President Donald Trump’s legally dubious tariffs have harvested hundreds of billions of dollars from American companies and customers this year, despite the president’s claims that foreign countries are paying them. Now some of those companies want that money back.
Costco, the retail behemoth, filed a lawsuit against the Trump administration on Tuesday to demand a refund of any tariffs that the government collected under the International Economic Emergency Powers Act of 1977, or IEEPA. Trump has used IEEPA tariffs as the primary cudgel for economic policy and trade negotiations, with damaging consequences for Americans.
Costco argued that the tariffs were illegal because Congress never meant to authorize the collection of tariffs under IEEPA. “And there is no better evidence of Congress doing no such thing than the pell-mell manner by which these on-again/off-again IEEPA duties have been threatened, modified, suspended, and re-imposed, with the markets gyrating in response,” Costco complained.
The lawsuit is far from the first legal battle over Trump’s ability to levy “emergency” tariffs without congressional approval. Earlier this fall, the Supreme Court heard oral arguments in Learning Resources v. Trump, where most of the justices expressed doubt that IEEPA could authorize the tariffs in question. A ruling could come within the next few weeks or months.
Nor is Costco the only company that has sought such relief in recent weeks. NPR reported that cosmetics company Revlon, motoring conglomerate Kawasaki, and other brands have pursued similar litigation. Costco’s lawsuit stands out not only because of the size of the company involved, but because it illustrates how tariffs actually work—and exposes the Trump administration’s lies about them.
Like those that came before it, Tuesday’s lawsuit argued that the IEEPA tariffs went beyond what Congress had authorized when it enacted the Cold War–era statute. Its sweeping language has been used in times of declared national emergency to freeze foreign assets and seize foreign-owned property. No previous administration, however, has used it as a revenue-raising mechanism before. “The text of IEEPA does not use the word ‘tariff’ or any term of equivalent meaning,” Costco noted in its complaint. “IEEPA was first enacted in 1977 and has been amended several times, but it has never been amended to authorize, or used by any other president to impose, tariffs.”
The Trump administration has claimed in other cases that the law’s authority to “regulate … importations” could be stretched to cover tariffs. It has also insisted that it would refund American importers if the tariffs were held to be illegal. This concession persuaded the Federal Circuit Court of Appeals to not block the tariffs with a preliminary injunction, thereby allowing the government to keep collecting them during litigation.
Costco argued that its new lawsuit was necessary to preserve its ability to recoup the tariffs that it has already paid. “Even if the IEEPA duties and underlying executive orders are held unlawful by the Supreme Court,” the company said in its complaint, “importers that have paid IEEPA duties, including [Costco], are not guaranteed a refund for those unlawfully collected tariffs in the absence of their own judgment and judicial relief.”
The lawsuit’s necessity is also driven by the nature of how tariffs are collected. That responsibility falls to Customs and Border Protection, an agency within the Department of Homeland Security. As its name suggests, CBP was formed in the 2000s by the merger of the U.S. Customs Service, which formerly resided in the Treasury Department, and the U.S. Border Patrol, which was previously housed in the Justice Department. CBP’s highly visible role in immigration enforcement has often obscured its lesser-known role in tariff collection.
In one sense, collecting tariffs superficially resembles the way that most Americans pay their taxes. Ahead of the annual April deadline, Americans report their income, their deductions, and other important details to the Internal Revenue Service, along with any owed payments. The IRS then notifies them if they owe additional taxes or if they are entitled to a tax refund.
For tariffs, the latter part of that process is known as liquidation and it occurs on a rolling basis. Importers like Costco file a declaration with CBP for imported goods as they arrive and pay an initial duty on them based on the estimated value of the goods, their country of origin, and their classification under the federal tariff schedule. This can be an extraordinarily complicated process at the scale at which large corporations like Costco operate.
Just like the IRS reviewing one’s tax filing, CBP then reviews those valuations to confirm their accuracy. “Once the final amount of duty is determined by CBP, CBP ‘liquidates’ the entry and notifies the importer of record as to whether they owe more money or are entitled to a refund,” Costco explained in its lawsuit. The company noted that this usually takes place within ten to twelve months.
Once that process is complete, Costco warned, it may be unable to recover the tariffs that it paid. Federal courts “have cautioned that an importer may lack the legal right to recover refunds of duties for entries that have liquidated, even where the underlying legality of a tariff is later found to be unlawful,” Costco claimed. And while CBP can voluntarily extend the liquidation period, the company claimed that the agency denied its request to do so.
This dynamic is in stark contrast to how the Trump administration often describes its tariff policy. In Trumpworld, tariffs are paid by foreign countries that have taken advantage of Americans for decades under free-trade policies. In reality, tariffs are paid by American companies and individuals when they import goods into the United States. The Trump administration came close in November to conceding to reality before the Supreme Court justices, but couldn’t bring itself to admit it outright.
“Who pays the tariffs?” Chief Justice John Roberts asked Solicitor General D. John Sauer, who argued on the administration’s behalf. “If a tariff is imposed on automobiles, who pays them?” Sauer’s rambling answer did not clearly explain the matter. That prompted Roberts to later state outright in another question that tariffs effectively amounted to the “imposition of taxes on Americans.”
The power to tax, Roberts explained, is a core power of Congress, not the executive branch. His line of questioning signaled that the Trump administration was unlikely to prevail on the legality of its IEEPA tariffs. If Costco and other companies ultimately prevail in their legal war against those tariffs, the full breadth of the Trump’s scam will be made clear to the American public—and his administration may even be forced to make whole the companies he scammed.
