on its decision in the Carnival Cruise Lines case (discussed above), held that the application of the HMT to passenger transport is not a violation of the Export Clause of the Constitution and that the unconstitutional application of the HMT to exports is severable from the rest of the HMT statute. The Court further held that application of the HMT to layovers or stopovers in HMT-covered ports, even when the beginning and ending points of the cruise are in foreign countries, is reasonable.

Arriving Passenger Fee

The Arriving Passenger Fee ("APF") is a fee imposed for the provision of customs services on the arrival of passengers aboard commercial vessels or aircraft from a place outside the United States, except for journeys originating in Canada, Mexico, or a U.S. territory or possession, or which originated in the U.S. but were limited to Canada, Mexico, or a U.S. territory or possession.

Princess argued that the APF statute should be interpreted to mean that a "journey" includes only the cruise travel and thus the journey "originates" where the cruise begins and not where the passenger first departed from the United States on an airplane. Princess also argued that layovers in APF-covered ports should not cause application of the tax. On the other hand, the Custom Service argued that the term "journey" includes all stages of travel, even in those circumstances where travel is on different modes of transportation and covers multiple destinations, and that the APF was applicable with respect to layovers.

The Court of International Trade held in favor of Princess, ruling that APF liability depends only upon the points of origination and termination of the cruise. However, the Court of Appeals reversed the lower court's holding that APF liability depends only upon the points of origination and termination of the cruise. The Court of Appeals also reversed the lower court's holding that layovers and stopovers in APF-covered ports does not trigger APF liability.


The Carnival and Princess cases, in ruling that the HMT is severable and still applicable to cruise lines, seriously undermine the hope that the HMT should be nullified in its entirety as a result of the U.S. Shoe decision. Two additional cases involving importers now are pending before the Federal Circuit Court of Appeals.(15) However, it now appears unlikely that the Circuit Court will rule in favor of the importers in these two cases.(16)

Questions regarding this Client Advisory can be directed to Maritime Partner Donald J. Kennedy (212-238-8707;

1. P.L. 99-662, 100 Stat. 4082 (1985); 26 U.S.C. §4461.

2. 26 U.S.C. §4462(a)(3). Excluded from the definition is bunker fuel, ship's stores, sea stores, or the legitimate equipment necessary to the operation of a vessel, as well as fish or other aquatic animal life caught and not previously landed on shore.

3. United States v. United States Shoe Corp., 523 U.S. 360 (1998).

4. The Export Clause of the Constitution, art. I, §9, cl. 5, states: "No Tax or Duty shall be laid on Articles exported from any state."

5. 2000 U.S. App. LEXIS 69 (Fed. Cir. 2000).

6. Carnival Cruise Lines, Inc. v. United States, 929 F. Supp. 1570 (Ct. Int'l Trade 1996).

7. Carnival Cruise Lines, Inc. v. United States, 8 F. Supp. 2d 877 (Ct. Int'l Trade 1998).

8. Carnival Cruise Lines, Inc. v. United States, 2000 U.S. App. LEXIS 69 (Fed. Cir. 2000).

9. 33 U.S.C. §2304 (1994) provides as follows: "If any provision of this Act, or the application of any provision of this Act, to any person or circumstance, is held invalid, the application of such provision to other persons or circumstances, and the remainder of this Act, shall not be affected thereby."

10. Alaska Airlines, Inc. v. Brock, 480 U.S. 678 (1987).

11. Id. at 685.

12. Princess Cruises, Inc. v. United States, 2000 U.S. App. LEXIS 70 (Fed. Cir. 2000).

13. 19 U.S.C. §58c(a)(5).

14. Princess Cruises, Inc. v. United States, 15 F. Supp. 2d 801 (Ct. Int'l Trade 1998).

15. See Amoco Oil Company v. United States, 63 F. Supp. 2d 1332 (Ct. Int'l Trade 1999) (appeal pending); Thomson Consumer Electronics, Inc. v. United States 62 F. Supp. 2d 1182 (Ct. Int'l Trade 1999) (appeal pending).

16. The International Court of Trade in New York has already rejected the importers' arguments and ruled that goods moving through foreign trade zones are not exempt from HMT.

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2020 Carter Ledyard & Milburn LLP.
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