A-93797, MAY 26, 1938, 17 COMP. GEN. 992

A-93797, MAY 26, 1938, 17 COMP. GEN. 992

TAXES - FEDERAL, STATE, AND LOCAL - REQUIREMENTS REGARDING MANNER OF BIDDING - BID EVALUATION, ETC. WHILE IT IS A MATTER OF ADMINISTRATIVE DISCRETION WHETHER A TAX EXEMPTION CERTIFICATE SHOULD ISSUE COVERING EACH INDIVIDUAL DELIVERY UNDER A CONTRACT, WITH IDENTIFYING REFERENCE TO THE CONTRACT AND PURCHASE ORDER, OR WHETHER THE CERTIFICATE SHOULD BE WITHHELD UNTIL ALL DELIVERIES UNDER THE CONTRACT ARE COMPLETED AND THE QUANTITY DELIVERED IS FINALLY DETERMINED, THE LATTER WOULD APPEAR TO BE THE MORE SATISFACTORY PROCEDURE IN THE ABSENCE OF ANY SHOWING TO THE CONTRARY, AND, IN EVERY CASE, IT WOULD APPEAR PROPER FOR THE RECEIVING REPRESENTATIVE OF THE GOVERNMENT TO ENTER THE QUANTITY OF THE DELIVERY AND THE AMOUNT OF APPLICABLE TAXES IF KNOWN, OR IF THE TAX IS NOT KNOWN, IT MAY BE LEFT FOR DETERMINATION BY THE PROPER TAXING AUTHORITIES. A STATEMENT IN AN EXCISE TAX QUESTIONNAIRE FORM TO THE EFFECT THAT ALL COMMODITIES ARE EXEMPT FROM STATE OR LOCAL TAX OF ANY KIND WHEN SOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES IS OF DOUBTFUL CORRECTNESS AND TENDS TO CREATE THE IMPRESSION THAT CONTRACTORS ARE REQUIRED TO SELL TO THE GOVERNMENT FREE OF STATE AND LOCAL TAXES, AND THERE IS NO AUTHORITY FOR A BASIS OF EVALUATION OF BIDS STATING THAT "INCLUDED FEDERAL EXCISE TAX WILL BE DEDUCTED FROM BID PRICE IF THE EXACT AMOUNT OF TAX IS KNOWN OR STATED BY BIDDER. THIS WILL APPLY TO THE STATE AND LOCAL TAX ALSO, UNLESS STIPULATED HERE BY THE BIDDER.' DECISIONS REPORTED IN 15 COMP. GEN. 588; 16 ID. 832; 17 ID. 580; ID. 615, AND MANUSCRIPT DECISION A-28105, A-51607, DATED MARCH 5, 1937, RELATIVE TO GOVERNMENT PURCHASES INVOLVING FEDERAL EXCISE, STATE AND LOCAL TAXES, ARE NOT IN CONFLICT AND TAKEN TOGETHER ESTABLISH THE FOLLOWING RULES FOR APPLICATION: 1. INVITATIONS FOR BIDS MAY NOT REQUIRE BIDDERS TO SUBMIT TAX-FREE PRICES, AND SHOULD LEAVE THEM FREE TO SUBMIT PRICES EITHER INCLUSIVE OR EXCLUSIVE OF FEDERAL EXCISE TAXES, OR STATE AND LOCAL TAXES, AS THEY SEE FIT, 15 COMP. GEN. 588; 17 ID. 615, BUT BIDDERS PROPERLY MAY BE REQUESTED TO SUBMIT PRICES EXCLUSIVE OF EXCISE TAX, AND ENCOURAGED TO SELL TO THE GOVERNMENT AT TAX-FREE PRICES. 2. BIDS WHICH DO NOT SHOW THE EXCLUSION OF APPLICABLE TAXES ARE PRESUMED TO BE INCLUSIVE OF SUCH TAXES AND ARE FOR EVALUATION AS SUBMITTED, AND THERE IS NO AUTHORITY FOR THE PURCHASING AGENCY UNDERTAKING TO CHANGE THE AMOUNT OF A BID OR PERMITTING ITS CHANGE IN ANY WAY BY A BIDDER AFTER BIDS ARE OPENED AND COMPETITIVE PRICES ARE KNOWN. 15 COMP. GEN. 1030; 16 ID. 1021. 3. WHERE BIDS ARE STATED TO BE TAX INCLUSIVE, AND THE BIDDERS INDICATE WILLINGNESS TO HAVE APPLICABLE TAXES EXCLUDED FROM THE CONTRACT PRICE IN CASE OF AWARD, THE BIDS MAY BE EVALUATED ON THAT BASIS IN COMPARISON WITH TAX-EXCLUSIVE BIDS WITH ACCEPTANCE OF THE BID MOST ADVANTAGEOUS TO THE GOVERNMENT. 16 COMP. GEN. 832. 4. WHERE, UPON THE SAME OPENING OF BIDS, SOME OF THE BIDS RECEIVED ARE FEDERAL EXCISE TAX EXCLUSIVE, AND OTHERS ARE TAX INCLUSIVE WITHOUT SHOWING THE AMOUNT THEREOF, THE BIDS SHOULD BE EVALUATED ON A FEDERAL TAX- INCLUSIVE BASIS. 17 COMP. GEN. 615. 5. WHERE A TAX-INCLUSIVE BID IS LOWER THAN OTHER BIDS RECEIVED IT IS FOR EVALUATION AND ACCEPTANCE AS SUBMITTED, IF OTHERWISE PROPER, WITHOUT DEDUCTION IN ANY AMOUNT ON ACCOUNT OF TAXES INCLUDED THEREIN, UNLESS THE BIDDER INDICATES HIS CONSENT TO THE TAX DEDUCTION UPON THE FACE OF THE BID WHEN SUBMITTED. 17 COMP. GEN. 615.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE INTERIOR, MAY 26, 1938:

