B-138247, MARCH 25, 1959, 38 COMP. GEN. 624

B-138247: Mar 25, 1959

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CONTRACTS - STATE SALES TAXES - SOUTH CAROLINA - INTERSTATE TRANSACTIONS FOR DETERMINATION OF THE APPLICABILITY OF A SOUTH CAROLINA SALES TAX WHICH IS IMPOSED ON VENDORS. IS CONSIDERED AN INTERSTATE. THE CONTRACTOR IS NOT LEGALLY REQUIRED TO PAY THE TAX. EVEN THOUGH A FEDERAL SUPPLY CONTRACT PROVIDES FOR AN INCREASE IN THE CONTRACT PRICE FOR ANY DIRECT TAX THAT THE CONTRACTOR IS OBLIGED AND DOES PAY. ONLY TAXES WHICH ARE LAWFULLY APPLICABLE TO THE CONTRACTOR MAY BE CONSIDERED AS REIMBURSABLE TAXES. UNDER A FEDERAL SUPPLY CONTRACT WHICH PROVIDES FOR AN INCREASE IN THE CONTRACT PRICE FOR ANY DIRECT TAX THAT THE CONTRACTOR IS "OBLIGED TO AND DOES PAY. " A NOTICE FROM THE SOUTH CAROLINA TAX COMMISSION ADVISING ALL SELLERS WHO WERE SUBJECT TO THE SOUTH CAROLINA SALES TAX THAT FUTURE SALES TO THE FEDERAL GOVERNMENT WOULD BE SUBJECT TO THE TAX MAY NOT BE CONSIDERED AS A REQUEST TO PAY THE TAX ON A SALE BY A CONTRACTOR WHO.

B-138247, MARCH 25, 1959, 38 COMP. GEN. 624

CONTRACTS - STATE SALES TAXES - SOUTH CAROLINA - INTERSTATE TRANSACTIONS FOR DETERMINATION OF THE APPLICABILITY OF A SOUTH CAROLINA SALES TAX WHICH IS IMPOSED ON VENDORS, A SALE OF SUPPLIES TO A GOVERNMENT INSTALLATION IN SOUTH CAROLINA BY A VENDOR WHO HAS NO RETAIL OUTLETS IN THE STATE AND WHO SHIPS THE SUPPLIES FROM ANOTHER STATE BY COMMON CARRIER, WITH FREIGHT PREPAID, IS CONSIDERED AN INTERSTATE, RATHER THAN A LOCAL BUSINESS TRANSACTION, AND THE IMPOSITION OF THE TAX ON SUCH AN INTERSTATE TRANSACTION CONSTITUTES A VIOLATION OF THE COMMERCE CLAUSE OF THE FEDERAL CONSTITUTION; THEREFORE, THE CONTRACTOR IS NOT LEGALLY REQUIRED TO PAY THE TAX. EVEN THOUGH A FEDERAL SUPPLY CONTRACT PROVIDES FOR AN INCREASE IN THE CONTRACT PRICE FOR ANY DIRECT TAX THAT THE CONTRACTOR IS OBLIGED AND DOES PAY, ONLY TAXES WHICH ARE LAWFULLY APPLICABLE TO THE CONTRACTOR MAY BE CONSIDERED AS REIMBURSABLE TAXES. UNDER A FEDERAL SUPPLY CONTRACT WHICH PROVIDES FOR AN INCREASE IN THE CONTRACT PRICE FOR ANY DIRECT TAX THAT THE CONTRACTOR IS "OBLIGED TO AND DOES PAY," A NOTICE FROM THE SOUTH CAROLINA TAX COMMISSION ADVISING ALL SELLERS WHO WERE SUBJECT TO THE SOUTH CAROLINA SALES TAX THAT FUTURE SALES TO THE FEDERAL GOVERNMENT WOULD BE SUBJECT TO THE TAX MAY NOT BE CONSIDERED AS A REQUEST TO PAY THE TAX ON A SALE BY A CONTRACTOR WHO, BY REASON OF THE FACT THAT HE DID NOT HAVE ANY RETAIL OUTLETS IN THE STATE AND THAT THE SHIPMENT OF SUPPLIES WAS MADE FROM ANOTHER STATE, BY A COMMON CARRIER, WITH FREIGHT PREPAID, AND WITHOUT INTERRUPTION FROM ORIGIN TO THE GOVERNMENT INSTALLATION, WAS NOT LAWFULLY SUBJECT TO THE TAX.

