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B-156081, JAN. 11, 1967

B-156081 Jan 11, 1967
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BOSKEY AND LYONS: REFERENCE IS MADE TO LETTERS DATED AUGUST 2. WHEREIN IT WAS HELD THAT FENIX AND SCISSON. WHICH IT IS CLAIMED WERE NOT INCLUDED IN THE PRICE OF ITS CONTRACT NO. 14-06-B-5101. THE CONTRACTOR OR THE TRANSACTIONS OR PROPERTY COVERED BY THE CONTRACTOR ARE EXEMPT. IT PROVIDES FURTHER FOR AN INCREASE IN THE CONTRACT PRICE IN THE EVENT THE CONTRACTOR IS REQUIRED TO PAY OR BEAR THE BURDEN (I) OF ANY TAX WHICH EITHER WAS NOT TO BE INCLUDED IN THE CONTRACT PRICE PURSUANT TO THE PARAGRAPH OR WAS SPECIFICALLY EXCLUDED FROM THE CONTRACT PRICE BY A PROVISION IN THE CONTRACT OR (II) OF AN INCREASE IN RATE OF ANY TAX WHETHER OR NOT SUCH TAX WAS EXCLUDED FROM THE CONTRACT PRICE. AFTER AWARD OF THE CONTRACT THE CONTRACTOR LEARNED THAT THE TAXES WERE APPLICABLE AND REQUESTED THAT THE CONTRACT PRICE BE ADJUSTED TO COVER THE ESTIMATED AMOUNT OF THE TAXES INVOLVED.

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B-156081, JAN. 11, 1967

TO VOLPE, BOSKEY AND LYONS:

REFERENCE IS MADE TO LETTERS DATED AUGUST 2, 1966, NOVEMBER 2, 1966, AND OTHER CORRESPONDENCE, WITH ENCLOSURES, REQUESTING RECONSIDERATION OF OUR DECISION OF MAY 13, 1965, B-156081, 44 COMP. GEN. 715, TO THE AUTHORIZED CERTIFYING OFFICER, REGION 5, BUREAU OF RECLAMATION, WHEREIN IT WAS HELD THAT FENIX AND SCISSON, INCORPORATED, CONTRACTORS, SHOULD NOT BE REIMBURSED FOR TAXES PAID BY THE COMPANY PURSUANT TO THE PROVISIONS OF THE NEW MEXICO EMERGENCY SCHOOL TAX ACT OF 1935, AS AMENDED, WHICH IT IS CLAIMED WERE NOT INCLUDED IN THE PRICE OF ITS CONTRACT NO. 14-06-B-5101, DATED MAY 1, 1964, WITH THE BUREAU OF RECLAMATION.

PARAGRAPH 9, SPECIFICATIONS, GENERAL CONDITIONS, OF THE CONTRACT STATES THAT, EXCEPT AS OTHERWISE PROVIDED IN THE CONTRACT, THE CONTRACT PRICE INCLUDES ALL FEDERAL, STATE AND LOCAL TAXES AND DUTIES IN EFFECT AND APPLICABLE TO THE CONTRACT ON THE TAX INCLUSIVE DATE (BID OPENING DATE), EXCEPT TAXES FROM WHICH THE GOVERNMENT, THE CONTRACTOR OR THE TRANSACTIONS OR PROPERTY COVERED BY THE CONTRACTOR ARE EXEMPT. IT PROVIDES FURTHER FOR AN INCREASE IN THE CONTRACT PRICE IN THE EVENT THE CONTRACTOR IS REQUIRED TO PAY OR BEAR THE BURDEN (I) OF ANY TAX WHICH EITHER WAS NOT TO BE INCLUDED IN THE CONTRACT PRICE PURSUANT TO THE PARAGRAPH OR WAS SPECIFICALLY EXCLUDED FROM THE CONTRACT PRICE BY A PROVISION IN THE CONTRACT OR (II) OF AN INCREASE IN RATE OF ANY TAX WHETHER OR NOT SUCH TAX WAS EXCLUDED FROM THE CONTRACT PRICE.

