B-177103, FEB 6, 1973

B-177103: Feb 6, 1973

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070.53 IS ALLOWABLE SINCE THIS CONSISTS OF A USE TAX ON MATERIALS INCORPORATED INTO THE CONTRACT WORK AND IS A VALID COST ARISING OUT OF THE TERMS OF THE CONTRACT. THE REMAINING $485.33 IS NOT REIMBURSABLE SINCE NO ADEQUATE BASIS HAS BEEN PRESENTED FOR PAYMENT OF THE PENALTY. BROTHERS: REFERENCE IS MADE TO YOUR LETTER DATED JULY 28. THE FAILURE TO SUBMIT AN INVOICE TO COVER THE USE TAX IN VARIOUS BILLINGS TO THE GOVERNMENT RESULTED FROM A MISTAKEN IMPRESSION THAT MATERIALS USED IN THE PERFORMANCE OF A GOVERNMENT CONTRACT WERE EXEMPT FROM TAXATION. THE ENCLOSURES FORWARDED WITH YOUR LETTER REVEAL THAT FINAL PAYMENT UNDER THE CONTRACT WAS MADE IN FEBRUARY 1969. THIS IS BASED ON THE FACT THAT AN INTERIM AUDIT AND A FINAL AUDIT DATED APRIL 3 AND NOVEMBER 26.

B-177103, FEB 6, 1973

CONTRACT - USE TAX ON MATERIALS - COST DECISION CONCERNING THE PROPRIETY OF PAYMENT OF $2,555.86 TO THE COLUMBIA GAS TRANSMISSION CORP., FOR COSTS INCURRED IN THE PERFORMANCE OF A COST- REIMBURSABLE CONTRACT LET BY THE CORPS OF ENGINEERS. PAYMENT OF $2,070.53 IS ALLOWABLE SINCE THIS CONSISTS OF A USE TAX ON MATERIALS INCORPORATED INTO THE CONTRACT WORK AND IS A VALID COST ARISING OUT OF THE TERMS OF THE CONTRACT. HOWEVER, THE REMAINING $485.33 IS NOT REIMBURSABLE SINCE NO ADEQUATE BASIS HAS BEEN PRESENTED FOR PAYMENT OF THE PENALTY.

TO MR. F. C. BROTHERS:

REFERENCE IS MADE TO YOUR LETTER DATED JULY 28, 1972, FORWARDED TO OUR OFFICE BY LETTER DAEN-ECF-A OF SEPTEMBER 19, 1972, FROM THE ENGINEER COMPTROLLER, OFFICE OF THE CHIEF OF ENGINEERS, AND A LETTER DAEN-ECF-A DATED JANUARY 8, 1973, FROM THE ENGINEER COMPTROLLER, FURNISHING ADDITIONAL INFORMATION. YOUR LETTER REQUESTS AN ADVANCE DECISION AS TO THE PROPRIETY OF PAYMENT OF $2,555.86 TO THE COLUMBIA GAS TRANSMISSION CORPORATION, REPRESENTING COSTS INCURRED IN THE PERFORMANCE OF COST- REIMBURSABLE CONTRACT NO. DACW69-67-C-0064 WITH THE UNITED FUEL GAS COMPANY (NOW COLUMBIA GAS TRANSMISSION CORPORATION BY MERGER).

THE AMOUNT IN QUESTION CONSISTS OF A USE TAX ON MATERIALS INCORPORATED INTO THE CONTRACT WORK IN THE AMOUNT OF $2,070.53 AND A PENALTY FOR LATE PAYMENT OF $485.33 IMPOSED UPON THE COMPANY FOLLOWING AN AUDIT OF THE COMPANY BY THE COMMONWEALTH OF KENTUCKY COVERING THE PERIOD FROM JULY 1, 1966, THROUGH JUNE 30, 1971. BY INVOICE DATED MARCH 31, 1972, OVER 3 YEARS AFTER FINAL PAYMENT UNDER THE CONTRACT, THE COMPANY PRESENTED ITS CLAIM FOR REIMBURSEMENT. APPARENTLY, THE FAILURE TO SUBMIT AN INVOICE TO COVER THE USE TAX IN VARIOUS BILLINGS TO THE GOVERNMENT RESULTED FROM A MISTAKEN IMPRESSION THAT MATERIALS USED IN THE PERFORMANCE OF A GOVERNMENT CONTRACT WERE EXEMPT FROM TAXATION.

