B-128112, FEB. 11, 1958

B-128112: Feb 11, 1958

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THE CLAIM WAS DISALLOWED UPON THE GROUND THAT STATE INCOME TAXES DO NOT CONSTITUTE AN ITEM OF ALLOWABLE COST UNDER CONTRACT NO. OR GROSS RECEIPTS TAX OR CHARGE (OTHER THAN A TAX UPON INCOME OF THE CONTRACTOR OR SUBCONTRACTOR) PAID BY THE CONTRACTOR * * * WHICH WAS IMPOSED BY THE FEDERAL GOVERNMENT OR ANY STATE OR LOCAL GOVERNMENT * * * SHALL CONSTITUTE AN ITEM OF ALLOWABLE COST UNDER THIS CONTRACT * * *.'. YOU HAVE REQUESTED OUR RECONSIDERATION OF THE SETTLEMENT UPON THAT BASIS. STATE INCOME TAXES ARE VIEWED ON AN ALLOWABLE ITEM OF COST THEREUNDER AND THEREFORE THE SCHEDULE CONTROLLED. PAYMENT WAS THEREFORE PROPER UNDER THE PROVISIONS OF THE CONTRACTS THERE INVOLVED. IS FOR DETERMINATION SOLELY ON THE PROVISIONS OF THE CONTRACT AS EXECUTED.

B-128112, FEB. 11, 1958

TO HASTINGS-FAGDINT, INCORPORATED:

YOUR LETTER DATED DECEMBER 18, 1957, WITH ENCLOSURES, REQUESTS RECONSIDERATION OF OUR SETTLEMENT OF DECEMBER 5, 1957, WHICH DISALLOWED YOUR CLAIM FOR $1,210.36 REPRESENTING VIRGINIA STATE INCOME TAX FOR 1949 AND 1950 ALLEGEDLY NOT INCLUDED IN PRIOR COSTS ALLOWED UNDER CONTRACT NORD -10236, DATED MARCH 15, 1948 (TERMS I AND II).

THE CLAIM WAS DISALLOWED UPON THE GROUND THAT STATE INCOME TAXES DO NOT CONSTITUTE AN ITEM OF ALLOWABLE COST UNDER CONTRACT NO. NORD-30236, ARTICLE 27 OF WHICH PROVIDES IN PERTINENT PART AS FOLLOWS:

"ARTICLE 27 - FEDERAL, STATE AND LOCAL TAXES.

"/A) ANY TAX, DUTY, IMPORT, OR EXCISE, OR ANY SALE, USE, TRANSPORTATION, OCCUPATIONAL, OR GROSS RECEIPTS TAX OR CHARGE (OTHER THAN A TAX UPON INCOME OF THE CONTRACTOR OR SUBCONTRACTOR) PAID BY THE CONTRACTOR * * * WHICH WAS IMPOSED BY THE FEDERAL GOVERNMENT OR ANY STATE OR LOCAL GOVERNMENT * * * SHALL CONSTITUTE AN ITEM OF ALLOWABLE COST UNDER THIS CONTRACT * * *.'

YOU DIRECT OUR ATTENTION TO PREVIOUS SETTLEMENTS BY OUR OFFICE ALLOWING STATE INCOME TAXES AS AN ITEM OF ALLOWABLE COST UNDER YOUR CONTRACTS NOS. NOBSR-49020 AND NO.AC-51-933-C, AND EXPRESS THE VIEW THAT SUCH SETTLEMENTS ESTABLISH A PRECEDENT FOR THE PAYMENT OF STATE INCOME TAXES NOW CLAIMED. YOU HAVE REQUESTED OUR RECONSIDERATION OF THE SETTLEMENT UPON THAT BASIS.

CONTRACTS NOBSR-49020 AND NOSU 51-933-C PROVIDED THAT TO THE EXTENT OF ANY INCONSISTENCY BETWEEN THE GENERAL PROVISIONS AND THE SCHEDULE, THE SCHEDULE WOULD CONTROL. THE SCHEDULES SPECIFICALLY PROVIDED THAT ALLOWABLE COST SHALL CONSTITUTE THE COST AS CHARGEABLE IN ACCORDANCE WITH PART 2 OF SECTION XV, ENTITLED "CONTRACT COST PRINCIPLES" OF THE ARMED SERVICES PROCUREMENT REGULATION. STATE INCOME TAXES ARE VIEWED ON AN ALLOWABLE ITEM OF COST THEREUNDER AND THEREFORE THE SCHEDULE CONTROLLED--- BEING INCONSISTENT WITH THE GENERAL PROVISIONS OF THE CONTRACTS WHICH PROVIDED THAT TERMS "/OTHER THAN A TAX UPON INCOME OF THE CONTRACTOR OR ANY SUBCONTRACTOR)" SHALL BE ALLOWABLE ITEM OF COST. PAYMENT WAS THEREFORE PROPER UNDER THE PROVISIONS OF THE CONTRACTS THERE INVOLVED.

REIMBURSEMENT OF STATE INCOME TAXES UNDER CONTRACT NORD-10236, IS FOR DETERMINATION SOLELY ON THE PROVISIONS OF THE CONTRACT AS EXECUTED. PART 2 OF SECTION XV OF THE ARMED SERVICES PROCUREMENT REGULATION WAS NOT INCORPORATED IN THAT CONTRACT, SO IT WAS IN THE OTHER TWO ABOVE-MENTIONED CONTRACTS. SINCE, THE PROVISIONS OF ARTICLE 27, HEREINABOVE QUOTED, ARE FOR APPLICATION AND STATE INCOME TAXES, AS SPECIFICALLY INDICATED, ARE NOT AN ITEM OF ALLOWABLE COST. THE DISALLOWANCE BY SETTLEMENT DATED DECEMBER 5, 1957, IS THEREFORE SUSTAINED.