A-46031, APRIL 9, 1935, 14 COMP. GEN. 747

A-46031: Apr 9, 1935

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BECOMES A PART OF THE PURCHASE PRICE AND IS CHARGEABLE TO FUNDS MADE AVAILABLE FROM THE FEDERAL TREASURY TO THE STATE. 1935: I HAVE YOUR LETTER OF MARCH 4. WHAT IS SAID IN DECISION 24 COMP. IS EQUALLY APPLICABLE IN CONNECTION WITH THE FUNDS NOW UNDER CONSIDERATION. THE GIFTS TO THE VARIOUS STATES ARE NOT ABSOLUTE BUT ARE GIFTS CONDITIONED ON THE DISBURSEMENTS BEING MADE THEREFROM FOR THE SPECIFIC PURPOSES FOR WHICH THE SUMS ARE ALLOTTED TO THE STATES.'. MEMBERS OF THE DEPARTMENT WHO ARE MAKING THE ANNUAL EXAMINATION OF WORK AND EXPENDITURES UNDER THESE FUNDS NOW ADVISE THAT IN SOME STATES EXPENDITURES FOR SUPPLIES INCLUDE AN ADDED ITEM FOR STATE SALES TAX. THE PURCHASES INVOLVING SUCH SALES TAX ITEMS ARE APPROVED BY THE DEPARTMENT AS NECESSARY IN CARRYING OUT THE SPECIFIC PURPOSES OF THE RESPECTIVE ACTS.

A-46031, APRIL 9, 1935, 14 COMP. GEN. 747

FEDERAL COOPERATIVE FUNDS - AGRICULTURAL EXTENSION AND EXPERIMENT STATIONS - STATE TAX ON PURCHASES - REIMBURSEMENT TO VENDORS OF TAX A STATE TAX PAID BY VENDOR PRIOR TO THE SALE OF ARTICLES OR SUPPLIES TO AGRICULTURAL OR MECHANICAL COLLEGES, SUCH TAX BEING INCLUDED IN THE PRICE OF THE ARTICLE OR SUPPLY, BECOMES A PART OF THE PURCHASE PRICE AND IS CHARGEABLE TO FUNDS MADE AVAILABLE FROM THE FEDERAL TREASURY TO THE STATE, TERRITORY, OR SUBDIVISION THEREOF, IN FURTHERANCE OF AGRICULTURAL EXTENSION AND EXPERIMENT STATIONS. FEDERAL COOPERATIVE FUNDS MADE AVAILABLE TO VARIOUS STATES MAY NOT BE USED TO REIMBURSE VENDORS WITH AMOUNTS DUE FROM THEM TO THEIR RESPECTIVE STATES AS TAXES ON ARTICLES OR SUPPLIES SOLD TO AGRICULTURAL EXTENSION OR EXPERIMENT STATIONS AND NOT INCLUDED AND PAID AS A PART OF THE PURCHASE PRICE.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF AGRICULTURE, APRIL 9, 1935:

I HAVE YOUR LETTER OF MARCH 4, 1935, AS FOLLOWS:

YOUR OFFICE IN DECISION A-46031, OF JANUARY 16, 1933, TO THIS DEPARTMENT, IN PASSING UPON INTEREST WHICH ACCRUED ON CERTAIN FEDERAL FUNDS GRANTED TO THE STATES FOR AGRICULTURAL EXTENSION AND AGRICULTURAL EXPERIMENT STATIONS, ADVISED THAT

"THE UNITED STATES IN PAYING THE FUNDS TO THE STATES FOR THE PURPOSES FOR WHICH MADE AVAILABLE, DOES NOT RELINQUISH CONTROL OF THE FUNDS BUT MERELY ADVANCES THE FUNDS TO A DESIGNATED CUSTODIAN OF THE STATE TO BE EXPENDED FOR CERTAIN GIVEN PURPOSES. UNDER SUCH CIRCUMSTANCES, WHAT IS SAID IN DECISION 24 COMP. DEC. 403, AND SUBSEQUENT DECISIONS WITH RESPECT TO OTHER COOPERATIVE FUNDS PAID TO THE SEVERAL STATES AND TERRITORIES, IS EQUALLY APPLICABLE IN CONNECTION WITH THE FUNDS NOW UNDER CONSIDERATION. IN THESE CASES, AS IN THE CASE HEREIN CITED, THE GIFTS TO THE VARIOUS STATES ARE NOT ABSOLUTE BUT ARE GIFTS CONDITIONED ON THE DISBURSEMENTS BEING MADE THEREFROM FOR THE SPECIFIC PURPOSES FOR WHICH THE SUMS ARE ALLOTTED TO THE STATES.'

