A-73637, AUGUST 11, 1936, 16 COMP. GEN. 142

A-73637: Aug 11, 1936

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A BID BEARING A QUALIFYING RIDER THAT PRICES WERE SUBJECT TO NO ADJUSTMENT BECAUSE OF SUCH TAX IS ACCEPTED. THE CONTRACTOR IS ENTITLED TO PAYMENT AT THE FULL CONTRACT PRICE SUBJECT TO NO ADJUSTMENT BECAUSE OF PROCESSING TAXES INVOLVED. NOTWITHSTANDING IT WAS A PROCESSOR AND PAID NO PROCESSING TAXES DURING THE PERIOD INVOLVED. 1936: THERE WAS RECEIVED BY REFERENCE DATED APRIL 4. FOR DECISION WHETHER YOU ARE AUTHORIZED TO MAKE PAYMENT OF $6. " PROVIDED AS FOLLOWS: PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. 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.

A-73637, AUGUST 11, 1936, 16 COMP. GEN. 142

TAXES - PROCESSING - REFUND OF AMOUNTS DEDUCTED FROM CONTRACT PRICE WHERE UNDER ADVERTISED SPECIFICATIONS CONTAINING A PROVISION THAT PRICES BID INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS APPLICABLE TO THE MATERIAL INVOLVED, A BID BEARING A QUALIFYING RIDER THAT PRICES WERE SUBJECT TO NO ADJUSTMENT BECAUSE OF SUCH TAX IS ACCEPTED, THE CONTRACTOR IS ENTITLED TO PAYMENT AT THE FULL CONTRACT PRICE SUBJECT TO NO ADJUSTMENT BECAUSE OF PROCESSING TAXES INVOLVED, NOTWITHSTANDING IT WAS A PROCESSOR AND PAID NO PROCESSING TAXES DURING THE PERIOD INVOLVED. COMP. GEN. 201, 367, AND 674 DISTINGUISHED.

ACTING COMPTROLLER GENERAL ELLIOTT TO MAJOR A. J. MAXWELL, UNITED STATES ARMY, AUGUST 11, 1936:

THERE WAS RECEIVED BY REFERENCE DATED APRIL 4, 1936, FROM THE OFFICE OF THE CHIEF OF FINANCE, YOUR REQUEST OF MARCH 6, 1936, FOR DECISION WHETHER YOU ARE AUTHORIZED TO MAKE PAYMENT OF $6,714.75, ON A VOUCHER STATED IN FAVOR OF ARMOUR AND CO., REPRESENTING AN AMOUNT DEDUCTED FOR PROCESSING TAXES FROM OTHERWISE PROPER PAYMENTS FOR BACON DELIVERED JANUARY 29 AND 31, 1936, UNDER CONTRACT NO. W-199-QM-13197, DECEMBER 6, 1935.

THE INVITATION FOR BIDS LEADING TO THE CONTRACT, UNDER "SPECIAL CONDITIONS OF PURCHASE," PROVIDED 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 TO THE GOVERNMENT 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.

BIDS CONTAINING CONDITIONS MODIFYING THIS PARAGRAPH IN ANY MANNER WILL NOT BE CONSIDERED.

THIS PROVISION WAS NOT DELETED OR OTHERWISE ALTERED BY ARMOUR AND CO., BUT THERE WAS PASTED IN THE MARGIN OPPOSITE THERETO A PRINTED SLIP, AS FOLLOWS:

PRICES QUOTED HEREIN ARE SUBJECT TO NO ADJUSTMENT AND IF ACCEPTED, MUST BE PAID IN FULL TO ARMOUR AND COMPANY. NO CLAIM FOR REFUND OR ABATEMENT WILL BE ACCEPTED, AND ALL REFERENCE TO PROCESSING TAX ON PORK OR PORK PRODUCTS IN THIS TENDER OR BID SHALL BE CONSIDERED AS ELIMINATED.

ON JANUARY 6, 1936, THE SUPREME COURT, IN THE CASE OF UNITED STATES OF AMERICA V. WILLIAM M. BUTLER ET AL., NO. 401, HELD PROCESSING TAXES LEVIED UNDER AUTHORITY OF THE AGRICULTURAL ADJUSTMENT ACT OF MAY 12, 1933, 48 STAT. 31, AS AMENDED, TO BE UNCONSTITUTIONAL, AND ON JANUARY 13, 1936, IN THE CASE OF RICKERT RICE MILLS, INC. V. UNITED STATES, NO. 577, DIRECTED REPAYMENT OF AMOUNTS REPRESENTING PROCESSING TAXES WHICH HAD BEEN IMPOUNDED PURSUANT TO INJUNCTIONS AGAINST COLLECTION THERETOFORE ISSUED.

