B-2929, MAY 9, 1939, 18 COMP. GEN. 832

B-2929: May 9, 1939

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IS NOT FOR APPLICATION TO FEDERAL PURCHASES WHETHER THE TAX INVOLVED IS INCLUDED AS A PART OF THE GROSS PURCHASE PRICE OR IS TREATED AS A SEPARATE ITEM. IT IS HELD THAT THE STATE SALES TAX ACT APPLIED TO RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT. IT IS UNDERSTOOD TO BE THE INTENTION. THERE ARE ENCLOSED THE FOLLOWING PAPERS: PAMPHLET CONTAINING CALIFORNIA RETAIL SALES TAX ACT OF 1933. REFERENCE IS MADE TO THE DECISION OF OCTOBER 4. REFERENCE IS ALSO MADE TO THE DECISION OF THE SUPREME COURT OF CALIFORNIA IN WESTERN LITHOGRAPH CO. IN THIS CASE IT WAS HELD THAT THE 1933 RETAIL SALES TAX ACT OF CALIFORNIA. DOES NOT UNDULY BURDEN THE UNITED STATES WHEN SALES TO THE FEDERAL GOVERNMENT ARE INVOLVED.

B-2929, MAY 9, 1939, 18 COMP. GEN. 832

TAXES - STATE - SALES - FEDERAL LIABILITY THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED, IS NOT FOR APPLICATION TO FEDERAL PURCHASES WHETHER THE TAX INVOLVED IS INCLUDED AS A PART OF THE GROSS PURCHASE PRICE OR IS TREATED AS A SEPARATE ITEM. COMP. GEN. 91, AMPLIFIED; AND 17 ID. 863, DISTINGUISHED.

COMPTROLLER GENERAL BROWN TO THE SECRETARY OF AGRICULTURE, MAY 9, 1939:

THERE HAS BEEN CONSIDERED YOUR LETTER OF APRIL 5, 1939, AS FOLLOWS:

UNDER RULING NO. 74, DATED JANUARY 24, 1939, ISSUED BY THE STATE OF CALIFORNIA BOARD OF EQUALIZATION, IT IS HELD THAT THE STATE SALES TAX ACT APPLIED TO RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT, AND IT IS UNDERSTOOD TO BE THE INTENTION, FROM AND AFTER APRIL 1, TO APPLY THE TAX ON SALES TO THE FEDERAL GOVERNMENT.

THERE ARE ENCLOSED THE FOLLOWING PAPERS:

PAMPHLET CONTAINING CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS

AMENDED.

RULING NO. 73, DATED SEPTEMBER 15, 1937.

INTERPRETATION OF RULING NO. 73, DATED JANUARY 24, 1939.

RULING NO. 74, DATED JANUARY 24, 1939.

COPY OF DECISION OF THE DISTRICT COURT OF APPEAL, 4TH APPELLATE

DISTRICT, IN THE CASE OF C. LEON DE AYRAN V. ROY O. AKERS.

COPY OF LETTER DATED MARCH 9, 1939, FROM THE REGIONAL FISCAL AGENT, SAN

FRANCISCO, TO THE CHIEF, FOREST SERVICE.

REFERENCE IS MADE TO THE DECISION OF OCTOBER 4, 1933 (13 COMP. GEN. 91) HOLDING THAT THE STATE OF CALIFORNIA UNDER ITS SALES TAX ACT MAY NOT COLLECT TAX ON SALES TO THE FEDERAL GOVERNMENT. REFERENCE IS ALSO MADE TO THE DECISION OF THE SUPREME COURT OF CALIFORNIA IN WESTERN LITHOGRAPH CO. V. STATE BOARD OF EQUALIZATION ET AL., 78 P./2D) 731, DECIDED APRIL 19, 1938. IN THIS CASE IT WAS HELD THAT THE 1933 RETAIL SALES TAX ACT OF CALIFORNIA, AS AMENDED, DOES NOT UNDULY BURDEN THE UNITED STATES WHEN SALES TO THE FEDERAL GOVERNMENT ARE INVOLVED, AND THAT THE TAX MAY PROPERLY BE COLLECTED FROM RETAILERS, EVEN THOUGH MEASURED ON THOSE SALES. IT IS WORTHY OF NOTE THAT THE COURT, IN THE WESTERN LITHOGRAPH COMPANY CASE, RELIES ON THE DECISION OF THE UNITED STATES SUPREME COURT IN JAMES V. DRAVO CONTRACTING CO., 302 U.S. 134. YOUR ATTENTION IS ALSO DIRECTED TO YOUR DECISION IN 17 COMP. GEN. 863, INVOLVING THE ILLINOIS RETAILERS' OCCUPATION TAX ACT, WHICH BEARS SIMILARITY TO THE CALIFORNIA SALES TAX ACT.

