A-83460, APRIL 1, 1937, 16 COMP. GEN. 905

A-83460: Apr 1, 1937

Additional Materials:

Contact:

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

 

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

NOTWITHSTANDING THE TAX CHANGE WAS BY COURT DECISION RATHER THAN BY STATUTE. 1937: THERE HAVE BEEN CONSIDERED YOUR LETTERS OF JANUARY 28 AND 29. SAID CONTRACTS CONTAINED SUBSTANTIALLY THE FOLLOWING PROVISION: 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 * * *. THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY. AS FOLLOWS: I UNDERSTAND THE DEDUCTION WAS MADE BECAUSE OF THE TAX PROVISION WHICH WAS INCLUDED WITHIN THE BID WE MADE FOR THE MONTH OF JANUARY 1936. THE MATTER IS NOT CLEAR TO ME.

A-83460, APRIL 1, 1937, 16 COMP. GEN. 905

TAXES - PROCESSING - SET-OFF OF AMOUNTS INCLUDED IN CONTRACT PRICES THE FAILURE OF A CONTRACTOR PROCESSOR TO PAY THE PROCESSING TAX EITHER PRIOR OR SUBSEQUENT TO THE DECISION OF JANUARY 6, 1936, BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF UNITED STATES V. WILLIAM M. BUTLER, 297 U.S. 1, JUSTIFIES THE WITHHOLDING FROM AMOUNTS OTHERWISE DUE, OF AMOUNTS EQUIVALENT TO THE PROCESSING TAXES INCLUDED IN PAYMENTS MADE TO THE CONTRACTOR AT UNADJUSTED CONTRACT PRICES, WHERE THE CONTRACTS CONCERNED CONTAINED A PROVISION THAT PRICES BID INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS APPLICABLE TO THE MATERIAL INVOLVED, WITH A FURTHER PROVISION FOR PRICE ADJUSTMENT FOR ANY TAX, ETC., SUBSEQUENTLY IMPOSED OR CHANGED BY THE CONGRESS, THE PAYMENT OF THE PRICE AS MADE HAVING INCLUDED THE AMOUNT OF THE TAX, AND RESULTING IN AN OVERPAYMENT TO THAT EXTENT, NOTWITHSTANDING THE TAX CHANGE WAS BY COURT DECISION RATHER THAN BY STATUTE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE PROVISION COMPANY, APRIL 1, 1937:

THERE HAVE BEEN CONSIDERED YOUR LETTERS OF JANUARY 28 AND 29, 1937, RELATIVE TO CERTAIN SUMS WITHHELD FROM AMOUNTS OTHERWISE DUE YOU BECAUSE OF YOUR INDEBTEDNESS TO THE GOVERNMENT BY REASON OF CONTRACT PRICE ADJUSTMENTS REQUIRED BY YOUR FAILURE TO PAY CERTAIN PROCESSING TAXES WITH RESPECT TO PORK AND PORK PRODUCTS FURNISHED THE UNITED STATES UNDER VARIOUS CONTRACTS.

THE RECORDS OF THIS OFFICE SHOW THAT UNDER NUMEROUS CONTRACTS YOU AGREED TO, AND DID, MAKE DELIVERY OF LARGE QUANTITIES OF PORK AND PORK PRODUCTS TO VARIOUS GOVERNMENT AGENCIES, SAID CONTRACTS CONTAINED SUBSTANTIALLY THE FOLLOWING PROVISION:

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 * * *, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, * * *.

WITH RESPECT TO THIS PROVISION YOU STATE IN YOUR LETTER OF JANUARY 28, 1937, AS FOLLOWS:

I UNDERSTAND THE DEDUCTION WAS MADE BECAUSE OF THE TAX PROVISION WHICH WAS INCLUDED WITHIN THE BID WE MADE FOR THE MONTH OF JANUARY 1936. HOWEVER, THE MATTER IS NOT CLEAR TO ME. THE STATED PROVISION SET FORTH THAT THE PRICES NAMED IN THE BID WOULD BE DECREASED IF THE PROCESSING TAX WAS CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THE BID. I DO NOT UNDERSTAND THAT THE CONGRESS MADE ANY CHANGE WHATSOEVER IN THIS MATTER SUBSEQUENT TO THE DATE SET FOR THE OPENING OF BIDS OR AT ANY TIME PRIOR TO ACTUAL DELIVERY OF THE MATERIALS COVERED BY THE BID. IT IS TRUE, OF COURSE, THAT THE SUPREME COURT DURING JANUARY DECLARED THE PROCESSING TAX TO BE ILLEGAL. EVEN THOUGH IT SHOULD BE ASSUMED THAT THIS MIGHT BE CONSTRUED AS THE EQUIVALENT OF "ACTION BY THE CONGRESS," YET CERTAINLY NO DEDUCTIONS SHOULD BE MADE FOR THE PERIOD IN JANUARY 1936, PRIOR TO THE DATE OF THE DECISION OF THE SUPREME COURT.

WE RESPECTFULLY SUBMIT THE PURPOSE OF THE PROVISION, AND THE SOLE PURPOSE, WAS TO TAKE CARE OF ANY INCREASE OR DECREASE IN SALES TAXES OR OTHER TAXES WHICH OCCURRED AFTER THE DATE SET FOR THE OPENING OF BIDS AND PRIOR TO ACTUAL DELIVERY OF GOODS. IT WAS NEVER INTENDED BY THE PROVISION THAT THERE SHOULD BE RECOVERED FROM US ANY AMOUNT SUPPOSEDLY INCLUDED IN THE BID PRICE WHEN NO CHANGE IN SUCH AMOUNT WAS MADE BY THE CONGRESS.

THE RATE OF PROCESSING TAX IMPOSED ON THE PROCESSING OF HOGS AND PRODUCTS OBTAINED THEREFROM WAS ESTABLISHED PRIOR TO THE DATE SET FOR THE OPENING OF BIDS WITH RESPECT TO THE CONTRACTS REFERRED TO IN YOUR LETTER, AND IN VIEW OF THE ABOVE-QUOTED PROVISION THE GOVERNMENT PAID THE FULL CONTRACT PRICE FOR THE PRODUCTS FURNISHED UNDER SAID CONTRACTS, WHICH PRICE, BY EXPRESS STIPULATION, INCLUDED THE PROCESSING TAX. HOWEVER, THE RECORDS OF THIS OFFICE SHOW THAT AFTER JANUARY 1935, YOU DID NOT PAY TO THE UNITED STATES THE AMOUNT OF PROCESSING TAX THERETOFORE IMPOSED ON THE SUPPLIES FURNISHED UNDER SAID CONTRACTS, AND INCLUDED IN THE CONTRACT PRICES.

AFTER THE DECISION OF JANUARY 6, 1936, BY THE SUPREME COURT OF THE UNITED STATES, IN THE CASE OF UNITED STATES V. WILLIAM M. BUTLER, 297 U.S. 1, NO FURTHER ATTEMPT WAS MADE TO COLLECT PROCESSING TAXES FROM YOU OR OTHER MEAT PACKERS. YOU THUS RECEIVED PAYMENTS UNDER SUCH CONTRACTS WITH THE GOVERNMENT OF PRICES WHICH INCLUDED PROCESSING TAXES THEN IN EFFECT--- ALTHOUGH BEGINNING APPROXIMATELY 1 YEAR PRIOR TO SAID DECISION OF THE SUPREME COURT THE AMOUNT OF SUCH PROCESSING TAXES WERE RETAINED BY YOU INSTEAD OF BEING PAID TO THE UNITED STATES. IT CANNOT BE CONCEDED THAT THE FACT THE TAX WAS ELIMINATED UNDER THE SUPREME COURT DECISION OF JANUARY 6, 1936, RATHER THAN UNDER A STATUTE ENACTED BY THE CONGRESS, MAKES THE PAYMENT OF THE PRICE WHICH INCLUDED THE AMOUNT OF THE TAX ANY THE LESS AN OVERPAYMENT WHERE SUCH TAXES WERE NOT ACTUALLY PAID BY YOU TO THE UNITED STATES. THE FACTS REMAIN THAT THE CONTRACTS STIPULATED THE PRICES INCLUDED THE PROCESSING TAXES, THAT SAID PRICES WERE PAID TO YOU, BUT THAT SUBSEQUENT TO JANUARY 1935, SUCH PROCESSING TAXES ON THE ITEMS FURNISHED UNDER THE CONTRACTS WERE NOT IN TURN PAID BY YOU TO THE GOVERNMENT.

