A-90759, FEBRUARY 7, 1938, 17 COMP. GEN. 633

A-90759: Feb 7, 1938

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THE CONTRACTOR IS NOT ENTITLED TO THE RESULTING UNJUST ENRICHMENT AND IS PROPERLY CHARGEABLE WITH AN AMOUNT EQUAL TO THE PROCESSING TAXES INCLUDED IN THE BID PRICES. NOTWITHSTANDING THE TAX ELIMINATION OR CHANGE WAS BY COURT DECISION INSTEAD OF BY THE CONGRESS. IRRESPECTIVE OF WHETHER DELIVERIES AND PAYMENTS WERE MADE BEFORE THE TAX ELIMINATION. 1938: THERE HAVE BEEN CONSIDERED YOUR LETTERS OF NOVEMBER 4 AND 5. BY WHICH YOU WERE CERTIFIED TO BE INDEBTED TO THE UNITED STATES IN THE RESPECTIVE AMOUNTS OF $801.96. WHICH PROCESSING TAXES WERE NOT PAID TO THE UNITED STATES BY THE ILLINOIS MEAT COMPANY. THERE WERE RECEIVED YOUR TWO LETTERS OF NOVEMBER 19. NOS -43987 WAS 40 PERCENT INSTEAD OF 60 PERCENT.

A-90759, FEBRUARY 7, 1938, 17 COMP. GEN. 633

TAXES - FEDERAL - PROCESSING - CONTRACT PRICE INCLUSION - PRICE REDUCTION - UNJUST ENRICHMENT WHERE CONTRACT PRICES INCLUDED FEDERAL TAXES THERETOFORE IMPOSED AND THE CONTRACTS OBVIOUSLY INTENDED TO PROTECT BOTH THE CONTRACTOR AND THE GOVERNMENT IN CASE OF SUBSEQUENT INCREASE OR DECREASE IN SUCH TAXES, AND THE CONTRACTOR HAS FAILED TO PAY TO THE GOVERNMENT ANY PROCESSING TAXES ON THE SUPPLIES INVOLVED, ALTHOUGH THE GOVERNMENT HAS PAID THE FULL CONTRACT PRICES, THE CONTRACTOR IS NOT ENTITLED TO THE RESULTING UNJUST ENRICHMENT AND IS PROPERLY CHARGEABLE WITH AN AMOUNT EQUAL TO THE PROCESSING TAXES INCLUDED IN THE BID PRICES, NOTWITHSTANDING THE TAX ELIMINATION OR CHANGE WAS BY COURT DECISION INSTEAD OF BY THE CONGRESS, AND IRRESPECTIVE OF WHETHER DELIVERIES AND PAYMENTS WERE MADE BEFORE THE TAX ELIMINATION.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ILLINOIS MEAT CO., FEBRUARY 7, 1938:

THERE HAVE BEEN CONSIDERED YOUR LETTERS OF NOVEMBER 4 AND 5, 1937, REQUESTING REVIEW OF SETTLEMENTS NO. US-4539-NAVY, NO. US-4540-AGRI., AND NO. US-4541-IND., DATED OCTOBER 2, 1937, BY WHICH YOU WERE CERTIFIED TO BE INDEBTED TO THE UNITED STATES IN THE RESPECTIVE AMOUNTS OF $801.96, $62.37, AND $2,233.90, OR AN AGGREGATE OF $3,098.23, REPRESENTING PROCESSING TAXES INCLUDED IN PRICES PAID BY THE GOVERNMENT FOR PACKING HOUSE PRODUCTS DELIVERED UNDER CONTRACTS WITH THE NAVY, INTERIOR AND AGRICULTURE DEPARTMENTS, WHICH PROCESSING TAXES WERE NOT PAID TO THE UNITED STATES BY THE ILLINOIS MEAT COMPANY. ALSO, THERE WERE RECEIVED YOUR TWO LETTERS OF NOVEMBER 19, 1937, TO THE EFFECT THAT THE PORK CONTENT OF THE VIENNA SAUSAGE FURNISHED THE NAVY DEPARTMENT UNDER CONTRACT NO. NOS -43987 WAS 40 PERCENT INSTEAD OF 60 PERCENT, AS USED BY THIS OFFICE IN COMPUTING THE BASIS OF SETTLEMENT, AND THAT THE PORK CONTENT OF THE FRANKFURTERS FURNISHED THE DEPARTMENT OF AGRICULTURE UNDER CONTRACT ALFS- 3506 ALSO WAS 40 PERCENT INSTEAD OF 60 PERCENT AS USED BY THIS OFFICE AND THAT, THEREFORE, THE AMOUNT OF THE OVERPAYMENTS UNDER THE TWO CONTRACTS WOULD BE LESS THAN THAT DETERMINED BY THIS OFFICE IN SETTLEMENTS, SUPRA.

