A-91844, JANUARY 31, 1938, 17 COMP. GEN. 615

A-91844: Jan 31, 1938

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THERE IS NO LEGAL AUTHORITY FOR THE INCLUSION IN ADVERTISED SPECIFICATIONS OF A REQUIREMENT THAT BIDDERS LIST IN THEIR BIDS THE ITEMS SUBJECT TO FEDERAL. OR THAT THEY CONSENT TO DEDUCTION OF FEDERAL TAXES FROM THE AMOUNT OF THE BID PRICE IF THE PRICES ARE INCLUSIVE OF THE TAX. WHICH PURCHASES ARE SUBJECT. TO DETERMINE WHETHER THE TAX FACTORS ACTUALLY WERE INCLUDED IN OR EXCLUDED FROM THE PRICES QUOTED. WHETHER THE ISSUANCE OF TAX-EXEMPTION CERTIFICATES WAS IN ORDER. THE SEVERAL DEPARTMENTS AND AGENCIES OF THE GOVERNMENT HAVE DIFFERING METHODS OF ASCERTAINING THE INFORMATION. WHICH IS NEEDED BEFORE AWARDS CAN BE MADE ON THE BIDS RECEIVED. WHICH EXPLAINS FULLY TO THEM EXACTLY HOW THE TAX PHASES OF THEIR PROPOSALS WILL BE CONSIDERED FOR THE PURPOSE OF MAKING AWARDS.

A-91844, JANUARY 31, 1938, 17 COMP. GEN. 615

TAXES - FEDERAL, STATE, AND LOCAL - SPECIFIC REQUIREMENTS REGARDING MANNER OF BIDDING, BID EVALUATION, ETC. THERE IS NO LEGAL AUTHORITY FOR THE INCLUSION IN ADVERTISED SPECIFICATIONS OF A REQUIREMENT THAT BIDDERS LIST IN THEIR BIDS THE ITEMS SUBJECT TO FEDERAL, STATE, OR LOCAL TAXES AND SHOW THE AMOUNT OF THE TAX THEREON AS A CONDITION PRECEDENT TO THE CONSIDERATION OF THEIR BID, OR THAT THEY CONSENT TO DEDUCTION OF FEDERAL TAXES FROM THE AMOUNT OF THE BID PRICE IF THE PRICES ARE INCLUSIVE OF THE TAX, AND A LOW BID MAY NOT BE REJECTED SOLELY BECAUSE OF THE INCLUSION OF ALL APPLICABLE TAXES. SUBSTITUTE PROVISIONS SUGGESTED. BID PRICES ON SUPPLIES, ETC., SUBJECT TO FEDERAL EXCISE TAX SHOULD BE ADJUSTED TO A FEDERAL TAX-INCLUDED BASIS RATHER THAN A TAX-EXCLUDED BASIS FOR BID EVALUATION PURPOSES.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF AGRICULTURE, JANUARY 31, 1938:

CONSIDERATION HAS BEEN GIVEN TO YOUR LETTER OF NOVEMBER 27, 1937, WITH INCLOSURE, AS FOLLOWS:

IN ADVERTISING FOR BIDS FOR THE PURCHASE OF SUPPLIES AND EQUIPMENT, WHICH PURCHASES ARE SUBJECT, UNDER CERTAIN CIRCUMSTANCES, TO FEDERAL, STATE, OR OTHER TAXES, THE DIVISION OF PURCHASE, SALES, AND TRAFFIC OF THIS DEPARTMENT, PARTICULARLY DURING THE PAST YEAR, HAS RECEIVED OFFERS CONCERNING WHICH IT HAS BEEN DIFFICULT, OR IMPOSSIBLE, TO DETERMINE WHETHER THE TAX FACTORS ACTUALLY WERE INCLUDED IN OR EXCLUDED FROM THE PRICES QUOTED, AND CONSEQUENTLY, WHETHER THE ISSUANCE OF TAX-EXEMPTION CERTIFICATES WAS IN ORDER.

