A-58702, DECEMBER 14, 1934, 14 COMP. GEN. 464

A-58702: Dec 14, 1934

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

PROCESSING TAXES - LIABILITY OF DISBURSING OFFICER - DIFFICULTY IN MAKING COLLECTIONS PAYMENTS BY A CONTRACTOR TO HIS SUPPLIER OF AN AMOUNT EQUAL TO WHAT THE SUPPLIER MAY HAVE PAID TO THE UNITED STATES AS PROCESSING TAX IS NOT A PAYMENT OF THE TAX BY THE CONTRACTOR FOR WHICH HE IS ENTITLED TO BE REIMBURSED BY THE GOVERNMENT IN ADDITION TO THE CONTRACT PRICE. THERE WAS REFERRED TO THIS OFFICE YOUR LETTER OF OCTOBER 27. THE UNDERSIGNED IS HAVING CONSIDERABLE DIFFICULTY IN SECURING REFUNDS OR PROPER AFFIDAVITS TO LIFT SEVERAL DISALLOWANCES NOW HELD BY THE GENERAL ACCOUNTING OFFICE ON PAYMENTS MADE BY CAPTAIN R. AS A REIMBURSEMENT ON THE PROCESSING TAX ON FLOUR IN THE CASE OF BIDS SUBMITTED PRIOR TO THE TIME THIS TAX WAS OF COMMON KNOWLEDGE. 2.

A-58702, DECEMBER 14, 1934, 14 COMP. GEN. 464

PROCESSING TAXES - LIABILITY OF DISBURSING OFFICER - DIFFICULTY IN MAKING COLLECTIONS PAYMENTS BY A CONTRACTOR TO HIS SUPPLIER OF AN AMOUNT EQUAL TO WHAT THE SUPPLIER MAY HAVE PAID TO THE UNITED STATES AS PROCESSING TAX IS NOT A PAYMENT OF THE TAX BY THE CONTRACTOR FOR WHICH HE IS ENTITLED TO BE REIMBURSED BY THE GOVERNMENT IN ADDITION TO THE CONTRACT PRICE. THERE EXISTS A PROCEDURE UNDER SECTION 8 OF THE ACT OF JULY 31, 1894, 28 STAT. 208, AS AMENDED, UNDER WHICH A DISBURSING OFFICER MAY SECURE A DECISION IN ADVANCE OF PAYMENT WITH RESPECT TO THE AMOUNTS CLAIMED BY CONTRACTORS IN REPRESENTING PROCESSING TAXES, OR THE DISBURSING OFFICER MAY FOLLOW THE PROCEDURE OF FORWARDING SUCH CLAIMS TO THE GENERAL ACCOUNTING OFFICE FOR DIRECT SETTLEMENT. THE FACT THAT A DISBURSING OFFICER DOES NOT AVAIL HIMSELF OF EITHER PROCEDURE, BUT ELECTS TO MAKE ON HIS RESPONSIBILITY PAYMENTS WHICH MUST NECESSARILY BE CHARGED TO HIS ACCOUNTS, AFFORDS NO BASIS FOR RELIEVING HIM FROM RESPONSIBILITY THEREFOR BECAUSE DIFFICULTIES MAY BE ENCOUNTERED IN RECOVERING THE ERRONEOUS PAYMENTS.

COMPTROLLER GENERAL MCCARL TO MAJOR L. M. EDWARDS, UNITED STATES ARMY, DECEMBER 14, 1934:

BY SECOND INDORSEMENT DATED NOVEMBER 7, 1934, FROM THE OFFICE OF CHIEF OF FINANCE, CONCERNING VOUCHER NO. 919, SEPTEMBER 1933, ACCOUNTS OF R. B. CONNER, CAPTAIN, FINANCE DEPARTMENT, AND CERTAIN OTHER VOUCHERS IN THE SAME ACCOUNT AS LISTED IN THE SAID INDORSEMENT, THERE WAS REFERRED TO THIS OFFICE YOUR LETTER OF OCTOBER 27, 1934, IN PERTINENT PART, AS FOLLOWS:

1. THE UNDERSIGNED IS HAVING CONSIDERABLE DIFFICULTY IN SECURING REFUNDS OR PROPER AFFIDAVITS TO LIFT SEVERAL DISALLOWANCES NOW HELD BY THE GENERAL ACCOUNTING OFFICE ON PAYMENTS MADE BY CAPTAIN R. B. CONNER, F.D., DURING THE SUMMER OF 1933, AS A REIMBURSEMENT ON THE PROCESSING TAX ON FLOUR IN THE CASE OF BIDS SUBMITTED PRIOR TO THE TIME THIS TAX WAS OF COMMON KNOWLEDGE.

