B-178943, SEP 17, 1974

B-178943: Sep 17, 1974

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REIMBURSEMENT MAY NOT BE MADE SINCE TAX IS A BUSINESS PRIVILEGE TAX. SINCE TAX IS NOT ASSESSED ON CASUAL SALE OF PREVIOUSLY OCCUPIED HOME AND THEREFORE IS NOT REIMBURSABLE AS A TRANSFER TAX UNDER SECTION 4.2D OF OMB CIRCULAR NO. WAS DISALLOWED. STARSHAK WAS ADVISED THAT AN "EXCISE-SALES TAX OF $1. 650.00" WAS INCLUDED IN THE PURCHASE PRICE OF HIS CONDOMINIUM UNIT AND THAT ALTHOUGH THE ITEM HAD NOT BEEN SPECIFICALLY ITEMIZED IN HIS CLOSING STATEMENT. THE TAX WAS COLLECTED AS A PART OF THE PRUCHASE PRICE AND PAID TO THE STATE OF HAWAII. STARSHAK POINTS OUT THAT HE WAS THE ONE WHO ACTUALLY PAID THE TAX AS EVIDENCED BY THE FACT THAT BOTH THE STATE OF HAWAII AND THE INTERNAL REVENUE SERVICE ALLOW A DEDUCTION FOR THE TAX ON INCOME TAX RETURNS AND BOTH REQUIRE THE PURCHASER TO USE THE PURCHASE PRICE NET OF THE TAX AS THE BASIS ON THE PROPERTY IN DETERMINING GAIN OR LOSS ON A SUBSEQUENT SALE.

B-178943, SEP 17, 1974

EMPLOYEE CLAIMS REIMBURSEMENT OF HAWAII TAX LEVIED IN CONNECTION WITH HIS PURCHASE OF A NEW CONDOMINIUM APARTMENT INCIDENT TO AN OFFICIAL CHANGE OF STATION. REIMBURSEMENT MAY NOT BE MADE SINCE TAX IS A BUSINESS PRIVILEGE TAX, AND FACT THAT EMPLOYEE MAY DEDUCT TAX ON INCOME TAX RETURN DOES NOT ALTER ESSENTIAL NATURE OF TAX, SINCE TAX IS NOT ASSESSED ON CASUAL SALE OF PREVIOUSLY OCCUPIED HOME AND THEREFORE IS NOT REIMBURSABLE AS A TRANSFER TAX UNDER SECTION 4.2D OF OMB CIRCULAR NO. A-56. FURTHER, REGULATION PROHIBITS REIMBURSEMENT OF EXPENSES ASSOCIATED ONLY WITH CONSTRUCTION OF A RESIDENCE.

JAMES L STARSHAK - RELOCATION EXPENSES-TAXES:

THIS MATTER INVOLVES A REQUEST FOR RECONSIDERATION OF A SETTLEMENT CERTIFICATE ISSUED DECEMBER 4, 1973, BY OUR TRANSPORTATION AND CLAIMS DIVISION, WHEREIN THE CLAIM OF MR. JAMES L STARSHAK FOR REIMBURSEMENT OF A HAWAII STATE "SALES TAX" THAT HE PAID INCIDENT TO HIS PURCHASE OF A NEW CONDOMINIUM APARTMENT IN CONNECTION WITH HIS TRANSFER FROM CHICAGO, ILLINOIS, TO HONOLULU, HAWAII, WAS DISALLOWED.

THE RECORD INDICATES THAT MR. STARSHAK, AN EMPLOYEE OF THE INTERNAL REVENUE SERVICE, REPORTED OR DUTY AT HIS NEW OFFICIAL STATION ON OCTOBER 4, 1971. ON OCTOBER 17, 1971, MR. STARSHAK AND HIS WIFE ENTERED INTO AN AGREEMENT TO PURCHASE A CONDOMINIUM APARTMENT, WITH THE CLOSING OCCURRING ON FEBRUARY 15, 1972. THEREAFTER, BY A LETTER DATED APRIL 4, 1972, MR. STARSHAK WAS ADVISED THAT AN "EXCISE-SALES TAX OF $1,650.00" WAS INCLUDED IN THE PURCHASE PRICE OF HIS CONDOMINIUM UNIT AND THAT ALTHOUGH THE ITEM HAD NOT BEEN SPECIFICALLY ITEMIZED IN HIS CLOSING STATEMENT, THE TAX WAS COLLECTED AS A PART OF THE PRUCHASE PRICE AND PAID TO THE STATE OF HAWAII. MR. STARSHAK POINTS OUT THAT HE WAS THE ONE WHO ACTUALLY PAID THE TAX AS EVIDENCED BY THE FACT THAT BOTH THE STATE OF HAWAII AND THE INTERNAL REVENUE SERVICE ALLOW A DEDUCTION FOR THE TAX ON INCOME TAX RETURNS AND BOTH REQUIRE THE PURCHASER TO USE THE PURCHASE PRICE NET OF THE TAX AS THE BASIS ON THE PROPERTY IN DETERMINING GAIN OR LOSS ON A SUBSEQUENT SALE. IN ADDITION MR. STARSHAK STATES THAT THIS TAX IS CUSTOMARILY PAID BY THE PURCHASER OF A NEW RESIDENCE IN HAWAII.