THE SEVERAL DEPARTMENTS AND AGENCIES OF THE GOVERNMENT HAVE DIFFERING METHODS OF ASCERTAINING THE INFORMATION, WITH RESPECT TO THE TAXES DISCUSSED IN THE FOREGOING PARAGRAPH, WHICH IS NEEDED BEFORE AWARDS CAN BE MADE ON THE BIDS RECEIVED. HERETOFORE, THIS DEPARTMENT HAS ATTACHED TO ITS ADVERTISEMENTS FOR BIDS, A FORM ON WHICH THE DESIRED INFORMATION MAY BE SET OUT BY THE RESPECTIVE BIDDERS. THE INADEQUACY OF THE FORM HAS MADE NECESSARY THE DRAFTING OF A NEW NOTICE TO BIDDERS, WHICH EXPLAINS FULLY TO THEM EXACTLY HOW THE TAX PHASES OF THEIR PROPOSALS WILL BE CONSIDERED FOR THE PURPOSE OF MAKING AWARDS. THIS FORM HAS BEEN CONSIDERED IN THE LIGHT OF APPLICABLE STATUTES, PUBLISHED INSTRUCTIONS OF THE BUREAU OF INTERNAL REVENUE, DECISIONS OF THE COMPTROLLER GENERAL, AND CIRCULARS OF THE PROCUREMENT DIVISION OF THE TREASURY DEPARTMENT.

INASMUCH AS A FISCAL MATTER IS INVOLVED, AND IN KEEPING WITH OUR USUAL CUSTOM, WE DESIRE TO SUBMIT THE FORM TO YOU FOR YOUR CRITICISM OR APPROVAL BEFORE PROMULGATING IT.

THE FOLLOWING IS THE PROPOSED "NOTICE TO BIDDERS--- TAXES" FORWARDED WITH YOUR LETTER, SUPRA:

BIDDERS ARE REQUIRED TO LIST BELOW, BY ITEM NUMBER AS IT APPEARS IN THE SCHEDULE OF ADVERTISEMENT, EACH ITEM WHICH IS SUBJECT TO A FEDERAL, STATE, OR LOCAL TAX, AND TO SHOW THE AMOUNT OF TAX PER UNIT UNDER THE APPROPRIATE HEADING OR HEADINGS.

BIDDERS ARE NOTIFIED THAT THE REVENUE ACT OF 1932, AS AMENDED, IMPOSING A FEDERAL EXCISE TAX ON MANUFACTURERS, PRODUCERS, AND IMPORTERS, PROVIDES FOR EXEMPTION FROM THE PAYMENT OF SUCH TAX WHEN THE MERCHANDISE IS SOLD DIRECT TO THE GOVERNMENT, AND FOR THE ADJUSTMENT OR REFUND OF SUCH TAX IN CASES WHERE THE MERCHANDISE ON WHICH THE TAX WAS PAID IS RESOLD EXCLUSIVE OF THE FEDERAL TAX, FOR THE EXCLUSIVE USE OF THE UNITED STATES. IN CASE THE BIDDER INDICATES BELOW THAT THE FEDERAL TAX IS NOT INCLUDED IN THE PRICE BID, A TAX EXEMPTION CERTIFICATE WILL BE FURNISHED HIM IF HIS BID HE ACCEPTED. IN THE EVENT THE BIDDER INDICATES BELOW THAT THE FEDERAL TAX IS INCLUDED, THE GOVERNMENT RESERVES THE RIGHT, IF AN AWARD BE MADE TO HIM, TO REDUCE THE BID PRICE BY THE AMOUNT OF SUCH TAX AND TO ISSUE A TAX EXEMPTION CERTIFICATE TO HIM.

