B-144621, JAN. 16, 1962

B-144621, JAN. 16, 1962

TO MR. JOHN J. SULLIVAN, JR.:

REFERENCE IS MADE TO YOUR TELEGRAM DATED DECEMBER 27, 1961, CONCERNING OUR DECISION B-144621 DATED DECEMBER 12, 1961, TO THE SECRETARY OF THE ARMY IN WHICH WE CONCLUDED THAT THE BID OF YOUR CLIENT, E. D. ETNYRE AND COMPANY, UNDER INVITATION FOR BIDS NO. DA-ENG 11-184-61-B-20-JD SHOULD BE EVALUATED ON THE BASIS THAT THE ILLINOIS RETAILERS' OCCUPATION TAX IS APPLICABLE AND NOT DEDUCTIBLE. IN YOUR TELEGRAM THE FOLLOWING STATEMENTS ARE MADE:

"RE YOUR FILE NUMBER B144621 PROTEST ON BEHALF OF E D ETNYRE AND COMPANY RECOMMENDED AWARD OF INVITATION BID NUMBER DA-ENG-11-184-61-B 20-JD TO SEAMAN CORPORATION IN CIRCUMSTANCE THAT UNITED STATES CORPS OF ENGINEERS HAD DIRECTED CONTRACTORS TO APPLY FOR ABATEMENT OF ILLINOIS OCCUPATIONAL USE TAX. HOW MANY POSITIONS CAN UNITED STATES GOVERNMENT TAKE ON SAME SUBJECT?

WE HAVE RECENTLY BEEN INFORMALLY ADVISED BY THE DEPARTMENT OF THE ARMY THAT THEY HAVE INSTRUCTED THEIR CONTRACTORS TO FILE CLAIMS FORCREDIT WITH THE DEPARTMENT OF REVENUE, STATE OF ILLINOIS, FOR TAXES PAID IN CERTAIN PRIOR YEARS PURSUANT TO SECTION 6 OF THE ILLINOIS RETAILERS' OCCUPATION TAX ACT. THE DEPARTMENT OF THE ARMY ALSO REPORTS THAT THE STATE OF ILLINOIS IS NOT NOW COLLECTING THE TAX FROM ILLINOIS CONTRACTORS PENDING THE OUTCOME OF THE FEDERAL DISTRICT COURT'S DECISION ON THE AMENDED STATUTE.

BY A DIRECTIVE DATED DECEMBER 6, 1961, THE DEPARTMENT OF THE ARMY HAS DRAFTED AND PUT INTO EFFECT A NEW SUPPLEMENTARY TAX CLAUSE FOR CONTRACTS TO BE PERFORMED IN ILLINOIS WHICH READS AS FOLLOWS:

"NOTWITHSTANDING ANY OTHER PROVISION OF THIS CONTRACT:

"/1) THE CONTRACT PRICE DOES NOT INCLUDE ANY AMOUNT FOR ILLINOIS RETAILERS' OCCUPATION (SALES) TAX IMPOSED ON GROSS RECEIPTS DERIVED FROM SALES IN ILLINOIS OF TANGIBLE PERSONAL PROPERTY TO THE FEDERAL GOVERNMENT.

"/2) ALTHOUGH EXPRESSLY EXCLUDED FROM THE CONTRACT PRICE, THE AMOUNT OF THIS TAX ESTIMATED TO BE APPLICABLE TO THE COMPLETED SUPPLIES COVERED BY THIS CONTRACT IS SET FORTH IN THE SCHEDULE.

"/3)THE GOVERNMENT RESERVES THE RIGHT TO DIRECT THE CONTRACTOR TO TAKE ALL NECESSARY ACTION TO CONTEST THIS TAX AND THE CONTRACT PRICE SHALL BE EQUITABLY ADJUSTED TO COVER THE COST OF SUCH ACTION, INCLUDING REASONABLE ATTORNEYS' FEES.

