B-100173, MAR 30, 1951

B-100173: Mar 30, 1951

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WITH A REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. THE AMOUNTS WERE ORIGINALLY REIMBURSED TO THE CONTRACTOR BUT SUBSEQUENTLY WERE COLLECTED BECAUSE OF EXCEPTIONS TAKEN THERETO BY THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE FOR THE REASON THAT THE PERSONAL PROPERTY TAX CHARGEABLE TO THE CONTRACT FOR CONTRACTOR OWNED MATERIAL TRANSFERRED TO THE CONTRACT SHOULD NOT EXCEED THAT BASED UPON THE NET TRANSFERS BETWEEN CONTRACTOR-OWNED AND COST-PLUS-A-FIXED FEE STORES. THE RECORD DISCLOSES THAT CALIFORNIA PERSONAL PROPERTY TAXES ARE LEVIED AS OF THE FIRST MONDAY IN MARCH OF EACH YEAR AND THAT THE STATUS AND OWNERSHIP OF THE PROPERTY ON THAT DATE DETERMINES THE AMOUNTS AND INCIDENTS OF THE TAX.

B-100173, MAR 30, 1951

PRECIS-UNAVAILABLE

LIEUTENANT COLONEL H. A. SOSKIN, F.D., U.S. ARMY:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE CHIEF OF FINANCE YOUR LETTER OF OCTOBER 27, 1950, TRANSMITTING EIGHT VOUCHERS IN THE AMOUNTS OF $20.88, $85.14, $93.74, $1.18, $6.70, $971.99, $22 AND $354.64 STATED IN FAVOR OF THE RECONSTRUCTION FINANCE CORPORATION AS ASSIGNEE OF NORTHROP AIRCRAFT, INCORPORATED, HAWTHORNE, CALIFORNIA, UNDER COST PLUS-A-FIXED-FEE CONTRACTS NOS. AF33-(038)-1613, W33-038-AC-14175, W33 038-AC-14541, W33- 038-AC-16972, W33-038-AC-17572, W33-038-AC-21721, W 535-AC-21920 AND W-535 -AC-33920, RESPECTIVELY, WITH A REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED.

THE AMOUNTS INVOLVED REPRESENT A PORTION OF THE CONTRACTOR'S OVERHEAD ALLOCATED TO THE CONTRACTS TO COVER CALIFORNIA STATE PERSONAL PROPERTY TAXES PAID BY THE CONTRACTOR ON PERSONALLY OWNED MATERIAL TAKEN FROM STOCK AND USED IN CONNECTION WITH THE WORK UNDER THE ABOVE-MENTIONED CONTRACTS. THE AMOUNTS WERE ORIGINALLY REIMBURSED TO THE CONTRACTOR BUT SUBSEQUENTLY WERE COLLECTED BECAUSE OF EXCEPTIONS TAKEN THERETO BY THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE FOR THE REASON THAT THE PERSONAL PROPERTY TAX CHARGEABLE TO THE CONTRACT FOR CONTRACTOR OWNED MATERIAL TRANSFERRED TO THE CONTRACT SHOULD NOT EXCEED THAT BASED UPON THE NET TRANSFERS BETWEEN CONTRACTOR-OWNED AND COST-PLUS-A-FIXED FEE STORES.

THE RECORD DISCLOSES THAT CALIFORNIA PERSONAL PROPERTY TAXES ARE LEVIED AS OF THE FIRST MONDAY IN MARCH OF EACH YEAR AND THAT THE STATUS AND OWNERSHIP OF THE PROPERTY ON THAT DATE DETERMINES THE AMOUNTS AND INCIDENTS OF THE TAX; THAT THE CONTRACTOR CUSTOMARILY CARRIED BOTH CONTRACTOR-OWNED INVENTORIES AND GOVERNMENT-OWNED INVENTORIES AND THAT ON THE FIRST MONDAY IN MARCH THE INVENTORIES WHICH WERE HELD IN THE CONTRACTOR'S NAME WERE TAXED BUT THOSE IN THE GOVERNMENT'S NAME WERE EXEMPT FROM TAX; THAT SUBSEQUENT TO THE TAX DATE CONTRACTOR-OWNED INVENTORIES WERE OFTEN TRANSFERRED TO COST-PLUS-A-FIXED-FEE CONTRACTS FOR USE IN THE PERFORMANCE OF SUCH CONTRACTS AND GOVERNMENT-OWNED INVENTORIES WERE TRANSFERRED TO FIXED PRICE OR COMMERCIAL WORK FOR USE THEREON; THAT THESE TRANSFERS WERE MADE WITH THE FULL KNOWLEDGE OF THE GOVERNMENT AND UNDER ITS SUPERVISION; THAT IT WAS THE CONTRACTOR'S ESTABLISHED ACCOUNTING PRACTICE TO REGARD PERSONAL PROPERTY TAXES AS AN OVERHEAD ITEM JUST AS REAL PROPERTY TAXES; AND THAT BEING AN OVERHEAD ITEM THEY WERE ALLOCATED TO EACH OF THE CONTRACTS IN THE PLANT IN ACCORDANCE WITH THE STANDARD METHOD FOR ALLOCATING OVERHEAD.