BIDDERS ARE ALSO NOTIFIED THAT THE FEDERAL GOVERNMENT IS EXEMPT FROM THE PAYMENT OF ALL TAXES IMPOSED BY STATES OR LOCAL AUTHORITIES ON COMMODITIES PURCHASED BY THE FEDERAL GOVERNMENT WHERE THE TAX IS LEVIED DIRECTLY ON THE SALE OF THE GOODS. WITH RESPECT TO SUCH TAXES THE BIDDERS MAY, HOWEVER, EITHER EXCLUDE THE AMOUNT OF SUCH TAX FROM THE BID PRICE OR INCLUDE THE TAX THEREIN. IN THE EVENT THAT SUCH TAX IS SPECIFICALLY EXCLUDED FROM THE BID PRICE, THE SUCCESSFUL BIDDER WILL RECEIVE WITH HIS PURCHASE ORDER A TAX EXEMPTION CERTIFICATE. WHERE SUCH TAXES ARE SPECIFICALLY INCLUDED AS PART OF THE BID PRICE AND THE BIDDER REFUSES TO SELL AT A PRICE EXCLUSIVE OF SUCH TAX, THE FEDERAL GOVERNMENT, IF THE BID BE ACCEPTED, WILL BILL THE PROPER TAXING AUTHORITY FOR A REFUND.

BIDDERS WILL NOTE PARTICULARLY THAT IN DETERMINING AWARDS, ALL PRICES BID ARE ADJUSTED TO A FEDERAL-TAX-EXCLUDED BASIS BEFORE COMPARISON; BUT THAT WHERE A STATE OR LOCAL TAX IS INCLUDED IN THE BID PRICE, NO DEDUCTIONS OF SUCH TAXES ARE MADE BEFORE ALL BIDS ARE COMPARED.

WHERE THE STATE OR LOCAL TAX IS NOT A CONSUMER'S TAX, THAT IS,WHERE IT HAS BEEN IMPOSED ON A SALE OR TRANSFER OF THE GOODS PRIOR TO THE SALE TO THE GOVERNMENT, IT THEREUPON BECOMES PART OF THE PRICE OF THE GOODS AND SHOULD NOT BE DECLARED AS A TAX ITEM ON THIS FORM.

AMOUNT OF TAX, PER UNIT

ITEM NO. FEDERAL STATE LOCAL

INCLUDED EXCLUDED INCLUDED EXCLUDED INCLUDED EXCLUDED

THE UNDERSIGNED WARRANTS THAT EVERY ITEM IN THIS BID SUBJECT TO A FEDERAL, STATE, OR LOCAL TAX, EXCEPT AS EXEMPTED IN THE LAST PRECEDING PARAGRAPH, HAS BEEN LISTED IN THE ABOVE SCHEDULE.

SIGNED -----------------------------

(BIDDER)

BY -----------------------------

TITLE -----------------------------

REFERRING TO THE STATEMENT IN THE FIRST PARAGRAPH OF YOUR LETTER RELATIVE TO DIFFICULTY HERETOFORE EXPERIENCED IN DETERMINING WHETHER THE TAX FACTORS ACTUALLY WERE INCLUDED IN OR EXCLUDED FROM PRICES QUOTED AND, CONSEQUENTLY, WHETHER ISSUANCE OF TAX-EXEMPTION CERTIFICATES WAS IN ORDER, IT MAY BE OBSERVED THAT DECISIONS OF THIS OFFICE ARE TO THE EFFECT THAT WHEN IT IS NOT SHOWN AFFIRMATIVELY AND CLEARLY UPON THE FACE OF A BID AS SUBMITTED THAT APPLICABLE TAXES ARE EXCLUDED FROM THE BID PRICE, IT IS TO BE PRESUMED THAT THE TAXES ARE INCLUDED THEREIN, THE BID IS TO BE EVALUATED ON THAT BASIS AND, IF ACCEPTED, THERE IS NO LEGAL AUTHORITY FOR THEREAFTER FURNISHING THE CONTRACTOR WITH TAX-EXEMPTION CERTIFICATES. COMP. GEN. 1095, AND DECISIONS THERE CITED.

