A-71669, MAY 26, 1936, 15 COMP. GEN. 1030

A-71669: May 26, 1936

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CONTRACTS - TAX-EXEMPT ARTICLES - REVENUE ACT OF 1935 - DISPOSITION OF USED EQUIPMENT WHERE AN OTHERWISE ACCEPTABLE LOW BID IS RECEIVED FROM A BIDDER NOT A MANUFACTURER. IS UNAUTHORIZED. AS FOLLOWS: REFERENCE IS MADE TO YOUR DECISION A-67600. IN WHICH YOU HAVE STATED IN REGARD TO THE "MANUFACTURERS' EXCISE TAX" IMPOSED BY TITLE IV OF THE REVENUE ACT OF 1932 AS AMENDED BY THE ACT OF MAY 10. THERE IS GIVEN BELOW A RESUME OF TWO BIDS RECEIVED FOR THE PURCHASE OF A 2-DOOR SEDAN. THE CASE IS AS FOLLOWS: ON DECEMBER 26 THE SUPERINTENDENT OF THE FIVE CIVILIZED TRIBES AGENCY OF THE INDIAN SERVICE OPENED BIDS FOR THE PURCHASE OF ONE 2 DOOR SEDAN FOR DELIVERY AT EITHER THE BIDDER'S SHIPPING POINT OR MUSKOGEE.

A-71669, MAY 26, 1936, 15 COMP. GEN. 1030

CONTRACTS - TAX-EXEMPT ARTICLES - REVENUE ACT OF 1935 - DISPOSITION OF USED EQUIPMENT WHERE AN OTHERWISE ACCEPTABLE LOW BID IS RECEIVED FROM A BIDDER NOT A MANUFACTURER, PRODUCER, OR IMPORTER, IN CONNECTION WITH ARTICLES OR SUPPLIES ON WHICH THERE HAS BEEN IMPOSED AN EXCISE TAX BY THE REVENUE ACT OF 1932, AS AMENDED, IT MAY BE ASSUMED THAT THE BID PRICE INCLUDES THE TAX FOR PURPOSE OF AWARD, AND INQUIRY OF SUCH BIDDER AS TO TAX INCLUSION PRIOR TO AWARD AND AFTER OPENING OF THE BIDS, BEING IN THE NATURE OF A NEGOTIATION, IS UNAUTHORIZED. ADVERTISEMENTS FOR THE PROCUREMENT OF NEW EQUIPMENT FOR THE GOVERNMENT INVOLVING ALSO THE DISPOSITION OF USED EQUIPMENT SHOULD REQUIRE CASH BIDS ON THE USED EQUIPMENT AS WELL AS TRADE-IN ALLOWANCES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, MAY 26, 1936:

THERE HAS BEEN RECEIVED YOUR LETTER OF FEBRUARY 26, 1936, AS FOLLOWS:

REFERENCE IS MADE TO YOUR DECISION A-67600, DATED JANUARY 7, 1936, TO THE SECRETARY OF THE NAVY, IN WHICH YOU HAVE STATED IN REGARD TO THE "MANUFACTURERS' EXCISE TAX" IMPOSED BY TITLE IV OF THE REVENUE ACT OF 1932 AS AMENDED BY THE ACT OF MAY 10, 1934 (48 STAT. 762), ON ARTICLES LISTED THEREIN THAT "THE NECESSITY FOR DEDUCTION OF THE TAX FROM THE BID PRICE EITHER PRIOR TO OR SUBSEQUENT TO AWARD DOES NOT APPEAR UNDER THE CIRCUMSTANCES.'

