An Interesting Critical Tax Student Note Topic

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I often get asked by students for tax topics for their student notes. Normally, I suggest some places to look where they can get a sense of hot topics, etc., but don’t suggest an actual topic. But yesterday, I came across what seems like a really interesting topic for a student note and thought that I would put it out there for whomever might be interested.

On the drive home from work yesterday afternoon, I was listening to All Things Considered on NPR when a story about tariffs (yes, tariffs–I do teach tax, after all!) grabbed my attention. The story nominally concerned President Obama’s order for a review of government regulations and focused particularly on the lengths to which the government (sometimes, it seems, rather pointlessly) goes to determine the tariff applicable to a specific good. (During the story, they actually cut a sneaker apart with an autopsy saw to determine what exactly it was made of so that the appropriate tariff could be determined.)

What really caught my attention was the fact that these tariffs, which are all listed in the voluminous Harmonized Tariff Schedule, can not only be rather arbitrary but also vary based on gender. The story mentioned in passing that for a certain type of woman’s shoe the duty is 12.5% while the duty on the same man’s shoe is 8.5%. It got me to wondering how this passes constitutional muster, so I did a little bit of searching to see if anyone had ever challenged these tariffs on equal protection grounds.

Sure enough, I quickly found a case brought by Totes, an importer of gloves, challenging the differential tariff rate that applies to men’s seamed leather gloves (14%) and to “other” seamed leather gloves (12.6%). Totes-Isotoner Corp. v. United States, 594 F.3d 1346 (Fed. Cir. 2010). Amazingly, Totes’s complaint was dismissed for failure to state a claim upon which relief could be granted. Both the Federal Circuit and the lower court seemed to go out of their way to take equal protection challenges off of the table in the tax/tariff context, except in the most egregious of circumstances.

Here is a quote from the end of the Federal Circuit’s opinion explaining its decision,which will give you a flavor of the opinions:

“[W]e hold that because the challenged provisions of the HTSUS are not facially discriminatory, Totes is required to allege facts sufficient to establish a governmental purpose to discriminate between male and female users. Here, an allegation of mere disparate impact is not sufficient to satisfy this pleading requirement. Because Totes does not meet its burden to allege facts sufficient to infer a governmental purpose to discriminate, we hold that Totes’ complaint fails to state an equal protection claim.”

Yes, that’s right, these provisions were not deemed facially discriminatory even though they imposed one rate of tax on men’s gloves and another on women’s gloves. And it wasn’t enough for Totes to allege disparate impact (after all, these tariffs are passed directly on to the purchaser of the product as part of its price); Totes needed to allege a governmental purpose to discriminate. The soundness of these opinions–both legally and as a policy matter–could bear some further scrutiny and would seem to make an ideal topic for a student note. Anyone interested?

-Tony Infanti

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