Toy Companies Navigate Complex Path to Tariff Refunds After Supreme Court Ruling

Following the Supreme Court's decision to overturn Trump's emergency tariffs, companies that sold their potential refund claims to investors are now working through complex legal processes. While some firms celebrated the ruling, uncertainty remains about how and when actual refunds will be processed.

Following Friday’s Supreme Court decision overturning former President Trump’s emergency tariffs, businesses that transferred their potential refund rights to investment firms are now celebrating – though the road ahead remains complicated.

Mark Mintman, Chief Financial Officer at Atlanta-based toy company Kids2, described the situation as “a tiny win in what seems to be an ongoing, changing environment.” His company received $2 million from a Boston investment fund in return for claims related to $15 million in tariffs paid to customs officials through last September.

Kids2, which brings in 95% of its toy and baby product inventory from China, is currently consulting with attorneys to determine how to protect its refund eligibility. The high court’s ruling delegated the specifics of refund procedures to lower courts, potentially creating an expensive and complex legal process.

The situation became more uncertain when Trump announced Friday his intention to pursue alternative methods for collecting these taxes, leaving importers like Kids2 unclear about their financial outlook.

These arrangements allow businesses to receive immediate partial payments of their potential refunds. Companies retain these upfront payments following the tariff reversal, while any government refunds go to the investment partners. Mintman characterized these deals as a “cost-recovery action,” noting that companies would keep the money regardless of whether tariffs were upheld, while investors would receive nothing in that scenario.

This represents Wall Street’s latest innovation in monetizing future cash flows, similar to existing markets for lawsuit settlement payments and lottery winnings. Music icon David Bowie famously pioneered this concept by selling his royalty streams through “Bowie Bonds.”

Attorney Amy Pasacreta from Orrick’s restructuring division highlighted the substantial uncertainty surrounding refunds. “Are there going to be refunds? And if so, how importers can claim the refunds? And this, as alluded to by President Trump this afternoon, could go on for months or years,” she explained.

Pasacreta anticipates new participants entering the market given the increased probability of eventual refunds, with claim values expected to rise following Friday’s court decision.

“We’ve had inbounds on people looking to find claims to buy, and we’ve also discussed with some sellers (importers) who were in the process of speaking to people before today’s decision, and sort of what it means for them,” Pasacreta noted.

Jay Foreman, head of toy manufacturer Basic Fun, which produces Tonka trucks, Care Bears and K’Nex building sets, indicated via email that he’s considering selling his refund claim if the “discount fee was reasonable.”

Foreman explained he “could take that money and reinvest in our business at once, and also if tariff stay off toys, work with retailers to lower prices ASAP.”