B-144705, JAN. 27, 1961

B-144705: Jan 27, 1961

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YOU STATE THAT YOU WERE SPECIFICALLY ADVISED THAT THE PROJECTS IN QUESTION WERE EXEMPTED FROM THE MARYLAND SALES TAX. WHICH STATED IN RESPONSE TO YOUR INQUIRY ABOUT SALES TAX THAT THE HOSPITAL IS EXEMPTED FROM PAYING MARYLAND STATE SALES TAX. THE MARYLAND SALES TAX IS IMPOSED BY THE RETAIL SALES TAX ACT. THE PORTION APPLICABLE TO CONTRACTORS IS AS FOLLOWS: "FOR THE PURPOSE OF THE TAX IMPOSED BY THIS SUBTITLE. THE INVITATIONS FOR BIDS UPON WHICH ALL THREE CONTRACTS WERE BASED REQUESTED QUOTATION OF FIXED AMOUNTS TO BE CHARGED IN EACH CASE FOR FURNISHING ALL LABOR AND MATERIALS USED IN PERFORMING REPAIR SERVICES IN ACCORDANCE WITH THE SPECIFICATIONS. IT HAS BEEN HELD THAT BUILDING MATERIALS LOSE THEIR CHARACTER AS TANGIBLE PERSONAL PROPERTY AND ARE TRANSFORMED INTO REAL ESTATE WHEN INCORPORATED INTO A BUILDING.

B-144705, JAN. 27, 1961

TO THE HEAT AND POWER CORPORATION:

YOUR LETTER OF DECEMBER 2, 1960, REQUESTS RECONSIDERATION OF THE SETTLEMENT OF OUR CLAIMS DIVISION, DATED NOVEMBER 7, 1960, WHICH DISALLOWED YOUR CLAIM FOR $807.98. THAT AMOUNT REPRESENTED THE SALES TAX ASSESSMENTS OF THE STATE OF MARYLAND, PLUS INTEREST CHARGES, APPLICABLE TO THE COST OF MATERIALS USED IN PERFORMING REPAIR SERVICES AT THE VETERANS ADMINISTRATION HOSPITAL, PERRY POINT, MARYLAND, UNDER FIXED PRICE CONTRACTS V5042C-7, V5042C-10, AND V5042C-26, DATED NOVEMBER 19, 1953, AUGUST 16, 1954, AND APRIL 30, 1957, RESPECTIVELY.

IN SUPPORT OF YOUR REQUEST FOR RECONSIDERATION OF YOUR CLAIM, YOU STATE THAT YOU WERE SPECIFICALLY ADVISED THAT THE PROJECTS IN QUESTION WERE EXEMPTED FROM THE MARYLAND SALES TAX. YOU FURNISH A COPY OF A LETTER DATED OCTOBER 20, 1959, FROM THE CHIEF OF THE PURCHASE AND CONTRACT SECTION, PERRY POINT VETERANS ADMINISTRATION HOSPITAL, WHICH STATED IN RESPONSE TO YOUR INQUIRY ABOUT SALES TAX THAT THE HOSPITAL IS EXEMPTED FROM PAYING MARYLAND STATE SALES TAX. IN ADDITION, YOU FURNISH COPIES OF A PURCHASE ORDER DATED SEPTEMBER 9, 1960, AND A REQUEST FOR QUOTATIONS DATED NOVEMBER 15, 1960, BOTH FROM THE PERRY POINT HOSPITAL AND BOTH BEARING THE NOTATION ,MARYLAND RETAIL SALES TAX EXEMPTION CERTIFICATE NO. 500.'

THE MARYLAND SALES TAX IS IMPOSED BY THE RETAIL SALES TAX ACT, MARYLAND ANNOTATED CODE, ARTICLE 81, SECTIONS 320-396. IN SECTION 324 (F), THE PORTION APPLICABLE TO CONTRACTORS IS AS FOLLOWS:

"FOR THE PURPOSE OF THE TAX IMPOSED BY THIS SUBTITLE, THE TERM "SALE AT RETAIL" SHALL INCLUDE BUT SHALL NOT BE LIMITED TO THE FOLLOWING:

"/3) THE SALE OF TANGIBLE PERSONAL PROPERTY TO CONTRACTORS, BUILDERS OR LANDOWNERS FOR USE OR RESALE IN THE FORM OF REAL ESTATE.'