REIMBURSEMENT OF EXPENSES INCURRED BY CIVILIAN GOVERNMENT EMPLOYEES WHEN SELLING OR PURCHASING A RESIDENCE INCIDENT TO AN OFFICIAL CHANGE OF STATION IS AUTHORIZED UNDER SECTION 5724A(4) OF TITLE 5, UNITED STATES CODE. THE REGULATIONS IMPLEMENTING THAT SECTION WERE CONTAINED, AT THE TIME OF MR. STARSHAK'S TRANSFER, IN SECTION 4 OF OFFICE OF MANAGEMENT AND BUDGET (OMB) CIRCULAR NO. A-56, REVISED, AUGUST 17, 1971 (CURRENTLY PART 6 OF CHAPTER 2, FEDERAL TRAVEL REGULATIONS, FPMR 101-7, MAY 1, 1973). SUBSECTION 4.2D OF OMB CIRCULAR NO. A-56 PROVIDED AS FOLLOWS:

"D. MISCELLANEOUS COSTS. THE FOLLOWING EXPENSES ARE REIMBURSABLE WITH RESPECT TO THE SALE AND PURCHASE OF RESIDENCES IF THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE AT THE OLD OFFICIAL STATION OR IF THEY ARE CUSTOMARILY PAID BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION, TO THE EXTENT THEY DO NOT EXCEED AMOUNTS CUSTOMARILY PAID IN THE LOCALITY OF THE RESIDENCE: FHA OR VA FEE FOR LOAN APPLICATION; COSTS OF PREPARING CREDIT REPORTS; MORTGAGE AND TRANSFER TAXES; STATE REVENUE STAMPS; AND SIMILAR FEES AND CHARGES. ***

"IN CASES INVOLVING CONSTRUCTION OF A RESIDENCE, REIMBURSEMENT OF EXPENSES WOULD INCLUDE THOSE ITEMS OF EXPENSE WHICH ARE COMPARABLE TO EXPENSES THAT ARE REIMBURSABLE IN CONNECTION WITH THE PURCHASE OF EXISTIG RESIDENCES AND WILL NOT INCLUDE EXPENSES WHICH RESULT FROM CONSTRUCTION."

UNDER THAT SECTION EXPENSES ARE NOT REIMBURSABLE SOLELY BECAUSE THEY ARE CUSTOMARILY PAID BY THE SELLER OF A RESIDENCE AT THE OLD OFFICIAL STATION OR BY THE PURCHASER OF A RESIDENCE AT THE NEW OFFICIAL STATION, BUT IN ADDITION THEY MUST BE ONE OF THE EXPENSES SPECIFIED. THUS, IF THE TAX PAID BY MR. STARSHAK CAN BE CLASSIFIED AS A TRANSFER TAX, IT MAY BE REIMBURSABLE UNDER THE REGULATION.

THE TAX PAID BY MR. STARSHAK IS LEVIED UNDER THE PROVISIONS OF SECTION 237-13 OF THE HAWAII REVISED STATUTES WHICH PROVIDES AS FOLLOWS:

"SEC. 237-13 IMPOSITION OF TAX. THERE IS HEREBY LEVIED AND SHALL BE ASSESSED AND COLLECTED ANNUALLY RPIVILEGE TAXES AGAINST PERSONS ON ACCOUNT OF THEIR BUSINESS AND OTHER ACTIVITIES IN THE STATE MEASURED BY THE APPLICATION OF RATES AGAINST VALUES OF PRODUCTS, GROSS PROCEEDS OF SALES, OR GROSS INCOME, WHICHEVER IS SPECIFIED, AS FOLLOWS:

"(3) TAX UPON CONTRACTORS.

"(A) UPON EVERY PERSON ENGAGING OR CONTINUING WITHIN THE STATE IN THE BUSINESS OF CONTRACTING, THE TAX SHALL BE EQUAL TO FOUR PER CENT OF THE GROSS INCOME OF THE BUSINESS; PROVIDED, THAT INSOFAR AS THE BUSINESS OF CONTRACTING IS TAXED BY SECTION 237-16, WHICH RELATES TO CERTAIN RETAILING, THE TAX SHALL BE THAT LEVIED BY SECTION 237-16."