THE DECISION OF MAY 13, 1965, SETS FORTH THAT THE CONTRACTOR HAD ALLEGED THAT IT DID NOT INCLUDE THE NEW MEXICO SCHOOL TAXES, ESTIMATED AT ABOUT $176,000, BECAUSE IT ASSUMED THAT THE TAXES WOULD NOT BE APPLICABLE TO PURCHASES OF MATERIALS AND EQUIPMENT NEEDED FOR PERFORMANCE OF THE GOVERNMENT CONTRACT OR TO THE GROSS RECEIPTS UNDER THE CONTRACT. AFTER AWARD OF THE CONTRACT THE CONTRACTOR LEARNED THAT THE TAXES WERE APPLICABLE AND REQUESTED THAT THE CONTRACT PRICE BE ADJUSTED TO COVER THE ESTIMATED AMOUNT OF THE TAXES INVOLVED. UPON REVIEW OF THE CONTRACTOR'S ORIGINAL BID COMPUTATION SHEETS AND DISCUSSIONS WITH THE CONTRACTOR, THE GOVERNMENT ACTING CHIEF ENGINEER STATED THAT HE WAS SATISFIED THAT THE CONTRACTOR DID NOT INCLUDE THE SCHOOL TAXES IN ITS BID PRICE OF $5,402,994.

IT IS NOW ALLEGED, AS IN THE EARLIER CONSIDERATION OF THE MATTER, THAT IN PREPARING THE BID OF $5,402,994, THE CONTRACTOR'S BID ESTIMATOR HAD CONSULTED THE "SUMMARY OF STATE REGULATIONS AND TAXES AFFECTING GENERAL CONTRACTORS," PUBLISHED BY THE BUREAU OF CONTRACT INFORMATION, INCORPORATED, A PRIVATE INFORMATION SERVICE. THIS PUBLICATION INDICATED THAT CONTRACTS FOR THE FEDERAL GOVERNMENT BEING PERFORMED IN THE STATE OF NEW MEXICO WERE EXEMPT FROM STATE TAXES. A PHOTOCOPY OF THE COVER PAGE AND OF THOSE PAGES OF THE PUBLICATION APPERTAINING TO NEW MEXICO, WERE TRANSMITTED HERE BY LETTER DATED SEPTEMBER 29, 1966. REFERENCE IS AGAIN MADE TO CERTAIN CORRESPONDENCE SHOWING THAT THE TAX QUESTION WAS RAISED IN CONNECTION WITH AN INQUIRY MADE TO THE NEW MEXICO CONTRACTORS' LICENSE BOARD AS TO WHETHER A LICENSE FOR THE PROJECT WOULD BE REQUIRED. THE CONTRACTOR WAS ADVISED BY THE LICENSE BOARD, FIRST, THAT NO LICENSE WOULD BE REQUIRED AND, SECOND, THAT THE TAX PROBLEM WAS BEING REFERRED TO THE NEW MEXICO BUREAU OF REVENUE FOR AN ANSWER. IN ITS LETTER TO THE LICENSE BOARD THE CONTRACTOR STATED THAT "WE FURTHER UNDERSTAND THAT THE STATE SALES TAX AND EMERGENCY SCHOOL TAX IS NOT APPLICABLE IN SUCH INSTANCES. IF OUR UNDERSTANDINGS ARE INCORRECT, WILL YOU PLEASE ADVISE AT THE EARLIEST DATE PRACTICABLE.' NO REPLY WAS RECEIVED FROM THE BUREAU OF REVENUE AND THE CONTRACTOR ASSUMED ITS POSITION WAS CORRECT. IT ALSO IS RESTATED THAT THE APPLICABILITY OF THE NEW MEXICO TAXES WAS SPECIFICALLY DISCUSSED WITH REPRESENTATIVES OF THE BUREAU OF RECLAMATION AND THE CONTRACTOR'S REPRESENTATIVES THOUGHT THERE WAS AGREEMENT THAT THE TAXES WERE NOT APPLICABLE, BUT THAT THE GOVERNMENT'S REPRESENTATIVES SUGGESTED THAT THE QUESTION SHOULD BE CHECKED FURTHER.

IN FURTHER SUPPORT OF THE CONTRACTOR'S CONTENTION THAT IT OMITTED THE TAXES FROM ITS BID IN GOOD FAITH AND FOR SUBSTANTIAL REASONS, IT IS NOW STATED THAT IN 1963 AND 1964 THE CONTRACTOR ACTED AS ARCHITECT ENGINEER CONTRACTOR FOR THE U.S. ATOMIC ENERGY COMMISSION ON A COST PLUS-A-FIXED- FEE CONTRACT FOR A PROJECT NEAR CARLSBAD, NEW MEXICO, AND THAT ITS FAILURE TO PAY ANY SALES OR GROSS RECEIPTS TAXES ON THIS PROJECT WAS NEVER QUESTIONED BY THE STATE AUTHORITIES, ALTHOUGH IT DID PAY PAYROLL TAXES.

