Taxing Times: What Happens After Trump’s Tariffs Are Struck Down

In a blow to the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA), the United States Supreme Court held that the statute does not authorize the President to unilaterally impose tariffs.

On February 20, 2026, the Supreme Court issued a landmark ruling in Learning Resources, Inc. v. Trump, fundamentally reshaping the executive branch’s authority to dictate trade policy through emergency declarations.

This decision necessitates an immediate reassessment of trade strategies. While the ruling provides a technical legal victory for importers, the subsequent whiplash of policy shifts has created a new era of uncertainty.

The Ruling: Why IEEPA Fell Short

The administration relied on two specific words in IEEPA—the power to “regulate importation”—to justify broad tariffs on goods from Canada, Mexico, China, and eventually all trading partners. The government argued that because the President can block or prohibit imports during a national emergency, he must also possess the lesser power to tax them.

The Supreme Court, led by Chief Justice Roberts, rejected this logic. The Court’s reasoning centered on several key principles:

• The Power of the Purse: Article I of the Constitution vests the power to lay and collect taxes and duties exclusively in Congress. The Court noted that the Framers did not vest any part of the taxing power in the executive branch.
• “Regulate” vs. “Tax”: The Court observed that “regulate” and “tax” are distinct powers. While the U.S. Code is filled with statutes that allow agencies to “regulate,” the government could not identify a single instance in which that word, standing alone, authorized a tax.
• The Major Questions Doctrine: Under this doctrine, if an agency or President claims the power to make decisions of “vast economic and political significance,” they must point to clear congressional authorization. The Court found no such clarity in IEEPA, especially since no President in the statute’s 50-year history had ever used it to impose tariffs.

Policy Whiplash: From IEEPA to New Flat-Rate Tariffs

The legal invalidation of the IEEPA framework did not lead to a cooling of trade tensions. Instead, the past several days have been defined by rapid-fire executive maneuvers. Immediately following the ruling, the White House signaled a pivot to other statutory authorities—such as Section 232 of the Trade Expansion Act or Sections 122 and 301 of the Trade Act—to maintain its trade posture.

Following the decision, the administration announced a 10% flat-rate tariff on all imports, which was then abruptly increased to a 15% tariff over this past weekend.

Perhaps most concerning for international relations is that this new flat rate applies indiscriminately. It includes countries that had previously cooperated with the administration’s initial demands and negotiated lower, preferential rates in exchange for policy concessions. For businesses, this reset means previous exemptions and stability have vanished, replaced by a universal and higher cost of entry for foreign goods.

This new 15% mandate raises a critical constitutional question: if IEEPA cannot support a tax under the guise of regulation, can the administration’s pivot to Section 232 or 301 survive similar “Major Questions” scrutiny? Legal challengers are already signaling that any tariff lacking a clear, specific connection to national security or proven trade violations remains vulnerable to the same Article I “Power of the Purse” arguments that just toppled the IEEPA framework.

The “Mess” of Refunds and Legal Standing

With the IEEPA tariffs declared unauthorized, the question of what happens to the billions of dollars already collected is paramount. Justice Kavanaugh, in his dissent, correctly predicted that the refund process would be a “mess.” Several complex questions remain:

1. Is a refund legally possible?

While the Supreme Court vacated the IEEPA-based tariffs, it also remanded the cases with instructions to dismiss for lack of jurisdiction in certain district courts, noting that the Court of International Trade (CIT) has exclusive jurisdiction over claims arising under a law of the United States providing for tariffs. But the question remains whether the CIT has exclusive jurisdiction over amounts already paid under an unlawful exercise of executive power, given the relief sought in the underlying Learning Resources cases was declaratory and injunctive, not monetary.

Whether jurisdiction is exclusive to the CIT or is open to the Court of Federal Claims under the Big Tucker Act or the Little Tucker Act remains to be seen. There may be a viable claim that a business is owed a refund and interest under the Fifth Amendment for illegal exaction or an unlawful taking.

In the meantime, the CIT will now have to administer the more than 2,000 suits preemptively filed challenging the tariffs before the Supreme Court took up the issue. The CIT stayed these cases pending the Supreme Court’s ruling on whether IEEPA authorized the President to issue tariffs, so time will tell how the CIT processes these claims and addresses the question of refunds.

It also remains to be seen whether putative plaintiffs seeking a refund must exhaust administrative remedies under the Customs and Border Patrol’s (CBP) administrative protest system (Form CF-19), whether the time limitations involved in that process (180 days post-liquidation) apply given the Court’s ruling in Learning Resources, or whether CBP will announce a new regulatory process for claiming rebates.

2. The question of standing

A significant hurdle for many companies will be the “pass-through” defense. If a company raised its prices to cover the cost of the tariffs, the government may argue the company suffered no real economic injury and therefore lacks standing to seek a refund. Only companies that absorbed the tariff costs directly may have a clear path to recovery. Reviewing contracts and the flow of the tariff costs through each transaction could confirm or preclude standing.

3. Regulatory retaliation

There is concern that companies aggressively seeking refunds may expose themselves to heightened scrutiny or regulatory retaliation from an administration that remains committed to its tariff goals. When weighing the benefit of a refund, it is worth considering how the request might interact with broader regulatory oversight.

Fraud Risks and the False Claims Act

The creation of any mass-refund mechanism invariably invites the risk of exploitation. The government is expected to rely upon federal whistleblowers and auditors to monitor the mass-refund mechanism for any inflated claims.

Businesses must ensure their documentation is impeccable. Any misrepresentations in refund applications could trigger False Claims Act investigations, leading to treble damages and significant civil (and potentially criminal) penalties.

Strategic Next Steps

The Supreme Court has checked the President’s use of IEEPA to impose tariffs, but the administration’s resolve to use tariffs as a primary tool of both domestic and foreign policy remains unbroken. The shift to a 15% flat rate signals a move toward universal rather than negotiated trade barriers.

As the dust settles on this landmark ruling, businesses must navigate a volatile trade landscape. Those companies looking for refunds must ensure their trade documentation is meticulous to mitigate the risk of heightened regulatory scrutiny or potential False Claims Act investigations.

Please contact the author of this article or a member of the Government Contracts team if you have questions about how this ruling may affect your business. To stay informed about further developments, please subscribe to Woods Rogers’ legal update alerts.