THE ENCLOSURES FORWARDED WITH YOUR LETTER REVEAL THAT FINAL PAYMENT UNDER THE CONTRACT WAS MADE IN FEBRUARY 1969. THIS IS BASED ON THE FACT THAT AN INTERIM AUDIT AND A FINAL AUDIT DATED APRIL 3 AND NOVEMBER 26, 1968, RESPECTIVELY, COVERED ALL COSTS REIMBURSABLE TO THE COMPANY AFTER SUBMISSION BY THE COMPANY OF APPROPRIATE INVOICES FOR PAYMENT. THE FINAL AUDIT REPORT STATES:

"*** THIS PAYMENT CONSTITUTES A SECOND PARTIAL PAYMENT FOR COST REIMBURSABLE WORK UNDER THE CONTRACT. THIS REPORT COMPLETES THE AUDIT OF ALL REIMBURSABLE COSTS UNDER THE CONTRACT. UPON RECEIPT OF THE COMPANY'S FINAL INVOICE FOR RENOVATION OF THE NIGH DISTRICT OFFICE, A LUMP SUM PAYMENT OF $15,400.00 WILL BE PAID TO THE UNITED FUEL GAS COMPANY, AS PROVIDED IN MODIFICATION NO. 1 TO THE BASIC CONTRACT."

SUBSEQUENT TO THE RECEIPT OF THE COMPANY'S INVOICE FOR THE $15,400 MENTIONED IN THE FINAL AUDIT REPORT, PAYMENT, WHICH WAS CONSIDERED TO BE THE FINAL DISBURSEMENT UNDER THE CONTRACT, WAS MADE. IN THIS REGARD, THE CONTRACT PROVIDED THAT, UPON FINAL PAYMENT THEREUNDER, THE GOVERNMENT WOULD BE RELEASED FROM ANY CLAIMS OR DEMANDS ARISING OUT OF THE CONTRACT WORK.

ORDINARILY, SUCH RELEASE WOULD OPERATE TO BAR PAYMENT OF THE PRESENT CLAIM. HOWEVER, IT IS OUR VIEW THAT THE RELEASE MAY BE DISREGARDED AND PAYMENT OF THE CLAIM AUTHORIZED. THERE IS NO QUESTION THAT, BUT FOR THE CLAIMANT'S MISTAKEN IMPRESSION REGARDING ITS LIABILITY FOR THE TAX, THE COST-REIMBURSEMENT NATURE OF THE CONTRACT WOULD HAVE COVERED A PREFINAL DEMAND FOR PAYMENT OF THE TAX LIABILITY. MOREOVER, NEITHER THE GOVERNMENT NOR THE CLAIMANT COULD HAVE BEEN AWARE OF THE TAX ASSESSMENT BY THE COMMONWEALTH OF KENTUCKY SINCE THE ASSESSMENT DID NOT OCCUR UNTIL APPROXIMATELY 3 YEARS AFTER FINAL PAYMENT UNDER THE CONTRACT. SEE HARRISON ENGINEERING AND CONSTRUCTION CORP. V. UNITED STATES, 107 CT. CL. 205 (1946).

ACCORDINGLY, THE CLAIM MAY BE ALLOWED IN THE AMOUNT OF $2,070.53. HOWEVER, A SUFFICIENT BASIS HAS NOT BEEN PRESENTED FOR PAYMENT OF THE PENALTY.