THERE WAS RECEIVED YOUR LETTER OF MARCH 25, 1938, WITH ENCLOSURE, AS FOLLOWS:

A COPY OF YOUR DECISION A-91844 OF JANUARY 31, 1938, TO THE SECRETARY OF AGRICULTURE REGARDING THE FORM OF TAX QUESTIONNAIRE AND THE EVALUATION OF BIDS UPON A TAX-INCLUDED BASIS HAS BEEN STUDIED IN THE LIGHT OF YOUR PREVIOUS DECISIONS OF JANUARY 7, 1936 (A-67600), MARCH 5, 1937 (A-28105, A -51607), MARCH 8, 1937 (A-83932), AND JANUARY 20, 1938 (A-90487), TO THIS DEPARTMENT, AND BECAUSE OF APPARENT CONTRADICTIONS, A CLARIFYING DECISION IS RESPECTFULLY REQUESTED FOR THE GUIDANCE OF THIS DEPARTMENT ON THE FOLLOWING POINTS:

1. YOU STATED, IN DECISION A-67600:

"IT WOULD SEEM, THEREFORE, BOTH IN THE INTERESTS OF THE CONTRACTOR AND THE UNITED STATES THAT IT BE DEFINITELY ESTABLISHED IN EVERY INSTANCE THAT THE TAX HAS OR HAS NOT BEEN INCLUDED IN THE BID PRICE, AS THE CASE MAY BE.'

WHEREAS, YOU STATED IN DECISION A-91844:

"AS TO THE PROPOSED FORM SUBMITTED, THERE APPEARS NO LEGAL AUTHORITY TO REQUIRE BIDDERS TO LIST ITEMS IN THEIR BIDS BY ITEM NUMBER OR OTHERWISE, WHICH ARE SUBJECT TO FEDERAL, STATE, OR LOCAL TAX, OR TO SHOW THE AMOUNT OF THE TAX THEREON * * *.'

ACCORDING TO THE LATTER DECISION, BIDS WHICH ARE INDEFINITE AS TO INCLUSION OR EXCLUSION OF TAXES ARE FOR CONSIDERATION ON THE ASSUMPTION THAT ALL APPLICABLE TAXES ARE INCLUDED; HOWEVER, TO ASSUME THE INCLUSION OF STATE OR LOCAL TAXES WITHOUT EVIDENCE THEREOF PROVIDES NO SUBSTANTIAL BASIS FOR THE UNITED STATES TO CLAIM REFUND FROM THE TAXING AUTHORITY, AND IN SUCH CASE DO THE PROVISIONS OF YOUR GENERAL REGULATIONS NO. 86, PARAGRAPHS 3-A (2) AND 7 APPLY AS TO THE PROCEDURE FOR OBTAINING REFUND?

2. IN YOUR DECISION OF MARCH 5, 1937 (A-28105, A-51607), YOU SAID:

"WHEN THE AMOUNT OF THE TAX IS INDETERMINABLE AT THE TIME OF THE PURCHASE THE DESCRIPTION, QUANTITY, AND UNIT PRICE OF THE COMMODITY SHOULD BE STATED IN THE BLANK PROVIDED THEREFOR ON THE FORM TOGETHER WITH THE NUMBER AND DATE OF THE PURCHASE ORDER OR CONTRACT, IF ANY, AND A SEPARATE CERTIFICATE PREPARED FOR EACH CLASS OF TAX INVOLVED. * * *"

IT WILL BE NOTED THAT PROVISION IS MADE IN THE REGULATIONS (PARAGRAPH 3- C) FOR THE ISSUING OF A CERTIFICATE WHERE THE PURCHASES ARE MADE UNDER CONTRACT PROVIDING FOR DELIVERIES EXTENDING OVER A PERIOD OF TIME. CASES OF THIS KIND THE DESCRIPTION AND UNIT PRICE OF THE COMMODITY SHOULD BE SHOWN AND THE QUANTITY AND AMOUNT OF TAX SHOULD BE ENTERED WHEN THE SAME HAS BEEN DEFINITELY DETERMINED.

THE FINAL DETERMINATION OF THE TAX INVOLVED WILL BE MADE, IN THE CASE OF A FEDERAL TAX, BY THE BUREAU OF INTERNAL REVENUE, AND, IN THE CASE OF STATE AND LOCAL TAXES, BY THE STATE AND LOCAL TAX AUTHORITIES.

WHEREAS, YOU STATED IN DECISION A-91844:

"OF COURSE, IF THE PRICES SUBMITTED ARE CLAIMED TO BE EXCLUSIVE OF TAXES, OR ARE INCLUSIVE OF TAXES AND THE BIDDER IS WILLING TO HAVE THE AMOUNT THEREOF DEDUCTED FROM THE BID PRICE AND TO ACCEPT AN EXEMPTION CERTIFICATE IN LIEU THEREOF, IT WOULD APPEAR NECESSARY FOR BIDDERS TO STATE THE AMOUNT OF THE TAXES INVOLVED.'

