A-76353, AUGUST 6, 1936, 16 COMP. GEN. 129

A-76353: Aug 6, 1936

Additional Materials:

Contact:

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

 

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

ARE PROPERLY MADE ON THE BASIS OF THE CONTRACT PRICE WHEN SAID PRICE INCLUDES TRANSPORTATION CHARGES ON THE ARTICLES INVOLVED. IS NOT A MATTER FOR THE GENERAL ACCOUNTING OFFICE. IS FOR ADJUSTMENT UNDER THE PROCEDURE PROVIDED BY STATUTE. IS AS FOLLOWS: WE HAVE SOLD TO THE U.S. THE TERMS OF THE BID PROVIDED THAT THE PRICES BID "INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO MATERIAL ON THE BID.'. EXEMPTION CERTIFICATES HAVE BEEN FURNISHED US AND DEDUCTIONS HAVE BEEN TAKEN FOR WHAT IS CLAIMED TO BE THE AMOUNT OF THE EXCISE TAX. IT IS OUR CONTENTION THAT THE DEDUCTIONS TAKEN ARE LARGER THAN THEY SHOULD BE. WERE BILLED AT PRICES OF $343.75. DEDUCTIONS OF $16.37 ON THE FIRST ITEM AND $69.18 ON THE LAST TWO ITEMS WERE TAKEN TO COVER THE EXCISE TAX.

A-76353, AUGUST 6, 1936, 16 COMP. GEN. 129

CONTRACTS - FEDERAL TAX INCLUDED IN PRICE - ALLEGED IMPROPER PRICE DEDUCTIONS - PROCEDURE FOR OBTAINING REFUNDS THE QUESTION WHETHER DEDUCTIONS IN CONNECTION WITH GOVERNMENT CONTRACTS IN WHICH A FEDERAL TAX HAS BEEN INCLUDED, ARE PROPERLY MADE ON THE BASIS OF THE CONTRACT PRICE WHEN SAID PRICE INCLUDES TRANSPORTATION CHARGES ON THE ARTICLES INVOLVED, IS NOT A MATTER FOR THE GENERAL ACCOUNTING OFFICE, BUT IS FOR ADJUSTMENT UNDER THE PROCEDURE PROVIDED BY STATUTE, AND THE REGULATIONS OF THE COMMISSIONER OF INTERNAL REVENUE ISSUED THEREUNDER, FOR OBTAINING REFUNDS OF TAXES IMPOSED UPON ANY ARTICLE SOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES, ETC.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE IOWA SOAP CO., AUGUST 6, 1936:

YOUR LETTER OF MAY 14, 1936, IS AS FOLLOWS:

WE HAVE SOLD TO THE U.S. TREASURY DEPARTMENT, PROCUREMENT DIVISION, BRANCH OF SUPPLY, VARIOUS LOTS OF TOILET SOAP. THE TERMS OF THE BID PROVIDED THAT THE PRICES BID "INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO MATERIAL ON THE BID.' EXEMPTION CERTIFICATES HAVE BEEN FURNISHED US AND DEDUCTIONS HAVE BEEN TAKEN FOR WHAT IS CLAIMED TO BE THE AMOUNT OF THE EXCISE TAX, BUT IT IS OUR CONTENTION THAT THE DEDUCTIONS TAKEN ARE LARGER THAN THEY SHOULD BE.

PURCHASE ORDER S-19323 UNDER CONTRACT 8778 AND PURCHASE ORDERS S 27061 AND S-27062 UNDER CONTRACT 9218, WERE BILLED AT PRICES OF $343.75, $726.40, AND $726.40, THE LAST TWO ITEMS TOTALING $1,452.80. IN REMITTING FOR THESE ITEMS, DEDUCTIONS OF $16.37 ON THE FIRST ITEM AND $69.18 ON THE LAST TWO ITEMS WERE TAKEN TO COVER THE EXCISE TAX.