SECTION 237-2 PROVIDES:

"SEC. 237-2 'BUSINESS', 'ENGAGING' IN BUSINESS, DEFINED.

'BUSINESS' AS USED IN THIS CHAPTER, INCLUDES ALL ACTIVITIES (PERSONAL, PROFESSIONAL, OR CORPORATE), ENGAGED IN OR CAUSED TO BE ENGAGED IN WITH THE OBJECT OF GAIN OR ECONOMIC BENEFIT EITHER DIRECT OR INDIRECT, BUT DOES NOT INCLUDE CASUAL SALES."

IT IS CLEAR FROM THE WORDING OF THE STATUTE THAT THE TAX IS ON THE PRIVILEGE OF DOING BUSINESS IN THE STATE OF HAWAII. THIS PRIVILAGE TAX IS SPECIFICALLY IMPOSED "AGAINST PERSONS ON ACCOUNT OF THEIR BUSINESS," AND NOT ON THE ULTIMATE CONSUMER. THE FACT THAT THE TAX MAY BE INCLUDED IN THE PURCHASE PRICE AND DEDUCTED ON THE PURCHASER'S PERSONAL INCOME TAX RETURN DOES NOT CHANGE THE ESSENTIAL NATURE OF THE TAX. IT IS IMPOSED ON THE PRIVILEGE OF DOING BUSINESS, NOT ON THE TRANSFER. THIS POSITION IS SUPPORTED BY THE FACT THAT UNDER SECITON 237-2 THIS SAME TAX 2S NOT IMPOSED ON CASUAL SALES AND THUS IS APPARENTLY NOT IMPOSED ON THE CASUAL SALE OF A HOME THAT HAS PREVIOUSLY BEEN OCCUPIED. THEREFOR HE "EXCISE- SALES TAX" A HOME THAT HAS PREVIOUSLY BEEN OCCUPIED. THEREFOR HE "EXCISE SALES TAX" PAID BY MR. STARSHAK IN CONNECTION WITH THE PURCHSE OF HIS CONDOMINIUM APARTMENT IS NOT A TRANSFER TAX WITHIN THE MEANING OF THE APPLICABLE REGULATIONS AND THUS IS NOT REIMBURSABLE. THIS DECISION IS CONSISTENT WITH OUR RECENT HOLDING IN B-171878, AUGUST 8, 1974, 54 COMP. GEN. (1974), WHEREIN WE HELD THAT A TAX IMPOSED UNDER A SIMILAR STATUTE IN THE STATE OF NEW MEXICO WAS A BUSINESS PRIVILEGE TAX AND NOT REIMBURSABLE AS A TRANSFER TAX WITHIN THE MEANING OF THE REGULATIONS.

FURTHER, AS PREVIOUSLY NOTED, THE TAX INVOLVED HERE WILL NORMALLY ONLY BE ASSESSED INCIDENT TO THE PRUCHASE OF A NEWLY CONSTRUCTED RESIDENCE AND NOT ON THE SALE OF A HOUSE PREVIOUSLY OCCUPIED. IN SUBSECTION 4.2D OF OMB CIRCULAR NO. A-56 IT IS SPECIFICALLY STATED THAT IN A CASE INVOLVING CONSTRUCTION OF A NEW RESIDENCE, ONLY THOSE COSTS THAT WOULD ALSO BE INCLUDED IN THE PURCHASE OF AN EXISTING RESIDENCE MAY BE REIMBURSED. THIS CONNECTION WE HAVE HELD THAT THERE COULD BE NO REIMBURSEMENT FOR THE COST OF: ARCHITECT'S PLANS, B-164926, SEPTEMBER 30, 1968; WATER AND SEWER HOOKUPS, B-165879, FEBRUARY 7, 1969: CONSTRUCTION LOAN FEES CHARGED IN ADDITION TO NORMAL MORTGAGE FEES, B-164452, JULY 2, 1968, AND B-164938 AUGUST 26, 1968; AND A SALES TAX, B-164491, AUGUST 20, 1968. IN THE INSTANT CASE, THE "PRIVILEGE TAX" WAS ASSESSED AGAINST THE CONTRACTOR WHO BUILT THE CONDOMINIUM APARTMENT. AS SUCH IT WAS A CHARGE INCIDENT TO THE CONSTRUCTION OF A NEW RESIDENCE AND THEREFORE NOT REIMBURSABLE.

ACCORDINGLY, THE PREVIOUS DISALLOWANCE OF MR. STARSHAK'S CLAIM IS SUSTAINED.