WHERE THE PRICES SUBMITTED ARE CLAIMED TO BE EXCLUSIVE OF TAXES, WHAT IS THE NECESSITY FOR BIDDERS TO STATE THE AMOUNT OF THE TAXES INVOLVED, SINCE YOU HAVE STATED THERE IS NO LEGAL AUTHORITY TO "REQUIRE" SUCH A SHOWING BY THE BIDDER AND YOU HAVE APPROVED THE ISSUANCE OF EXEMPTION CERTIFICATES FOR TAXES INDETERMINABLE AS TO AMOUNT AT TIME OF PURCHASE? ALSO, AS TO CERTIFICATE FOR CONTRACT PURCHASES COVERING AN EXTENDED PERIOD OF TIME, IS IT PROPER TO ISSUE THE CERTIFICATE BEFORE THE QUANTITY PURCHASED IS DETERMINED, AND IF SO, BY WHOM IS THE ENTRY SUBSEQUENTLY TO BE MADE AS TO THE QUANTITY COVERED BY THE CERTIFICATE AND THE AMOUNT OF THE TAX?

3. IN YOUR DECISIONS OF MARCH 8, 1937 (A-83932) AND JANUARY 20, 1938 (A- 90487) THE PRINCIPLE OF EVALUATING BIDS ON A FEDERAL-TAX EXCLUDED BASIS WAS CLEARLY APPROVED, WHEREAS IN YOUR DECISION OF JANUARY 31, 1938 (A- 91844) YOU SAID:

"AS TO THE FOURTH PARAGRAPH OF THE NOTICE (STIPULATING EVALUATION OF A FEDERAL-TAX-EXCLUDED BASIS), SECTION 3709, REVISED STATUTES, CONTEMPLATES THAT PURCHASES OF MATERIALS, EQUIPMENT, AND SUPPLIES WILL BE MADE AT THE LOWEST NET COST TO THE GOVERNMENT, AND IT HAS BEEN POINTED OUT HERETOFORE THAT WHETHER THE FEDERAL TAXES ARE INCLUDED IN OR EXCLUDED FROM THE CONTRACT PRICE IN ANY INSTANCE, THE NET RESULT TO THE GOVERNMENT IS PRACTICALLY THE SAME, EXCLUSION OF THE TAX CONSERVING APPROPRIATIONS AT THE EXPENSE OF TREASURY RECEIPTS, WHILE INCLUSION OF THE TAX IN THE AMOUNT OF THE CONTRACT PRICE INCREASES THE CHARGE UNDER THE APPROPRIATION WITH A CORRESPONDING INCREASE IN TREASURY RECEIPTS, 15 COMP. GEN. 588. THEREFORE, IT WOULD APPEAR PROPER THAT BID PRICES BE ADJUSTED TO A FEDERAL -TAX-INCLUDED BASIS BEFORE COMPARISON RATHER THAN TO A TAX-EXCLUDED BASIS AS THE TAX-INCLUDED BIDS MAY NOT SHOW THE AMOUNT OF THE TAX INCLUDED THEREIN.'

SINCE, AS YOU HAVE POINTED OUT, THE ONLY EFFECT OF EXCLUSION OF FEDERAL TAX IS TO CONSERVE APPROPRIATIONS AT THE EXPENSE OF TREASURY RECEIPTS, IT SEEMS LOGICALLY TO FOLLOW THAT CONSERVATION OF APPROPRIATIONS WAS THE SOLE PURPOSE OF THE AMENDMENT TO THE REVENUE ACT OF 1932, THERE BEING NO OTHER APPARENT OBJECTIVE OR RESULT. ACCORDINGLY, TO GIVE FULL EFFECT TO THE AMENDMENT, PURCHASES SHOULD BE MADE AT PRICES EXCLUSIVE OF FEDERAL TAX WHENEVER POSSIBLE, AND THE EVALUATION OF BIDS ON A FEDERAL TAX EXCLUDED BASIS WILL SUPPORT THAT PURPOSE. CONVERSELY, IF BIDS ARE EVALUATED ON A FEDERAL TAX INCLUDED BASIS, THERE IS NO INDUCEMENT FOR A BIDDER TO EXCLUDE THE FEDERAL TAX FROM HIS PRICE AND IT IS THE OPINION OF THIS DEPARTMENT THAT SUCH A POLICY WOULD SOON NULLIFY THE PURPOSE AND EFFECT OF THE AMENDMENT TO THE REVENUE ACT OF 1932.

PENDING RECEIPT OF YOUR DECISION CLARIFYING THE SEVERAL DISCREPANCIES AND CONTRADICTIONS RECITED ABOVE, THIS DEPARTMENT WILL CONTINUE ITS PRESENT PROCEDURE WHICH IS SUBSTANTIALLY IN COMPLIANCE WITH GENERAL REGULATIONS NO. 86 AND YOUR DECISIONS PRIOR TO THE DECISION OF JANUARY 31, 1938 (A- 91844), TO THE SECRETARY OF AGRICULTURE. THERE IS INCLOSED A COPY OF THE EXCISE TAX QUESTIONNAIRE (REVISED, DECEMBER 1937) NOW IN USE BY THE PURCHASING OFFICER OF THIS DEPARTMENT. THIS FORM HAS BEEN DEVELOPED TO COPE WITH VARIOUS DIFFICULTIES EXPERIENCED WITH PREVIOUS FORMS AND IS FUNCTIONING SATISFACTORILY. YOUR APPROVAL OR CONSTRUCTIVE CRITICISM OF THIS FORM IS RESPECTFULLY REQUESTED, IN CONJUNCTION WITH YOUR DECISION ON THE POINTS PRESENTED IN THIS LETTER.