AS TO THE PROPOSED FORM SUBMITTED, THERE APPEARS NO LEGAL AUTHORITY TO "REQUIRE" BIDDERS TO LIST ITEMS IN THEIR BIDS, BY ITEM NUMBER OR OTHERWISE, WHICH ARE SUBJECT TO FEDERAL, STATE, OR LOCAL TAX, OR TO SHOW THE AMOUNT OF TAX THEREON, AS STIPULATED IN THE FIRST PARAGRAPH OF THE FORM. IT HAS BEEN POINTED OUT HERETOFORE IN DECISIONS OF THIS OFFICE THAT THE PROVISIONS OF THE REVENUE ACT OF 1932, AS AMENDED, RELATIVE TO EXEMPTION FROM FEDERAL TAX ON SALES TO THE GOVERNMENT ARE NOT MANDATORY. 15 COMP. GEN. 588. THE STATUTE AND THE REGULATIONS PRESCRIBED PURSUANT THERETO LEAVE A BIDDER FREE TO SUBMIT PRICES EITHER INCLUSIVE OR EXCLUSIVE OF THE EXCISE TAX AND, IF INCLUSIVE, TO CONSENT OR NOT CONSENT TO ITS DEDUCTION FROM THE AMOUNT OF THE BID PRICE. WHILE IT MIGHT BE PERMISSIBLE IN A PROPER CASE TO REQUEST BIDDERS TO STATE THE AMOUNT OF TAX APPLICABLE, SUCH INFORMATION MAY NOT BE REQUIRED AS A CONDITION PRECEDENT TO THE CONSIDERATION OF A BID AND FAILURE TO FURNISH IT SHOULD NOT SUBJECT THE BIDDER TO PENALTY IN ANY WAY. IT APPEARS MANIFEST THAT WHEN A BID SUBMITTED IS INCLUSIVE OF THE AMOUNT OF THE TAX AND THE BIDDER IS NOT WILLING TO HAVE SAID AMOUNT DEDUCTED THEREFROM, NO STATEMENT OF THE AMOUNT OF THE TAX IS REQUIRED, THE BID BEING FOR EVALUATION AS TAX INCLUSIVE AND THERE BEING NO OCCASION OR AUTHORITY FOR THE ISSUANCE OF A TAX-EXEMPTION CERTIFICATE. 15 COMP. GEN. 1030. OF COURSE, IF THE PRICES SUBMITTED ARE CLAIMED TO BE EXCLUSIVE OF TAXES, OR ARE INCLUSIVE OF TAXES AND THE BIDDER IS WILLING TO HAVE THE AMOUNT THEREOF DEDUCTED FROM THE BID PRICE AND TO ACCEPT AN EXEMPTION CERTIFICATE IN LIEU THEREOF, IT WOULD APPEAR NECESSARY FOR BIDDERS TO STATE THE AMOUNT OF THE TAXES INVOLVED.

AS A SUBSTITUTE FOR THE FIRST PARAGRAPH OF THE ABOVE-QUOTED "NOTICE TO BIDDERS," THE FOLLOWING WOULD APPEAR SUFFICIENT:

IF SUBMITTED PRICES ARE EXCLUSIVE OF FEDERAL, STATE, OR LOCAL TAXES ON ANY ITEM IN THIS SCHEDULE SUBJECT TO SUCH TAX OR TAXES, OR ARE INCLUSIVE OF SUCH TAXES AND THE BIDDER AGREES TO DEDUCTION OF THE AMOUNT THEREOF FROM THE CONTRACT PRICE AND ACCEPTANCE OF TAX EXEMPTION CERTIFICATES IN LIEU THEREOF, THE BIDDER MUST SHOW UPON THE FACE OF HIS BID THE AMOUNT OF EACH SUCH TAX SO EXCLUDED OR INCLUDED AS TO EACH ITEM. IF THE BID AS SUBMITTED DOES NOT CLEARLY SHOW EITHER THAT THE TAXES ARE EXCLUDED OR THAT IT CONSENTS TO THE DEDUCTION OF A STATED AMOUNT OF TAXES INCLUDED, IT WILL BE PRESUMED THAT THE AMOUNT OF ALL APPLICABLE TAXES IS INCLUDED IN THE BID PRICE, THE BID WILL BE EVALUATED ACCORDINGLY, AND, IF THE BID BE ACCEPTED, NO EXEMPTION CERTIFICATE WILL BE ISSUED.

