B-144504, JUN. 30, 1970

B-144504, JUN. 30, 1970

TO MR. WILLIAM A. PRENTICE:

REFERENCE IS MADE TO YOUR LETTERS OF APRIL 28, MAY 5, AND MAY 25, 1970, IN WHICH YOU REQUEST, IN EFFECT, AN ADVANCE DECISION CONCERNING THE PROPRIETY OF CERTIFYING FOR PAYMENT RECLAIM VOUCHERS IN FAVOR OF VARIOUS TELEPHONE COMPANIES COVERING AMOUNTS DISALLOWED ON PRIOR INVOICES FOR STATE AND CITY FRANCHISE TAXES. WE UNDERSTAND INFORMALLY FROM A MEMBER OF YOUR STAFF THAT YOU HAVE BEFORE YOU APPROXIMATELY FIFTY SUCH VOUCHERS.

IN YOUR LETTER OF APRIL 28, 1970, YOU ENCLOSED COPIES OF INVOICES FROM THE SOUTHWESTERN BELL TELEPHONE COMPANY WHICH INCLUDE CHARGES-- WHICH YOU DISALLOWED--REPRESENTING THE AMOUNT OF THE HANNIBAL, MISSOURI, CITY FRANCHISE TAX DUE ON EACH INVOICE AND YOU STATED THAT:

"AS THE FEDERAL GOVERNMENT GENERALLY IS NOT LIABLE FOR TAXES, IT IS DOUBTFUL WHETHER THESE CAN BE PAID. *** " IN YOUR LETTER OF MAY 5, 1970, YOU ENCLOSED COPIES OF SIMILAR INVOICES FROM THE SOUTHWESTERN BELL TELEPHONE COMPANY WHICH INCLUDE DISALLOWED CHARGES REPRESENTING THE AMOUNTS OF THE JONESBORO AND PINE BLUFF, ARKANSAS, CITY FRANCHISE TAXES DUE ON EACH INVOICE. IN THAT LETTER YOU STATED:

"AS THE FEDERAL GOVERNMENT GENERALLY IS NOT LIABLE FOR TAXES, IT IS DOUBTFUL WHETHER THESE CAN BE PAID. IF THESE ARE NOT TAXES, AND ARE OTHERWISE PAYABLE, IT IS DOUBTFUL WHETHER THE INVOICES CONSTITUTE PROPER DOCUMENTATION REQUIRED BY 7 GAO 22.2 I.E. MISREPRESENTATION OF ITEM. *** " IN BOTH LETTERS YOU REQUESTED OUR DECISION AS TO WHETHER THESE CHARGES MAY BE PAID.

IN YOUR LETTER OF MAY 25, 1970, IN WHICH YOU ENCLOSED COPIES OF INVOICES FOR THE ILLINOIS BELL TELEPHONE COMPANY WHICH INCLUDE CHARGES REPRESENTING THE AMOUNTS OF STATE AND CITY TAXES YOU STATE THE QUESTION AS FOLLOWS:

"WE ARE IN RECEIPT OF NUMEROUS RECLAIMS FROM TELEPHONE COMPANIES IN SEVERAL STATES AND CITIES. THESE CLAIMS ALMOST INVARIABLY INDICATE THAT THESE CHARGES ARE A PART OF THE AUTHORIZED RATE RESULTING FROM TAXES AND ARE NOT TAXES. WE DO NOT QUESTION PAYMENT OF AUTHORIZED RATES. WE DO QUESTION WHETHER INVOICES REPRESENTING ITEMS AS TAXES WHEN THEY ARE NOT, AS IN THE ENCLOSED CASES, ARE LEGAL AND CONSTITUTE PROPER DOCUMENTATION AS REQUIRED BY 7 GAO 22.2."

WE UNDERSTAND INFORMALLY FROM A MEMBER OF YOUR STAFF THAT YOU DO NOT WISH US TO RESPOND TO YOUR LETTERS OF APRIL 28, AND MAY 5, 1970, BUT THAT YOU DO WISH OUR DECISION ON THE QUESTION RAISED IN THE LETTER OF MAY 25, 1970.