SINCE YOU DID NOT PAY ANY PROCESSING TAX AFTER JANUARY 1935, AND THE LEGISLATION IMPOSING THE TAX WAS FINALLY DECLARED UNCONSTITUTIONAL, LEAVING NO LIABILITY ON YOU TO MAKE SUCH PAYMENT, IT NECESSARILY FOLLOWS THAT THE CONTRACT PRICES FOR THE PORK AND PORK PRODUCTS MUST BE REDUCED BY AN AMOUNT EQUAL TO THE PROCESSING TAXES INCLUDED IN THE PRICES, BUT WHICH WERE NOT PAID BY YOU TO THE GOVERNMENT. IN VIEW THEREOF, IT HAS BEEN TENTATIVELY DETERMINED, AS OF THIS WRITING, THAT THE AMOUNT OF OVERPAYMENTS MADE TO YOU AGGREGATE $12,650.40, AND IT IS BY REASON OF THIS INDEBTEDNESS THAT THE AMOUNTS OF $774.60 AND $257.69, OTHERWISE DUE YOU, REFERRED TO IN YOUR LETTER, HAVE BEEN WITHHELD. THE MATTER OF THE SUM OF $947.23, REFERRED TO BY YOU AS HAVING BEEN WITHHELD ON VOUCHER NO. 646, DOES NOT APPEAR AS YET TO HAVE BEEN RECEIVED IN THIS OFFICE.

IN YOUR LETTER OF JANUARY 29, 1937, YOU STATE:

SINCE WRITING YOU ON YESTERDAY I HAVE LEARNED THAT A SITUATION EXISTS WHICH I CONSIDER GROSSLY UNFAIR AND WHICH MAKES THE PRESENT WITHHOLDING OF FUNDS EVEN UNFAIRER TO OUR COMPANY THAN I AT FIRST THOUGHT. I AM INFORMED AND BELIEVE THAT FOR SOME MONTHS PRIOR TO SEPTEMBER 1935, LARGE PACKING COMPANIES MADE BIDS AT FT. BENNING COVERING MEAT PRODUCTS AND EXPRESSLY STATED THEREIN THAT THE AMOUNTS OF THEIR BIDS DID NOT INCLUDE PROCESSING TAXES. I AM INFORMED AND BELIEVE THAT IN VARIOUS INSTANCES SUCH BIDS WERE ACCEPTED. IT IS INTERESTING TO NOTE, HOWEVER, THAT A SUBSTANTIAL NUMBER OF OUR BIDS WERE ACCEPTED BECAUSE THEY WERE ACTUALLY LOWER, EVEN THOUGH IT IS NOW CONTENDED THAT WE DID INCLUDE PROCESSING TAXES IN THE AMOUNT OF OUR BIDS.

I PARTICULARLY CALL YOUR ATTENTION TO A RADIOGRAM SENT TO FT. BENNING DURING 1935 AND SUBSEQUENT TO SEPTEMBER 12, 1935. THAT RADIOGRAM STATED THE COMPTROLLER-GENERAL BY DECISION REACHED SEPTEMBER 12, 1935, HELD THAT LOW BIDS ON PRODUCTS WHERE BIDDERS HAD FAILED OR REFUSED TO AGREE TO TAX CLAUSE SHOULD BE ACCEPTED IF OTHERWISE ACCEPTABLE. I WAS INFORMED THAT A RADIOGRAM RELATING TO PROCESSING TAXES HAD BEEN RECEIVED, AND I WAS GIVEN THE DEFINITE IMPRESSION THAT THE TAX PROVISION WOULD BE CONSIDERED INOPERATIVE. I WAS NEVER TOLD THAT LARGE PACKING COMPANIES WERE PERMITTED TO FOLLOW A PROCEDURE DIFFERENT FROM THAT FOLLOWED BY OUR COMPANY, I.E. TO EXPRESSLY STATE WITHIN THEIR BIDS THAT THE AMOUNTS OF PROCESSING TAXES WERE NOT INCLUDED. IT DOES SEEM UNFAIR AND DISCRIMINATORY THAT MY COMPANY SHOULD HAVE BEEN ALLOWED TO MAKE BIDS CONTAINING THIS TAX PROVISION WHILE OTHER PACKERS MADE BIDS WHICH EXPRESSLY STATED THE TAXES WERE NOT INCLUDED, AND THAT I WAS NOT INFORMED OF THIS FACT.

