A-45869, DECEMBER 19, 1932, 12 COMP. GEN. 471

A-45869: Dec 19, 1932

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TAXES - CONTRACTS - TERRITORY OF HAWAII A TAX IMPOSED BY THE LAWS OF THE TERRITORY OF HAWAII UPON CONTRACTORS ENTERING INTO CONSTRUCTION CONTRACTS WITH THE TERRITORY OR ITS POLITICAL SUBDIVISIONS IS APPLICABLE TO FEDERAL-AID HIGHWAY CONSTRUCTION CONTRACTS. IT APPEARING THAT SUCH CONTRACTS ARE ENTERED INTO BY THE TERRITORY AND THE TAX IS NOT ONE IMPOSED UPON A FEDERAL AGENCY BY THE TERRITORY. TO WHICH WERE ATTACHED COPIES OF CORRESPONDENCE WITH AND BETWEEN THE TREASURER OF THE TERRITORY OF HAWAII AND THE ATTORNEY GENERAL OF SAID TERRITORY AS TO WHETHER THE BUSINESS EXCISE TAX IMPOSED ON CONTRACTORS IN THE TERRITORY BY SECTION 6 (B) OF ACT 42. IS ADMINISTERED BY THIS DEPARTMENT. IS TRANSMITTED HEREWITH.

A-45869, DECEMBER 19, 1932, 12 COMP. GEN. 471

TAXES - CONTRACTS - TERRITORY OF HAWAII A TAX IMPOSED BY THE LAWS OF THE TERRITORY OF HAWAII UPON CONTRACTORS ENTERING INTO CONSTRUCTION CONTRACTS WITH THE TERRITORY OR ITS POLITICAL SUBDIVISIONS IS APPLICABLE TO FEDERAL-AID HIGHWAY CONSTRUCTION CONTRACTS, IT APPEARING THAT SUCH CONTRACTS ARE ENTERED INTO BY THE TERRITORY AND THE TAX IS NOT ONE IMPOSED UPON A FEDERAL AGENCY BY THE TERRITORY.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF AGRICULTURE, DECEMBER 19, 1932:

THERE HAS BEEN RECEIVED YOUR LETTER OF NOVEMBER 17, 1932, AS FOLLOWS:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE DEPARTMENT OF THE INTERIOR A COPY OF A LETTER OF OCTOBER 21, 1932, FROM HONORABLE RAYMOND C. BROWN, ACTING GOVERNOR OF HAWAII, TO THE SECRETARY OF THE INTERIOR, TO WHICH WERE ATTACHED COPIES OF CORRESPONDENCE WITH AND BETWEEN THE TREASURER OF THE TERRITORY OF HAWAII AND THE ATTORNEY GENERAL OF SAID TERRITORY AS TO WHETHER THE BUSINESS EXCISE TAX IMPOSED ON CONTRACTORS IN THE TERRITORY BY SECTION 6 (B) OF ACT 42, 2ND SPECIAL SESSIONS LAWS OF 1932, SHOULD APPLY TO CONTRACTORS HAVING CONTRACTS FOR FEDERAL AID PROJECTS IN THE TERRITORY.

THE TERRITORIAL TREASURER SUGGESTED THAT THE MATTER BE SUBMITTED TO YOU FOR DETERMINATION, AND THE ACTING GOVERNOR, IN HIS LETTER OF OCTOBER 21 TO THE SECRETARY OF THE INTERIOR, REQUESTED THAT SUCH SUBMISSION BE MADE. INASMUCH, HOWEVER, AS THE FEDERAL HIGHWAY ACT, UNDER WHICH ANY FEDERAL AID PROJECTS WOULD BE FINANCED, IS ADMINISTERED BY THIS DEPARTMENT, THE DEPARTMENT OF THE INTERIOR REFERRED THE ACTING GOVERNOR'S LETTER AND ITS ENCLOSURES HERE WITH REQUEST THAT THE MATTER BE REFERRED TO YOUR OFFICE FOR DECISION. THE CORRESPONDENCE, THEREFORE, IS TRANSMITTED HEREWITH, AND IT WILL BE APPRECIATED IF YOU WILL ADVISE AS TO WHETHER OR NOT THE BUSINESS EXCISE TAX IMPOSED UPON CONTRACTORS IN THE TERRITORY OF HAWAII BY ACT 42, 2ND SPECIAL SESSIONS, 1932, LAWS OF HAWAII, SHOULD BE DEDUCTED BY THE TERRITORIAL TREASURER FROM AMOUNTS DUE CONTRACTORS UNDER CONTRACT FOR FEDERAL AID ROAD PROJECTS IN THE TERRITORY.

THE LAW IN QUESTION, AS QUOTED IN THE CORRESPONDENCE SUBMITTED WITH YOUR LETTER, PROVIDES:

IN THE CASE OF ANY CONTRACTOR ENTERING INTO A CONSTRUCTION CONTRACT WITH THE TERRITORY OR ANY POLITICAL SUBDIVISION, OR ANY DEPARTMENT OR AGENCY THEREOF, THE AUDITOR OF THE TERRITORY OR POLITICAL SUBDIVISION, OR OTHER OFFICER OR AGENT THEREOF CHARGED WITH THE DISBURSEMENT OF THE FUNDS PAYABLE TO SUCH PERSON UNDER SAID CONTRACT, SHALL WITHHOLD FROM THE AMOUNT, OR ANY INSTALLMENT THEREOF, PAYABLE UNDER SAID CONTRACT, ONE PERCENT (1 PERCENT) THEREOF ON ACCOUNT OF THE TAX IMPOSED BY THIS ACT UPON THE DOING OF BUSINESS IN CONNECTION WITH SUCH CONTRACT.