2. AT THE TIME THESE PAYMENTS WERE MADE, IT WAS NOT KNOWN EITHER BY THIS OFFICE OR THE MERCHANTS INVOLVED THAT IT WAS NECESSARY FOR THE BIDDER TO PAY THE PROCESSING TAX DIRECTLY TO THE GOVERNMENT FOR FLOUR ON THE FLOOR JULY 9, 1933, AND ON FLOUR PURCHASED AFTER THAT DATE IN ORDER TO SECURE REIMBURSEMENT FROM THE FINANCE OFFICER PAYING THE ACCOUNT. IN THIS CONNECTION, ATTENTION IS INVITED TO SECTION III, FINANCE BULLETIN NO. 38, DATED APRIL 27, 1933, WHICH READS IN PART AS FOLLOWS:

"PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. IF ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES COVERED BY THIS BID, AND ARE PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, AND ANY AMOUNT DUE THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS SEPARATE ITEMS.'

ATTENTION IS ALSO INVITED TO PARAGRAPH 2, FINANCE BULLETIN NO. 94, DATED JULY 24, 1933, WHICH READS IN PART AS FOLLOWS:

"* * * IF A FEDERAL PROCESSING TAX BECOMES EFFECTIVE AFTER BIDS ARE OPENED OR AFTER THE CONTRACT IS MADE, WHICH TAX MUST BE PAID BY THE VENDOR, THE BID PRICE MAY BE INCREASED ACCORDINGLY PROVIDED THE FEDERAL TAX PROVISION STIPULATED IN PROCUREMENT CIRCULAR NO. 55 OFFICE OF THE ASSISTANT SECRETARY OF WAR, DATED APRIL 14, 1933 (SEC. III, F.B. NO. 38, 1933) OR ANY SUBSTANTIALLY SIMILAR PROVISION WITH REFERENCE TO A PROCESSING TAX WAS INCLUDED IN THE BID AND INCORPORATED IN THE AGREEMENT.'

AT THE TIME THESE PAYMENTS WERE MADE, IT IS BELIEVED THE FINANCE BULLETINS REFERRED TO ABOVE WERE THE ONLY DATA RECEIVED AT THIS OFFICE BEARING ON THIS SUBJECT; HOWEVER, FINANCE BULLETIN NO. 144, DATED SEPTEMBER 22, 1933, BEARING ON THIS SUBJECT, WAS RECEIVED AFTER MOST OF THIS CLASS OF PAYMENTS WERE MADE, AND READS IN PART AS FOLLOWS:

"TO ENTITLE THE SUCCESSFUL BIDDER TO ADD THE TAX TO HIS BID PRICE, HE MUST SUBMIT AFFIRMATIVE EVIDENCE THAT SUCH PROCESSING TAX HAS BEEN PAID UPON THE PARTICULAR COMMODITY DELIVERED TO THE GOVERNMENT, SHOWING THE DATE AND AMOUNT OF PAYMENT AND THE QUANTITY OF MATERIAL UPON WHICH PAID, WITH HIS SWORN STATEMENT THAT THE MATERIAL DELIVERED TO THE GOVERNMENT IS A PART OR ALL OF THAT UPON WHICH THE TAX WAS PAID. A-50180, AUGUST 10, 1933.'

THE ABOVE EXTRACTS ARE RELIABLY COMPLETE IN THE SUMMATION OF INSTRUCTIONS ON HAND IN THIS OFFICE AT THE TIME THESE REIMBURSEMENTS WERE MADE, AND IT IS BELIEVED THAT PAYMENTS AS MADE CONFORMED STRICTLY TO THE ABOVE WITH THE EXCEPTION THAT SWORN AFFIDAVITS WERE NOT OBTAINED TO SUPPORT THE FACT THAT BIDDERS HAD PAID THE TAX. IT HAS BEEN AN EASY MATTER TO OBTAIN SWORN AFFIDAVITS THAT THE SUCCESSFUL BIDDERS PAID ALL TAXES DUE THE GOVERNMENT, BUT THEY DID NOT PAY THESE TAXES DIRECTLY TO THE GOVERNMENT BUT PAID THEM GENERALLY TO THE WHOLESALERS OR MILLERS WHO IN TURN PAID THE GOVERNMENT DIRECT. IN THE INSTRUCTIONS QUOTED ABOVE, IT IS NOTED THAT NOTHING IS STATED DEFINITELY THAT SUCCESSFUL BIDDERS WERE COMPELLED TO PAY PROCESSING TAXES DIRECTLY TO THE GOVERNMENT IN ORDER TO OBTAIN REIMBURSEMENT FROM THE FINANCE OFFICER PAYING THE ACCOUNT. HOWEVER, DECISION A-51133, PAGE 87, VOLUME 13, SEPTEMBER 1933, RECEIVED AFTER PAYMENTS WERE MADE, READS AS FOLLOWS:

"A CONTRACTOR WITH THE UNITED STATES WHO WAS NOT THE PROCESSOR AND WHO DID NOT PAY TO THE UNITED STATES A PROCESSING TAX IS NOT ENTITLED TO PAYMENT IN EXCESS OF THE CONTRACT PRICE OF ANY AMOUNT EQUAL TO THE PROCESSING TAX PAID BY THE CONTRACTOR'S VENDOR WHO, IN TURN, HAD PASSED THE CHARGE ON TO THE CONTRACTOR.'

