A-57997, OCTOBER 27, 1934, 14 COMP. GEN. 338

A-57997: Oct 27, 1934

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CONTRACTS - PROCESSING TAX THERE IS NO BASIS EITHER IN A CONTRACT PROVISION THAT "ANY TAX IMPOSED BY THE FEDERAL GOVERNMENT WILL BE ADDED TO THE BID PRICES. FOR PAYMENT BY THE UNITED STATES OF AN AMOUNT IN ADDITION TO THE CONTRACT PRICE EQUIVALENT TO THE PROCESSING TAX ON THE FABRICATION OF RAW COTTON ENTERING INTO THE MANUFACTURE OF AUTOMOBILE TIRES WHEN THE CONTRACTOR HAVING FURNISHED AUTOMOBILE TIRES TO THE UNITED STATES DID NOT IN FACT PAY THE UNITED STATES SAID AMOUNT AS PROCESSING TAX ALTHOUGH HE MAY HAVE PAID THE EQUIVALENT THEREOF TO THE FABRICATORS OF RAW COTTON. 1934: THERE IS BEFORE THIS OFFICE FOR CONSIDERATION AND SETTLEMENT THE CLAIM OF THE MCCLAREN RUBBER CO. FOR $19.11 AS THE AMOUNT OF PROCESSING TAX ON COTTON ENTERING INTO THE MANUFACTURE OF AUTOMOBILE TIRES FOR WHICH THE CONTRACT PRICE WAS PAID ON VOUCHER NO. 20245.

A-57997, OCTOBER 27, 1934, 14 COMP. GEN. 338

CONTRACTS - PROCESSING TAX THERE IS NO BASIS EITHER IN A CONTRACT PROVISION THAT "ANY TAX IMPOSED BY THE FEDERAL GOVERNMENT WILL BE ADDED TO THE BID PRICES," OR IN THE ACT OF MAY 12, 1933 (48 STAT. 35), FOR PAYMENT BY THE UNITED STATES OF AN AMOUNT IN ADDITION TO THE CONTRACT PRICE EQUIVALENT TO THE PROCESSING TAX ON THE FABRICATION OF RAW COTTON ENTERING INTO THE MANUFACTURE OF AUTOMOBILE TIRES WHEN THE CONTRACTOR HAVING FURNISHED AUTOMOBILE TIRES TO THE UNITED STATES DID NOT IN FACT PAY THE UNITED STATES SAID AMOUNT AS PROCESSING TAX ALTHOUGH HE MAY HAVE PAID THE EQUIVALENT THEREOF TO THE FABRICATORS OF RAW COTTON.

DECISION BY COMPTROLLER GENERAL MCCARL, OCTOBER 27, 1934:

THERE IS BEFORE THIS OFFICE FOR CONSIDERATION AND SETTLEMENT THE CLAIM OF THE MCCLAREN RUBBER CO. FOR $19.11 AS THE AMOUNT OF PROCESSING TAX ON COTTON ENTERING INTO THE MANUFACTURE OF AUTOMOBILE TIRES FOR WHICH THE CONTRACT PRICE WAS PAID ON VOUCHER NO. 20245, NOVEMBER 1933, ACCOUNTS OF W. O. RAWLS, MAJOR, FINANCE DEPARTMENT, UNITED STATES ARMY.

THE TIRES IN QUESTION WERE PURCHASED IN CONNECTION WITH THE NORTH CAROLINA CONSERVATION WORK UNDER STATE CONTRACT DATED JUNE 7, 1933, COVERING THE PURCHASE OF AUTOMOBILE TIRES FOR THE FISCAL YEAR 1934, AND DELIVERY THEREOF WAS MADE AT VARIOUS E.C.W. CAMPS. PAYMENT FOR THE TIRES DELIVERED WAS MADE FROM THE EMERGENCY CONSERVATION FUND. IN BILLING THE TIRES THE CONTRACTOR ADDED TO THE VARIOUS INVOICES THE ALLEGED AMOUNT OF PROCESSING TAX ON THE COTTON ENTERING INTO THE MANUFACTURE OF THE AUTOMOBILE TIRES AND IN MAKING PAYMENT FOR THE TIRES THE DISBURSING OFFICER DEDUCTED THE AMOUNT SO CHARGED AS PROCESSING TAX.