IN VIEW OF THE APPARENT INTENT TO APPLY THE CALIFORNIA SALES TAX TO PURCHASES BY THE FEDERAL GOVERNMENT, BEGINNING APRIL 1, 1939, YOUR DECISION IS REQUESTED WHETHER THE TAX, IF INCLUDED IN THE PRICE TO THE FEDERAL GOVERNMENT, EITHER AS PART OF THE GROSS PRICE OR AS A SEPARATE ITEM, MAY BE PAID.

SHOULD IT BE DECIDED THAT THE TAX IS NOT PAYABLE, IT IS ASSUMED THAT, WHERE NECESSITY REQUIRES PURCHASES REGARDLESS OF TAX EXEMPTION, PAYMENT, INCLUDING TAX, MAY BE MADE EITHER IN CASH, WHERE NECESSARY, OBTAINING RECEIPTS SHOWING THE PURCHASE PRICE AND TAX SEPARATELY, OR ON VOUCHERS PAID BY DISBURSING OFFICERS.

AN EARLY REPLY WOULD BE APPRECIATED, IN VIEW OF THE FACT THAT RULING NO. 74 BECOMES EFFECTIVE APRIL 1.

THE "CALIFORNIA RETAIL SALES TAX ACT OF 1933," AS AMENDED, PROVIDES, IN PART, AS FOLLOWS:

SEC. 3. FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AT RETAIL A TAX IS HEREBY IMPOSED UPON RETAILERS AT THE RATE OF TWO AND ONE- HALF PERCENT OF THE GROSS RECEIPTS OF ANY SUCH RETAILER FROM THE SALE OF ALL TANGIBLE PERSONAL PROPERTY SOLD AT RETAIL IN THIS STATE ON AND AFTER AUGUST 1, 1933, AND TO AND INCLUDING JUNE 30, 1935; AND AT THE RATE OF THREE PERCENT OF THE GROSS RECEIPTS OF ANY SUCH RETAILER FROM THE SALE OF ALL TANGIBLE PERSONAL PROPERTY SOLD AT RETAIL IN THIS STATE ON AND AFTER JULY 1, 1935. SUCH TAX SHALL BE PAID AT THE TIME AND IN THE MANNER HEREINAFTER PROVIDED AND SHALL BE IN ADDITION TO ANY AND ALL OTHER TAXES.

SEC. 5. THERE ARE HEREBY SPECIFICALLY EXEMPTED FROM THE PROVISIONS OF THIS ACT AND FROM THE COMPUTATION OF THE AMOUNT OF TAX LEVIED, ASSESSED OR PAYABLE UNDER THIS ACT THE FOLLOWING:

(A) THE GROSS RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY WHICH THIS STATE IS PROHIBITED FROM TAXING UNDER THE CONSTITUTION OR LAWS OF THE UNITED STATES OF AMERICA OR UNDER THE CONSTITUTION OF THIS STATE.

SEC. 8. IT SHALL BE UNLAWFUL FOR ANY RETAILER TO ADVERTISE OR HOLD OUT OR STATE TO THE PUBLIC OR TO ANY CUSTOMER, DIRECTLY OR INDIRECTLY, THAT THE TAX OR ANY PART THEREOF IMPOSED BY THIS ACT WILL BE ASSUMED OR ABSORBED BY THE RETAILER OR THAT IT WILL NOT BE ADDED TO THE SELLING PRICE OF THE PROPERTY SOLD, OR IF ADDED THAT IT OR ANY PART THEREOF WILL BE REFUNDED. ANY PERSON VIOLATING ANY OF THE PROVISIONS OF THIS SECTION SHALL BE GUILTY OF A MISDEMEANOR.

SEC. 8 1/2. THE TAX HEREBY IMPOSED SHALL BE COLLECTED BY THE RETAILER FROM THE CONSUMER INSOFAR AS THE SAME CAN BE DONE. THIS SECTION IS HEREBY DECLARED TO BE SEPARABLE AND DISTINCT FROM ALL OTHER PORTIONS OF THIS ACT, AND SHALL NOT BE DEEMED A CONSIDERATION OR INDUCEMENT FOR THE ENACTMENT OF THE WHOLE OR ANY PORTION OF THIS ACT. IF THIS SECTION BE FOR ANY REASON DECLARED INVALID, THE REMAINDER OF THIS ACT SHALL REMAIN IN FULL FORCE AND EFFECT AND SHALL BE AS COMPLETELY OPERATIVE AS THOUGH THIS SECTION HAD NOT BEEN INCLUDED HEREIN.

SEC. 9. THE TAX LEVIED HEREUNDER SHALL BE A DIRECT OBLIGATION OF THE RETAILER AND SHALL BE DUE AND PAYABLE QUARTERLY ON OR BEFORE THE FIFTEENTH DAY OF THE MONTH NEXT SUCCEEDING EACH QUARTERLY PERIOD, * * *.