THE GENERAL ACCOUNTING OFFICE HAS DISALLOWED ALL PAYMENTS OF THIS CLASS AND QUOTE ABOVE DECISION.

4. IN CONTACTING THE VARIOUS FIRMS INVOLVED IN THIS MATTER, I FIND THAT, ACCORDING TO THEIR STATEMENTS, THE MAJORITY HAVE PAID ALL PROCESSING TAXES DUE THE GOVERNMENT, BUT NOT DIRECTLY TO THE GOVERNMENT IN THAT THEY HAVE PAID IT EITHER TO SOME WHOLESALER OR MILLER. THEY SEEM TO BE OF THE OPINION THAT THEY ARE JUSTLY ENTITLED TO PAYMENT OF BREAD DELIVERED AT THEIR BID PRICE PLUS REIMBURSEMENT OF THE ADDITIONAL PROCESSING TAXES WHERE BIDS WERE SUBMITTED PRIOR TO KNOWLEDGE OF THE PROCESSING TAXES ON FLOUR, OTHERWISE, THEIR BIDS WOULD HAVE BEEN HIGHER IF THEY COULD HAVE KNOWN OF THIS ADDITIONAL EXPENSE AND TAKEN THAT INTO CONSIDERATION IN FIXING THE BID PRICE.

5.INASMUCH AS THE GOVERNMENT IS NOT DEFRAUDED IN THE PAYMENT OF THESE PROCESSING TAXES AND THE FIRMS INVOLVED HAVE PAID EITHER DIRECTLY OR INDIRECTLY ALL TAXES DUE THE GOVERNMENT. I BELIEVE THAT THE GENERAL ACCOUNTING OFFICE SHOULD TAKE THIS INTO CONSIDERATION AND RAISE THESE DISALLOWANCES.

DIFFICULTIES WHICH A DISBURSING OFFICER MAY HAVE IN COLLECTING OVERPAYMENTS MADE BY HIM CONSTITUTE NO LEGAL BASIS FOR CREDITING HIS ACCOUNT WITH THE AMOUNT THEREOF, AND IT IS WELL SETTLED THAT UNDER THE LAW A DISBURSING OFFICER AND HIS SURETY ARE PERSONALLY RESPONSIBLE FOR ANY ERRONEOUS OR ILLEGAL PAYMENTS. SEE 8 COMP. GEN. 130. AS SHOWN BY THE QUOTATION IN YOUR LETTER OF OCTOBER 27, 1934, THE FINANCE BULLETIN IN QUESTION PROVIDES THAT THE PROCESSING TAX MUST BE MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES DELIVERED UNDER THE CONTRACT AND MUST BE "PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES" BEFORE THE CONTRACT PRICES MAY BE INCREASED BY AN AMOUNT EQUAL THERETO. OBVIOUSLY, PAYMENT BY A CONTRACTOR TO HIS SUPPLIER OF AN AMOUNT EQUAL TO WHAT THE SUPPLIER MAY HAVE PAID TO THE UNITED STATES AS PROCESSING TAX IS NOT A PAYMENT BY THE CONTRACTOR, AS WAS POINTED OUT IN 13 COMP. GEN. 87, APPLYING THE RULE STATED IN LASH'S PRODUCTS CO. V. UNITED STATES, 278 U.S. 175. IN OTHER WORDS, THE PAYMENTS NOT ONLY WERE NOT IN ACCORDANCE WITH THE TERMS OF THE CONTRACT, BUT THEY WERE NOT IN ACCORDANCE WITH LAW AS INTERPRETED AND APPLIED BY THE SUPREME COURT OF THE UNITED STATES.

THERE EXISTS A PROCEDURE UNDER SECTION 8 OF THE ACT OF JULY 31, 1894, 28 STAT. 208, AS AMENDED, UNDER WHICH THE DISBURSING OFFICER COULD HAVE SECURED A DECISION IN ADVANCE OF PAYMENT WITH RESPECT TO THE AMOUNTS CLAIMED BY THESE CONTRACTORS AS REPRESENTING PROCESSING TAXES, OR THERE COULD HAVE BEEN FOLLOWED THE PROCEDURE OF FORWARDING THESE CLAIMS TO THIS OFFICE FOR DIRECT SETTLEMENT. THE FACT THAT THE DISBURSING OFFICER DID NOT AVAIL HIMSELF OF EITHER PROCEDURE, BUT ELECTED TO MAKE ON HIS OWN RESPONSIBILITY, PAYMENTS WHICH MUST NECESSARILY BE CHARGED IN HIS ACCOUNTS, AFFORDS NO BASIS FOR RELIEVING HIM FROM RESPONSIBILITY THEREFOR BECAUSE DIFFICULTIES MAY BE ENCOUNTERED IN RECOVERING THE ERRONEOUS PAYMENTS.

ACCORDINGLY, YOU ARE ADVISED THAT CREDIT MAY NOT BE ALLOWED IN THE ACCOUNT FOR THE PAYMENTS IN QUESTION.