THE SENTENCE WHICH YOU QUOTE FROM THE DECISION OF JANUARY 7, 1936, 15 COMP. GEN. 588, APPEARED IN A PARAGRAPH WHICH ANSWERED A SPECIFIC QUESTION SUBMITTED BY THE COMMANDANT OF THE MARINE CORPS AS TO WHETHER IT WAS TO BE PRESUMED AS A MATTER OF FACT THAT BIDS SUBMITTED SUBSEQUENT TO AUGUST 30, 1935, WERE EXCLUSIVE OF THE FEDERAL EXCISE TAX. THE SECRETARY OF THE NAVY WAS INFORMED THAT IT COULD NOT BE SO PRESUMED FOR PURPOSES OF PAYMENT UNDER A CONTRACT, BUT THAT IT WOULD SEEM TO BE IN THE INTEREST OF BOTH THE CONTRACTOR AND THE UNITED STATES THAT IT BE DEFINITELY ESTABLISHED IN EVERY INSTANCE THAT THE TAX HAD OR HAD NOT BEEN INCLUDED IN THE BID PRICE, AS THE CASE MIGHT BE. WHEN READ WITH ITS CONTEXT AND IN THE LIGHT OF THE PARTICULAR QUERY TO WHICH IT WAS ADDRESSED, THE SENTENCE STATED A CORRECT RULE AND WAS NOT AT VARIANCE WITH OTHER AND LATER DECISIONS OF THIS OFFICE.

THE DECISION OF MARCH 5, 1937, A-28105, A-51607, WAS IN RESPONSE TO A SUBMISSION OF THE ACTING SECRETARY OF THE INTERIOR OF FEBRUARY 13, 1937, QUOTED THEREIN, HAVING PARTICULAR REFERENCE TO PARAGRAPH 6 OF GENERAL REGULATIONS NO. 86, JUNE 19, 1936, WHICH OUTLINED THE PROPER USE OF UNITED STATES GOVERNMENT TAX EXEMPTION CERTIFICATE, FORM 1094, AND RELATED FORMS. THE SUBMISSION IN THAT CASE HAD TO DO WITH THE RELIEF OF PURCHASES (GOVERNMENT EMPLOYEES) FROM THE REQUIREMENT OF SHOWING THE EXACT AMOUNT OF FEDERAL, STATE, AND LOCAL TAXES WHEN FORM 1094 WAS USED, AND THEIR PROTECTION AGAINST POSSIBLE INCORRECT STATEMENTS OF THE EXACT AMOUNT OF THE TAX INVOLVED. YOUR DEPARTMENT WAS INFORMED, IN SUBSTANCE, THAT FORM 1094 WAS DESIGNED TO PROVIDE A CONVENIENT FORM FOR THE STATEMENT OF THE FACTS TO SHOW WHETHER THE COMMODITY WAS PURCHASED FOR THE EXCLUSIVE USE OF THE UNITED STATES GOVERNMENT AT A PRICE EITHER INCLUSIVE OR EXCLUSIVE OF A FEDERAL, STATE, OR LOCAL TAX; THAT WHEN THE EXACT AMOUNT OF SUCH TAX WAS READILY ASCERTAINABLE IT SHOULD BE STATED; THAT WHEN THE AMOUNT OF THE TAX WAS INDETERMINABLE AT THE TIME OF PURCHASE THE DESCRIPTION, QUANTITY, AND UNIT PRICE OF THE COMMODITY SHOULD BE SHOWN IN THE EXEMPTION CERTIFICATE, TOGETHER WITH THE NUMBER AND DATE OF THE PURCHASE ORDER ON THE CONTRACT, IF ANY, A SEPARATE CERTIFICATE SHOULD BE PREPARED FOR EACH KIND OF TAX INVOLVED, AND MARKED "FEDERAL," "STATE," OR "LOCAL," IN ORDER THAT THE PARTICULAR CERTIFICATE MIGHT BE USED ONLY FOR THE PURPOSE INTENDED; THAT IF A FEDERAL TAX ONLY WAS INCLUDED IN THE PURCHASE PRICE, THE EXEMPTION CERTIFICATE SHOULD NOT BE USED; THAT WHERE PURCHASES WERE MADE UNDER A CONTRACT PROVIDING FOR DELIVERIES EXTENDING OVER A PERIOD OF TIME THE DESCRIPTION AND UNIT PRICE OF THE COMMODITY SHOULD BE SHOWN AND THE QUANTITY AND AMOUNT OF TAX SHOULD BE ENTERED WHEN THE SAME HAD BEEN DEFINITELY DETERMINED; AND THAT FINAL DETERMINATION OF THE AMOUNT OF TAX INVOLVED WOULD BE MADE IN THE CASE OF A FEDERAL TAX BY THE BUREAU OF INTERNAL REVENUE, AND, IN THE CASE OF STATE AND LOCAL TAXES, BY THE STATE AND LOCAL TAX AUTHORITIES.

THAT DECISION WAS CONCERNED WITH THE PROPER USE OF FORM NO. 1094, WHICH WAS NOT ALTERED, MODIFIED, OR AFFECTED IN ANY WAY BY THE DECISION OF JANUARY 31, 1938, 17 COMP. GEN. 615. THE PROCEDURE OUTLINED IN THAT DECISION AND IN GENERAL REGULATIONS NO. 86, FOR OBTAINING REFUND FROM THE TAXING AUTHORITY IN THE CASE OF STATE OR LOCAL TAXES, IS FOR APPLICATION WHEN SUCH REFUNDS PROPERLY MAY BE CLAIMED.