THE DECISION OF SEPTEMBER 12, 1935, TO WHICH YOU REFER, PROBABLY IS A- 64860, 15 COMP. GEN. 201. IN THAT DECISION THERE WAS FOR CONSIDERATION A BID TO WHICH WAS ATTACHED THE FOLLOWING NOTATION:

THIS CONTRACT AND/OR BID IS HEREBY MODIFIED SO THAT ALL REFERENCES,EXPRESS OR IMPLIED, TO THE A.A.A. PROCESSING TAX SHALL BE CONSIDERED AS STRICKEN, ANYTHING TO THE CONTRARY NOTWITHSTANDING.

PRICES APPEARING HEREIN ARE NET AND NO DEDUCTION ON ACCOUNT OF A.A.A. PROCESSING TAX OR OTHERWISE SHALL BE ALLOWED.

INASMUCH AS THE PROCESSING TAX IN QUESTION IS NOW IN THE COURTS, IT IS NECESSARY TO ELIMINATE FROM BIDS AND CONTRACTS ALL REFERENCE TO IT, WHICH IS THE REASON FOR THE MODIFICATION WHICH WE HAVE MADE IN THAT REGARD.

AND IN CONNECTION THEREWITH THE SAID DECISION HELD THAT AS THE PROCESSING TAX ON MEAT PRODUCTS WAS THEN IN FORCE AND PROCESSORS WERE REQUIRED TO PAY IT, IT WAS TO BE ASSUMED THAT ALL BIDS RECEIVED INCLUDED SUCH TAX AS PART OF THE PRICE SUBMITTED, AND, THEREFORE, THAT THE QUALIFYING CLAUSE IN THE SUBMITTED BID RELATIVE TO THE PROCESSING TAX WAS IMMATERIAL SO FAR AS COMPETITION BETWEEN BIDDERS WAS CONCERNED.

IN A DECISION OF AUGUST 11, 1936, 16 COMP. GEN. 142, INVOLVING A PROVISION SIMILAR TO THE ONE APPEARING IN YOUR CONTRACTS, BUT AS TO WHICH THERE WAS PASTED IN THE MARGIN OPPOSITE SAID PROVISION 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.

IT WAS STATED:

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.

THE GIST OF THESE DECISIONS WAS THAT AS THE PROCESSING TAX WAS THEN IN EFFECT IT MUST HAVE BEEN REFLECTED IN BID PRICES, IRRESPECTIVE OF ANY QUALIFICATION AS TO FUTURE ADJUSTMENT--- WHICH MIGHT OPERATE EITHER IN FAVOR OF THE GOVERNMENT OR OF THE CONTRACTOR--- AND THAT SUCH QUALIFYING CLAUSE DID NOT GIVE ONE BIDDER A COMPETITIVE ADVANTAGE OVER ANOTHER IN THE MATTER OF CURRENT BID PRICES.

IN 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.

IN VIEW OF THE UNQUALIFIED PROVISION IN YOUR CONTRACTS THAT FEDERAL TAXES WERE INCLUDED IN THE CONTRACT PRICES AND THAT THERE SHOULD BE A PRICE ADJUSTMENT IN THE EVENT OF CHANGE, AND AS YOU WERE THE PROCESSOR OF THE PRODUCTS FURNISHED UNDER SUCH CONTRACTS, THERE IS REQUIRED TO BE WITHHELD FROM AMOUNTS OTHERWISE DUE YOU, THE TOTAL AMOUNT OF PROCESSING TAXES INCLUDED IN SUCH CONTRACT PRICES PAID TO YOU THEREUNDER, WHICH WERE NOT IN TURN PAID BY YOU TO THE UNITED STATES.

ACTION IN THE SETTLEMENT OF CLAIMS FOR AMOUNTS OTHERWISE DUE YOU WILL BE TAKEN ACCORDINGLY.