THESE TAX ITEMS WERE COMPUTED ON THE INVOICE PRICE. ACTUALLY THE FREIGHT ON THESE SHIPMENTS AMOUNTED, RESPECTIVELY, TO $29.11 AND $159.52. DEDUCTIONS ARE TO BE MADE, IT IS OUR CONTENTION THAT ONLY THE CORRECT AMOUNT OF TAX CAN BE SUBTRACTED, AND IN THIS INSTANCE THE TAX SHOULD HAVE BEEN COMPUTED UPON THE INVOICE PRICE LESS FREIGHT. THE BASIC PRICE OF THE FIRST ITEM SHOULD BE $314.64 AND ON THE LAST ITEM $1,293.28, AND THE TAX CORRECTLY COMPUTED ON THESE AMOUNTS SHOULD BE $14.98 AND $61.58, INSTEAD OF $16.37 AND $69.18. WE FEEL WE SHOULD BE ENTITLED TO THE DIFFERENCES OF $2.39 AND $7.60.

WE HAVE INDICATED THIS ATTITUDE TO THE TREASURY DEPARTMENT, BUT CAN SECURE NO SATISFACTION. R. J. QUEENIN, CHIEF FINANCE DIVISION, WRITES ON MAY 12,"YOU ARE ADVISED THAT THE CONTRACT PRICE WAS AND MUST BE CONSIDERED AS THE BASIC PRICE IN COMPUTING THE AMOUNT OF THE DEDUCTION FOR EXCISE TAXES.' WE THINK THIS ATTITUDE ENTIRELY INCONSISTENT WITH ARTICLES 8 AND 12 OF TREASURY DEPARTMENT REGULATIONS 46 AND ALSO IN CONFLICT WITH YOUR RULING A-67334 OF APRIL 14, 1936, REPORTED IN INTERNAL REVENUE BULLETIN XV -18-8070. IF THE TREASURY DEPARTMENT'S ATTITUDE AS INDICATED ABOVE IS CORRECT, THEN IT WOULD SEEM THAT THE REGULATIONS AND YOUR RULING ARE ENTIRELY MEANINGLESS.

THE AMOUNT INVOLVED, $9.99, IS SMALL BUT WE ASK THAT WE MAY (HAVE) A RULING WHICH WILL PERMIT THE PAYMENT TO US OF THIS SUM.

THE TREASURY DEPARTMENT REPORTS THAT THE PURCHASES INVOLVED WERE MADE UNDER CONTRACTS SPECIFYING DELIVERY TO THE FEDERAL WAREHOUSE IN WASHINGTON AND YOUR BID WAS INCLUSIVE OF ALL COSTS FOR DELIVERY WITHOUT QUOTING A PRICE F.O.B. YOUR SHIPPING POINT, AND NEITHER THE TAXES NOR TRANSPORTATION COSTS WERE ITEMIZED SEPARATELY BY YOU, NOR DID THE PROCUREMENT DIVISION HAVE MEANS OF VERIFYING THE AMOUNT OF THE TRANSPORTATION CHARGES; THAT IN DEDUCTING THE TAXES THE DEPARTMENT COMPUTED THE AMOUNT THEREOF UPON THE CONTRACT PRICE AND BY THE METHOD PRESCRIBED IN ARTICLE 11 OF THE UNITED STATES TREASURY DEPARTMENT BUREAU OF INTERNAL REVENUE REGULATIONS NO. 46, APPROVED JUNE 18, 1932, THAT THE TAX THUS COMPUTED AMOUNTED TO $16.37 ON ONE PURCHASE ORDER AND $69.18 ON THE OTHER TWO, AND THAT TAX EXEMPTION CERTIFICATES WERE FURNISHED YOU FOR THE EXACT AMOUNTS DEDUCTED.