THE BIDS SUBMITTED BY YOUR COMPANY WHICH, UPON ACCEPTANCE, CONSTITUTED CONTRACT I-1-IND-9778, JULY 1, 1935, AND CONTRACT NO. ALFS 3506, JUNE 19, 1935, RESPECTIVELY, INCLUDED THE FOLLOWING STIPULATION RELATIVE TO FEDERAL TAXES.

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 THE BID, AND ARE PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES THEREIN 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.

YOUR SUBMITTED BID WHICH, UPON ACCEPTANCE, CONSTITUTED CONTRACT NOS 43987, OCTOBER 31, 1935, INCLUDED THE FOLLOWING FEDERAL TAX PROVISION:

PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. ANY SALES TAX, DUTIES, IMPOSTS, REVENUES, EXCISE, OR OTHER TAXES WHICH MAY HEREAFTER (THE DATE SET FOR THE OPENING OF THIS BID) BE IMPOSED BY THE CONGRESS AND MADE APPLICABLE TO THE MATERIAL ON THIS BID WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON INVOICES AS A SEPARATE ITEM.

YOUR REQUEST FOR REVIEW OF THE SETTLEMENTS IS UPON THE VIEW, IN SUBSTANCE, AS STATED IN YOUR LETTERS, SUPRA, THAT YOU FAIL TO FIND IN THE QUOTED PROVISIONS OF THE RESPECTIVE CONTRACTS, OR IN ANY OTHER PROVISIONS THEREOF, ANY PROMISE OR OBLIGATION UPON THE PART OF THE ILLINOIS MEAT CO. TO RETURN ANY PORTION OF THE CONTRACT PRICE; THAT SAID PROVISIONS MERELY OBLIGATED THE GOVERNMENT TO PAY THE CONTRACTOR AN AMOUNT IN ADDITION TO THE CONTRACT PRICE EQUAL TO ANY ADDITIONAL TAX IMPOSED BY CONGRESS AFFECTING THE MERCHANDISE IN QUESTION; THAT, EVEN THOUGH THE PROVISIONS BE CONSTRUED AS OBLIGATING THE ILLINOIS MEAT CO. TO REDUCE THE CONTRACT PRICES TO THE EXTENT THAT THERE WAS A REDUCTION IN THE AMOUNT OF ANY TAX IMPOSED, SUCH OBLIGATION WOULD APPLY ONLY TO THE UNDELIVERED PORTION OF THE CONTRACT AT THE TIME THE REDUCTION BECAME EFFECTIVE, BUT WOULD NOT APPLY TO THE CONTRACT INSOFAR AS THE MERCHANDISE HAD BEEN DELIVERED AND PAID FOR; AND THAT YOU FIND NO PROVISION IN THE CONTRACT WHICH INDICATED ANY INTENTION ON THE PART OF EITHER THE GOVERNMENT OR THE ILLINOIS MEAT CO. TO PROVIDE FOR THE SITUATION ARISING BY REASON OF THE SUPREME COURT DECLARING THE AGRICULTURAL ADJUSTMENT ACT UNCONSTITUTIONAL.

