B-156701, JUN. 22, 1965, 44 COMP. GEN. 816

B-156701, JUN. 22, 1965, 44 COMP. GEN. 816

TAXES - STATE - GOVERNMENT IMMUNITY - TAX CLAUSE IN CONTRACT EFFECT THE FACT THAT A GOVERNMENT CONTRACTOR IS NOT LIABLE PURSUANT TO 189 A.2D 107 FOR THE SALES AND USE TAXES ON PURCHASES MADE IN THE PERFORMANCE OF A GOVERNMENT CONTRACT DOES NOT ENTITLE THE GOVERNMENT TO THE TAX UNDER A CONTRACT CONTAINING A TAX CLAUSE PROVIDING FOR THE ADJUSTMENT OF THE CONTRACT PRICE FOR STATE AND LOCAL TAXES LEVIED ON OR MEASURED BY THE CONTRACT OR SALES PRICE OF THE SERVICES OR COMPLETED SUPPLIES FURNISHED UNDER THE CONTRACT, THE TAX THE CONTRACTOR NO LONGER IS OBLIGED TO PAY BEING THE TAX IMPOSED ON THE MATERIALS INCORPORATED INTO THE GOVERNMENT CONSTRUCTION PROJECT RATHER THAN ON THE SALES PRICE OF THE COMPLETED PROJECT AND, THEREFORE, THE CONTRACTOR IS NOT REQUIRED TO MAKE A PRICE ADJUSTMENT TO COVER HIS EXEMPTION FROM THE TAXES IMPOSED ON THE PURCHASES MADE INCIDENT TO CONTRACT PERFORMANCE.

TO MR. R. F. NOYES, DEPARTMENT OF THE ARMY, JUNE 22, 1965:

BY SECOND INDORSEMENT DATED MAY 3, 1965, THE COMMANDER, FINANCE CENTER, UNITED STATES ARMY, INDIANAPOLIS, INDIANA, FORWARDED YOUR LETTER OF FEBRUARY 17, 1965, WITH ENCLOSURES, SUBMITTING FOR ADVANCE DECISION AS TO PROPRIETY OF PAYMENT, A VOUCHER IN THE AMOUNT OF $2,000 IN FAVOR OF THE SECURITY CONSTRUCTION CO., WITHOUT DEDUCTING THEREFROM MARYLAND SALES AND USE TAX REFUNDS OBTAINED BY, OR NOT PAID BY, THE CONTRACTOR.

ON MARCH 19, 1963, IN COMPTROLLER OF TREAS. V. PITTSBURGH-DES MOINESST. CO., 189 A.2D 107, THE COURT OF APPEALS OF MARYLAND HELD--- FOR THE REASONS SET FORTH THEREIN--- THAT THE MARYLAND SALES TAX WAS NOT APPLICABLE TO CONTRACTORS WHO HAD CONTRACTS WITH THE UNITED STATES IN CONNECTION WITH PURCHASES INCIDENT TO THE GOVERNMENT CONTRACTS. ACCORDINGLY, YOUR OFFICE DIRECTED THE CONTRACTOR INVOLVED HERE TO FILE AN APPLICATION WITH THE STATE OF MARYLAND TO OBTAIN A REFUND OF THE SALES AND USE TAXES DUE THE CONTRACTOR IN LIGHT OF THE COURT DECISION.

YOU REQUEST A DECISION AS TO WHETHER A DEDUCTION FOR THE AMOUNT OF THE MARYLAND SALES AND USE TAXES INCLUDED IN CONTRACT DA-49-080-ENG 4832 SHOULD BE MADE FROM THE VOUCHER PRIOR TO CERTIFICATION AND PAYMENT. OTHER WORDS YOUR QUESTION CONCERNS NOT ONLY REFUNDS OF MARYLAND SALES AND USE TAXES OBTAINED BY THE CONTRACTOR BUT MARYLAND SALES AND USE TAXES INCLUDED IN THE CONTRACT PRICE WHICH THE CONTRACTOR WAS NOT REQUIRED TO PAY BY REASON OF THE ABOVE-CITED COURT DECISION.