THE GIST OF THE REQUEST FOR RECONSIDERATION OF THE PRIOR DECISION APPEARS TO BE THAT THE CONTRACTOR'S OMISSION OF THE TAX ESTIMATE FROM ITS BID WAS IN ACCORD WITH THEIR PREVIOUS EXPERIENCE; THAT IT ENDEAVORED TO OBTAIN ACCURATE INFORMATION; AND THAT IT ACTED AS ANY OTHER PRUDENT, REASONABLE CONTRACTOR WOULD ACT--- UNDER SIMILAR CIRCUMSTANCES.

THE HISTORY OF THE NEW MEXICO EMERGENCY SCHOOL TAX LAW AS RELATED TO EXEMPTIONS FROM ITS TAXING PROVISION IN EFFECT DURING A PERIOD EXTENDING FROM THE YEAR 1935 TO MARCH 31, 1961, IS SET FORTH IN A DECISION RENDERED ON JUNE 11, 1962, BY THE SUPREME COURT OF NEW MEXICO IN BRADBURY AND STAMM CONSTRUCTION COMPANY, ET AL. V. BUREAU OF REVENUE, 372 F.2D 808. ORIGINALLY ENACTED IN 1935, THE LAW PROVIDED EXEMPTIONS WITH RESPECT TO SALES MADE TO THE UNITED STATES, THE STATE OF NEW MEXICO AND ITS POLITICAL SUBDIVISIONS. IN 1957 EXEMPTIONS FROM TAXES ON SALES TO THE UNITED STATES WERE COMPLETELY REMOVED BUT THE EXEMPTIONS FROM TAXES ON SALES TO THE STATE OR ITS POLITICAL SUBDIVISIONS, WERE EXEMPTED. IN 1961, BECAUSE OF STATE DISTRICT COURT DECISIONS HOLDING THAT THE 1957 AND 1959 STATUTES WERE DISCRIMINATORY AND INVALID, THE LAW WAS AGAIN AMENDED TO ALLOW TAX EXEMPTIONS ON SALES OF TANGIBLE PERSONAL PROPERTY, GENERALLY, TO THE UNITED STATES, ITS DEPARTMENTS OR AGENCIES; TO THE STATE OF NEW MEXICO OR ANY OF ITS POLITICAL SUBDIVISIONS; AND TO RELIGIOUS OR CHARITABLE ORGANIZATIONS IN THE CONDUCT OF THEIR REGULAR FUNCTIONS. THE AMENDED LAW ELIMINATED ANY REFERENCE TO SERVICES IN ITS TAX EXEMPTION PROVISIONS, BUT THERE WAS ADDED A PROVISION FOR THE GRANTING OF TAX RELIEF TO CONTRACTORS ON PROJECTS ENTERED INTO PRIOR TO MARCH 31, 1961, IF THEIR CONTRACTS DID NOT PERMIT PRICE INCREASES ON ACCOUNT OF ADDITIONAL TAXES TO BE LEVIED AGAINST THEM.

THE TRIAL COURT IN THE BRADBURY AND STAMM CASE DETERMINED THAT THE LATTER PROVISION OF THE 1961 STATUTE WAS INVALID BUT THAT THE REMAINING POSITION OF THE TAX EXEMPTION PROVISIONS WERE SEVERABLE AND VALID. THE TRIAL COURT'S DECISION WAS AFFIRMED BY THE SUPREME COURT OF NEW MEXICO ON JUNE 11, 1962, EXCEPT IN CONNECTION WITH A MATTER OF COMPUTATION OF INTEREST.

THE EXTRACT PHOTOCOPY OF THE "SUMMARY OF STATE REGULATIONS AND TAXES AFFECTING GENERAL CONTRACTORS" FURNISHED US CARRIES THE DATE "1960," AND THE COVER PAGE CAUTIONS THE USER THAT:

"INFORMATION CONTAINED HEREIN IS BASED ON STATE LEGISLATION AND REGULATIONS IN EFFECT AT TIME OF PUBLICATION. WHILE BELIEVED TO BE SUBSTANTIALLY CORRECT NO WARRANTY AS TO ACCURACY OR COMPLETENESS IS GIVEN OR IMPLIED.