TO EDMOND H. BLANTON, DEPARTMENT OF AGRICULTURE, MARCH 25, 1959:

YOUR LETTER OF DECEMBER 15, 1958, TRANSMITS COPIES OF TWO INVOICES IN FAVOR OF OZALID, A DIVISION OF GENERAL ANILINE AND FILM CORPORATION, JOHNSON CITY, NEW YORK, IN THE TOTAL AMOUNT OF $77.57, INCLUDING THE SOUTH CAROLINA SALES TAX IN THE AMOUNT OF $2.27. THE AMOUNT OF THE INVOICES OTHER THAN THE SALES TAX HAS BEEN PAID, AND YOU REQUEST A DECISION AS TO WHETHER YOU MAY CERTIFY THE AMOUNT OF THE SALES TAX FOR PAYMENT.

ATTACHED TO THE INVOICES IS A COPY OF A LETTER DATED NOVEMBER 17, 1958, FROM THE SOUTH CAROLINA TAX COMMISSION TO OZALID, WHICH DISCUSSES THE SALES TAX LAW OF THE STATE AND REFERS TO OUR DECISION OF AUGUST 7, 1956, B -128720.

YOU SAY THAT OUR DECISION STATES THAT THE SOUTH CAROLINA SALES TAX MAY BE PAID BY THE GOVERNMENT TO ANY PERSON ENGAGED OR CONTINUING WITHIN THE STATE, IN THE BUSINESS OF SELLING AT RETAIL ANY TANGIBLE PERSONAL PROPERTY WHATSOEVER. HOWEVER, YOU STATE THAT IN THIS INSTANCE THE COMPANY'S HOME OFFICE IS IN NEW YORK; THAT APPARENTLY IT DOES NOT HAVE RETAIL OFFICES OR COMPANY OUTLETS IN SOUTH CAROLINA; AND, THEREFORE, YOU ARE DOUBTFUL WHETHER OUR DECISION WOULD BE APPLICABLE IN THE INSTANT CASE.