PARAGRAPH (C) OF THE TAX CLAUSE IN THE CONTRACT IN QUESTION PROVIDES GENERALLY, AS FAR AS PERTINENT HERE, THAT IF THE CONTRACTOR IS REQUIRED TO PAY OR BEAR THE BURDEN OF ANY STATE OR LOCAL SALES OR USE TAXES NOT INCLUDED IN THE CONTRACT PRICE THE CONTRACT PRICE MAY BE INCREASED ACCORDINGLY AND IF HE IS NOT REQUIRED TO PAY OR BEAR THE BURDEN, OR OBTAINS A REFUND, OF SUCH TAXES THE CONTRACT PRICE SHALL BE DECREASED ACCORDINGLY OR THE AMOUNT OF SUCH REFUND SHALL BE PAID TO THE GOVERNMENT. PARAGRAPH (C) FURTHER PROVIDES THAT---

"/4) NOTHING IN THIS PARAGRAPH (C) SHALL BE APPLICABLE TO SOCIAL SECURITY TAXES; NET INCOME TAXES; EXCESS PROFIT TAXES, CAPITAL STOCK TAXES; FEDERAL TRANSPORTATION TAXES, EXCEPT CHANGES IN THE RATE THEREOF, INCLUDING REPEAL, PERTAINING TO SHIPMENTS FROM THE CONTRACTOR TO THE OVERNMENT; UNEMPLOYMENT COMPENSATION TAXES; OR ANY STATE AND LOCAL TAXES, EXCEPT THOSE LEVIED ON OR MEASURES (SIC) BY THE CONTRACT OR SALES PRICE OF THE SERVICES OR COMPLETED SUPPLIES FURNISHED UNDER THIS CONTRACT, INCLUDING GROSS INCOME TAXES, GROSS RECEIPTS TAXES, SALES AND USE TAXES, EXCISE TAXES, OR FRANCHISE OR OCCUPATION TAXES MEASURED BY SALES OR RECEIPTS FROM SALES.'

THUS, THE TAX CLAUSE INVOLVED PERMITS ADJUSTMENT OF THE CONTRACT PRICE AND ENTITLES THE GOVERNMENT TO TAX REFUNDS OBTAINED BY THE CONTRACTOR ONLY WITH RESPECT TO STATE AND LOCAL TAXES LEVIED ON OR MEASURED BY THE CONTRACT OR SALES PRICE OF THE SERVICES OR COMPLETED SUPPLIES FURNISHED UNDER THE CONTRACT. UNDER THIS CLAUSE THE CONTRACTOR WOULD NOT BE ENTITLED TO A PRICE INCREASE AS A RESULT OF STATE AND LOCAL TAXES LEVIED ON PURCHASES OF MATERIALS INCORPORATED IN THE CONSTRUCTION PROJECT, NOR CONVERSELY WOULD THE GOVERNMENT BE ENTITLED TO A PRICE DECREASE (OR ANY TAX REFUND OBTAINED BY THE CONTRACTOR) AS A RESULT OF STATE AND LOCAL TAXES BEING HELD INAPPLICABLE TO PURCHASES OF SUCH MATERIALS.

INASMUCH AS THE TAXES INVOLVED HERE WERE IMPOSED ON MATERIALS INCORPORATED INTO THE CONSTRUCTION PROJECT RATHER THAN ON THE SALES PRICE OF THE COMPLETED CONSTRUCTION PROJECT, THE GOVERNMENT IS NOT ENTITLED TO ANY REFUNDS OF STATE SALES AND USE TAXES OBTAINED BY THE CONTRACTOR IN THE PRESENT CASE NOR TO RECOVER FOR TAXES NOT PAID AS A RESULT OF THE ABOVE- CITED COURT DECISION.

ACCORDINGLY, THE VOUCHER, WHICH IS RETURNED HEREWITH, MAY BE PAID IF OTHERWISE CORRECT.