SECTION 619 OF THE REVENUE ACT JUNE 6, 1932, 47 STAT. PAGE 267, IS IN PART AS FOLLOWS:

(A) IN DETERMINING, FOR THE PURPOSES OF THIS TITLE, THE PRICE FOR WHICH AN ARTICLE IS SOLD, THERE SHALL BE INCLUDED ANY CHARGE FOR COVERINGS AND CONTAINERS OF WHATEVER NATURE, AND ANY CHARGE INCIDENT TO PLACING THE ARTICLE IN CONDITION PACKED READY FOR SHIPMENT, BUT THERE SHALL BE EXCLUDED THE AMOUNT OF TAX IMPOSED BY THIS TITLE, WHETHER OR NOT STATED AS A SEPARATE CHARGE. A TRANSPORTATION, DELIVERY, INSURANCE, INSTALLATION, OR OTHER CHARGE (NOT REQUIRED BY THE FOREGOING SENTENCE TO BE INCLUDED) SHALL BE EXCLUDED FROM THE PRICE ONLY IF THE AMOUNT THEREOF IS ESTABLISHED TO THE SATISFACTION OF THE COMMISSIONER, IN ACCORDANCE WITH THE REGULATIONS.

ARTICLE 12 OF TREASURY DEPARTMENT REGULATIONS NO. 46 IS AS FOLLOWS:

EXCLUSION OF CHARGES FOR TRANSPORTATION, DELIVERY, ETC. CHARGES FOR TRANSPORTATION, DELIVERY, INSURANCE, INSTALLATION, AND OTHER CHARGES WHICH HAVE NO CONNECTION WHATEVER WITH THE MANUFACTURING PROCESS OR WITH PLACING THE ARTICLE IN A FINISHED CONDITION PACKED AND READY FOR SHIPMENT, ARE TOBE EXCLUDED IN COMPUTING THE TAX. ANY ADDITIONAL CHARGE WHICH A PURCHASER WOULD NOT BE REQUIRED TO PAY IF HE ACCEPTED DELIVERY OF THE ARTICLE AT THE FACTORY MAY BE SO EXCLUDED.

THESE ADDITIONAL CHARGES MAY NOT BE EXCLUDED IN COMPUTING THE TAX UNLESS THE AMOUNT THEREOF AND THE FACT THAT THEY REPRESENT FAIR CHARGES ARE ESTABLISHED BY ADEQUATE RECORDS TO THE SATISFACTION OF THE COMMISSIONER. (SEE ART. 69, RELATIVE TO THE KEEPING OF RECORDS.)

SECTION 620 OF THE REVENUE ACT OF 1932, AS AMENDED, PROVIDES THAT UNDER REGULATIONS PRESCRIBED BY THE COMMISSIONER, WITH THE APPROVAL OF THE SECRETARY OF THE TREASURY, NO TAX SHALL BE IMPOSED UPON ANY ARTICLE SOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES, ANY STATE, TERRITORY OF THE UNITED STATES, OR ANY POLITICAL SUBDIVISION OF THE FOREGOING, OR THE DISTRICT OF COLUMBIA, AND SECTION 621 (A) (3) OF THE ACT, AS AMENDED, PROVIDES THAT A CREDIT AGAINST ANY TAX UNDER THAT TITLE, OR REFUND, MAY BE ALLOWED OR MADE TO A MANUFACTURER, PRODUCER, OR IMPORTER, IN THE AMOUNT OF THE TAX PAID BY HIM UNDER THE TITLE WITH RESPECT TO THE SALE OF ANY ARTICLE TO ANY VENDEE, IF THE MANUFACTURER, PRODUCER, OR IMPORTER, HAS IN HIS POSSESSION SUCH EVIDENCE AS THE REGULATIONS MAY PRESCRIBE; THAT ON OR AFTER THE FIRST DAY OF THE SECOND MONTH FOLLOWING THE DATE OF THE REVENUE ACT OF 1935 SUCH ARTICLE WAS BY ANY PERSON RESOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES, ETC. THE COMMISSIONER OF INTERNAL REVENUE UPON APPROVAL OF THE REVENUE ACT OF 1935, 49 STAT. 1025, ISSUED REGULATIONS AND AMENDMENTS TO EXISTING REGULATIONS FOR CARRYING OUT THE PROVISIONS OF THE ACT, WHICH WERE APPROVED BY THE ACTING SECRETARY OF THE TREASURY NOVEMBER 12, 1935, AS TREASURY DECISIONS 4604 AND 4605, AND PROVIDE IN PART AS FOLLOWS:

ON AND AFTER OCTOBER 1, 1935, NO TAX ATTACHES IF THE ARTICLE IS SOLD BY THE MANUFACTURER DIRECT TO THE UNITED STATES * * * PROVIDED THE EXEMPT CHARACTER OF THE SALE IS ESTABLISHED AS REQUIRED BY THESE REGULATIONS.