"/4) IF THE CONTRACTOR IS REQUIRED TO PAY OR BEAR THE BURDEN OF THIS TAX OR OF ANY INTEREST OR PENALTY THEREON, AND DOES NOT SECURE A REFUND OR CREDIT THEREFOR, THE CONTRACT PRICE SHALL BE INCREASED BY THE AMOUNT OF SUCH TAX, INTEREST, OR PENALTY; PROVIDED THAT LIABILITY THEREFOR WAS NOT INCURRED THROUGH THE FAULT OR NEGLIGENCE OF THE CONTRACTOR OF HIS FAILURE TO FOLLOW INSTRUCTIONS OF THE CONTRACTING OFFICER. IF THEREAFTER THE CONTRACTOR IS RELIEVED OF THE PAYMENT OR BURDEN OR RECEIVES A REFUND OR CREDIT OF TAX, INTEREST, OR PENALTIES FOR WHICH PRICE ADJUSTMENT WAS GIVEN PURSUANT TO THE PRECEDING SENTENCE THE AMOUNT OF SUCH RELIEF, REFUND, OR CREDIT SHALL BE PAID OR CREDITED TO THE GOVERNMENT AS THE CONTRACTING OFFICER DIRECTS.

"/5) THE CONTRACTOR SHALL PROMPTLY NOTIFY THE CONTRACTING OFFICER OF MATTERS WHICH WILL RESULT IN EITHER AN INCREASE OR DECREASE IN THE CONTRACT PRICE. NO ADJUSTMENT OF LESS THAN $100 IS REQUIRED TO BE MADE IN THE CONTRACT PRICE PURSUANT TO THIS CLAUSE.'

IT SHOULD BE NOTED THAT THE ABOVE CLAUSE IS INTENDED FOR USE IN FUTURE INVITATIONS FOR BIDS ONLY AND NOT FOR USE IN EXISTING CONTRACTS. THE DEPARTMENT OF THE ARMY REPORTS THAT THEIR CONTRACTORS WERE ALSO INSTRUCTED NOT TO PAY THE TAX WITH RESPECT TO GROSS RECEIPTS FROM SALES TO THE MILITARY DEPARTMENTS IF IT WILL BE PASSED ON IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, TO THE FEDERAL GOVERNMENT AS AN ALLOWABLE ITEM OF COST, THROUGH INCLUSION IN PRICE, REIMBURSEMENT, OVERHEAD ALLOCATION, OR PRICE ESCALATION UNDER ANY CONTRACT ADMINISTERED BY THE DEPARTMENT. CONTRACTORS WERE FURTHER INSTRUCTED THAT SHOULD THE STATE OF ILLINOIS ASSESS THE TAX WITH RESPECT TO ANY SUCH TRANSACTION, THEY SHOULD PROMPTLY NOTIFY THEIR CONTRACTING OFFICER AND PAY UNDER PROTEST AS LATE AS POSSIBLE WITHOUT INCURRING PENALTIES OR INTEREST.

THE DEPARTMENT OF THE ARMY STATES THAT THE NEW PROCEDURES OUTLINED ABOVE WERE PUT INTO EFFECT LARGELY BECAUSE OF THE CASE OF HANDLING AND SAVINGS IN ADMINISTRATIVE EXPENSE MADE POSSIBLE BY THE NEW PROCEDURES.

WHILE THESE DIRECTIVES AND PROCEDURES REFLECT A NEW APPROACH BY THE DEPARTMENT OF THE ARMY IN COPING WITH THE VARIED PROBLEMS THE ILLINOIS TAX PRESENTS TO GOVERNMENT PROCUREMENT, WE DO NOT FEEL THAT THEY ARE MATERIAL, OR A MATTER FOR CONSIDERATION, ON THE QUESTION THAT WAS PRESENTED IN OUR DECISION OF DECEMBER 12, 1961, TO THE SECRETARY OF THE ARMY. THERE, THE SOLE QUESTION PRESENTED WAS WHETHER OR NOT IN EVALUATING BIDS UNDER THE TERMS OF INVITATION FOR BIDS NO. DA-ENG-11 184-61-B-20-JD IT WOULD BE PROPER FOR THE DEPARTMENT OF THE ARMY TO DEDUCT THE AMOUNT OF THE ILLINOIS RETAILERS' OCCUPATION TAX WHICH ETNYRE HAD INCLUDED IN ITS BID PRICE AS REQUIRED BY THE INVITATION.