IN REQUESTING ALLOWANCE OF ITS CLAIM, THE CLAIMANT COMPANY PRESENTS AN AFFIDAVIT DATED JANUARY 16, 1934, TO THE EFFECT THAT THE PROCESSING TAX BILLED ON THE INVOICES IN THE CLAIM HAS BEEN PAID. THE CLAIM APPEARS TO BE BASED ON THE PROVISION OF THE CONTRACT, WHICH READS AS FOLLOWS:

ANY TAX IMPOSED BY THE FEDERAL GOVERNMENT WILL BE ADDED TO THE BID PRICES.

IN CONNECTION WITH THE CLAIMANT'S STATEMENT THAT THE TAX HAS BEEN PAID, THE CHIEF OF FINANCE AND ACCOUNTS DIVISION, FOREST SERVICE, DEPARTMENT OF AGRICULTURE, REPORTS IN LETTER OF AUGUST 1, 1934, THAT CLAIMANT IS NOT IN A POSITION TO FURNISH DETAILED INFORMATION IN REGARD TO TAX. IT IS SHOWN, ALSO, THAT THE CLAIMANT ADMITTED IN A STATEMENT FURNISHED TO THE DISTRICT INSPECTOR OF THE FOREST SERVICE, ASHEVILLE, N.C., THAT PAYMENT OF THE TAX IS MADE BY THE FIRST PROCESSOR OF RAW COTTON; THAT THE EFFECT OF THIS IS THAT ON TIRE FABRIC WHICH IS USED IN CONSTRUCTION OF AUTOMOBILE AND TRUCK TIRES, THE FABRICATORS PAY THE TAX AT THE TIME THEY PUT THE COTTON INTO PROCESS, AND THEY ADD THE AMOUNT OF THIS TAX TO THEIR PRICE WHEN THEY BILL THE TIRE MANUFACTURER WITH THE FINISHED FABRIC.

IT IS TO BE NOTED THAT THE CLAIMED PROCESS TAX IN THIS CASE IS ON RAW COTTON USED IN THE MANUFACTURE OF FABRIC WHILE CLAIMANT'S CONTRACT CALLED FOR THE FURNISHING OF AUTOMOBILE TIRES, BUT, HOWEVER, THAT MAY BE, IT SEEMS CLEAR THAT THE PROCESSING TAX WAS NOT PAID BY THE CLAIMANT BUT WAS PAID BY THE FIRST PROCESSOR OF RAW COTTON USED IN THE TIRE FABRIC WHO MAY HAVE PASSED IT ON TO THE CLAIMANT IN THE SAME MANNER AND TO THE SAME EXTENT AS ANY OTHER ITEM OF COST--- SUCH AS WAGES, RENT, ETC.--- MAY HAVE BEEN PASSED ON TO A PURCHASER. THERE IS NO BASIS IN EITHER THE CONTRACT, SUPRA, OR THE ACT OF MAY 12, 1933 (48 STAT. 35), FOR THE UNITED STATES TO PAY AN AMOUNT IN ADDITION TO THE CONTRACT PRICE EQUIVALENT TO THE PROCESSING TAX WHEN THE CONTRACTOR DID NOT IN FACT PAY THE UNITED STATES THE AMOUNT OF THE PROCESSING TAX.

THE DETERMINING FACTOR IN THIS CASE IS WHETHER CLAIMANT DID IN FACT PAY THE PROCESSING TAX TO THE UNITED STATES, AND THE RECORD CLEARLY SHOWS THAT THE CLAIMANT DID NOT DO SO. CLAIMANT MAY HAVE BEEN REQUIRED TO PAY MORE FOR THE FABRIC THAN IT WOULD HAVE BEEN REQUIRED TO PAY HAD THERE BEEN NO PROCESSING TAX ON RAW COTTON, BUT SUCH ADDITIONAL PAYMENTS MADE BY CLAIMANT DO NOT CONSTITUTE OR REPRESENT TAXES. A TAX ONCE PAID CEASES TO BE SUCH WHEN PASSED ON TO A SUCCESSIVE PURCHASER OF THE PARTICULAR ARTICLE, SUPPLIES, ETC., AND BECOMES A PART OF THE COST THEREOF. SEE LASH'S PRODUCTS CO. V. UNITED STATES, 278 U.S. 175; 13 COMP. GEN. 87; DECISION OF JUNE 18, 1934, A 55979.

THERE IS NO LEGAL BASIS FOR THE ALLOWANCE OF THE CLAIM AND THE CLAIM, THEREFORE, MUST BE AND IS DISALLOWED.