A-85480, AUGUST 18, 1937, 17 COMP. GEN. 143

A-85480, AUGUST 18, 1937, 17 COMP. GEN. 143

CONTRACTS - EXCHANGES - USED FOR NEW AUTOMOBILE PARTS - TRADE-IN VALUE OF USED PARTS WHERE OLD AUTOMOBILE PARTS ARE EXCHANGED FOR NEW ONES, AN AMOUNT EQUAL TO THE EXCHANGE ALLOWANCE FOR THE OLD PARTS IS REQUIRED TO BE COVERED INTO THE TREASURY AS A MISCELLANEOUS RECEIPT, UNLESS THE APPROPRIATION INVOLVED SPECIFICALLY AUTHORIZES EXCHANGE OF OLD PARTS IN PART PAYMENT FOR NEW PARTS. 16 COMP. GEN. 1013, DISTINGUISHED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF COMMERCE, AUGUST 18, 1937:

I HAVE YOUR LETTER OF JULY 31, 1937, AS FOLLOWS:

REFERENCE IS MADE TO YOUR DECISION A-85480, DATED MAY 19, 1937, CONCERNING THE TRADE-IN ALLOWANCE FOR A USED MOTOR ON A RECONDITIONED USED MOTOR.

IT IS OFTEN DESIRABLE AND ADVANTAGEOUS, IN CONNECTION WITH REPAIRS TO MOTOR VEHICLES AND OTHER TYPES OF EQUIPMENT, SUCH AS MOTOR GENERATOR PLANTS, ETC., TO EFFECT TRADE-IN OF USED PARTS FOR NEW OR RECONDITIONED PARTS OF IDENTICAL NAME, NUMBER, AND USAGE. FOR EXAMPLE, INSTEAD OF EFFECTING REPAIRS ON CERTAIN PARTS, MANY MANUFACTURERS MERELY ACCEPT THE USED PART IN EXCHANGE FOR AN EXACT NEW OR RECONDITIONED PART, MAKING A CERTAIN SET ALLOWANCE FOR THE USED PART. IT IS OFTEN MORE ECONOMICAL TO EXCHANGE PARTS IN THIS MANNER THAN TO EFFECT REPAIRS ON THE USED PARTS.

FROM EXPERIENCE IT APPEARS THAT MOST OF THE PARTS COMING UNDER THE ABOVE CATEGORY ARE: CARBURETORS, GENERATORS, FUEL PUMPS, WATER PUMPS, BRAKE SHOES, TIME SWITCH PARTS, ETC.

IT IS THE UNDERSTANDING OF THIS DEPARTMENT THAT IN EFFECTING REPAIRS ON THE USED PARTS RECEIVED AS TRADE IN OR EXCHANGE ON NEW PARTS, THE MANUFACTURERS RECONDITION THE USED PARTS TO THE POINT WHERE THEY LOSE THEIR IDENTITY AS SUCH, THEREAFTER BEING SOLD AS NEW AND NOT RECONDITIONED PARTS.

YOUR DECISION IS REQUESTED AS TO WHETHER OR NOT THE ALLOWANCE FOR THE USED PARTS, IN TRANSACTIONS SIMILAR TO THOSE ABOVE DESCRIBED, ARE FOR DEPOSIT TO MISCELLANEOUS RECEIPTS. IN THIS CONNECTION IT IS TO BE CONSIDERED THAT THE NEW OR RECONDITIONED PARTS WILL BE EXACT DUPLICATES OF THE USED PARTS EXCHANGED; THE FUNCTIONS OF THE PARTS TO BE THE SAME. THE PART OBTAINED MAY BE IN FACT A NEW PART OR A PART WHICH HAS SEEN SERVICE AND HAS BEEN PLACED IN NEW PART CONDITION. SO FAR AS THE PURCHASER IS CONCERNED, THE TRANSACTION IS ESSENTIALLY ONE OF REPAIR OF AN OLD PART, AND NOT THE PURCHASE OF A NEW PART; FOR INSTANCE, HE TAKES TO THE DEALER'S REPAIR SHOP A CONNECTING ROD WHICH REQUIRES REPLACEMENT OF BEARINGS. SAVE THE DELAY INVOLVED IN THE ACTUAL PERFORMANCE OF THIS WORK, THE DEALER DELIVERS TO HIM A CONNECTING ROD IN SERVICEABLE CONDITION, ACCEPTING THE OLD ROD AND MAKING A CHARGE, WHICH MAY BE CONSIDERED AS A CHARGE FOR SPINNING NEW BEARINGS IN THE OLD ROD, WHICH OPERATION IS, IN FACT, LATER PERFORMED BY THE DEALER OR BY THE FACTORY WHOSE PRODUCT HE HANDLES.

THE PRINCIPLE IS IDENTICAL WITH THAT ON WHICH, IN YOUR DECISION OF MAY 19, 1937, YOU HELD THAT WHEN A USED ENGINE IS TURNED IN ON A RECONDITIONED ENGINE, ONLY THE COST OF SUCH EXCHANGE NEED BE CHARGED TO THE APPROPRIATION.