THERE IS GIVEN BELOW A RESUME OF TWO BIDS RECEIVED FOR THE PURCHASE OF A 2-DOOR SEDAN, ONE OF WHICH INCLUDES THIS TAX AND THE OTHER OF WHICH EXCLUDES IT. FROM A COMPARISON OF THESE BIDS IT WOULD APPEAR THAT TO MAKE AN AWARD BASED UPON THE PRICES SUBMITTED, WITHOUT DEDUCTING THE AMOUNT OF THE TAX FROM THE PRICE QUOTED BY THE BIDDER WHO INCLUDED THE TAX IN HIS BID, WOULD NOT IN ALL CASES RESULT IN AWARDING THE CONTRACT TO THE LOWEST BIDDER. THE CASE IS AS FOLLOWS:

ON DECEMBER 26 THE SUPERINTENDENT OF THE FIVE CIVILIZED TRIBES AGENCY OF THE INDIAN SERVICE OPENED BIDS FOR THE PURCHASE OF ONE 2 DOOR SEDAN FOR DELIVERY AT EITHER THE BIDDER'S SHIPPING POINT OR MUSKOGEE, OKLAHOMA. ONLY TWO BIDS WERE RECEIVED, ONE FROM THE GENERAL MOTORS CORPORATION WHO STATED THEREIN THAT ITS PRICE DID NOT INCLUDE THE MANUFACTURERS' EXCISE TAX, AND THE OTHER FROM THE FAST MOTOR COMPANY WHICH MADE NO MENTION WHATEVER OF THE TAX. THE BIDS ARE AS FOLLOWS, WITH THE AMOUNT OF LAND- GRANT FREIGHT ADDED TO THE BIDDER'S DELIVERY POINT PRICES AND TIME DISCOUNTS DEDUCTED, WHERE OFFERED, IN ORDER TO SHOW COMPARABLE PRICES DELIVERED AT MUSKOGEE:

BIDDERS' DELIVERY POINT PRICES BID NO. 1:

FAST MOTOR COMPANY; F.O.B. DETROIT ------------------------- $645.00

LESS TRADE-IN ALLOWANCE ------------------------------------- 100.00

PLUS GOVERNMENT FREIGHT ------------------------------------- 71.31

NET PRICE DELIVERED ----------------------------------------- 616.31

--------- BID NO. 2:

GENERAL MOTORS CORPORATION; F.O.B. LEEDS, MO --------------- 563.48

NO TRADE-IN ALLOWANCE.

PLUS GOVERNMENT FREIGHT ------------------------------------- 62.30

LESS 5 PERCENT TIME DISCOUNT ON FACTORY PRICE --------------- 28.17

NET PRICE DELIVERED ----------------------------------------- 597.61

PRICES DELIVERED MUSKOGEE, OKLAHOMA BID NO. 1:

FAST MOTOR COMPANY ------------------------------------------ 695.00

LESS TRADE-IN ALLOWANCE ------------------------------------- 100.00

NET PRICE DELIVERED ----------------------------------------- 595.00

--------- BID NO. 2:

GENERAL MOTORS CORPORATION ---------------------------------- 614.01

NO TRADE-IN ALLOWANCE.

LESS 5 PERCENT TIME DISCOUNT ON DELIVERED PRICE ------------- 30.70

NET PRICE DELIVERED ----------------------------------------- 583.31

FROM THE FOREGOING IT WOULD APPEAR THAT THE LOWEST PRICE OBTAINED WAS THAT OF THE GENERAL MOTORS CORPORATION, OFFERING DELIVERY F.O.B. MUSKOGEE FOR $583.31. AS HAS BEEN STATED, THIS COMPANY STATED IN ITS BID THAT ITS PRICE DID NOT INCLUDE THE MANUFACTURERS' EXCISE TAX; THEREFORE, TO ASCERTAIN WHETHER THE BIDS WERE ON A COMPARABLE BASIS, THE PURCHASING OFFICER OF THIS DEPARTMENT ASKED THE FAST MOTOR COMPANY TO ADVISE WHETHER OR NOT THE TAX WAS INCLUDED IN ITS BID, AND IF SO, IN WHAT AMOUNT. THE FAST MOTOR COMPANY REPLIED THAT THE TAX WAS INCLUDED IN THE AMOUNT OF $16.50. THIS AMOUNT WAS THEN DEDUCTED FROM $595, THE NET BID OF THE FAST MOTOR COMPANY, AND RESULTED IN A PRICE OF $578.50 FOR THE CAR DELIVERED MUSKOGEE. THIS BEING THE LOWER BID OF THE TWO, AWARD WAS ACCORDINGLY MADE TO THE FAST MOTOR COMPANY.