IT WAS HELD IN A DECISION OF SEPTEMBER 12, 1935, 15 COMP. GEN. 201, THAT BID MODIFICATIONS SIMILAR IN SUBSTANCE TO THAT APPEARING HERE DID NOT REQUIRE REJECTION OF AN OTHERWISE ACCEPTABLE LOW BID. IN A DECISION OF NOVEMBER 4, 1935, 15 COMP. GEN. 367, THERE WERE FOR CONSIDERATION THE IDENTICAL MODIFICATION HERE INVOLVED AND OTHERS OF LIKE IMPORT, AND IT WAS HELD THAT THEY DID NOT JUSTIFY REJECTION OF THE LOW BIDS. IN BOTH THOSE DECISIONS THERE WAS POINTED OUT THE EXTREME IMPROBABILITY, IF NOT IMPOSSIBILITY, OF ANY CHANGE WITH REFERENCE TO TAXES DURING THE LIVES OF THE RESPECTIVE CONTRACTS THERE PROPOSED TO BE CONSUMMATED.

IN A DECISION OF JANUARY 28, 1936, 15 COMP. GEN. 674, THE QUESTION WAS AS TO THE EFFECT OF THE DECISION IN THE BUTLER CASE UPON CONTRACTS WHICH CONTAINED THE UNQUALIFIED PROVISION THAT FEDERAL TAXES WERE INCLUDED AND THAT PRICES WOULD BE SUBJECT TO ADJUSTMENT IN THE EVENT OF TAX CHANGE. WAS THERE HELD THAT WHERE CONTRACTORS WERE "PROCESSORS" AND, THEREFORE, SUBJECT TO THE PROCESSING TAX, AND IT APPEARED THAT THE CONTRACTORS HAD NOT PAID THE TAX TO THE GOVERNMENT, THERE SHOULD BE DEDUCTED AN EQUIVALENT AMOUNT FROM THE CONTRACT PRICE.

IT WILL BE SEEN THAT THE FACTS IN THE INSTANT CASE DIFFER MATERIALLY FROM THOSE PRESENTED IN THE CASES CITED. THE CASE DIFFERS FROM THOSE CONSIDERED IN 15 COMP. GEN. 201 AND 367 IN THAT IN THOSE CASES THE CONTRACT TIME COVERED A PERIOD WHEN THERE WAS LITTLE POSSIBILITY OF TAX CHANGE, WHILE HERE THE CONTRACT PERIOD COULD AND DID EXTEND BEYOND THE TIME WHEN THERE WAS CHANGE IN TAX CONDITIONS. WHILE THE MODIFICATIONS WERE THERE IMMATERIAL, THE QUALIFICATION PROVES MATERIAL HERE. IT DIFFERS FROM THOSE CONSIDERED IN 15 COMP. GEN. 674 IN THAT IN THOSE CASES THE PROVISION THAT FEDERAL TAXES WERE INCLUDED IN THE PURCHASE PRICE AND THAT THERE SHOULD BE PRICE ADJUSTMENT IN THE EVENT OF CHANGE WAS UNQUALIFIED, WHILE HERE THE FEDERAL TAX CLAUSE WAS DEFINITELY QUALIFIED BY THE BIDDER.

THE MANIFEST PURPOSE OF THE RIDER ATTACHED TO ITS BID BY ARMOUR AND CO. IN THIS INSTANCE WAS TO GUARD AGAINST ADJUSTMENTS IN CONTRACT PRICE IN ANY EVENT. THAT IT WAS SO TAKEN AND ACCEPTED BY THE WAR DEPARTMENT IS EVIDENCED BY A TELEGRAM OF DECEMBER 3, 1935, FROM THE QUARTERMASTER, CHICAGO, ILL., INFORMING THE QUARTERMASTER GENERAL OF THE MODIFICATION AND REQUESTING INSTRUCTIONS, AND REPLY OF DECEMBER 4 THAT UNDER THE DECISION OF THIS OFFICE OF SEPTEMBER 12, 1935, THE MODIFICATION DID NOT JUSTIFY REJECTION. THAT THE QUARTERMASTER GENERAL IN ISSUING THE INSTRUCTION APPARENTLY OVERLOOKED THE DISTINCTION IN THE FACTS IS NOT NOW OF MOMENT. THE BID OF ARMOUR AND CO. WAS THE LOW BID AND WAS ACCEPTED WITH THE MODIFICATION, THE IMPORT OF WHICH WAS UNDERSTOOD BY BOTH PARTIES TO THE CONTRACT.

