B-159841, OCTOBER 26, 1966, 46 COMP. GEN. 363

B-159841: Oct 26, 1966

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

INCLUDING AN APPROPRIATE SHARE OF STATE SALES TAX IN DIRECT PAYMENTS MADE BY THE UNITED STATES TO VENDORS UNDER THE COST-SHARE ASSISTANCE PROGRAM AUTHORIZED BY SECTION 8/B) OF THE SOIL CONSERVATION AND DOMESTIC ALLOTMENT ACT WHERE THE INCIDENT OF THE TAX FALLS ON THE PRODUCER-PURCHASER WILL NOT VIOLATE THE CONSTITUTIONAL IMMUNITY OF THE UNITED STATES AGAINST PAYMENT OF STATE AND LOCAL TAXES AS RECOGNIZED IN MCCULLOCH V. THE DEPARTMENT OF AGRICULTURE MAY ADOPT A UNIFORM RULE AND INCLUDE SALES TAX COSTS IN ALL CASES WHETHER PAYMENT IS MADE IN ACCORDANCE WITH THE CASH PROCEDURE OR THE CONSERVATION MATERIALS AND SERVICES PROCEDURE ESTABLISHED UNDER THE AGRICULTURAL CONSERVATION PROGRAM. 1966: THIS IS IN FURTHER REFERENCE TO LETTER OF AUGUST 4.

B-159841, OCTOBER 26, 1966, 46 COMP. GEN. 363

TAXES - STATE - GOVERNMENT IMMUNITY - NONGOVERNMENTAL FUNCTIONS. INCLUDING AN APPROPRIATE SHARE OF STATE SALES TAX IN DIRECT PAYMENTS MADE BY THE UNITED STATES TO VENDORS UNDER THE COST-SHARE ASSISTANCE PROGRAM AUTHORIZED BY SECTION 8/B) OF THE SOIL CONSERVATION AND DOMESTIC ALLOTMENT ACT WHERE THE INCIDENT OF THE TAX FALLS ON THE PRODUCER-PURCHASER WILL NOT VIOLATE THE CONSTITUTIONAL IMMUNITY OF THE UNITED STATES AGAINST PAYMENT OF STATE AND LOCAL TAXES AS RECOGNIZED IN MCCULLOCH V. MARYLAND, 4 WHEAT. 316, THE TITLE TO THE PURCHASES REMAINING IN THE PRODUCER, THE UNITED STATES SIMPLY PROVIDING A "CREDIT DEVICE", PAYING PRODUCERS' BILLS DIRECTLY TO VENDORS AS A PARTICIPANT IN THE CONSERVATION PROGRAM AND NOT AS AN AGENT OF GOVERNMENT. THEREFORE, THE DEPARTMENT OF AGRICULTURE MAY ADOPT A UNIFORM RULE AND INCLUDE SALES TAX COSTS IN ALL CASES WHETHER PAYMENT IS MADE IN ACCORDANCE WITH THE CASH PROCEDURE OR THE CONSERVATION MATERIALS AND SERVICES PROCEDURE ESTABLISHED UNDER THE AGRICULTURAL CONSERVATION PROGRAM.

TO THE SECRETARY OF AGRICULTURE, OCTOBER 26, 1966:

THIS IS IN FURTHER REFERENCE TO LETTER OF AUGUST 4, 1966, FROM THE ACTING SECRETARY REQUESTING AN OPINION WHETHER THE DEPARTMENT OF AGRICULTURE MAY UNDER THE CIRCUMSTANCES HEREINAFTER DESCRIBED INCLUDE THE COST OF STATE SALES TAX IN POVIDING COST-SHARE ASSISTANCE FURNISHED UNDER AUTHORITY OF SECTION 8 (B) OF THE SOIL CONSERVATION AND DOMESTIC ALLOTMENT ACT, AS AMENDED, 16 U.S.C. 590H (B).

IT IS EXPLAINED IN THE ACTING SECRETARY'S LETTER THAT UNDER THE AGRICULTURAL CONSERVATION PROGRAM (ACP), THE DEPARTMENT OF AGRICULTURE SHARES THE COST OF MATERIALS AND SERVICES PROCURED BY FARMERS AND RANCHERS TO CARRY OUT APPROVED CONSERVATION PRACTICES. COST-SHARES ARE PAID TO THE PRODUCER (FARMER OR RANCHER) ACCORDING TO THE FOLLOWING TWO PROCEDURES AS DESCRIBED IN THE LETTER:

(1) CASH PROCEDURE: THE PRODUCER ACQUIRES ALL THE MATERIALS FOR, AND PAYS ALL THE COSTS OF, CARRYING OUT AN APPROVED PRACTICE. AFTER COMPLETION OF THE PRACTICE, HE RECEIVES A CASH PAYMENT FROM THE DEPARTMENT FOR THE GOVERNMENT'S SHARE OF THE COST, THE AMOUNT OF WHICH IS DETERMINED EITHER BY A FLAT RATE OR A PERCENTAGE OF THE COST.