INASMUCH AS YOUR OFFICE HAS ALWAYS INSISTED THAT THE LOW BID BE ACCEPTED IF IN ACCORDANCE WITH THE SPECIFICATIONS, IT WILL BE APPRECIATED IF YOU WILL ADVISE ME WHETHER THE ACTION OF THE PURCHASING OFFICER IN DEDUCTING THE EXCISE TAX WAS NOT CORRECT.

IF THE ACTION WAS CORRECT IT WOULD APPEAR THAT THE PROVISION WITH RESPECT TO ANY EXISTING FEDERAL TAX (SUGGESTED BY YOU ON PAGE 6 OF YOUR DECISION A -67600) WOULD NOT APPLY, BUT THAT IT WOULD BE PROPER TO INSERT IN ADVERTISEMENTS A SIMPLE QUESTION AS TO WHETHER OR NOT PRICES QUOTED INCLUDED THE EXCISE TAX; IF SO, THE AMOUNT THEREOF.

IF THE ACTION WAS NOT CORRECT IT WOULD APPEAR THAT THE STATEMENT IN YOUR DECISION, I.E., "NO OTHER PROVISION WITH RESPECT TO ANY EXISTING FEDERAL TAX SHOULD APPEAR IN THE BID OR CONTRACT," WOULD OPERATE TO ELIMINATE PARAGRAPH 5 UNDER "CONDITIONS" IN U.S. STANDARD FORM 33 (REVISED). SHALL APPRECIATE ADVICE, THEREFORE, AS TO WHETHER PARAGRAPH 5 IS TO BE ELIMINATED FROM FUTURE ADVERTISEMENTS.

IT WAS POINTED OUT IN A-67600, 15 COMP. GEN. 588, THAT THE REVENUE ACT OF 1932, AS AMENDED, AND THE REGULATIONS OF THE COMMISSIONER OF INTERNAL REVENUE, PURSUANT THERETO, LEAVE A BIDDER AT LIBERTY EITHER TO INCLUDE OR EXCLUDE THE EXCISE TAX IN PRICES BID TO THE GOVERNMENT. WHETHER A BID SUBMITTED INCLUDES OR EXCLUDES THE TAX IS OF CONCERN TO THE DEPARTMENT INVOLVED ONLY FOR THE PURPOSE OF DETERMINING WHICH IS THE LOWEST BID AND WHETHER THE SUCCESSFUL BIDDER WILL BE ENTITLED TO A CERTIFICATE FOR THE PURPOSE OF OBTAINING ABATEMENT OR REFUND OF THE TAX. FOR THE PURPOSE OF AWARD, BIDS ARE TO BE EVALUATED AS MADE. AFTER BIDS ARE OPENED AND THE PRICES MADE PUBLIC, A BIDDER SHOULD NOT BE PERMITTED TO CHANGE HIS BID IN ANY WAY. THE ACTION OF THE PURCHASING OFFICER IN THIS INSTANCE WAS IN EFFECT A NEGOTIATION WITH THE HIGH BIDDER AFTER THE BIDS WERE OPENED AND PRICES KNOWN, GIVING THE BIDDER AN OPPORTUNITY TO CUT ITS PRICE BELOW THAT OF ITS COMPETITOR, AND WAS NOT PROPER.

