The 24-State Lawsuit Against Section 122: What Importers Should Know About a Possible Second Refund Wave
On March 5, 2026, twenty-four state attorneys general filed a lawsuit at the U.S. Court of International Trade (CIT) challenging the legality of the Section 122 10% global tariff that replaced the invalidated IEEPA tariffs. If the lawsuit succeeds, it could trigger a second nationwide tariff refund wave on top of the $166 billion CAPE/IEEPA refund process already in motion. Here's what importers need to know about the case, the timeline, and how to position for a possible second refund cycle.
The Lawsuit Basics
| Item | Detail |
|---|---|
| Filed | March 5, 2026 |
| Court | U.S. Court of International Trade (CIT) |
| Plaintiffs | 24 state attorneys general |
| Defendant | United States (CBP, Treasury, USTR) |
| Core claim | Section 122 tariffs exceed statutory authority |
The 24-state coalition follows the same playbook the states used to challenge IEEPA tariffs in 2025 — coordinated multistate filing at the CIT to obtain nationwide relief.
The Legal Theory
Section 122 (19 U.S.C. § 2132) authorizes temporary import surcharges of up to 15% to address "large and serious" balance-of-payments deficits. It is a short-term emergency tool. The states' core argument:
- Section 122 was designed for short-term balance-of-payments emergencies, not as a general tariff replacement
- The 150-day statutory cap exists precisely to prevent open-ended use
- Re-using Section 122 as a substitute for invalidated IEEPA tariffs extends presidential tariff authority the Supreme Court already rejected in Learning Resources, Inc. v. Trump
- The duration and breadth of current Section 122 tariffs may exceed statutory authority
In short: the states argue this is the IEEPA workaround the Supreme Court foreclosed, repackaged under a different statute.
Section 122's Current Scope
| Item | Detail |
|---|---|
| Rate | 10% global baseline tariff |
| Effective | February 24, 2026 |
| Statutory expiration | July 24, 2026 (150 days) |
| Coverage | Virtually all imports across all HTS chapters |
Because Section 122 sits on top of MFN duties and applies broadly, it generates significant revenue on nearly every entry filed since February 24, 2026.
The Financial Stakes
CBP processes roughly $3 trillion in annual import value. A 10% surcharge running for several months produces cumulative duty exposure in the tens of billions. If invalidated, the entire pool becomes potentially refundable.
If Section 122 Is Invalidated — What Happens to Your Money
A successful state challenge would follow the IEEPA refund pattern:
- Refunds processed via CBP through a CAPE-style declaration system
- Brokers preserve refund rights via Post Summary Correction (PSC) within 300 days of entry summary filing
- Where PSC is unavailable, file a protest under 19 U.S.C. § 1514 within 180 days of liquidation
- Final-liquidation entries will likely require a court order (as with IEEPA) to extend refund eligibility
Importers who let entries liquidate without filing protests or PSCs risk losing refund rights — even if the tariff is later invalidated.
How This Stacks With CAPE
CAPE handles IEEPA refunds — Phase 1 launched April 20, 2026. A successful Section 122 challenge would require CBP to build a similar refund mechanism, likely as a separate declaration type within ACE.
Critical for importers: some entries paid duties under both IEEPA (pre-February 20) and Section 122 (post-February 24). These are separate refund tracks per duty type. Brokers must:
- Track IEEPA-paid line items separately from Section 122-paid line items
- File CAPE declarations now for the IEEPA portion
- Preserve PSC and protest rights on the Section 122 portion pending the lawsuit
Co-mingling the two duty types in records will create extraction headaches if a second refund cycle is ordered.
What Brokers Should Do Today
- Document Section 122 duty payments separately on every entry. Use a distinct line-item tag in your broker software.
- Preserve PSC eligibility for entries within the 300-day window. Don't let entries liquidate without a recovery path.
- Prepare clients for the possibility of a second refund cycle in late 2026 or early 2027. Include a Section 122 line in every refund-estimate brief.
- Maintain a watchlist of the case docket. The CIT typically issues scheduling orders within 60 days of complaint filing.
- Don't double-pay liquidity assumptions. Treat any potential Section 122 refund as a contingent recovery, not budgeted cash.
Realistic Timeline
| Stage | Typical Duration |
|---|---|
| CIT briefing and oral argument | 3-6 months from filing |
| CIT decision | 6-12 months from filing |
| Government appeal to Federal Circuit (if government loses) | Filed within 60 days |
| Federal Circuit decision | 12-18 months from appeal |
| Potential Supreme Court review | Additional 6-12 months |
Realistic earliest CIT decision: late 2026. Realistic earliest refund mechanism: mid-to-late 2027 if the states win and no stay is granted on appeal. Importers should plan as though Section 122 duties are non-refundable in the near term, while preserving every procedural right that would unlock refunds if the legal landscape shifts.
The Section 122 statutory expiration on July 24, 2026 may make the case partially moot if the administration does not extend the tariff — but entries already paid would remain subject to the legal challenge.
Sources
Duane Morris: Legal Challenges to Section 122 Tariffs | Troutman Pepper Locke: Supreme Court Strikes Down IEEPA Tariffs; Trump Responds With Section 122 Global Surcharge | Wiley: Trump Imposes Section 122 Tariffs After Halting IEEPA Tariffs | Snell & Wilmer: Tariffs Redux — IEEPA Refunds and Section 122
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