THE EXCERPT FROM THE DECISION OF MARCH 5, 1937, WHICH YOU QUOTE IN PARAGRAPH NUMBERED 2 OF YOUR LETTER LIKEWISE IS FOR APPLICATION IN CASES WHERE THE AMOUNT OF THE TAX INVOLVED IS NOT DETERMINABLE AT THE TIME OF PURCHASE, OR WHEN DELIVERIES UNDER A CONTRACT EXTEND OVER A PERIOD OF TIME. OF COURSE, THE ACTUAL AMOUNT OF TAX REFUND OR EXEMPTION TO WHICH A CONTRACTOR IS ENTITLED IS FINALLY FOR DETERMINATION BY THE BUREAU OF INTERNAL REVENUE, OR THE STATE OR LOCAL TAX AUTHORITIES, AS THE CASE MAY BE, AND IS FOR COMPUTATION BY THOSE AUTHORITIES UPON THE CHARACTER AND QUANTITY OF THE MATERIALS DELIVERED AND THE RATE OF TAX APPLICABLE AS PRESCRIBED BY THE STATUTE.

THE DECISION OF MARCH 8, 1937, 16 COMP. GEN. 832, CONSIDERED TWO BIDS COVERING DELIVERIES OF TRUCKS WHICH HAD BEEN RECEIVED IN YOUR DEPARTMENT, ONE OF WHICH STATED THAT THE EXCISE TAX IN A SPECIFIC AMOUNT WAS EXCLUDED, WHILE THE OTHER STATED THAT THE EXCISE TAX, ALSO IN AN EXACT AMOUNT, WAS INCLUDED IN THE BID PRICE. YOU WERE INFORMED THAT, SINCE THE AMOUNT OF THE EXCISE TAX WAS SHOWN ON BOTH BIDS, THERE APPEARED NO OBJECTION TO THE DEDUCTION OF THE AMOUNT STIPULATED FROM THE TAX-INCLUSIVE BID FOR PURPOSES OF EVALUATION. THE DECISION HAD REFERENCE TO A SPECIFIC CASE IN WHICH ALL THE FACTS WERE IN HAND. SEE ALSO, 16 COMP. GEN. 1095.

IN THE DECISION OF JANUARY 31, 1938, IT WAS STATED:

* * * THEREFORE, IT WOULD APPEAR PROPER THAT BID PRICES BE ADJUSTED TO A FEDERAL TAX-INCLUDED BASIS BEFORE COMPARISON RATHER THAN TO A TAX EXCLUDED BASIS AS THE TAX-INCLUDED BIDS MAY NOT SHOW THE AMOUNT OF THE TAX INCLUDED THEREIN.

THUS, IF ONE BIDDER SHOULD STATE THAT THE TAX IN A GIVEN AMOUNT WAS EXCLUDED, WHILE ANOTHER BIDDER SUBMITTED A PRICE INCLUSIVE OF THE TAX WITHOUT GIVING THE AMOUNT, AND THE ADDING TO THE TAX-EXCLUSIVE BID THE AMOUNT OF THE TAX SPECIFIED SHOWS THAT BID TO BE HIGHER, OBVIOUSLY THE ULTIMATE COST TO THE GOVERNMENT, ALL OTHER THINGS BEING EQUAL, WOULD BE LESS UNDER THE TAX-INCLUSIVE BID THAN UNDER THE TAX-EXCLUSIVE BID. HENCE, IT APPEARS THAT THE PROPER BASIS OF EVALUATION IS TAX INCLUSIVE.

THE DECISION OF JANUARY 20, 1938, 17 COMP. GEN. 580, INVOLVED THE CASE OF A CONTRACTOR WHO STATED UPON THE FACE OF ITS BID THE AMOUNT INCLUDED FOR EXCISE TAX. IN MAKING PAYMENT THE AMOUNT OF THE TAX WAS DEDUCTED, EVIDENTLY WITH THE CONSENT OF THE CONTRACTOR. THE DECISION WAS MORE PARTICULARLY CONCERNED WITH ANOTHER PHASE OF THE TRANSACTION, THE EXCISE TAX QUESTION BEING SOMEWHAT INCIDENTALLY INVOLVED. HOWEVER, THE DECISION STATED THAT "ALSO, WHEN A BIDDER SUBMITS A BID INCLUSIVE OF EXCISE TAX, BUT STATES UPON THE FACE OF THE BID THE AMOUNT THEREOF AND AGREES TO ITS DEDUCTION, THERE WOULD BE PROPER FOR CONSIDERATION THE DEDUCTION OF THE AMOUNT OF THE TAX FOR THE PURPOSE OF BRINGING THE ACTUAL PRICE (OF PASSENGER-CARRYING AUTOMOBILES) WITHIN THE STATUTORY PRICE LIMIT.' THUS IT IS PLAIN THAT THE DECISION HAD REFERENCE NOT ONLY TO A SHOWING OF THE AMOUNT OF THE TAX UPON THE FACE OF THE BID AS SUBMITTED, BUT TO THE CONSENT OF THE CONTRACTOR TO ITS DEDUCTION. IT DOES NOT APPEAR THAT ANY DECISION OF THIS OFFICE HAS RAISED OBJECTION TO THE DEDUCTION FROM THE AMOUNT OF THE EXCISE TAX IN SUCH A CASE, AND THE DECISION DOES NOT APPEAR AT VARIANCE WITH THAT OF JANUARY 31, 1938. THE DECISION OF JANUARY 31, 1938, 17 COMP. GEN. 615, GAVE CONSIDERATION TO A FORM PROPOSED BY THE SECRETARY OF AGRICULTURE, FOR INCLUSION IN INVITATIONS FOR BIDS IN ORDER TO FURNISH INFORMATION TO BIDDERS AS TO THE BASIS FOR EVALUATION OF BIDS WITH RESPECT TO TAX INCLUSION OR EXCLUSION. THERE WAS RESTATED THE RULE THAT THERE APPEARS NO LEGAL AUTHORITY FOR ANY PURCHASING AGENCY OF THE GOVERNMENT TO UNDERTAKE TO REQUIRE, OR BY MEANS OF ADMINISTRATIVE MANDATE OR REGULATION, TO COERCE BIDDERS TO SELL TO SUCH AGENCY TAX-FREE, AND THAT IN CASE A BIDDER DOES NOT ELECT TO EXCLUDE APPLICABLE TAXES OR TO CONSENT TO THEIR DEDUCTION FROM BID PRICES, THERE IS NO NECESSITY FOR AND NO POINT IN REQUIRING ANY SHOWING AS TO THE AMOUNT INCLUDED BY WAY OF TAXES. THE OTHER HAND, IF A BIDDER STATES THAT A PRICE SUBMITTED IS EXCLUSIVE OF APPLICABLE TAXES, OR THAT HE CONSENTS TO DEDUCTION OF THE AMOUNT INCLUDED IN THE BID PRICE AS COVERING TAXES, IT WOULD APPEAR TO BE DESIRABLE IF NOT ESSENTIAL FOR PURPOSES OF EVALUATION AND COMPARISON WITH OTHER BIDS THAT SUCH BIDDER SHOW UPON THE FACE OF HIS BID THE AMOUNT CLAIMED TOBE INCLUDED IN OR EXCLUDED FROM THE BID PRICE ON ACCOUNT OF APPLICABLE TAXES.