(2) CONSERVATION MATERIALS AND SERVICES (CMB) PROCEDURE: PRIOR TO THE COMPLETION OF AN APPROVED PRACTICE, THE DEPARTMENT ISSUES TO THE PRODUCER A PURCHASE ORDER FOR NECESSARY CONSERVATION MATERIALS OR SERVICES. THIS PURCHASE ORDER ENABLES THE PRODUCER TO ACQUIRE BY PURCHASE THE MATERIALS OR SERVICES SPECIFIED IN THE ORDER FROM ANY VENDOR, WITH WHOM THE DEPARTMENT HAS AN AGREEMENT TO PROVIDE SUCH MATERIALS OR SERVICES. PORTION OF THE COST OF THE MATERIALS OR SERVICES, DETERMINED ON A PERCENTAGE OR FLAT RATE BASIS, IS PAID BY THE DEPARTMENT DIRECTLY TO THE VENDOR UPON DELIVERY AND CERTIFICATION THEREOF BY THE PRODUCER. THE PRODUCER PAYS THE EXCESS OF THE PURCHASE PRICE OVER THE PORTION OF THE COST SPECIFIED IN THE PURCHASE ORDER FOR PAYMENT BY THE DEPARTMENT. (OCCASIONALLY, WHEN A FLAT RATE BASIS IS USED IN A PURCHASE ORDER, THE DEPARTMENT PAYS THE ENTIRE COST OF A PARTICULAR MATERIAL OR SERVICE.) THE DEPARTMENT'S PAYMENT TO THE VENDOR SATISFIES PART OR ALL OF ITS COST-SHARE OBLIGATION TO THE PRODUCER, AND SUCH PAYMENT IS TAKEN INTO ACCOUNT AFTER COMPLETION OF THE PRACTICE IN DETERMINING THE COST SHARE ASSISTANCE STILL OWED TO THE PRODUCER ACCORDING TO THE CASH PROCEDURE EXPLAINED ABOVE.

IT IS STATED IN THE LETTER THAT ALTHOUGH THE DEPARTMENT PAYS AN APPROPRIATE SHARE OF THE COST OF STATE SALES TAXES IN THE CASE OF THE CASH PROCEDURE AND IN THE CASE OF THE CMS PURCHASE ORDER PROCEDURE WHEN STATE LAW PROVIDES THAT THE INCIDENCE OF THE TAX IS ON THE VENDOR, IT HAS BEEN FOLLOWING A POLICY OF NOT PAYING THE COST OF STATE SALES TAXES IN A CMS PURCHASE ORDER, WHEN THE INCIDENCE OF THE TAX IS ON THE PURCHASER. THIS POLICY, IT IS STATED, HAS CREATED SERIOUS ADMINISTRATIVE PROBLEMS AND APPARENT INEQUITIES IN THE TREATMENT OF PRODUCERS. THEREFORE THE DEPARTMENT DESIRES TO REVISE ITS POLICY TO PERMIT THE PAYMENT OF AN APPROPRIATE SHARE OF THE STATE SALES TAX COST IN THE CASE OF CMS PURCHASE ORDER PAYMENTS TO VENDORS, IRRESPECTIVE OF WHERE THE INCIDENCE OF THE SALES TAX FALLS UNDER STATE LAW, AND THUS PROVIDE A UNIFORM POLICY WITH RESPECT TO THE SALES TAX COST IN ALL CASES WHERE ACP PAYMENTS FOR CONSERVATION PRACTICES ARE INVOLVED.

IT IS POINTED OUT IN THE ACTING SECRETARY'S LETTER THAT UNDER THE CMS PURCHASE ORDER PROCEDURE THE UNITED STATES GOVERNMENT IS NOT THE PURCHASER OF THE MATERIAL OR SERVICES ACQUIRED BY THE PRODUCER, BUT THAT IT HAS SIMPLY PROVIDED A "CREDIT DEVICE" WHEREBY A PART OF THE PRODUCER'S BILLS COVERING HIS PURCHASES OF MATERIALS OR SERVICES ARE PAID BY THE DEPARTMENT DIRECTLY TO THE VENDOR. IT IS STATED THAT THE PRODUCER IS FREE TO SELECT AMONG ANY NUMBER OF AUTHORIZED VENDORS, AND TO NEGOTIATE WITH SUCH VENDORS TO GET THE BEST POSSIBLE BARGAIN FOR THE ITEM SPECIFIED ON HIS PURCHASE ORDER. ALSO, THAT THE PRODUCER UPON ACQUISITION OF THE MATERIALS AND SERVICES HAS FULL CONTROL WITH RESPECT TO THEIR APPLICATION TO THE APPROVED CONSERVATION PRACTICE. STATE SALES TAXES ON CONSERVATION MATERIALS ARE IMPOSED ON EITHER THE PURCHASER OR THE VENDOR, AND IT IS THE VIEW OF YOUR DEPARTMENT THAT THE UNITED STATES GOVERNMENT IS NEITHER OF THESE---THE GOVERNMENT SIMPLY PAYS THE BILLS INCURRED BY THE PRODUCER, WHO IS THE ACTUAL PURCHASER AND NOT A MERE AGENT OF THE GOVERNMENT.