IN AN OPINION OF OCTOBER 19, 1932, BY THE ACTING ATTORNEY GENERAL, TERRITORY OF HAWAII, IT IS STATED:

AFTER A CAREFUL EXAMINATION OF THE PROVISIONS OF THE HAWAII FEDERAL AID HIGHWAY ACT, AS AMENDED (ACT 78, S.L. 1925, AS AMENDED BY ACT 53, S.L. 1929, ACT 95, S.L. 1931 AND ACT 64, 2ND SPEC. SESSION LAWS, 1932), THE PROVISIONS OF THE FEDERAL HIGHWAY ACT, AS AMENDED, AND THE RULES AND REGULATIONS OF THE SECRETARY OF AGRICULTURE PROMULGATED UNDER THE LATTER ACT, IT IS THE OPINION OF THIS DEPARTMENT, PARTICULARLY IN VIEW OF THOSE PROVISIONS OF THE LATTER ACT WHICH ARE TO BE FOUND IN U.S. CODE, TITLE 23, SECS. 11, 12, 13, AND 14, THAT CONTRACTS FOR THE CONSTRUCTION OF FEDERAL AID HIGHWAYS ARE PURELY TERRITORIAL CONTRACTS AS BETWEEN THE TERRITORY AND THE PRIVATE CONTRACTORS AGREEING TO UNDERTAKE THE PROJECTS, AND ARE IN NO SENSE CONTRACTS BETWEEN THE FEDERAL GOVERNMENT AND ANY OF SAID CONTRACTORS. IN FACT THE RULES AND REGULATIONS OF THE SECRETARY OF AGRICULTURE, AS WELL AS THE PROJECT AGREEMENTS ENTERED INTO FROM TIME TO TIME BETWEEN THE FEDERAL GOVERNMENT AND THE TERRITORY FOR THE EXPENDITURE OF FEDERAL AID MONEYS, DEFINITELY NEGATIVE THE EXISTENCE OF ANY SUCH CONTRACTS BETWEEN THE FEDERAL GOVERNMENT AND THE PRIVATE CONTRACTORS. AND AFTER THE TERRITORY HAS SO COMPLIED WITH THE PROVISIONS OF THE FEDERAL HIGHWAY ACT, THE RULES AND REGULATIONS OF THE SECRETARY OF AGRICULTURE PROMULGATED THEREUNDER, AND THE PROVISIONS OF THE FEDERAL AID PROJECT AGREEMENTS BETWEEN THE TERRITORY AND THE FEDERAL GOVERNMENT, AS TO ENTITLE IT TO FEDERAL AID PAYMENTS, THE FEDERAL MONEYS SO PAID BECOME TERRITORIAL MONEYS AND ARE NO LONGER FEDERAL MONEYS AS SUCH, ALTHOUGH THE TERRITORY HAS OBLIGATED ITSELF BY CONTRACT TO PAY SUCH MONEYS TO THE PRIVATE CONTRACTORS CONCERNED.

ON THE OTHER HAND, WE KNOW OF NO RESTRICTIONS IN THE FEDERAL HIGHWAY ACT UPON THE TERRITORY'S POWER TO TAX PRIVATE CONTRACTORS ENTERING INTO TERRITORIAL FEDERAL AID CONTRACTS AND THERE WOULD SEEM, THEREFORE, TO BE NO OBJECTION TO THE TERRITORY'S MAKING THE DEDUCTIONS ON ACCOUNT OF ITS BUSINESS EXCISE TAX PROVIDED FOR BY SAID SECTION 6 (B) OF SAID ACT 42.

IT IS THEREFORE OUR OPINION THAT THE TERRITORIAL TREASURER UPON RECEIPT OF FEDERAL AID MONEYS (WHICH AS ABOVE MENTIONED THEREUPON BECOME TERRITORIAL MONEYS) MAY LEGALLY, AND SHOULD, MAKE THE 1 PERCENT WITHHOLDINGS OF PAYMENTS TO CONTRACTORS REQUIRED BY SAID SECTION 6 (B).

THE CONCLUSION REACHED IN THIS OPINION THAT UNDER THE HAWAII FEDERAL AID HIGHWAY ACT THE CONTRACTS UNDER CONSIDERATION ARE CONTRACTS OF THE TERRITORY RATHER THAN OF THE FEDERAL GOVERNMENT, APPEARS TO BE CORRECT, AND THERE DOES NOT APPEAR TO BE INVOLVED A TAXING OF A FEDERAL AGENCY BY THE TERRITORY, THE TAX BEING IMPOSED UPON AND PAYABLE BY PRIVATE CONTRACTORS. UNDER SUCH CIRCUMSTANCES, THERE IS NOT APPARENT TO THIS OFFICE ANY REASON WHY THE TAX AS PROVIDED BY THE LAW OF THE TERRITORY OF HAWAII, SUPRA, SHOULD NOT BE COLLECTED ON FEDERAL AID HIGHWAY CONSTRUCTION CONTRACTS.