THE DISTINCTION WOULD APPEAR TO BE BETWEEN THE BIDDER WHO PREFERS TO SUBMIT PRICES TAX-INCLUSIVE AND SELL ON THAT BASIS, IN WHICH CASE THERE IS NO NECESSITY FOR ANY SHOWING AS TO THE AMOUNT OF THE TAX, AND THE BIDDER WHO EITHER CLAIMS THAT HIS BID PRICE IS TAX-EXCLUSIVE, OR INDICATES HIS WILLINGNESS TO HAVE THE TAX DEDUCTED FROM HIS BID PRICE FOR PURPOSES OF EVALUATION AND AWARD OF CONTRACT, IN WHICH CASE IT WOULD APPEAR DESIRABLE FROM THE STANDPOINT OF BOTH THE BIDDER AND THE GOVERNMENT THAT THE AMOUNT OF THE TAX BE SHOWN IF POSSIBLE.

REFERRING TO YOUR INQUIRY AS TO THE PROPRIETY OF ISSUING TAX EXEMPTION CERTIFICATE BEFORE THE QUANTITY TO BE PURCHASED IS DETERMINED IN THE CASE OF CONTRACT PURCHASES COVERING AN EXTENDED PERIOD OF TIME, IT WOULD APPEAR A MATTER OF ADMINISTRATIVE DISCRETION WHETHER AN EXEMPTION CERTIFICATE SHOULD ISSUE COVERING EACH INDIVIDUAL DELIVERY, WITH IDENTIFYING REFERENCE TO THE CONTRACT AND PURCHASE ORDER UNDER WHICH DELIVERIES ARE MADE, OR WHETHER THE EXEMPTION CERTIFICATE SHOULD BE WITHHELD UNTIL ALL DELIVERIES UNDER THE CONTRACT ARE COMPLETED AND THE QUANTITY DELIVERED IS FINALLY DETERMINED. HOWEVER, IT WOULD SEEM THE LATTER WOULD BE THE MORE SATISFACTORY PROCEDURE IN THE ABSENCE OF ANY SHOWING TO THE CONTRARY. EVERY CASE, WHETHER OF PARTIAL OR ENTIRE DELIVERY UNDER A CONTRACT, IT WOULD APPEAR PROPER THAT THE QUANTITY OF THE DELIVERY COVERED BY THE CERTIFICATE BE FILED IN BY THE RECEIVING REPRESENTATIVE OF THE GOVERNMENT, TOGETHER WITH THE AMOUNT OF APPLICABLE TAXES IF KNOWN. WHERE THE AMOUNT OF THE TAXES IS NOT KNOWN, IT MAY BE LEFT FOR DETERMINATION BY THE PROPER TAXING AUTHORITIES.

IT HAS BEEN POINTED OUT IN SEVERAL DECISIONS OF THIS OFFICE THAT THE PROVISIONS OF SECTION 401 OF THE REVENUE ACT OF AUGUST 30, 1935, 49 STAT. 1025, ARE PERMISSIVE RATHER THAN MANDATORY UPON A SELLER SO FAR AS SALES TO THE UNITED STATES ARE CONCERNED, AND LEAVE HIM FREE TO OFFER HIS WARES TO THE GOVERNMENT EITHER AT PRICES INCLUSIVE OF THE EXCISE TAX, IN WHICH CASE HE IS REQUIRED TO PAY THE AMOUNT OF THE TAX TO THE GOVERNMENT, OR AT PRICES EXCLUSIVE OF THE EXCISE TAX, IN WHICH CASE HE IS ENTITLED TO EXEMPTION FROM PAYMENT OF THE TAX, OR TO A REFUND OF THE TAX IN A PROPER CASE, IF ALREADY PAID. 15 COMP. GEN. 588. WHICH COURSE HE SHALL FOLLOW IS ENTIRELY OF HIS OWN CHOOSING AND ANY UNDERTAKING ON THE PART OF A PURCHASING AGENCY BY RULE, REGULATION, OR SPECIFICATIONS TO COERCE A BIDDER INTO BIDDING THE ONE WAY OR THE OTHER--- TO MAKE MANDATORY WHAT THE CONGRESS HAS LEFT DISCRETIONARY--- IS AN UNAUTHORIZED ASSUMPTION OF AUTHORITY AND INFRINGES UPON THE LAW AND THE RIGHTS OF BIDDERS. ADMINISTRATIVE RULES AND REGULATIONS MUST FOLLOW AND MAY NOT TRANSCEND THE LAW UPON WHICH THEIR VALIDITY DEPENDS. SEE UNITED STATES V. GRIMAUD, 220 U.S. 506; PANAMA REFINING COMPANY V. RYAN, 293 U.S. 388. IT WAS SAID BY THE SUPREME COURT IN MORRILL V. JONES, 106 U.S. 466:

THE SECRETARY OF THE TREASURY CANNOT BY HIS REGULATIONS ALTER OR AMEND A REVENUE LAW. ALL HE CAN DO IS TO REGULATE THE MODE OF PROCEEDING TO CARRY INTO EFFECT WHAT CONGRESS HAS ENACTED. * * * THIS IS MANIFESTLY AN ATTEMPT TO PUT INTO THE BODY OF THE STATUTE A LIMITATION WHICH CONGRESS DID NOT THINK IT NECESSARY TO PRESCRIBE. * * * IN OUR OPINION, THE OBJECT OF THE SECRETARY COULD ONLY BE ACCOMPLISHED BY AN AMENDMENT OF THE LAW. THAT IS NOT THE OFFICE OF A TREASURY REGULATION.

THE SECRETARY OF THE TREASURY HAS NOT UNDERTAKEN ANY SUCH ADDITION TO OR AMENDMENT OF THE REVENUE LAW IN THE PRESENT INSTANCE. THE REGULATIONS OF THE COMMISSIONER OF INTERNAL REVENUE MERELY OUTLINE THE PROPER AND NECESSARY PROCEDURE FOR OBTAINING A TAX REFUND, REBATE, OR EXEMPTION BY A MANUFACTURER, PRODUCER, OR IMPORTER WHEN ARTICLES, MATERIALS, OR SUPPLIES SUBJECT TO THE TAX HAVE BEEN SOLD OR RESOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES OR OTHER SPECIFIED POLITICAL BODY, AND PROVIDE THAT THE MANUFACTURER MUST OBTAIN FROM AN AUTHORIZED OFFICER OF THE UNITED STATES, ETC., AND RETAIN IN HIS POSSESSION A PROPERLY EXECUTED EXEMPTION CERTIFICATE IN PRESCRIBED FORM. THE EXEMPTION CERTIFICATE IS FURNISHED TO THE MANUFACTURER OR ULTIMATE VENDOR, IF PROPER, AS THE CASE MAY BE. IN ORDER THAT THE AUTHORIZED OFFICER MAY BE ABLE TO FURNISH SUCH EXEMPTION CERTIFICATE, IT IS NECESSARY THAT THE BID SHOW AFFIRMATIVELY THE EXCLUSION OF THE TAX, IF THE MANUFACTURER UNDERTAKES TO CLAIM EXEMPTION. OTHERWISE, THE BID IS CONCLUSIVELY PRESUMED TO BE TAX INCLUSIVE, AND NO "AUTHORIZED OFFICER OF THE UNITED STATES" IS AUTHORIZED TO FURNISH EITHER THE MANUFACTURER OR THE ULTIMATE VENDOR WITH A TAX EXEMPTION CERTIFICATE. COMP. GEN. 1054; ID 1021. THE SOLE FUNCTION OF THE EXEMPTION CERTIFICATE IS FOR THE PROTECTION OF THE CONTRACTOR IF HE ELECTS TO SELL TO THE GOVERNMENT TAX FREE, AND TO PLACE IN HIS HANDS THE EVIDENCE REQUIRED BY THE COMMISSIONER OF INTERNAL REVENUE OR OTHER TAXING AUTHORITIES TO ESTABLISH HIS RIGHT TO THE EXEMPTION, REBATE, OR REFUND.

UNDER THE LAW AS IT STANDS, NO PURCHASING AGENCY OF THE GOVERNMENT IS AUTHORIZED TO MAKE FEDERAL TAX EXCLUSION A CONDITION PRECEDENT TO CONSIDERATION OR ACCEPTANCE OF AN OTHERWISE PROPER BID, OR TO RESERVE TO ITSELF THE PREROGATIVE OF DEDUCTING THE AMOUNT OF APPLICABLE TAXES FROM A TAX-INCLUSIVE BID PRICE WITHOUT REGARD TO THE PREFERENCE OF THE BIDDER. IN OTHER WORDS, THERE APPEARS NO BASIS IN LAW FOR AN ADMINISTRATIVE UNDERTAKING TO ENLARGE THE SCOPE OF RESTRICTIVE REQUIREMENTS IN INVITATIONS FOR BIDS, THUS SEEKING TO MAKE MANDATORY UPON A BIDDER A COURSE OF ACTION WHICH UNDER THE PLAIN WORDING OF THE STATUTE CLEARLY IS VOLITIONAL. BIDDERS PROPERLY MAY BE REQUESTED BUT NOT REQUIRED TO SUBMIT PRICES EXCLUSIVE OF EXCISE TAX, AND ENCOURAGED BUT NOT COMPELLED TO SELL TO THE GOVERNMENT AT TAX-FREE PRICES. THAT IS THE FUNDAMENTAL PRINCIPAL INVOLVED AND APPEARS TO PRESENT THE CHIEF ADMINISTRATIVE DIFFICULTY AND CONFUSION IN YOUR DEPARTMENT.