OUR OPINION IS REQUESTED WHETHER THE DEPARTMENT MAY ADOPT A UNIFORM RULE AND INCLUDE STATE SALES TAX COSTS UNDER THE CMS PURCHASE ORDER PROCEDURE.

ALTHOUGH THE DEPARTMENT HAS HERETOFORE ADOPTED THE POLICY OF EXCLUDING STATE SALES TAXES FROM COST SHARE ASSISTANCE UNDER THE PURCHASE ORDER PROCEDURE, THERE IS CONSIDERABLE MERIT IN THE VIEW THAT THE PROCEDURE, AS AUTHORIZED BY THE PROVISIONS OF LAW CODIFIED IN 16 U.S.C. 590H (B) PROVIDES A CREDIT DEVICE WHEREBY THE GOVERNMENT PAYS FOR PURCHASES MADE BY THE FARMER OR RANCHER. THE FARMER OR RANCHER IS FREE TO SELECT AMONG AUTHORIZED VENDORS THE SOURCE OF HIS SUPPLIES AND BARGAIN FOR THE ITEMS SPECIFIED IN THE PURCHASE ORDER. IT IS HIS RESPONSIBILITY TO SEE THAT THE MATERIALS ARE PROPERLY USED IN CARRYING OUT THE CONSERVATION PRACTICE.

AS ADDITIONAL ILLUSTRATION THAT UNDER THE PROCEDURE THE FUNCTION OF THE GOVERNMENT IS TO PROVIDE CREDIT FOR MATERIALS OR SERVICES FURNISHED THE FARMER BY THE VENDOR IS THE CERTIFICATION ON THE CMS PURCHASE ORDER, FORM ACP 250, WHEREBY THE FARMER CERTIFIES AS FOLLOWS:

THE MATERIALS OR SERVICES DESCRIBED ABOVE IN COLUMNS A AND C WERE RECEIVED BY ME NOT LATER THAN THE FINAL DATE SHOWN ABOVE. I UNDERSTAND THAT IF THE ABOVE MATERIALS OR SERVICES ARE NOT USED TO COMPLETE PERFORMANCE OF THE PRACTICES FOR WHICH FURNISHED IN ACCORDANCE WITH PROGRAM REQUIREMENTS, I WILL REFUND TO THE COUNTY COMMITTEE THE AMOUNT ADVANCED FOR ME TO THE VENDOR. I CERTIFY THAT THE NET SALES PRICE PER UNIT AND THE TOTAL COST OF THE MATERIALS OR SERVICES RECEIVED BY ME AS SHOWN IN COLUMNS D AND E ARE CORRECT. (ITALICS SUPPLIED.)

THE END RESULT OF THIS PROCEDURE IS THAT THE GOVERNMENT PAYS THE BILLS WHICH HAVE BEEN INCURRED BY THE FARMER, NOT AS AN AGENT OF THE GOVERNMENT, BUT AS A PARTICIPANT IN THE CONSERVATION PROGRAM. TITLE TO THE MATERIALS DOES NOT VEST IN THE GOVERNMENT UNDER CURRENT PROCEDURES. THE LEGAL EFFECT, IN OUR VIEW, IS NOT A PURCHASE BY THE UNITED STATES, AND THEREFORE PAYMENT OF THE STATE SALES TAX ON TRANSACTIONS CONSUMMATED ON BEHALF OF A PARTICIPANT IN THE CONSERVATION PROGRAM WOULD NOT VIOLATE THE CONSTITUTIONAL IMMUNITY OF THE UNITED STATES AGAINST STATE AND LOCAL TAXES AS RECOGNIZED IN MCCULLOCH V. MARYLAND, 4 WHEAT. 316. ACCORDINGLY, WE HAVE NO OBJECTION TO THE ADOPTION OF A UNIFORM RULE BY THE DEPARTMENT TO INCLUDE STATE SALES TAX COSTS IN ALL CASES UNDER THE PROCEDURES PRESENTLY FOLLOWED.