MEMBERS OF THE DEPARTMENT WHO ARE MAKING THE ANNUAL EXAMINATION OF WORK AND EXPENDITURES UNDER THESE FUNDS NOW ADVISE THAT IN SOME STATES EXPENDITURES FOR SUPPLIES INCLUDE AN ADDED ITEM FOR STATE SALES TAX, RUNNING ORDINARILY FROM ONE CENT TO A FEW CENTS, BUT OCCASIONALLY IN GREATER AMOUNT. THE PURCHASES INVOLVING SUCH SALES TAX ITEMS ARE APPROVED BY THE DEPARTMENT AS NECESSARY IN CARRYING OUT THE SPECIFIC PURPOSES OF THE RESPECTIVE ACTS.

A FURTHER QUESTION NOW ARISES, THEREFORE, AS TO WHETHER THESE FUNDS GRANTED TO THE VARIOUS STATES ARE FEDERAL FUNDS BEYOND APPROVAL OF THE SPECIFIC PURPOSES FOR WHICH PURCHASES ARE TO BE MADE. IN OTHER WORDS, THE DEPARTMENT REPRESENTATIVES MIGHT NOT ONLY APPROVE, BUT MIGHT FIND IT NECESSARY TO INSIST THAT A CERTAIN PIECE OF EQUIPMENT OR SPECIFIC ARTICLES OF SUPPLIES BE PURCHASED IN ORDER TO CARRY OUT A PROPOSED ACTIVITY IN ACCORDANCE WITH THE REQUIREMENTS OF THE ACTS. THE SPECIFIC QUESTION THEN IS WHETHER THE SMALL SALES TAX MAY BE INCLUDED AS A CHARGE AGAINST THE FEDERAL FUNDS.

IN PRACTICE, THE QUESTION IS AN IMPORTANT ONE. THE AMOUNT INVOLVED IS SMALL COMPARED WITH THE FISCAL DIFFICULTIES AND THE ADDED TIME FOR EXAMINATION AND CHECKING TO ARRANGE FOR PAYMENT OF THE SMALL TAX FROM OTHER THAN FEDERAL FUNDS.

YOUR ADVICE ON THIS QUESTION IS REQUESTED.

THE FUNDS IN QUESTION MADE AVAILABLE FROM THE FEDERAL TREASURY IN FURTHERANCE OF COOPERATIVE WORK OF THE AGRICULTURAL AND MECHANICAL COLLEGES IN THEIR EXTENSION AND EXPERIMENTAL WORK ARE NOT ABSOLUTE GIFTS TO THE STATES; BUT THE FUNDS ARE CHARGED WITH A TRUST THAT THEY BE USED SOLELY FOR THE PURPOSES FOR WHICH APPROPRIATED AND NONE OTHER. OBVIOUSLY, A DIVERSION OF A PART OF THE FUNDS INTO THE TREASURIES OF THE RESPECTIVE STATES IN THE FORM OF TAXES FOR THE GENERAL SUPPORT OF THE STATE GOVERNMENTS IS NOT A USE OF THE FUNDS FOR THE COOPERATIVE WORK OF THE AGRICULTURAL AND MECHANICAL COLLEGES AND SUCH DIVERSION FINDS NO SANCTION IN THE LAW. HOWEVER, SUCH TAX MUST BE DIRECT AS CONSIDERED IN THE PANHANDLE AND GRAYSBURG OIL CASES, 277 U.S. 229, AND 278 U.S. 582, RESPECTIVELY. SEE ALSO STANDARD OIL COMPANY V. CALIFORNIA, 291 U.S. 242, AND TRINITY FARM CONSTRUCTION COMPANY V. LOUISIANA, 291 U.S. 466. IF THE TAX WAS PAID BY THE WHOLESALER OR SOME OTHER PERSON PRIOR TO THE ARTICLES OR SUPPLIES COMING INTO POSSESSION OF THE PERSON FROM WHOM PURCHASED WITH THE USE OF SUCH FUNDS, THE ADDITION, IF ANY, TO THE NORMAL PRICE OF THE ARTICLES OR SUPPLIES MAY NOT BE CONSIDERED A TAX BUT IT IS A PART OF THE PRICE. SEE 13 COMP. GEN. 87, AND LASH'S PRODUCTS COMPANY V. UNITED STATES, 278 U.S. 175.

ACCORDINGLY, YOU ARE ADVISED THAT TRUST FUNDS MADE AVAILABLE BY THE UNITED STATES TO THE VARIOUS STATES FOR USE OF THEIR AGRICULTURAL AND MECHANICAL COLLEGES MAY NOT BE USED TO REIMBURSE THE VENDORS WITH AMOUNTS WHICH SUCH VENDORS OF THE AGRICULTURAL AND MECHANICAL COLLEGES MAY HAVE PAID TO THEIR RESPECTIVE STATES AS TAXES BUT THE QUESTION OF STATE TAXES DOES NOT ARISE WHERE THE WHOLESALER OR OTHER VENDOR OF THE VENDOR TO THE AGRICULTURAL AND MECHANICAL COLLEGES PAID THE TAXES TO THE STATES AS THE TAXES WHEN PAID CEASE TO BE A TAX AND BECOME A PART OF THE PRICE OF THE ARTICLES OR SUPPLIES AS THE CASE MAY BE. ..END :