B-156081, MAY 13, 1965, 44 COMP. GEN. 715

B-156081, MAY 13, 1965, 44 COMP. GEN. 715

CONTRACTS - TAX MATTERS - SALES, ETC., TAX INCLUSION V. EXCLUSION - REIMBURSEMENT A CONTRACTOR WHO FAILED TO INCLUDE STATE (NEW MEXICO) TAXES IN THE BID PRICE AS REQUIRED BY THE CONTRACT BECAUSE HE RELIED UPON THE SILENCE OF A STATE TAX AUTHORITY TO A LETTER INQUIRING ABOUT THE APPLICABILITY OF THE TAX RATHER THAN UPON THE STATUTE IMPOSING THE TAX AND A RECENT COURT DECISION UPHOLDING THE CONSTITUTIONALITY OF THE TAX LAW HAS NOT SHOWN CONCRETE REASONS FOR A JUSTIFIABLE ASSUMPTION OR UNDERSTANDING THAT THE TAXES WERE NOT APPLICABLE AND, THEREFORE, THE CONTRACTOR IS NOT ENTITLED TO REIMBURSEMENT FOR THE STATE TAXES WHICH WERE NOT INCLUDED IN THE CONTRACT PRICE.

TO MR. E. KNEUPER, JR., DEPARTMENT OF THE INTERIOR, MAY 13, 1965:

REFERENCE IS MADE TO LETTER 5-360 OF FEBRUARY 2, 1965, REQUESTING A DECISION WHETHER FENIX AND SCISSON, INC., CONTRACTOR UNDER CONTRACT 14 06- D-5101, MAY BE PAID CERTAIN TAXES IMPOSED BY THE STATE OF NEW MEXICO.

THE CONTRACT PROVIDES THAT THE PRICE INCLUDES, AMONG OTHER TAXES, ALL STATE TAXES IN EFFECT AND APPLICABLE TO THE CONTRACT ON THE BID OPENING DATE. HOWEVER, THE CONTRACTOR CLAIMS THAT IT DID NOT INCLUDE IN THE CONTRACT PRICE CERTAIN STATE TAXES, ESTIMATED AT ABOUT $176,000, WHICH IT LEARNED AFTER AWARD OF THE CONTRACT IT WOULD BE REQUIRED TO PAY. THE TAXES WHICH WERE NOT INCLUDED ARE SAID TO BE THOSE LEVIED UNDER NEW MEXICO REVISED STATUTES 72-16-4.7, 72-16-4.5 AND 72-17-3. THE FIRST IS A 1.5 PERCENT GROSS RECEIPTS TAX ON CONSTRUCTION CONTRACTORS. THE SECOND IS A 3 PERCENT GROSS RECEIPTS TAX ON MATERIAL SOLD IN THE STATE. THE THIRD IS A 3 PERCENT TAX ON MATERIAL PURCHASED OUTSIDE THE STATE BUT USED IN THE STATE.

IN SUPPORT OF ITS CLAIM, THE CONTRACTOR FURNISHED ITS ORIGINAL BID COMPUTATION SHEETS. AFTER REVIEW OF THESE SHEETS AND DISCUSSIONS WITH THE CONTRACTOR, THE ACTING CHIEF ENGINEER HAS STATED THAT HE IS SATISFIED THAT THE CONTRACTOR DID NOT INCLUDE ANY AMOUNT IN THE CONTRACT PRICE FOR THE TAXES INVOLVED. IF THE CONTRACTOR WAS REIMBURSED AN ADDITIONAL $176,000 FOR TAXES, SUCH PAYMENT WOULD NOT CHANGE THE STANDING OF BIDDERS, SINCE THE CONTRACTOR'S BID PRICE OF $5,402,994 WAS MORE THAN $424,000 LESS THAN THE NEXT LOW BIDDER.