WITH THAT PRINCIPLE IN MIND, IT WOULD APPEAR THAT THE SEVERAL DECISIONS OF THIS OFFICE CITED IN YOUR SUBMISSION ARE COMPLETELY HOMOLOGOUS, AND ESTABLISH THE FOLLOWING SIMPLE RULES FOR APPLICATION:

1. INVITATIONS FOR BIDS MAY NOT REQUIRE BIDDERS TO SUBMIT TAX-FREE PRICES, BUT SHOULD LEAVE THEM FREE TO SUBMIT PRICES EITHER INCLUSIVE OR EXCLUSIVE OF FEDERAL EXCISE TAXES, OR STATE AND LOCAL TAXES, AS THEY SEE FIT. 15 COMP. GEN. 588; 17 COMP. GEN. 615.

2. SUBMITTED BIDS WHICH DO NOT SHOW AFFIRMATIVELY THE EXCLUSION OF APPLICABLE TAXES ARE PRESUMED TO BE INCLUSIVE OF SUCH TAXES AND ARE FOR EVALUATION AS SUBMITTED. THERE IS NO AUTHORITY FOR THE PURCHASING AGENCY UNDERTAKING TO CHANGE THE AMOUNT OF A BID OR PERMITTING ITS CHANGE IN ANY WAY BY THE BIDDER AFTER BIDS ARE OPENED AND COMPETITIVE PRICES ARE KNOWN. 15 COMP. GEN. 1030; 16 ID. 1021.

3. WHERE BIDS ARE RECEIVED WHICH ARE STATED TO BE TAX INCLUSIVE AND THE BIDDERS INDICATE WILLINGNESS TO HAVE APPLICABLE TAXES EXCLUDED FROM THE CONTRACT PRICE IN CASE OF AWARD, THE BIDS MAY BE EVALUATED ON THAT BASIS IN COMPARISON WITH TAX EXCLUSIVE BIDS, WITH ACCEPTANCE OF THE BID MOST ADVANTAGEOUS TO THE GOVERNMENT. 16 COMP. GEN. 832.

4. WHERE, UPON THE SAME OPENING, BIDS ARE RECEIVED WHICH ARE FEDERAL EXCISE TAX EXCLUSIVE, AND OTHER BIDS WHICH ARE TAX INCLUSIVE WITHOUT SHOWING THE AMOUNT THEREOF, THE BIDS SHOULD BE EVALUATED ON A FEDERAL TAX- INCLUSIVE BASIS. 17 COMP. GEN. 615.

5. WHERE A TAX-INCLUSIVE BID IS LOWER THAN OTHER BIDS RECEIVED IT IS FOR EVALUATION AND ACCEPTANCE AS SUBMITTED, IF OTHERWISE PROPER, WITHOUT DEDUCTION IN ANY AMOUNT ON ACCOUNT OF TAXES INCLUDED THEREIN, UNLESS SUCH BIDDER INDICATES HIS CONSENT TO THE TAX DEDUCTION UPON THE FACE OF THE BID WHEN SUBMITTED. 17 COMP. GEN. 615.

WITHOUT CONSIDERING AT FURTHER LENGTH THE EXCISE TAX QUESTIONNAIRE FORM ENCLOSED WITH YOUR SUBMISSION, IT MAY BE SAID THAT THE STATEMENT IN THE FIRST PARAGRAPH THEREOF TO THE EFFECT THAT ALL COMMODITIES ARE EXEMPT FROM STATE OR LOCAL TAX OF ANY KIND WHEN SOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES IS OF DOUBTFUL CORRECTNESS, AND TENDS TO CREATE THE IMPRESSION THAT CONTRACTORS ARE REQUIRED TO SELL TO THE GOVERNMENT FREE OF STATE AND LOCAL TAXES AND THE BASIS OF EVALUATION STATING THAT "INCLUDED FEDERAL EXCISE TAX WILL BE DEDUCTED FROM BID PRICE IF THE EXACT AMOUNT OF TAX IS KNOWN OR STATED BY BIDDER. THIS WILL APPLY TO THE STATE AND LOCAL TAX ALSO, UNLESS STIPULATED HERE BY THE BIDDER"--- IS NOT AUTHORIZED FOR REASONS HEREINBEFORE STATED.

IT IS BELIEVED THAT THE TAX-INFORMATION FORM AS APPROVED IN THE DECISION OF JANUARY 31, 1938, 17 COMP. GEN. 615, TO THE SECRETARY OF AGRICULTURE, WOULD BE FREE FROM OBJECTION AND SUFFICIENT FOR THE REQUIREMENTS OF YOUR DEPARTMENT.

IT MAY BE ADDED GENERALLY THAT THE REVENUE ACT OF 1932, AS AMENDED, MADE NO DRASTIC CHANGE IN ESTABLISHED PRINCIPLES, PRACTICES, AND STATUTORY REQUIREMENTS APPLICABLE TO CONTRACTS AND PURCHASES FOR THE GOVERNMENT, TO WIT, THAT CONTRACTS AND PURCHASES ARE TO BE MADE AFTER FREE, OPEN, AND UNRESTRICTED COMPETITION WITH AWARD TO THE LOWEST RESPONSIBLE BIDDER OFFERING MATERIALS MEETING THE NEEDS OF THE GOVERNMENT. WHATEVER MAY HAVE BEEN THE PURPOSE OF THE ENACTMENT, IT APPEARS TO INCLUDE NO PROVISION THAT COULD BE INTERPRETED BY EVEN REASONABLE IMPLICATION AS AUTHORIZING IMPOSITION OF ANY BURDEN OR RESTRICTION UPON AN ASPIRANT FOR PUBLIC BUSINESS, OR AS DEPRIVING HIM OF THE PRIVILEGE OF SUBMITTING A BID AS HE MAY SEE FIT.