THE FIRST SENTENCE OF THE SECOND PARAGRAPH OF THE NOTICE SHOULD BE AMENDED BY STRIKING OUT THE PERIOD AT THE END THEREOF AND ADDING AFTER THE WORDS "UNITED STATES" THE FOLLOWING:

PROVIDED THE MANUFACTURER, PRODUCER, OR IMPORTER SHALL FURNISH EVIDENCE OF THAT FACT SATISFACTORY TO THE COMMISSIONER OF INTERNAL REVENUE.

THERE APPEARS NO LEGAL AUTHORITY FOR THE LAST SENTENCE OF SAID SECOND PARAGRAPH, WHICH PURPORTS TO RESERVE TO THE GOVERNMENT THE RIGHT TO REDUCE THE BID PRICE BY THE AMOUNT OF THE FEDERAL TAX IN EVERY SUCH INSTANCE. BIDDER CANNOT BE REQUIRED EITHER TO SUBMIT PRICES EXCLUSIVE OF THE AMOUNT OF APPLICABLE TAXES, OR TO CONSENT TO THE REDUCTION OF THE BID PRICE BY THE AMOUNT THEREOF IF, NOTWITHSTANDING INCLUSION OF SUCH AMOUNT, THE BID IS THE LOW BID AND IS OTHERWISE ENTITLED TO THE AWARD. THE BID OF THE LOWEST RESPONSIBLE BIDDER SHOULD NOT BE REJECTED SOLELY BECAUSE IT IS INCLUSIVE OF ALL APPLICABLE TAXES, AND, IF ACCEPTED, IT MAY NOT AS A MATTER OF RIGHT BE FURTHER REDUCED.

WHEN STATE OR LOCAL TAXES ARE INCLUDED IN BID PRICES--- WHICH IS PRESUMED UNLESS THEY ARE SPECIFICALLY SHOWN ON THE FACE OF THE BID TO BE EXCLUDED-- - THE BIDDER OR CONTRACTOR IS NOT CONCERNED WITH THE STEPS WHICH MAY BE TAKEN OR METHOD ADOPTED BY THE FEDERAL GOVERNMENT TO OBTAIN A REFUND OF SUCH TAXES FROM THE TAXING AUTHORITY. THE BIDDER IS INTERESTED IN THE MATTER ONLY WHEN SUCH TAXES ARE SPECIFICALLY SHOWN TO BE EXCLUDED, OR ARE INCLUDED WITH AGREEMENT FOR THE DEDUCTION THEREOF, THUS ENTITLING THE CONTRACTOR TO PROPER TAX EXEMPTION CERTIFICATES. HENCE, THE LAST SENTENCE OF PARAGRAPH 3 OF THE NOTICE IS UNNECESSARY, SERVES NO USEFUL PURPOSE, AND SHOULD BE ELIMINATED.