"MUNICIPAL AND COUNTY REQUIREMENTS ARE NOT COVERED.

"BEFORE TAKING ANY ACTION CONTRACTORS SHOULD CHECK CAREFULLY WITH ALL ADMINISTRATIVE AGENCIES CONCERNED IN ORDER TO BE CERTAIN OF HAVING COMPLETE AND UP-TO-DATE INFORMATION ON THESE MATTERS.'

BEFORE THE DECISION BY THE SUPREME COURT OF NEW MEXICO WAS RENDERED ON THE BRADBURY AND STAMM CASE THE EMERGENCY SCHOOL TAX LAW WAS AMENDED, EFFECTIVE MARCH 16, 1962, TO DELETE THE OBJECTIONABLE TAX EXEMPTION PROVISION RELATING TO THE POSSIBILITY OF GRANTING TAX RELIEF TO CERTAIN CONTRACTORS ON SERVICE PROJECTS ENTERED INTO BEFORE ENACTMENT OF THE 1961 STATUTE.

HENCE IT APPEARS THAT ALTHOUGH THE INFORMATION CONTAINED IN THE "SUMMARY" MAY HAVE BEEN ACCURATE IN 1960, IT WAS WHOLLY INACCURATE AFTER PASSAGE OF THE AMENDMENTS AND THE DECISION IN THE BRADBURY AND STAMM CASE. IT SHOULD BE NOTED AT THIS POINT THAT THIS DECISION HELD THAT THE TAX ON SERVICES WAS NOT A TAX ON THE UNITED STATES GOVERNMENT BUT A TAX ON THE CONTRACTOR, LEVIED ON HIS GROSS RECEIPTS.

HENCE AT THE TIME OF THE PREPARATION OF ITS BID IN 1964, THE CONTRACTOR SHOULD HAVE BEEN AWARE THAT THE 1960 PAMPHLET WAS INACCURATE AND THAT ITS BUSINESS WAS SUBJECT TO THE BUSINESS PRIVILEGE TAX OF NEW MEXICO NOTWITHSTANDING THE CONTRACT SOUGHT WAS WITH THE UNITED STATES. ADDITION, A DECISION HAD ALREADY BEEN RENDERED (MARCH 23, 1964) IN THE CASE OF THE DIKEWOOD CORPORATION V. BUREAU OF REVENUE OF THE STATE OF NEW MEXICO, ET AL, 390 P.2D 661, PRIOR TO BID CLOSING DATE, APRIL 9, 1964. THIS CASE HELD VENDORS OF SERVICES TO THE FEDERAL GOVERNMENT LIABLE FOR TAXES UNDER THE EMERGENCY SCHOOL TAX ACT. ALTHOUGH THIS DECISION DID NOT BECOME FINAL (EXPIRATION OF TIME FOR MOTION FOR REHEARING) UNTIL AFTER BID CLOSING DATE THE ADVERSE DECISION TO THE CONTRACTOR SHOULD HAVE BEEN NOTICE TO CONTRACTORS, SIMILARLY SITUATED, OF THE HIGH PROBABILITY THAT THEY WOULD BE SUBJECT TO THE PARTICULAR TAX, PARTICULARLY SINCE IT IS CONSISTENT WITH THE DECISION IN THE BRADBURY AND STAMM CASE.

WE CANNOT CONCLUDE THAT THE CONTRACTOR ACTED IN A MANNER THAT WAS EITHER PRUDENT OR WISE IN FORMING ITS CONCLUSION. NOR DO WE BELIEVE THE CONTRACTOR PRUDENT OR WISE IN ADDRESSING ITS INQUIRY CONCERNING TAX MATTERS TO A LICENSE BUREAU.

IN ITS LETTER DATED OCTOBER 31, 1966, TO YOU, A COPY OF WHICH WAS TRANSMITTED HERE, THE CONTRACTOR STATES:

"/2) IN 1963 AND EARLY 1964 WE ACTED AS ARCHITECT-ENGINEER CONTRACTOR FOR THE U.S. ATOMIC ENERGY COMMISSION FOR A PROJECT NEAR CARLSBAD, NEW MEXICO.