THE INVITATIONS FOR BIDS UPON WHICH ALL THREE CONTRACTS WERE BASED REQUESTED QUOTATION OF FIXED AMOUNTS TO BE CHARGED IN EACH CASE FOR FURNISHING ALL LABOR AND MATERIALS USED IN PERFORMING REPAIR SERVICES IN ACCORDANCE WITH THE SPECIFICATIONS. NONE OF THE CONTRACTS MADE ANY PROVISION FOR INCREASING THE CONTRACT PRICE BECAUSE OF THE IMPOSITION OF ANY TAX.

REGARDING THE APPLICATION OF THE MARYLAND RETAIL SALES TAX ACT TO CONTRACTORS, IT HAS BEEN HELD THAT BUILDING MATERIALS LOSE THEIR CHARACTER AS TANGIBLE PERSONAL PROPERTY AND ARE TRANSFORMED INTO REAL ESTATE WHEN INCORPORATED INTO A BUILDING, AND A CONTRACTOR DOES NOT MAKE A RESALE OF TANGIBLE PERSONAL PROPERTY TO THE ULTIMATE PURCHASER, THE OWNER OF THE REALTY. STEINER CONSTRUCTION CO., INC. V. COMPTROLLER OF THE TREASURY, 209 MD. 453, 121 A.2D 838.

THE THREE CONTRACTS IN QUESTION PROVIDED FOR A FIXED PRICE IN EACH CASE FOR LABOR AND MATERIALS USED IN PERFORMING THE SPECIFIED REPAIR SERVICES. UNDER MARYLAND LAW, THE HEAT AND POWER CORPORATION MADE NO RESALE OF PERSONAL PROPERTY TO THE GOVERNMENT AND THE STATE OF MARYLAND IMPOSED THE TAX ON THE CORPORATION AS THE FINAL PURCHASER OF THE MATERIALS BEFORE THEY LOST THEIR CHARACTER AS PERSONAL PROPERTY.

IN CASES INVOLVING COST-TYPE CONTRACTS AND CONTRACTS CONTAINING PROVISIONS FOR PRICE ADJUSTMENT ON ACCOUNT OF TAXES, OUR OFFICE HAS APPROVED PAYMENT TO CONTRACTORS FOR STATE SALES TAXES PAID BY THEM. CF.ALABAMA V. KING AND BOOZER, 314 U.S. 1. HOWEVER, THE CONTRACTS INVOLVED HERE ARE FIXED PRICE CONTRACTS CONTAINING NO PROVISION FOR PRICE ADJUSTMENT BECAUSE OF TAXES AND THERE IS NO LEGAL BASIS FOR REIMBURSING YOUR COMPANY FOR THE SALES TAX PAID TO THE STATE OF MARYLAND.

THE STATEMENT IN THE LETTER OF OCTOBER 20, 1959, FROM THE PURCHASE AND CONTRACT SECTION OF THE PERRY POINT VETERANS ADMINISTRATION HOSPITAL THAT THE HOSPITAL IS EXEMPTED FROM PAYING MARYLAND SALES TAX IS TRUE WITH RESPECT TO DIRECT PURCHASE OF MATERIALS BY THE HOSPITAL BUT IRRELEVANT UNDER MARYLAND LAW TO FIXED PRICE CONTRACTS FOR A COMBINATION OF LABOR AND MATERIALS. WHILE IT IS REGRETTABLE THAT SUCH A STATEMENT ABOUT TAX EXEMPTION, OR THE ROUTINE PRACTICE OF STAMPING ,MARYLAND RETAIL SALES TAX EXEMPTION CERTIFICATE NO. 500, ON INVITATIONS FOR BIDS AND PURCHASE ORDERS FROM THE HOSPITAL, SHOULD HAVE RESULTED IN A MISUNDERSTANDING OF THE MARYLAND STATUTES CLEARLY IMPOSING THE SALES TAX ON CONTRACTORS, SUCH STATEMENTS WERE UNAUTHORIZED AND THERE CAN BE NO RELIEF GRANTED IN THE ABSENCE OF A CONTRACT PROVISION PROVIDING FOR PRICE ADJUSTMENT.

UNDER THE FACTS OF RECORD IN THIS CASE, THE UNITED STATES CANNOT LEGALLY REIMBURSE YOU FOR THE SALES TAX AND INTEREST CHARGES PAID TO THE STATE OF MARYLAND AND THE SETTLEMENT OF NOVEMBER 7, 1960, DENYING YOUR CLAIM IS SUSTAINED.