ARTICLE 3(B) OF CONTRACT AF33-(038)-1613 PROVIDES THAT ALLOWABLE ITEMS OF COST WILL BE DETERMINED BY THE CONTRACTING OFFICER IN ACCORDANCE WITH THE STATEMENT OF CONTRACT COST PRINCIPLES, SECTION XV, ARMED SERVICES PROCUREMENT REGULATIONS. SAID SECTION XV IS, IN PERTINENT PART, AS FOLLOWS:

"15-201 GENERAL BASIS FOR DETERMINATION OF COSTS. THE TOTAL COST OF A COST-REIMBURSEMENT TYPE CONTRACT IS THE SUM OF THE ALLOWABLE DIRECT COSTS INCIDENT TO THE PERFORMANCE OF THE CONTRACT, PLUS THE PROPERLY ALLOCABLE PORTION OF ALLOWABLE INDIRECT COSTS, LESS APPLICABLE INCOME AND OTHER CREDITS. THE TESTS USED IN DETERMINING THE ALLOWABILITY OF COSTS ALSO INCLUDE (I) REASONABLENESS, (II) APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES, AND (III) ANY LIMITATIONS AS TO TYPES OR AMOUNTS OF COST ITEMS SET FORTH IN THIS PART 2 OF SECTION XV, OR OTHERWISE INCLUDED IN THE CONTRACT. ***

"15-204 EXAMPLES OF ITEMS OF ALLOWABLE COSTS. SUBJECT TO THE REQUIREMENTS OF PARAGRAPH 15-201 WITH RESPECT TO THE GENERAL BASIS FOR DETERMINING ALLOWABILITY OF COSTS, AND IRRESPECTIVE OF WHETHER THE PARTICULAR COSTS ARE TREATED BY THE CONTRACTOR AS DIRECT OR INDIRECT, THE FOLLOWING ITEMS OF COSTS ARE CONSIDERED ALLOWABLE WITHIN THE LIMITATIONS INDICATED:

"(V) TAXES (BUT SEE PARAGRAPH 15-205 (I) AND (R)).

"15-205 EXAMPLES OF ITEMS OF UNALLOWABLE COSTS. ***

"(I) FEDERAL TAXES ON INCOME AND EXCESS PROFITS.

"(R) TAXES AND EXPENSES IN CONNECTION WITH FINANCING, REFINANCING OR REFUNDING OPERATIONS, INCLUDING THE LISTING OF SECURITIES ON EXCHANGES."

ARTICLE 3(B) OF THE OTHER CONTRACTS HERE INVOLVED PROVIDES FOR REIMBURSEMENT TO THE CONTRACTOR FOR COSTS DETERMINED BY THE CONTRACTING OFFICER TO BE ALLOWABLE IN ACCORDANCE WITH THE REGULATIONS PROMULGATED BY THE TREASURY DEPARTMENT AND CONTAINED IN SECTION 26.9 OF T.D. 5000.

SECTION 26.9, OF T.D. 5000 IS, IN PERTINENT PART, AS FOLLOWS:

"SEC. 26.9. COST OF PERFORMING A CONTRACT OR SUBCONTRACT.

(A) GENERAL RULE. - THE COST OF PERFORMING A PARTICULAR CONTRACT OR SUBCONTRACT SHALL BE THE SUM OF (1) THE DIRECT COSTS, INCLUDING THEREIN EXPENDITURES FOR MATERIALS, DIRECT LABOR AND DIRECT EXPENSES, INCURRED BY THE CONTRACTING PARTY IN PERFORMING THE CONTRACT OR SUBCONTRACT; AND (2) THE PROPER PROPORTION OF ANY INDIRECT COSTS (INCLUDING THEREIN A REASONABLE PROPORTION OF MANAGEMENT EXPENSES) INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT.

"(5) INDIRECT FACTORY EXPENSES. - ITEMS, USUALLY TERMED 'FACTORY OVERHEAD,' WHICH ARE NOT DIRECTLY CHARGEABLE TO THE FACTORY COST OF PERFORMING THE CONTRACT OR SUBCONTRACT BUT WHICH ARE PROPERLY INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACT OR SUBCONTRACT AND CONSIST OF THE FOLLOWING:

"(D) FIXED CHARGES AND OBSOLESCENCE. - RECURRING CHARGES WITH RESPECT TO PROPERTY USED FOR MANUFACTURING PURPOSES OF THE CONTRACT OR SUBCONTRACT, SUCH AS *** PROPERTY TAXES ***."

SINCE IT APPEARS THAT THE PERSONAL PROPERTY TAXES ON MATERIAL TRANSFERRED TO THE COST-PLUS-A-FIXED-FEE CONTRACTS HERE INVOLVED WERE PROPERLY ASSESSED, SAID TAXES CLEARLY WERE INCIDENT TO AND NECESSARY FOR THE PERFORMANCE OF THE CONTRACTS AND UNDER THE PROVISIONS OF THE ABOVE-QUOTED APPLICABLE REGULATIONS ARE FOR INCLUSION AS AN ITEM OF OVERHEAD PROPERLY ALLOCABLE TO SAID CONTRACTS. IN VIEW THEREOF AND SINCE THE VOUCHERS HAVE BEEN APPROVED BY THE CONTRACTING OFFICER, YOU ARE ADVISED THAT PAYMENT THEREON IS AUTHORIZED IF OTHERWISE CORRECT.

THE VOUCHERS TOGETHER WITH THE ACCOMPANYING PAPERS ARE RETURNED HEREWITH.