IT WAS HELD IN THE CITED DECISION OF MAY 19, 1937, 16 COMP. GEN. 1013, IN VIEW OF A CONTRACT PROCEDURE WITH THE FORD MOTOR CO. WHEREBY A RECONDITIONED MOTOR WOULD BE FURNISHED AT THE NET COST OF HAVING A USED MOTOR RECONDITIONED, THAT WHERE A USED MOTOR IS THUS REPLACED BY A RECONDITIONED MOTOR AS A SUBSTITUTE FOR RECONDITIONING THE USED MOTOR, ONLY THE NET COST OF THE SUBSTITUTION NEED BE CHARGED TO THE APPLICABLE APPROPRIATION, AND THAT THE EXCHANGE ALLOWANCE FOR THE USED MOTOR NEED NOT BE CHARGED TO THE APPROPRIATION AND DEPOSITED IN THE TREASURY AS A MISCELLANEOUS RECEIPT, AS FOR A SALE OF OLD PROPERTY, PURSUANT TO THE ESTABLISHED RULE IN THAT RESPECT.

IT WAS ATTEMPTED TO BE MADE CLEAR IN THE DECISION THAT THE EXCEPTION TO THE GENERAL RULE WAS LEGALLY PERMISSIBLE ONLY BECAUSE THE EXCHANGE OF A USED MOTOR IN NEED OF RECONDITIONING FOR A LIKE RECONDITIONED MOTOR WAS IN DIRECT SUBSTITUTION FOR HAVING THE MOTOR ON HAND ACTUALLY RECONDITIONED AND REPLACED IN THE AUTOMOBILE, THE NET COST IN EITHER EVENT BEING THE SAME, AND THE RESULT BEING THE SAME--- THAT IS, THE AUTOMOBILE WOULD BE EQUIPPED WITH A LIKE RECONDITIONED MOTOR--- THE ONLY THING OBTAINED BEING, IN PRACTICAL EFFECT, THE SERVICE OF RECONDITIONING, EXCEPT THAT BY SUBSTITUTING A MOTOR ALREADY RECONDITIONED THERE WOULD BE SAVED THE TIME OF SENDING THE MOTOR ON HAND TO THE FACTORY AND WAITING FOR ITS RETURN AND REPLACEMENT IN THE AUTOMOBILE. IT WAS SAID IN THE DECISION:

* * * IT IS TO BE UNDERSTOOD, OF COURSE, THAT THIS HAS NO APPLICATION TO THE PROCUREMENT OF NEW MOTORS, BUT FOR THE REASONS STATED HEREIN, MUST NECESSARILY BE RESTRICTED TO THOSE CASES WHERE A RECONDITIONED USED MOTOR IS PROCURED AS A DIRECT SUBSTITUTE FOR A LIKE USED MOTOR IN NEED OF RECONDITIONING.

OBVIOUSLY, IF THE PRINCIPLE OF THE DECISION HAS NO APPLICATION TO THE PROCUREMENT OF NEW MOTORS, IT HAS NO APPLICATION TO THE PROCUREMENT OF OTHER NEW PARTS. THE REASON IS PLAIN. WHEN OLD PARTS ARE TRADED IN ON NEW PARTS THEY REPRESENT A PART OF THE PURCHASE PRICE OF THE NEW PARTS, OR, IN EFFECT, A SALE OF THE OLD PARTS AND A PURCHASE OF THE NEW ONES, AND THERE IS PRIMARILY OBTAINED THE NEW PARTS AND NOT THE SERVICE OF RECONDITIONING THE OLD ONES, OR A DIRECT SUBSTITUTE FOR SUCH SERVICE TO ACCOMPLISH THE SAME RESULT. IN ONE CASE THE AUTOMOBILE IS EQUIPPED WITH A RECONDITIONED MOTOR AT THE SAME NET COST WHETHER THE USED MOTOR IS RECONDITIONED OR A RECONDITIONED USED MOTOR IS SUBSTITUTED FOR THE ONE IN NEED OF RECONDITIONING. IN THE OTHER CASE A NEW PART IS SUBSTITUTED FOR AN OLD PART, AND THE DIFFERENCE IN PRICE HAS NO PARTICULAR RELATION TO THE COST OF RECONDITIONING OR REPAIRING THE OLD PART. THE PRIMARY PURPOSE OF THE LATTER TRANSACTION IS TO OBTAIN A NEW PART AND NOT A RECONDITIONED PART AS A SUBSTITUTE FOR RECONDITIONING THE OLD PART AT THE SAME NET COST. IT MAY BE REPEATED THAT THE PROCEDURE AUTHORIZED IN THE DECISION OF MAY 19, 1937, IS LEGALLY PERMISSIBLE ONLY BECAUSE THE EXCHANGE FOR A RECONDITIONED MOTOR IS IN DIRECT SUBSTITUTION FOR RECONDITIONING THE OLD MOTOR AT THE SAME NET PRICE, AND AS THAT CONDITION IS NOT PRESENT IN THE EXCHANGE OF OLD PARTS FOR NEW ONES THE PRINCIPLE OF THE DECISION DOES NOT EXTEND TO SUCH TRANSACTIONS.

ACCORDINGLY, I HAVE TO ADVISE THAT WHERE OLD AUTOMOBILE PARTS ARE EXCHANGED FOR NEW ONES THERE IS NO LEGAL BASIS FOR DEPARTURE FROM THE GENERAL RULE THAT THE EXCHANGE ALLOWANCE FOR THE OLD PARTS IS REQUIRED TO BE COVERED INTO THE TREASURY AS A MISCELLANEOUS RECEIPT, UNLESS THE APPROPRIATION INVOLVED SPECIFICALLY AUTHORIZES EXCHANGE OF OLD PARTS IN PART PAYMENT FOR NEW PARTS.