A-43729, AUGUST 9, 1932, 12 COMP. GEN. 211

A-43729: Aug 9, 1932

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CONTRACTS - EXCISE TAXES WHILE A CONTRACT WITH THE UNITED STATES MAY PROPERLY CONTAIN A STIPULATION TO THE EFFECT THAT IN ADDITION TO THE NAMED PRICES THE GOVERNMENT WILL PAY AN AMOUNT EQUIVALENT TO ANY FEDERAL EXCISE TAXES IMPOSED ON THE SALE OF SUCH SUPPLIES TO THE UNITED STATES. THE ADDITIONAL AMOUNT EQUIVALENT TO THE FEDERAL TAX MAY NOT BE PAID UNLESS IN FACT THE TAXES ARE APPLICABLE AND COLLECTIBLE ON THE SALE. THE QUESTION WHETHER A FEDERAL EXCISE TAX IS APPLICABLE TO A PARTICULAR SALE IS PRIMARILY FOR DETERMINATION BY THE COMMISSIONER OF INTERNAL REVENUE. AS FOLLOWS: THERE WAS FORWARDED TO YOUR OFFICE UNDER DATE OF JULY 27. IF FEDERAL TAX IS APPLICABLE TO THE PURCHASE COVERED BY THIS CONTRACT.

A-43729, AUGUST 9, 1932, 12 COMP. GEN. 211

CONTRACTS - EXCISE TAXES WHILE A CONTRACT WITH THE UNITED STATES MAY PROPERLY CONTAIN A STIPULATION TO THE EFFECT THAT IN ADDITION TO THE NAMED PRICES THE GOVERNMENT WILL PAY AN AMOUNT EQUIVALENT TO ANY FEDERAL EXCISE TAXES IMPOSED ON THE SALE OF SUCH SUPPLIES TO THE UNITED STATES, THE ADDITIONAL AMOUNT EQUIVALENT TO THE FEDERAL TAX MAY NOT BE PAID UNLESS IN FACT THE TAXES ARE APPLICABLE AND COLLECTIBLE ON THE SALE. THE QUESTION WHETHER A FEDERAL EXCISE TAX IS APPLICABLE TO A PARTICULAR SALE IS PRIMARILY FOR DETERMINATION BY THE COMMISSIONER OF INTERNAL REVENUE.

COMPTROLLER GENERAL MCCARL TO THE GENERAL PURCHASING OFFICER, THE PANAMA CANAL, AUGUST 9, 1932:

THERE HAS BEEN RECEIVED YOUR LETTER OF JULY 28, 1932, AS FOLLOWS:

THERE WAS FORWARDED TO YOUR OFFICE UNDER DATE OF JULY 27, 1932, A CONTRACT FOR LUBRICATING OIL ENTERED INTO UNDER DATE OF JULY 13, 1932, BY AND BETWEEN THE PANAMA CANAL AND THE ATLANTIC REFINING COMPANY, CONTRACT NO. PCLW-15814.

THE CONTRACT CONTAINS A PROVISION READING AS FOLLOWS:

"PROVIDED THAT, IF FEDERAL TAX IS APPLICABLE TO THE PURCHASE COVERED BY THIS CONTRACT, SUCH TAX OF $0.04 PER GALLON WILL BE PAID THE CONTRACTOR IN ADDITION TO THE PRICE SPECIFIED ABOVE.'

EXAMINATION OF THE PROVISIONS OF THE REVENUE ACT OF 1932 FAILS TO DISCLOSE ANY SPECIFIC PROVISION EITHER EXEMPTING THE UNITED STATES FROM THE REQUIREMENT OF PAYING SALES TAXES ON LUBRICATING OIL, AND OTHER COMMODITIES SUBJECT TO TAX, WITH THE EXCEPTION OF THE TAXES ON ELECTRICAL ENERGY, FIREARMS, SHELLS AND CARTRIDGES, OR TO DISCLOSE ANY SPECIFIC REQUIREMENT THAT THE UNITED STATES SHALL PAY SUCH TAXES ON SALES WHICH ARE CONSUMMATED AFTER DELIVERY OUTSIDE OF THE UNITED STATES AND IN THE CANAL ZONE AS PROVIDED FOR IN THE CONTRACT REFERRED TO.

ARTICLE 18 OF THE BUREAU OF INTERNAL REVENUE REGULATIONS 46 RELATING TO EXCISE TAXES PROVIDES AS FOLLOWS:

"ART. 18. SALES FOR EXPORT.--- THE ARTICLES ENUMERATED IN TITLE IV ARE NOT SUBJECT TO TAX WHEN SOLD FOR EXPORT OR FOR SHIPMENT TO A POSSESSION OF THE UNITED STATES BY THE MANUFACTURER THEREOF AND IN DUE COURSE SO EXPORTED OR SHIPPED. (SEE ARTS. 74 TO 76, INCLUSIVE.)

IN ARTICLE 76 REFERRED TO ABOVE THE TERM "POSSESSIONS OF THE UNITED STATES" IS DEFINED SO AS TO INCLUDE THE "PANAMA CANAL ZONE.'