IN GOVERNMENT PROCUREMENT BY FORMAL ADVERTISING BIDS MUST CONFORM TO THE ESSENTIAL REQUIREMENTS OF THE INVITATION FOR BIDS. AND, AS WAS NOTED PREVIOUSLY IN OUR LETTER OF DECEMBER 22, 1961, TO YOU, AWARDS OF CONTRACTS UNDER THE COMPETITIVE BIDDING STATUTES MUST BE MADE TO THE LOWEST RESPONSIVE AND RESPONSIBLE BIDDERS. FURTHERMORE, THE POINT IN TIME WHICH GENERALLY GOVERNS A DETERMINATION OF THE RELATIVE RANK OF BIDDERS AS TO PRICES SUBMITTED IS THE TIME OF CONTRACT AWARD.

UNDER THE SUBJECT INVITATION BIDDERS WERE REQUIRED TO INCLUDE IN THEIR PRICES ANY FEDERAL, STATE OR LOCAL SALES TAX, USE OR OTHER TAX FROM WHICH THEY WERE NOT EXEMPT. AT THE TIME OF BID OPENING (AUGUST 17, 1960), ETNYRE WAS RESPONSIBLE FOR PAYMENT OF THE 3 1/2 PERCENT TAX ON THE 24 DISTRIBUTORS TO BE DELIVERED IN ILLINOIS. ETNYRE, THEREFORE, INCLUDED THE TAX IN ITS BID AS IT WAS EXPRESSLY REQUIRED TO DO. THE CONTRACT WAS AWARDED TO STANDARD STEEL WORKS, INC., AND THEN SUBSEQUENTLY CANCELED. THE CANCELLATION NECESSITATED A FURTHER CONSIDERATION AND EVALUATION OF THE STILL OUTSTANDING BIDS (THE ETNYRE AND SEAMAN BIDS) FOR A NEW AWARD OF THE REMAINING DISTRIBUTORS. AT THE TIME OF THIS NEW OR SECOND BID EVALUATION, THIS OFFICE WAS REQUIRED, FOR THE REASONS STATED IN OUR DECISION OF DECEMBER 12, 1961, TO ASSUME THAT THE ILLINOIS TAX STATUTE WAS VALID. TO HAVE DONE OTHERWISE WOULD HAVE BEEN TO ENGAGE IN UNWARRANTED SPECULATION ON FUTURE ACTION TO BE TAKEN BY THE DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS IN A CASE REMANDED BY THE UNITED STATES SUPREME COURT.

WHILE IT IS TRUE THAT UNDER THE NEW PROCEDURE SET UP BY THE DEPARTMENT OF THE ARMY, CONTRACTORS WITH THAT DEPARTMENT ARE BEING INSTRUCTED TO FILE CLAIMS FOR CREDIT FOR TAXES PAID UNDER THE ILLINOIS STATUTE AND MAY EVEN RECEIVE SUCH CREDIT IF THE DISTRICT COURT HOLDS THE TAX STATUTE IN ITS AMENDED FORM UNCONSTITUTIONAL, THESE NEW INSTRUCTIONS ARE NOT INCONSISTENT WITH THE POSITION TAKEN IN OUR DECISION OF DECEMBER 12. WE RECOGNIZED IN THAT DECISION THAT THE DISTRICT COURT MIGHT SUSTAIN THE GOVERNMENT'S POSITION AND HOLD THE TAX STATUTE UNCONSTITUTIONAL, BUT WE NOTED THAT THERE WAS NO ASSURANCE THIS WOULD, IN FACT, HAPPEN. OUR DECISIONS MUST OF NECESSITY BE PREDICATED UPON THE STATE OF THE FACTS AS THEY EXIST AT THE TIME THE DECISION IS RENDERED. AT THE TIME OF CONTRACT AWARD (WHEN THE RELATIVE RANK OF BIDDERS AS TO PRICES SUBMITTED HAD TO BE DETERMINED) THE ILLINOIS TAX STATUTE COULD NOT BE PRESUMED TO BE UNCONSTITUTIONAL AND, THUS, THE AMOUNT REPRESENTING SUCH TAX COULD NOT IN THE EVALUATION PROCESS BE DEDUCTED FROM ETNYRE'S BID. THIS RESULTED IN THE MAINTENANCE OF THE SEAMAN CORPORATION'S STATUS AS LOW BIDDER WHICH STATUS UNDER THE COMPETITIVE BIDDING STATUTES ENTITLED THAT CORPORATION TO THE AWARD OF THE CONTRACT.