THE CONTRACTOR HAS EXPLAINED HOW THE TAXES WERE OMITTED. IT HAS STATED THAT IN THE PREPARATION OF THE BID ON WHICH THE CONTRACT IS BASED, ITS BID ESTIMATOR CONSULTED A 1962 PUBLICATION ISSUED BY A PRIVATE CONTRACT INFORMATION SERVICE WHICH INDICATED THAT CONTRACTS FOR THE FEDERAL GOVERNMENT IN NEW MEXICO WERE EXEMPT FROM TAXES. IN ADDITION, THE BID ESTIMATOR WROTE TO THE NEW MEXICO CONTRACTORS' LICENSE BOARD ON MARCH 25, 1964, AS FOLLOWS:

"WE PLAN TO SUBMIT A BID TO THE U.S. BUREAU OF RECLAMATION AT FARMINGTON, NEW MEXICO, ON APRIL 9, 1964 FOR:

MAIN CANAL

HEADWORKS AND TUNNEL NO. 1

NAVAJO INDIAN IRRIGATION PROJECT, NEW MEXICO

"THIS WILL BE A CONTRACT FOR THE FEDERAL GOVERNMENT ON GOVERNMENT LAND AND OUR UNDERSTANDING IS THAT IN SUCH INSTANCES A CONTRACTOR'S LICENSE IS NOT REQUIRED.

"WE FURTHER UNDERSTAND THAT THE STATE SALES TAX AND EMERGENCY SCHOOL TAX IS NOT APPLICABLE IN SUCH INSTANCES.

"IF OUR UNDERSTANDINGS ARE INCORRECT, WOULD YOU PLEASE ADVISE AT THE EARLIEST DATE ACTICABLE.'

THE CONTRACTORS' LICENSE BOARD REPLIED ON MARCH 30, 1964, THAT THE CONTRACTOR DID NOT NEED A LICENSE AND THAT THE SALES TAX PROBLEM WAS BEING REFERRED TO THE BUREAU OF REVENUE FOR AN ANSWER. THE CONTRACTOR STATES THAT THE BUREAU NEVER REPLIED TO THE MARCH 25 LETTER AND THAT THE BID ESTIMATOR INTERPRETED THIS SILENCE AS CONFIRMATION THAT THE STATE TAXES WERE NOT APPLICABLE TO THE CONTRACT. FURTHER, ON APRIL 8, 1964, THE APPLICABILITY OF THE SALES AND USE TAXES WAS DISCUSSED WITH A REPRESENTATIVE OF THE GOVERNMENT WHO EXPRESSED AN OPINION THAT THE TAXES WERE NOT APPLICABLE IN A CONVERSATION WHEREIN HE SUGGESTED THAT THE BIDDER CONTACT STATE OFFICIALS.

IN 42 COMP. GEN. 517 IT WAS STATED THAT WHERE A CONTRACT CONTAINED THE STANDARD TAX CLAUSE PROVIDING THAT THE CONTRACT PRICE INCLUDED ALL STATE TAXES IN EFFECT AND APPLICABLE, THE CONTRACTOR COULD BE REIMBURSED SUCH TAXES WHEN IT SATISFACTORILY ESTABLISHED THAT THE TAX WAS NOT INCLUDED IN THE PRICE BECAUSE OF A "JUSTIFIABLE ASSUMPTION OR UNDERSTANDING OF THE INVALIDITY OF THE TAX.' THE ACTING CHIEF ENGINEER HAS INDICATED THAT HE BELIEVES THE FACTS AND CIRCUMSTANCES OF THE IMMEDIATE CASE FALL WITHIN THE RULE OF THE REFERENCED CASE. WE DO NOT AGREE.