YOUR DECISION IS REQUESTED AS TO WHETHER, UNDER THE PROVISIONS OF THE REVENUE ACT OF 1932, THE AMOUNT OF MANUFACTURERS' EXCISE TAXES MAY BE PAID FROM APPROPRIATIONS FOR THE PANAMA CANAL IN CONNECTION WITH PURCHASES UNDER CONTRACTS PROVIDING FOR DELIVERY TO AND ACCEPTANCE BY THE PANAMA CANAL WITHIN THE CANAL ZONE OF SUCH ARTICLES AS LUBRICATING OILS, TIRES AND INNER TUBES, AUTOMOBILES, ETC., AND GASOLINE, WHICH ARE TAXABLE, RESPECTIVELY, UNDER THE PROVISIONS OF SECTIONS 601, 602, 606, AND 617 OF THE REVENUE ACT.

THE QUESTION AS TO WHETHER THE TAX DOES OR DOES NOT APPLY TO SALES AND DELIVERIES SUCH AS REFERRED TO IN YOUR SUBMISSION IS FOR THE DETERMINATION, IN THE FIRST INSTANCE, OF THE COMMISSIONER OF INTERNAL REVENUE, BUT UNLESS AND UNTIL SUCH A TAX IS COLLECTED ON ARTICLES OR SUPPLIES SOLD BY MANUFACTURERS FOR SHIPMENT TO A POSSESSION OF THE UNITED STATES IT WOULD SEEM TO BE TOO CLEAR FOR SERIOUS ARGUMENT THAT THERE IS NO FEDERAL TAX "APPLICABLE" WITHIN THE STIPULATION IN THE CONTRACT OF JULY 13, 1932, QUOTED IN YOUR SUBMISSION, FOR PAYMENT BY THE UNITED STATES. THAT IS TO SAY, UNLESS THE TAX APPLIES TO AND IS REQUIRED TO BE PAID ON THE SALE, AN AMOUNT EQUIVALENT THERETO CAN NOT BE COLLECTED FROM THE UNITED STATES IN ADDITION TO THE CONTRACT PRICE, BUT IF IT DOES APPLY AND IS REQUIRED TO BE PAID, AND THE CONTRACT CONTAINS A PROVISION SIMILAR TO THE ONE QUOTED FROM THE CONTRACT OF JULY 13, 1932, AN AMOUNT EQUIVALENT TO THE TAX IN ADDITION TO THE PRICE WITHOUT THE TAX MAY BE PAID AND CHARGED UNDER THE APPROPRIATIONS AVAILABLE FOR THE PROCUREMENT OF THE SUPPLIES AS A PART OF THE PURCHASE PRICE. SEE GARFORD MOTOR TRUCK CO. V. UNITED STATES, 57 CT.CLS. 404.

AS TO THIS PARTICULAR CASE OF LUBRICATING OIL TO BE DELIVERED TO THE PANAMA CANAL IN THE CANAL ZONE YOU HAVE TRANSMITTED WITH LETTER DATED AUGUST 3, 1932, A LETTER OF AUGUST 1, 1932, FROM THE SECRETARY OF THE TREASURY, IN PERTINENT PART, AS FOLLOWS:

* * * THE REVENUE ACT OF 1932 MAKES NO PROVISION FOR EXEMPTING SALES BY A MANUFACTURER OF TAXABLE ARTICLES WHEN SUCH ARTICLES ARE SOLD TO THE UNITED STATES. SALES OF ARTICLES TAXED UNDER TITLE IV ARE NOT EXEMPT BY REASON OF THE FACT THAT THE SALE IS MADE TO THE PANAMA CANAL. HOWEVER, UNDER SECTION 1121 OF THE REVENUE ACT OF 1926 (MADE APPLICABLE BY SECTION 627 OF THE REVENUE ACT OF 1932 TO THE TAXES IMPOSED BY TITLE IV OF THE 1932 ACT), ARTICLES SOLD FOR EXPORT OR FOR SHIPMENT TO A POSSESSION OF THE UNITED STATES, AND IN DUE COURSE SO EXPORTED OR SHIPPED, ARE EXEMPT FROM TAX. ACCORDINGLY, WHERE A MANUFACTURER SELLS TAXABLE ARTICLES FOR SHIPMENT TO THE CANAL ZONE, WHETHER THE PURCHASER IS THE UNITED STATES OR A CORPORATION OR AN INDIVIDUAL, NO TAX ATTACHES, PROVIDED THE ARTICLES ARE SHIPPED IN DUE COURSE TO THE CANAL ZONE IN ACCORDANCE WITH THE REGULATIONS (ARTICLES 55 TO 57, INCLUSIVE, OF REGULATIONS 44 AND ARTICLES 74 TO 76, INCLUSIVE, OF REGULATIONS 46).

UNDER THESE CIRCUMSTANCES, PAYMENT OF AN AMOUNT EQUIVALENT TO THE TAX MAY NOT BE MADE IN ADDITION TO THE CONTRACT PRICE OF $0.14 A GALLON FOR THE 5,000 GALLONS OF OIL IF AND WHEN DELIVERED IN ACCORDANCE WITH THE TERMS OF THE CONTRACT.