FURTHERMORE, IT DOES NOT APPEAR FROM THE RECORD THAT THE FAST MOTOR CO. IS A MANUFACTURER OF AUTOMOBILES. THE CLAUSE RELATIVE TO EXCISE TAXES SUGGESTED IN 15 COMP. GEN. 588, STATES THAT IT IS TO BE EXECUTED ONLY WHERE THE BIDDER IS THE MANUFACTURER, PRODUCER, OR IMPORTER OF THE ARTICLE OFFERED WHICH IS SUBJECT TO EXCISE TAX UNDER THE REVENUE ACT OF 1932, AS AMENDED. WHERE AN OTHERWISE ACCEPTABLE LOW BID IS RECEIVED FROM A BIDDER NOT A MANUFACTURER, PRODUCER, OR IMPORTER, NO INQUIRY AS TO INCLUSION OR EXCLUSION OF THE TAX IS NECESSARY, BECAUSE IN THE ABSENCE OF AN AFFIRMATIVE SHOWING TO THE CONTRARY, IT MAY BE ASSUMED THAT THE PRICES BID BY SUCH A DEALER INCLUDE THE TAX AS A PART OF THE BID PRICE AND NO CERTIFICATE SHOULD BE ISSUED TO THE CONTRACTOR FOR THE PURPOSE OF OBTAINING EXEMPTION FROM, OR REFUND OF, THE EXCISE TAX.

IN THE PRESENT INSTANCE THE DELIVERED PRICE BID BY THE FAST MOTOR CO. ON THE NEW CAR WAS $695, WHICH WAS INCLUSIVE OF A TRADE-IN ALLOWANCE OF $100 FOR THE OLD AUTOMOBILE. THE DELIVERED PRICE BID BY GENERAL MOTORS CORPORATION ON A NEW CAR WAS $614.01, LESS 5-PERCENT DISCOUNT, OR $583.31, WITH NO TRADE-IN ALLOWANCE FOR THE OLD CAR. THE DIFFERENCE IN DELIVERED PRICE BETWEEN THE TWO BIDS FOR THE NEW CAR, THEREFORE, WAS $111.69. THE BID OF THE GENERAL MOTORS CORPORATION HAD BEEN ACCEPTED THE GOVERNMENT WOULD HAVE RETAINED THE POSSESSION OF THE USED CAR AND ANY AMOUNT THAT MIGHT HAVE BEEN REALIZED FROM ITS SALE WOULD REPRESENT A SAVING OVER THE BID OF THE FAST MOTOR CO. IN ANY EVENT. IT WOULD APPEAR TO BE MANIFEST THAT, IRRESPECTIVE OF THE INCLUSION OR EXCLUSION OF THE EXCISE TAX, THE ACTION OF THE CONTRACTING OFFICER, IN ACCEPTING THE BID OF THE FAST MOTOR CO., NOT ONLY DID NOT EFFECT A SAVING, BUT RESULTED IN A VERY MATERIAL EXCESS COST TO THE GOVERNMENT. ALSO, INSOFAR AS YOUR SUBMISSION DISCLOSES, BIDS WERE NOT SOLICITED FOR CASH PRICES FOR THE USED CAR. THIS BE TRUE, THE ADVERTISEMENT WAS NOT IN CONFORMITY WITH THE DECISIONS OF THIS OFFICE TO THE EFFECT THAT CASH PRICES AS WELL AS TRADE-IN ALLOWANCES SHOULD ALWAYS BE SOLICITED ON USED EQUIPMENT TO BE DISPOSED OF BY THE GOVERNMENT. (SEE 7 COMP. GEN. 230, AND CASES CITED; A-71634, 15 COMP. GEN. 811.)

IT FOLLOWS FROM THE FOREGOING THAT THE PROCEDURE FOLLOWED IN THIS CASE WAS NOT ONLY UNAUTHORIZED BUT TO THE PREJUDICE OF THE GOVERNMENT.

RELATIVE TO YOUR QUESTION AS TO WHETHER PARAGRAPH 5 OF THE CONDITIONS ON GOVERNMENT STANDARD FORM NO. 33, REVISED, SHOULD BE ELIMINATED, IT IS BELIEVED THAT A PARAGRAPH SUBSTANTIALLY IN THE FORM SUGGESTED IN 15 COMP. GEN. 588, WOULD BE A SUFFICIENT PROVISION WITH REFERENCE TO TAXES.