THUS, THE QUESTION YOU PRESENT IS WHETHER INVOICES REPRESENTING ITEMS AS TAXES WHEN THEY ARE NOT, ARE LEGAL AND CONSTITUTE PROPER DOCUMENTATION AS REQUIRED BY 7 GAO 22.2 AND, HENCE, ARE PROPERLY CERTIFIABLE BY YOU FOR PAYMENT. SECTION 22.2 PROVIDES THAT DISBURSEMENTS MUST BE SUPPORTED BY BASIC PAYMENT DOCUMENTS, SUCH AS INVOICES OR BILLS, SHOWING SUFFICIENT INFORMATION TO ADEQUATELY ACCOUNT FOR THE DISBURSEMENTS AND TO ENABLE THE GENERAL ACCOUNTING OFFICE TO AUDIT THE TRANSACTIONS AND TO SETTLE THE ACCOUNTS OF ACCOUNTABLE OFFICERS.

AS TO A UTILITY SEPARATELY STATING IN ITS BILLINGS STATE OR LOCAL TAXES WHICH HAVE BEEN MADE PART OF ITS RATE, WE HELD IN B-144504 DATED JUNE 9, 1967, THAT--

"IT IS CLEAR FROM THE KENTUCKY STATUTE INVOLVED THAT THE TAX IN QUESTION IS IMPOSED ON THE VENDOR (UTILITY), ALTHOUGH THE VENDOR MAY PASS ON THE TAX BY INCREASING ITS RATES THREE PERCENT, SEPARATELY STATING ON THE BILLS THE AMOUNT OF THE TAX. SINCE THE LEGAL INCIDENCE OF THE TAX IS ON THE VENDOR THE CONSTITUTIONAL PRINCIPLE UNDER WHICH THE FEDERAL GOVERNMENT IS IMMUNE TO STATE OR LOCAL TAXATION IS NOT INVOLVED. 33 COMP. GEN. 453; 32 ID. 423; 24 ID. 150.

"ACCORDINGLY, AND SINCE THE STATUTE INVOLVED AUTHORIZES THE UTILITY TO INCREASE ITS RATES BY THE AMOUNT OF THE TAX, THE BILL, WHICH IS RETURNED HEREWITH, MAY BE CERTIFIED FOR PAYMENT, IF OTHERWISE CORRECT."

ALSO, IN B-167999, DATED DECEMBER 31, 1969, WE HELD THAT THERE COULD BE CERTIFIED FOR PAYMENT A TELEPHONE BILL FROM THE GENERAL TELEPHONE COMPANY OF CALIFORNIA, WHICH INCLUDED AN ITEM (AMOUNT) LABELED "ALLOWANCE FOR FEDERAL INCOME TAX SURCHARGE." THE BASIS FOR OUR DECISION WAS THAT FROM THE RECORD BEFORE US, IT WAS CLEAR THAT THE ITEM DESIGNATED "ALLOWANCE FOR FEDERAL INCOME TAX SURCHARGE" APPEARING ON THE TELEPHONE BILL WAS NOT A TAX BUT A TEMPORARY RATE INCREASE AUTHORIZED BY THE CALIFORNIA PUBLIC UTILITIES COMMISSION TO ALLOW THE COMPANY TO RECOVER IN ITS RATES THE FEDERAL INCOME TAX SURCHARGE SO AS TO PERMIT IT TO MAINTAIN ITS ALLOWED RATE OF RETURN ON ITS INVESTMENT DURING THE PERIOD THE TELEPHONE COMPANY WOULD BE SUBJECT TO THE SURCHARGE.

ACCORDINGLY, IF IT IS DETERMINED THAT THE STATE AND LOCAL TAXES INVOLVED IN THE INVOICES AND RECLAIM VOUCHERS NOW BEFORE YOU ARE IMPOSED ON THE VENDOR (UTILITY), AND ARE MERELY PASSED ON BY THE VENDOR BY INCREASING ITS RATES (BY THE PROPER REGULATORY AGENCY OR BY OTHER APPROPRIATE STATE ACTION), THE FACT THAT THE AMOUNT OF SUCH TAXES IS SEPARATELY STATED ON THE INVOICES WOULD NOT PRECLUDE YOU FROM CERTIFYING SUCH INVOICES OR RECLAIM VOUCHERS FOR PAYMENT. IF YOU DESIRE YOU MAY MAKE AN APPROPRIATE NOTATION ON THE VOUCHER TO SUCH EFFECT. CF. 7 GAO 22.7.