AS INDICATED IN YOUR LETTER, WE STATED IN OUR DECISION OF AUGUST 7, 1956, THAT THE LEGAL INCIDENCE OF THE SOUTH CAROLINA SALES TAX (SECTIONS 65-1401 TO 65-1411 OF THE 1952 SOUTH CAROLINA CODE, AS AMENDED) IS ON THE VENDOR RATHER THAN THE VENDEE; HENCE, THE CONSTITUTIONAL PRINCIPLE UPON WHICH THE FEDERAL GOVERNMENT IS IMMUNE FROM STATE TAXATION IS NOT FOR APPLICATION. HOWEVER, SECTION 65-1401 OF THE SOUTH CAROLINA CODE IMPOSES THE SALES TAX ONLY UPON PERSONS "ENGAGED OR CONTINUING WITHIN THIS STATE IN THE BUSINESS OF SELLING AT RETAIL ANY TANGIBLE PERSONAL PROPERTY.' AS INDICATED ABOVE, IT APPEARS FROM YOUR LETTER THAT THE GENERAL ANILINE AND FILM CORPORATION HAS NO RETAIL OFFICES OR COMPANY OUTLETS IN SOUTH CAROLINA. FURTHER, THE CONTRACT PURSUANT TO WHICH THE SUPPLIES INVOLVED HERE WERE PURCHASED WAS APPARENTLY ENTERED INTO ON JANUARY 31, 1958, IN WASHINGTON, 1.D.C. BY THE NATIONAL BUYING DIVISION, FEDERAL SUPPLY SERVICE, GENERAL SERVICES ADMINISTRATION, AND " OZALID, DIVISION OF GENERAL ANILINE AND FILM CORP.' MOREOVER, WHILE THE RECORD IS NOT CLEAR ON THIS POINT, PRESUMABLY THE DEPARTMENT OF AGRICULTURE FACILITY AT SPARTANBURG, SOUTH CAROLINA, ORDERED THE SUPPLIES FROM OZALID AT JOHNSON CITY, NEW YORK, BY MAIL OR TELEPHONE PURSUANT TO THE ABOVE-MENTIONED CONTRACT. OZALID SHIPPED THE SUPPLIES, APPARENTLY BY COMMON CARRIER, FROM CHARLOTTE, NORTH CAROLINA, F.O.B. DESTINATION WITH FREIGHT CHARGES PREPAID. THUS, IT APPEARS THAT THE SUPPLIES WERE IN INTERSTATE COMMERCE WITH NO INTERRUPTION FROM THE TIME OZALID DELIVERED THE SUPPLIES TO THE CARRIER IN NORTH CAROLINA UNTIL DELIVERY TO THE DEPARTMENT OF AGRICULTURE FACILITY ESSENTIAL TO COMPLETE THE INTERSTATE JOURNEY. IN OTHER WORDS THE TRANSACTION INVOLVED HERE WAS NOT "LOCAL BUSINESS" BUT WAS INTERSTATE IN NATURE. HENCE, IT APPEARS THAT THE IMPOSITION BY SOUTH CAROLINA OF A SALES TAX ON SUCH A TRANSACTION UNDER ALL THE FACTS AND CIRCUMSTANCES WOULD VIOLATE THE COMMERCE CLAUSE OF THE FEDERAL CONSTITUTION, ART. I, SEC. 8, CL. 3. SEE MCLEOD V. DILWORTH CO., 322 U.S. 327 AND NORTON CO. V. DEPT. OF REVENUE, 340 U.S. 534. ACCORDINGLY, IT DOES NOT APPEAR THAT OZALID WAS LEGALLY REQUIRED OR OBLIGED TO PAY THE TAX IN QUESTION.

THE CONTRACT INVOLVED HERE INCORPORATED BY REFERENCE ARTICLE 19 OF THE GENERAL PROVISIONS OF FEDERAL SUPPLY SCHEDULE CONTRACTS, FORM 281C ( MARCH 1951). ARTICLE 19 PROVIDES, IN EFFECT, THAT THE CONTRACT PRICE WILL BE INCREASED IN THE AMOUNT OF ANY DIRECT TAX THE CONTRACTOR IS "OBLIGED TO AND DOES PAY.' WE ARE OF THE VIEW THAT UNDER THIS CONTRACT PROVISION THE CONTRACTOR MUST BE LEGALLY OBLIGED TO PAY SUCH TAX AND NOT MERELY REQUESTED TO DO SO. THE CONTRACT MAY BE CONSTRUED TO COMPREHEND REIMBURSEMENT FOR A TAX WHICH IS NOT LAWFULLY APPLICABLE TO THE CONTRACTOR. IN ANY EVENT, IT DOES NOT APPEAR FROM THE ABOVE REFERRED TO LETTER OF NOVEMBER 17, 1958, FROM THE SOUTH CAROLINA TAX COMMISSION TO OZALID THAT THE COMMISSION REQUESTED OZALID TO PAY A SALES TAX ON THE TRANSACTION IN QUESTION. THE COMMISSION MERELY INFORMED OZALID THAT IT HAD ADVISED ALL SELLERS ,WHO WERE SUBJECT TO THE SOUTH CAROLINA SALES TAX THAT IN THE FUTURE SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, WOULD BE SUBJECT TO THE TAX.' AS INDICATED ABOVE, IT IS OUR VIEW THAT ON THE PRESENT RECORD THE COMPANY MAY NOT BE CONSIDERED TO BE SUBJECT TO THE SOUTH CAROLINA SALES TAX, AT LEAST AS TO THE INSTANT TRANSACTION. THEREFORE, THE COMPANY MAY NOT BE CONSIDERED AS HAVING BEEN OBLIGED TO PAY A SALES TAX ON THE STATE OF SOUTH CAROLINA IN THE INSTANT CASE.

IN VIEW OF THE FOREGOING, OZALID'S CLAIM MAY NOT BE CERTIFIED FOR PAYMENT.