"AS EXPLAINED TO YOU IN PREVIOUS CORRESPONDENCE, WE THOUGHT THAT THE SALES AND GROSS RECEIPTS TAXES DID NOT APPLY ON FEDERAL PROJECTS AND EVEN THOUGH OUR CONTRACT WAS A COST PLUS FEE TYPE, WE DID NOT PAY THOSE TAXES ON THIS PROJECT. * * * OUR FAILURE TO PAY ANY SALES OR GROSS RECEIPTS TAXES ON THIS PROJECT WAS NEVER QUESTIONED BY THE STATE OF NEW MEXICO.'

WE ARE WITHOUT INFORMATION CONCERNING THE CONTRACT BETWEEN THE ATOMIC ENERGY COMMISSION AND FENIX AND SCISSON, INCORPORATED, AND CANNOT, THEREFORE, CONCLUDE THAT THE CONTRACTOR'S ASSUMPTION OF NON LIABILITY FOR TAXES WAS CORRECT. IT IS NOT STATED WHETHER THE CONTRACTOR REPORTED ITS GROSS RECEIPTS UNDER THE CONTRACT, OR ITS FEE, TO APPROPRIATE TAXING AUTHORITY, WHO IN TURN ADVISED THAT THE RECEIPTS WERE NOT TAXABLE BECAUSE OBTAINED FROM THE UNITED STATES; OR WHETHER NO REPORT OF RECEIPTS WAS FILED BY THE CONTRACTOR CLAIMING AN EXEMPTION WHICH THE TAXING AUTHORITY ACCEPTED; OR WHETHER THE TAXING AUTHORITY MAY HAVE BEEN TOTALLY UNAWARE OF THE TRANSACTION EVEN THOUGH OTHER TAXES (PAYROLL, FOR INSTANCE) HAD BEEN REPORTED AND PAID. THE LATTER ALTERNATIVE APPEARS THE MOST LOGICAL SINCE LICENSES WERE NOT REQUIRED AND THE TAXING AUTHORITY WOULD KNOW OF THE CONTRACT PROJECT RECEIPTS ONLY BY REASON OF REPORTS TO IT MADE BY THE CONTRACTOR. THE STATUTE APPEARS TO PLACE THE RESPONSIBILITY FOR THE REPORTING AND PAYMENT OF THE EMERGENCY SCHOOL TAX (BUSINESS PRIVILEGE TAX) ON THE TAXPAYER AND NOT ON THE TAXING ADMINISTRATION TO ASSESS AND COLLECT. SEE SECTION 72-16-14, NEW MEXICO STATUTES ANNOTATED: LAWS 1963, CH. 325, SEC. 12. UNDER THE CIRCUMSTANCES WE CAN DRAW NO FAVORABLE OR UNFAVORABLE CONCLUSION FROM THE STATED FAILURE TO PAY TAXES ON THE EARLIER CONTRACT.

IT APPEARS, THEREFORE, THAT THE FAILURE OF THE CONTRACTOR TO INCLUDE THE TAX IN THE BID PRICE IS THE RESULT OF ITS OWN MISUNDERSTANDING AS TO THE APPLICATION OF THE TAX AND NOT DUE TO ANY INDUCEMENT BY THE GOVERNMENT. THE SITUATION IS NOT UNLIKE ONE WHERE A CONTRACTOR MAKES AN ERROR IN ITS BID PRICE OF WHICH THE CONTRACTING OFFICER HAS NEITHER ACTUAL NOR CONSTRUCTIVE NOTICE. IN THAT RESPECT THE COURTS HAVE HELD THAT WHERE AN ERROR IS UNILATERAL, THE CONTRACTOR IS NOT ENTITLED TO ANY REDRESS, M. H. OGDEN AND EDWIN DAUGHERTY V. UNITED STATES, 102 CT.CL. 249, AND SALIGMAN V. UNITED STATES, 56 F.SUPP. 505.

IN THE CIRCUMSTANCES, IT APPEARS THAT WHATEVER UNDERSTANDING THE CONTRACTOR HAD OR WHATEVER ASSUMPTION IT MADE REGARDING THE APPLICATION OF THE TAX WAS NOT JUSTIFIED BY THE INFORMATION IT CONTENDS WAS RELIED UPON. WE ARE, THEREFORE, OF THE OPINION THAT THE DENIAL OF THE CLAIM IN OUR DECISION OF MAY 13, 1965, SUPRA, WAS PROPER AND UPON RECONSIDERATION IT IS UPHELD.

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