WHILE THE CONTRACTOR MAY HAVE BASED ITS ASSUMPTION AS TO THE APPLICATION OF THE TAXES UPON THE SOURCES IT INDICATED IT RELIED UPON, THERE WERE MORE AUTHORITATIVE SOURCES AVAILABLE FOR ASCERTAINING WHETHER THE TAXES APPLIED. THE NEW MEXICO REVISED STATUTES PROVIDED FOR IMPOSITION OF THE TAXES ON THE KIND OF WORK INVOLVED. FURTHER, IN OCTOBER 1962--- ABOUT A YEAR AND A HALF BEFORE THE BIDDER WAS ENGAGED IN PREPARING ITS BID--- A STATE DISTRICT COURT HAD UPHELD THE CONSTITUTIONALITY OF THE LAW AND AS EARLY AS TWO WEEKS BEFORE THE OPENING OF BIDS THE STATE SUPREME COURT HAD SUSTAINED THE LOWER COURT. WHILE THE LATTER DECISION DID NOT BECOME FINAL UNTIL AFTER THE OPENING OF BIDS, THE JUDICIAL PRONOUNCEMENT BEFORE THAT TIME UPHELD THE PROPRIETY OF THE TAX. MOREOVER, ABSENT A JUDICIAL DECISION, A STATUTE IS NOT CONSIDERED TO BE UNCONSTITUTIONAL. B-144621, JANUARY 16, 1962. ALSO, OUR OFFICE HAS HELD THAT EVEN IF A CONTRACTOR IS CONTESTING THE VALIDITY OF A TAX IN THE COURTS, IT IS NOT EXCUSED FROM FAILING TO INCLUDE THE TAX IN ITS BID PRICE WHERE THE TAX CLAUSE IN ITS BID PROVIDES THAT APPLICABLE TAXES ARE INCLUDED. B-89951, DECEMBER 7, 1949.

THE PRESENT CASE IS FACTUALLY DISTINGUISHABLE IN AN IMPORTANT RESPECT FROM THE CASE WHICH WAS CONSIDERED IN 42 COMP. GEN. 517. IN THAT CASE IT WAS INDICATED THAT AT THE TIME OF BID OPENING THE STATE WAS JUDICIALLY RESTRAINED FROM COLLECTING THE TAX.

WE REALIZE THAT THE CONTRACTOR'S LETTER FORWARDED TO THE STATE TAX AUTHORITY ABOUT 10 DAYS BEFORE BID OPENING STATED THAT IT DID NOT BELIEVE THE TAX WAS APPLICABLE; THAT IT REQUESTED AN ANSWER "IF OUR UNDERSTANDINGS ARE INCORRECT," AND THAT NO REPLY TO THE LETTER WAS RECEIVED FROM THE TAX AUTHORITY. HOWEVER, IT IS NOT ESTABLISHED THAT THE LETTER WAS EVER RECEIVED BY THE TAX AUTHORITY AND IT IS DIFFICULT TO BELIEVE IN VIEW OF THE STATE OF THE LAW AND THE JUDICIAL DECISIONS AT THE TIME THE LETTER IS STATED TO HAVE BEEN FORWARDED THAT THE TAX AUTHORITY WOULD HAVE TAKEN A POSITIVE STAND THAT THE TAX WAS INAPPLICABLE.

THEREFORE, WE DO NOT BELIEVE THERE IS A REASONABLE BASIS FOR CONCLUDING THAT THE CONTRACTOR ACTED UNDER A JUSTIFIABLE ASSUMPTION OR UNDERSTANDING THAT THE TAXES WERE INAPPLICABLE. INASMUCH AS THE TAX CLAUSE PLACES THE RISK OF THE EXISTENCE OF APPLICABLE TAXES UPON THE BIDDER, WE BELIEVE THAT THE CONTRACTOR SHOULD BE REQUIRED TO SHOW RELIANCE OF TAX INAPPLICABILITY UPON CONCRETE REASONS RATHER THAN THE REASONS WHICH WERE RELIED UPON IN THIS CASE.

WE ARE THEREFORE OF THE VIEW THAT THE CONTRACTOR IN THE INSTANT CASE SHOULD NOT BE REIMBURSED THE TAXES WHICH IT CLAIMS IT DID NOT INCLUDE IN THE CONTRACT PRICE.