EVERETT — Tax avoidance is often a game of cat and mouse for jurisdictions to collect taxes as businesses find a work-around to avoid paying. One of those work-arounds on imported products from the Asian-Pacific rim into U.S. ports is docking in Canada instead of Seattle or Tacoma.
Port of Everett officials are increasing the pressure to end this loophole that diverts cargo ships to Port Rupert or Vancouver to avoid a federal tax on cargo containers.
Lisa Lefeber, Port of Everett Executive Director and CEO, tells EverettPost.com, “We’ve commissioned a study and they have found that there’s 800,000 containers that are U.S bound that should really be going to Seattle and Tacoma that are actually going into Vancouver and coming across the border and bypassing a fee. And it’s anywhere between $250 to 500 per container, so it’s real money.” The import shipping scheme, according to Lefeber, is erasing upwards of $500 million that would otherwise be paid to the U.S. Treasury.
This Canadian diversion of cargo containers is an unintended consequence of the 1986 Harbor Maintenance Trust Fund (HMFT) or Harbor Maintenance Tax (HMT) passed by the U.S. Congress and signed by President Reagan. The tax was imposed to generate money to dredge shallow water ports so bigger vessels with deeper drafts could dock.
Lefeber explains, “Congress passed a tax called a Harbor Maintenance Tax, and it’s used to maintain all the federal navigation channels throughout the nation. It is collected on the value of the goods that come in, but it’s distributed based on tonnage. So, in Everett, we’re a natural, deep water port, so we don’t get a lot of Harbor Maintenance Tax money. But all of the cargo that comes in still has to pay it.”
The heavier the cargo on the shipping freighter, the lower the freighter sits in the water, thus requiring dredged channels to reach some U.S. ports where the water is too shallow.
Back to the tax calculation formula, she says, “It’s distributed based on tonnage, and we’re (Everett) not a tonnage port. We’re a value port because of all the aerospace and military and high value cargo. So this primarily is a Seattle-Tacoma issue, because basically, what happens is all the ships can go into Canada and they don’t pay the Harbor Maintenance Tax. And then they (cargo containers) come across the border by truck or rail and they bypass the fees.”
President Trump signed an executive order earlier this year to end the loophole, dubbed the land border loophole. But Lefeber says federal officials still haven’t implemented the fix on the cargo containers shipped into the U.S. from the Canadian (or Mexican) border. “So when the President was elected, he passed an executive order closing that land border loophole. But it hasn’t been implemented yet. And so we’ve been back in D.C. a lot meeting with Customs and White House officials to try to get them to actually implement what the executive order said.”
The remedy is getting closer to reality, Lefeber says, because more cargo container traffic is going to Mexico which is reducing port traffic in Southern California.
“I think we’re making actually pretty good headway,” the Executive Director says optimistically. “We’ve been working on this for over 20 years–the whole time I’ve been here (at Port of Everett). Everyone in L.A., Long Beach, they have such a big population, they weren’t subject to diversionary cargo, but now what’s happening is the Mexican investment is getting significant. The North Canadian investment is getting significant, and so you’re starting to have some of the larger ports throughout the nation that are affected by it (HMT avoidance).
Lefeber says ending the land border loophole came close to closing in 2014 but ultimately failed.
The issue of tax avoidance has emerged as an economic issue for Washington Gov. Bob Ferguson in recent months as EverettPost.com covered in two separate stories linked here and here.