THE PURPOSE AND IMPORT OF THE FEDERAL TAX PROVISIONS OF THE SEVERAL CONTRACTS APPEAR TOO PLAIN FOR SERIOUS ARGUMENT. IN SUBMITTING A BID TO FURNISH ARTICLES, MATERIALS, OR SUPPLIES TO THE GOVERNMENT, IT IS TO BE ASSUMED THAT THE BIDDER FIRST DETERMINES AND FIXES ALL ELEMENTS OF COST OF PRODUCING OR FURNISHING THE ARTICLES OFFERED INCLUDING COST OF MATERIALS, LABOR, OVERHEAD, ADMINISTRATIVE EXPENSES, ETC., TO WHICH IS ADDED THE PROFIT WHICH THE BIDDER IS WILLING TO ACCEPT ON THE BARGAIN, TO CONSTITUTE THE BID PRICE. AT THE TIME YOUR BIDS HERE UNDER CONSIDERATION WERE SUBMITTED THERE WAS A SPECIFIC FEDERAL TAX IMPOSED UPON THE PROCESSING OF MATERIALS TO BE SUPPLIED UNDER THE CONTRACTS. THIS TAX WAS DISTINCT FROM ALL ORDINARY ELEMENTS OF COST OF PRODUCTION AND IN ADDITION THERETO, AND ITS AMOUNT WAS EASILY DETERMINED. THE SUBMITTED BIDS CERTIFIED THAT THIS TAX WAS INCLUDED IN THE PRICES OFFERED. THE UNITED STATES IN ENTERING INTO THE CONTRACTS UNDERTOOK TO SAVE THE CONTRACTOR HARMLESS AS TO THE EXISTING TAXES, BY PAYING AN AMOUNT EQUAL THERETO IN ADDITION TO THE OTHERWISE ACTUAL COST AND PROFIT TO THE CONTRACTOR, FOR THE PURPOSE OF DEFRAYING SAID APPLICABLE TAX. THE GOVERNMENT FURTHER UNDERTOOK THAT IN THE EVENT SUCH TAX WAS INCREASED AFTER THE DATE FOR OPENING OF THE BIDS OR DURING THE PERFORMANCE OF THE CONTRACT, WHEREBY THE CONTRACTOR WOULD BE REQUIRED TO PAY AN ADDITIONAL TAX TO THE UNITED STATES IN ITS SOVEREIGN CAPACITY, THE GOVERNMENT, IN ITS CAPACITY AS CONTRACTOR, WOULD PROTECT THE CONTRACTING COMPANY AGAINST THE RESULTING LOSS OR DECREASED PROFIT BY PAYING AN ADDITIONAL AMOUNT SUFFICIENT TO COVER SUCH INCREASE IN TAXES.

THERE WAS THE CORRELATIVE OBLIGATION UPON THE CONTRACTOR TO PROTECT THE GOVERNMENT FROM HAVING TO PAY A PRICE INCLUSIVE OF THE AMOUNT OF THE TAX-- - THE SPECIFIED CONTRACT PRICE--- IN THE EVENT THE TAX WAS DECREASED OR REMOVED AFTER THE DATE OF THE OPENING OF BIDS OR DURING THE PERFORMANCE OF THE CONTRACT.

THE OBVIOUS INTENT OF THE PROVISIONS WAS TO PROTECT BOTH THE CONTRACTOR AND THE GOVERNMENT AGAINST TAX FLUCTUATION AND IT IS MANIFEST THAT THE WHOLE TRANSACTION WAS PREDICATED UPON PAYMENT OF THE EXISTING AND AFTER IMPOSED TAXES BY THE CONTRACTOR TO THE GOVERNMENT. BUT THE CONTRACTOR DID NOT PAY THIS TAX TO THE UNITED STATES. THE RECORD SHOWS THAT THE ILLINOIS MEAT CO. FAILED AND REFUSED TO PAY THE APPLICABLE PROCESSING TAX AFTER APRIL 1935. THUS, THE CONTRACTOR WITHHELD FROM THE GOVERNMENT AS A TAX THE AMOUNT WHICH IT WAS PAID BY THE GOVERNMENT TO COVER THE AMOUNT OF TAX, IN ADDITION TO ALL ELEMENTS OF COST OF PRODUCTION AND PROFIT. OBVIOUSLY, SUCH PROCEDURE WAS CONTRARY TO THE LETTER AND SPIRIT OF THE CONTRACT AND RESULTED IN THE UNJUST ENRICHMENT OF THE CONTRACTOR AT THE EXPENSE OF THE GOVERNMENT (17 COMP. GEN. 340) AND IN PAYMENT TO THE CONTRACTOR OF AMOUNTS TO WHICH IT WAS NOT ENTITLED, IT HAVING REFUSED AND FAILED TO PAY THE TAXES.