AS TO THE FOURTH PARAGRAPH OF THE NOTICE, SECTION 3709, REVISED STATUTES, CONTEMPLATES THAT PURCHASES OF MATERIALS, EQUIPMENT, AND SUPPLIES WILL BE MADE AT THE LOWEST NET COST TO THE GOVERNMENT, AND IT HAS BEEN POINTED OUT HERETOFORE THAT WHETHER THE FEDERAL TAXES ARE INCLUDED IN OR EXCLUDED FROM THE CONTRACT PRICE IN ANY INSTANCE, THE NET RESULT TO THE GOVERNMENT IS PRACTICALLY THE SAME, EXCLUSION OF THE TAX CONSERVING APPROPRIATIONS AT THE EXPENSE OF TREASURY RECEIPTS, WHILE INCLUSION OF THE TAX IN THE AMOUNT OF THE CONTRACT PRICE INCREASES THE CHARGE UNDER THE APPROPRIATION WITH A CORRESPONDING INCREASE IN TREASURY RECEIPTS. 15 COMP. GEN. 588. THEREFORE, IT WOULD APPEAR PROPER THAT BID PRICES BE ADJUSTED TO A FEDERAL TAX INCLUDED BASIS BEFORE COMPARISON RATHER THAN TO A TAX-EXCLUDED BASIS AS THE TAX-INCLUDED BIDS MAY NOT SHOW THE AMOUNT OF THE TAX INCLUDED THEREIN.

TO ACCORD WITH THE CHANGES HEREINBEFORE SUGGESTED, THE CERTIFICATE OF THE BIDDER APPEARING AT THE END OF SAID NOTICE SHOULD BE CHANGED TO READ AS FOLLOWS:

THE UNDERSIGNED WARRANTS THAT THE FOREGOING LIST INCLUDES ALL ITEMS OF THE BID WHICH ARE SUBJECT TO A FEDERAL, STATE, OR LOCAL TAX WITH RESPECT TO WHICH SUCH TAX IS EXCLUDED FROM THE BID PRICE, OR IF INCLUDED, AS TO WHICH THE UNDERSIGNED AGREES TO THE DEDUCTION OF SUCH TAXES FROM THE BID PRICE.

SUBJECT TO THE CHANGES HEREIN SUGGESTED THE "NOTICE TO BIDDERS--- TAXES" APPEARS FREE FROM OBJECTION. BUT, AS POINTED OUT ABOVE, THE PROVISIONS OF THE REVENUE ACT OF 1932, AS AMENDED, RELATIVE TO TAX EXEMPTION ON SALES FOR EXCLUSIVE GOVERNMENT USE ARE NOT MANDATORY AND LEAVE A BIDDER FREE TO INCLUDE OR EXCLUDE EXCISE TAXES AS HE MAY SEE FIT. WHILE IT MAY BE DESIRABLE FROM AN ADMINISTRATIVE STANDPOINT TO MAKE PURCHASES EXCLUSIVE OF THE AMOUNT OF THE APPLICABLE TAXES, THERE APPEARS NO LEGAL AUTHORITY FOR THE ADOPTION BY ANY PURCHASING AGENCY OF THE GOVERNMENT OF ANY RULE, REGULATION, OR PROCEDURE, THE EFFECT OF WHICH IS TO REQUIRE OR INDIRECTLY COERCE BIDDERS TO SUBMIT FEDERAL-TAX FREE PRICES, OR TO CONSENT TO THE DEDUCTION OF SUCH INCLUDED TAXES FROM OTHERWISE ACCEPTABLE LOW PRICES SUBMITTED. SUCH AN UNDERTAKING IS NOT WITHIN THE FRAMEWORK OF THE LEGISLATIVE POLICY WHICH THE STATUTE DISCLOSES AND, HENCE, IS UNAUTHORIZED. PANAMA REFINING COMPANY V. RYAN, 293 U.S. 388, 425. UNDER THE PROVISIONS OF THE STATUTE AND THE REGULATIONS PRESCRIBED PURSUANT THERETO ANY ACTION OF A BIDDER AS TO THE INCLUSION OR EXCLUSION OF APPLICABLE FEDERAL TAXES SHOULD BE VOLUNTARY IN EVERY INSTANCE, AND ANY STIPULATIONS IN INVITATIONS FOR BIDS RELATIVE TO SUCH APPLICABLE TAXES MAY BE ONLY IN THE NATURE OF INFORMATION TO SAID BIDDERS AS TO THE METHOD OF BID EVALUATION, AND SHOULD NOT BE SO WORDED AS TO IMPOSE ANY UNDUE RESTRICTION UPON BIDDERS.