THE RECORDS OF THIS OFFICE INDICATE THAT ARMOUR AND CO. OBTAINED AN INJUNCTION IN AUGUST 1935, AND DID NOT PAY PROCESSING TAXES SUBSEQUENT TO JULY 1935. DOUBTLESS AMOUNTS, IF ANY, DEPOSITED BY ARMOUR AND CO. AND IMPOUNDED PENDENTE LITE HAVE BEEN RETURNED TO THE COMPANY PURSUANT TO THE SUPREME COURT DECISIONS, SUPRA. THE FACT THAT ARMOUR AND CO. DID NOT PAY THE PROCESSING TAX IS ESTABLISHED. AS TO ITS INCLUSION IN THE CONTRACT PRICE, ARMOUR AND CO. STATED IN A LETTER OF FEBRUARY 14, 1936: "WE HAVE NO HESITATION IN STATING WE CONSIDER THAT NO PROCESSING TAXES WERE INCLUDED IN THE CONTRACTED PRICE IN VIEW OF THE FOLLOWING CLAUSE IN THE CONTRACT BETWEEN US," QUOTING THE PRINTED MODIFICATION OF THE BID FORM AS ABOVE. OF COURSE, THE WORDING OF THE QUALIFICATION COULD NOT JUSTIFY ANY INFERENCE, MUCH LESS A CONCLUSION, THAT THE AMOUNT FOR PROCESSING TAXES WAS NOT INCLUDED IN THE CONTRACT PRICE. AGAIN, UNDER DATE OF FEBRUARY 20, 1936, ARMOUR AND CO. WROTE:

WE WOULD ADD THAT THE PROCESSING TAX ON HOGS WAS ASSESSED UPON THE SLAUGHTER OF THE HOGS, AND WAS NOT A TAX UPON THE PRODUCT ORIGINATING FROM THE HOGS. WE WERE OBLIGED TO SELL PORK PRODUCTS IN COMPETITION UPON THE MARKET AND PRICES WERE DETERMINED BY SUPPLY AND DEMAND WITHOUT

ARMOUR AND CO. WAS A PROCESSOR. AS SUCH IT WAS SUBJECT TO ANY PROCESSING TAX "ASSESSED UPON THE SLAUGHTER OF THE HOGS.' THE COMPANY IS RECOGNIZED AS AMONG THE LARGEST PACKING (PROCESSING) COMPANIES IN THE COUNTRY. SUCH, PROCESSING TAXES IMPOSED UPON IT UNDER THE AGRICULTURAL ADJUSTMENT ACT UNQUESTIONABLY AGGREGATED COMPARATIVELY VAST AMOUNTS. WHILE THE COMPANY'S PRICE FOR PORK PRODUCTS WOULD NATURALLY BE DETERMINED BY COMPETITION, SUPPLY AND DEMAND, IT IS NOT TO BE PRESUMED AND THE RECORD HERE DOES NOT ESTABLISH THAT THE PRICES WERE DETERMINED "WITHOUT REFERENCE TO PROCESSING TAX.' BUT, HOWEVER THAT MAY BE, THE ACCEPTANCE OF THE BID AND THE AWARD OF THE CONTRACT WITH THE QUALIFYING RIDER THAT THE PRICES PAID WERE SUBJECT TO NO ADJUSTMENT, OBLIGATED THE GOVERNMENT TO PAY THE CONTRACT PRICE IN FULL AND SUBJECT TO NO ADJUSTMENT FOR PROCESSING TAXES, AND THERE APPEARS NOW NO LEGAL BASIS UPON WHICH PAYMENT PROPERLY MAY BE WITHHELD.

ACCORDINGLY, YOU ARE ADVISED THAT PAYMENT ON THE VOUCHER IS AUTHORIZED IF OTHERWISE CORRECT.