THE FACT THAT THE TAX WAS HELD INVALID BY THE SUPREME COURT, INSTEAD OF BEING REPEALED BY THE CONGRESS, DOES NOT ALTER THE PRACTICAL RESULT. THE DECISION NEGATIVING THE TAX, IS THE EQUIVALENT OF A REDUCTION IN TAX UNDER THE CONTRACT TERMS. THE FACT REMAINS THAT AN AMOUNT EQUIVALENT TO THE TAX WAS PAID BY THE GOVERNMENT TO THE CONTRACTOR UPON THE ASSUMPTION THAT SAID AMOUNT WOULD BE PAID BY THE CONTRACTOR TO THE GOVERNMENT AND THAT IT WAS NOT SO PAID, WITH THE RESULT THAT THE CONTRACTOR MADE A PROFIT UPON ITS UNDERTAKING WITH THE GOVERNMENT TO WHICH PROFIT IT WAS NOT LEGALLY OR IN GOOD CONSCIENCE ENTITLED. THAT THE CONTRACTOR BE ALLOWED TO RETAIN SUCH AMOUNT WOULD BE UNCONSCIONABLE REGARDLESS OF HOW IT ESCAPED THE TAX PAYMENT.

ALSO, IT IS PLAIN THAT THE TAX PROVISION WAS APPLICABLE THROUGHOUT THE CONTRACTS, AND THAT THE CONTRACTOR PROPERLY IS CHARGEABLE WITH ALL MONEYS PAID BY THE GOVERNMENT TO THE CONTRACTOR BECAUSE OF THE INCLUSION IN THE PRICE OF THE AMOUNT OF TAX WHICH WAS NOT IN TURN PAID BY THE CONTRACTOR TO THE GOVERNMENT IN SETTLEMENT OF THE TAX, IRRESPECTIVE OF WHEN DELIVERIES AND PAYMENTS WERE MADE.

UPON THE RECORD, THE ILLINOIS MEAT CO. PROPERLY IS CHARGEABLE WITH SUCH AMOUNTS AND, UPON REVIEW, THE SETTLEMENTS OF OCTOBER 2, 1937, MUST BE, AND ARE, SUSTAINED.

WITH REFERENCE TO YOUR LETTERS OF NOVEMBER 19, 1937, IN WHICH YOU CLAIM THAT THE PORK CONTENT OF THE VIENNA SAUSAGE AND FRANKFURTERS WAS 40 PERCENT RATHER THAN 60 PERCENT, YOU ARE INFORMED THAT, UPON RECEIPT BY THIS OFFICE OF ADEQUATE EVIDENCE TO THAT EFFECT, THE SAID SETTLEMENTS WILL BE GIVEN FURTHER CONSIDERATION WITH RESPECT TO THE PROPER AMOUNT OF THE INDEBTEDNESS AS STATED IN THE SETTLEMENTS INVOLVED. YOU ARE ADVISED FURTHER THAT AFFIDAVITS OF RESPONSIBLE OFFICERS OF THE ILLINOIS MEAT CO. SETTING FORTH THE ACTUAL AMOUNT OF THE PORK CONTENT OF THE ITEMS WILL BE CONSIDERED IN SUCH CONNECTION.