TO ESTABLISH THE RIGHT TO EXEMPTION * * * IT IS NECESSARY THAT * * * (2) HE OBTAIN FROM AN AUTHORIZED OFFICER OF THE UNITED STATES * * * AND RETAIN IN HIS POSSESSION A PROPERLY EXECUTED EXEMPTION CERTIFICATE IN THE FORM PRESCRIBED BY THIS ARTICLE.

IT WAS HELD IN A DECISION OF THIS OFFICE OF NOVEMBER 29, 1935, 15 COMP. GEN. 452, THAT---

* * * AN AMOUNT EQUAL TO THE TAXES IN EFFECT AND APPLICABLE TO THE ARTICLES IN QUESTION AT THE TIME CONTRACTS WERE EXECUTED SHOULD BE DEDUCTED FROM THE CONTRACT PRICE ON ALL ARTICLES DELIVERED UNDER THE CONTRACTS IN QUESTION AFTER SEPTEMBER 30, 1935. IT WILL BE FOR THE CONTRACTORS TO MAKE SUCH SHOWING TO THE BUREAU OF INTERNAL REVENUE AS MAY BE NECESSARY TO SECURE EXEMPTION FROM SUCH TAXES ON THE ARTICLES IN QUESTION DELIVERED AFTER OCTOBER 1, 1935, OR IF THE TAXES ARE PAID, TO SECURE REFUND THEREOF.

IT APPEARS FROM THE REPORT OF THE SECRETARY OF THE TREASURY THAT DEDUCTION OF THE TAXES WAS MADE UPON THE CONTRACT PRICE NAMED IN YOUR BID, AND THAT YOU HAVE BEEN FURNISHED, AND PRESUMABLY HAVE IN YOUR POSSESSION, TAX EXEMPTION CERTIFICATES COVERING THE EXACT AMOUNT DEDUCTED, AS REQUIRED BY THE REGULATIONS TO ESTABLISH YOUR RIGHT TO REFUND OR ABATEMENT OF THE TAXES. THERE IS NO EVIDENCE THAT YOU HAVE COMPLIED WITH THE REQUIREMENTS OF THE STATUTE AND THE REGULATIONS REQUIRING YOU TO FURNISH ADEQUATE RECORDS TO ESTABLISH THE AMOUNT OF TRANSPORTATION CHARGES TO THE SATISFACTION OF THE COMMISSIONER OF INTERNAL REVENUE. NOR DOES IT APPEAR THAT YOUR RIGHT TO EXEMPTION OR ABATEMENT IN THE AMOUNTS DEDUCTED FROM THE CONTRACT PRICE AND FOR WHICH YOU HAVE EXEMPTION CERTIFICATES HAS BEEN QUESTIONED BY THE BUREAU OF INTERNAL REVENUE, WHICH IS RESPONSIBLE FOR THE COLLECTION OF THE TAXES, AND THE ALLOWANCE OF EXEMPTION OR REFUNDS UNDER EXEMPTION CERTIFICATES AND HAS THE AUTHORITY TO MAKE ABATEMENTS,CREDITS, AND REFUNDS OF TAXES, ERRONEOUSLY COLLECTED. (SEE SEC. 3220, REVISED STATUTES.)

SINCE YOU HAVE IN YOUR POSSESSION TAX EXEMPTION CERTIFICATES IN THE IDENTICAL AMOUNTS DEDUCTED FROM THE CONTRACT PRICE TO COVER TAXES, IT WOULD APPEAR NECESSARY FOR YOU TO COMPLY WITH THE REGULATIONS OF THE COMMISSIONER OF INTERNAL REVENUE AS PROVIDED BY THE STATUTE.

FROM THE FACTS PRESENTED YOU HAVE NO CLAIM AGAINST THE UNITED STATES PROPERLY FOR CONSIDERATION BY THIS OFFICE, AND YOU ARE ADVISED ACCORDINGLY. (SEE 9 COMP. DEC. 143.)