THE BOARD MAY BY REGULATION PROVIDE THAT THE AMOUNT COLLECTED BY THE RETAILER FROM THE CONSUMER, IN REIMBURSEMENT OF TAXES IMPOSED BY THIS ACT, SHALL BE DISPLAYED SEPARATELY FROM THE LIST, ADVERTISED IN THE PREMISES, MARKED OR OTHER PRICE ON THE SALES CHECK OR OTHER PROOF OF SALE.

RULING NO. 74 DATED JANUARY 24, 1939, OF THE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA, READS AS FOLLOWS.

SALES TO UNITED STATES GOVERNMENT

THE TAX APPLIES TO RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT. SALES TO SUCH DEPARTMENTS AS THE TREASURY, INTERIOR, AGRICULTURE, WAR, NAVY, POST OFFICE, ARE SALES TO THE UNITED STATES GOVERNMENT.

EFFECTIVE APRIL 1, 1939.

THIS RULING IS NOT RETROACTIVE.

THE FOREGOING SUPERSEDES ALL PREVIOUS RULINGS ON THIS SUBJECT.

IT APPEARS THAT THE APPLICABILITY OF THE PROVISIONS OF THIS CALIFORNIA TAXING STATUTE UPON SALES TO THE FEDERAL GOVERNMENT WAS CONSIDERED BY THE FORMER COMPTROLLER GENERAL IN HIS DECISION OF OCTOBER 4, 1933, 13 COMP. GEN. 92, WHEREIN IT WAS SAID:

* * * IT IS TOO CLEAR FOR SERIOUS ARGUMENT THAT THE STATE OF CALIFORNIA, AS WELL AS ANY OTHER STATE, IS WITHOUT AUTHORITY TO TAX THE UNITED STATES ON SUCH PURCHASES AS MAY BE NECESSARY FOR THE CONDUCT OF THE BUSINESS OF THE FEDERAL GOVERNMENT. SEE PANHANDLE OIL COMPANY V. MISSISSIPPI, 277 U.S. 218, AND GRAYSBURG OIL CO. V. TEXAS, 278 U.S. 582, REVERSING 3 S.W./2D) 427. THIS APPEARS TO HAVE BEEN RECOGNIZED IN THE AFORESAID SECTION 5 OF THE ACT, AND FIELD OFFICERS OR OTHER CONTRACTING OFFICERS OF THE INTERIOR DEPARTMENT MAKING PURCHASES IN THE STATE OF CALIFORNIA, OR IN OTHER STATES HAVING SALES TAXES, SHOULD BE INSTRUCTED NOT TO PAY THE AMOUNT OF THE SALES TAX ON SUCH ARTICLES AS MAY BE PURCHASED, FOR THE REASON (1) THAT THERE IS NO AUTHORITY IN ANY STATE TO TAX THE UNITED STATES ON ITS PURCHASES AND (2) THAT THERE IS NO APPROPRIATION WHICH MAY BE USED TO PAY SUCH TAXES TO THE STATES.

IT WILL BE OBSERVED THAT SAID DECISION WAS BASED IN PART UPON THE DECISIONS OF THE SUPREME COURT OF THE UNITED STATES IN THE CASES OF PANHANDLE OIL COMPANY V. MISSISSIPPI EX REL. KNOX, 277 U.S. 218, AND GRAYSBURG OIL CO. V. TEXAS, 278 U.S. 582. THE HOLDING IN THE PANHANDLE CASE WAS FOLLOWED BY THE SUPREME COURT IN ITS SUBSEQUENT DECISIONS IN THE CASES OF INDIAN MOTORCYCLE CO. V. UNITED STATES, 283 U.S. 570, AND GRAVES V. TEXAS COMPANY, 298 U.S. 393.

IN THE PANHANDLE CASE THE COURT WAS CALLED UPON TO DETERMINE WHETHER AN EXCISE TAX IMPOSED BY THE STATE OF MISSISSIPPI ON DEALERS FOR THE PRIVILEGE OF SELLING GASOLINE IN THAT STATE, AND COLLECTED ONLY FROM THE DEALER MAKING THE SALE, COULD BE APPLIED TO SALES TO THE UNITED STATES FOR THE USE OF ITS COAST GUARD FLEET AND ITS VETERANS' HOSPITAL, AND THE RULING WAS THAT THE TAX COULD NOT BE SO APPLIED CONSISTENTLY WITH THE CONSTITUTIONAL PRINCIPLE WHICH WAS INVOLVED. THE COURT HELD THAT WHILE A STATE MAY IMPOSE A TAX ON A DEALER "FOR THE PRIVILEGE OF CARRYING ON TRADE THAT IS SUBJECT TO THE POWER OF THE STATE," IT MAY NOT LAY ANY TAX "UPON TRANSACTIONS BY WHICH THE UNITED STATES SECURES THE THINGS DESIRED FOR ITS GOVERNMENTAL PURPOSES," AND FURTHER THAT:

* * * IT IS IMMATERIAL THAT THE SELLER AND NOT THE PURCHASER IS REQUIRED TO REPORT AND MAKE PAYMENT TO THE STATE. SALE AND PURCHASE CONSTITUTE A TRANSACTION BY WHICH THE TAX IS MEASURED AND ON WHICH THE BURDEN RESTS * * * TO USE THE NUMBER OF GALLONS SOLD THE UNITED STATES AS A MEASURE OF THE PRIVILEGE TAX IS IN SUBSTANCE AND LEGAL EFFECT TO TAX THE SALE. (CITING CASES.) AND THAT IS TO TAX THE UNITED STATES-- TO EXACT TRIBUTE ON ITS TRANSACTIONS AND APPLY THE SAME TO THE SUPPORT OF THE STATE.

THE THEORY ADOPTED BY THE SUPREME COURT IN THE PANHANDLE CASE APPEARS TO HAVE BEEN THAT THE TAX IMPOSED BY THE MISSISSIPPI STATUTE WAS IN EFFECT UPON THE ACTUAL SALE OR TRANSACTION IN WHICH THE GOVERNMENT WAS A PARTICIPANT AND THAT THE TAX THEREFOR WAS AN UNCONSTITUTIONAL BURDEN UPON THE UNITED STATES.

THE SUBSEQUENT DECISION OF THE SUPREME COURT IN THE CASE OF JAMES V. DRAVO CONTRACTING CO., 302 U.S. 134, DOES NOT APPEAR TO HAVE OVERRULED THE DECISIONS IN THE PANHANDLE AND OTHER SALES TAX CASES. IN THE SAID JAMES CASE THE COURT HELD THAT THE TAXATION OF A CONTRACTOR UNDER A CONTRACT WITH THE FEDERAL GOVERNMENT BY THE STATE OF WEST VIRGINIA UNDER THE PROVISIONS OF ITS GROSS SALES AND INCOME TAX LAW DID NOT INTERFERE IN ANY SUBSTANTIAL WAY WITH THE PERFORMANCE OF FEDERAL FUNCTIONS AND THAT THE COLLECTION BY THE STATE OF A TAX UPON THE GROSS RECEIPTS OBTAINED BY SUCH CONTRACTOR FROM THE GOVERNMENT UNDER HIS CONTRACT WITH IT WAS A VALID EXACTION, THE THEORY APPARENTLY BEING THAT THE TAX WITH WHICH THE COURT WAS THEN CONCERNED WAS IN SUBSTANCE UPON THE EARNINGS OR GROSS RECEIPTS OF THE CONTRACTOR WITHOUT REGARD TO THE GOVERNMENT CONTRACT OR OTHER INDIVIDUAL TRANSACTIONS RESULTING IN SUCH EARNINGS OR GROSS RECEIPTS.

A SIMILAR THEORY SEEMS TO HAVE BEEN THE BASIS OF THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN THE RECENT CASE OF GRAVES V. NEW YORK, 83 L.ED. (ADV) 577.

IN A DECISION OF APRIL 22, 1938, TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, 17 COMP. GEN. 863, THE FORMER ACTING COMPTROLLER GENERAL DISTINGUISHED THE LEGAL EFFECT OF A STATE TAXING STATUTE WHICH AUTHORIZES OR REQUIRES A DEALER TO INCREASE THE COST OF TANGIBLE PERSONAL PROPERTY SOLD TO THE UNITED STATES OR OTHER PURCHASERS FOR THE PURPOSE OF COLLECTING A TAX FROM THAT OF A STATUTE--- SUCH AS THE RETAILER'S OCCUPATIONAL TAX OF THE STATE OF ILLINOIS, INVOLVED IN THAT CASE--- WHICH MERELY IMPOSED A PERSONAL TAX ON THE PRIVILEGE OF DOING BUSINESS WITHIN A STATE MEASURED BY THE GROSS RECEIPTS FROM SALES THEREIN.

THERE WOULD SEEM TO BE LITTLE OR NO QUESTION BUT WHAT THE LEGAL EFFECT OF THE CALIFORNIA TAXING STATUTE HERE INVOLVED IS MORE ANALOGOUS TO THE MISSISSIPPI STATUTE WHICH WAS CONDEMNED BY THE SUPREME COURT IN THE PANHANDLE CASE THAN THE WEST VIRGINIA LAW WHICH WAS CONSIDERED IN THE JAMES CASE OR THE ILLINOIS STATUTE WHICH WAS CONSIDERED BY THE FORMER ACTING COMPTROLLER GENERAL IN 17 COMP. GEN. 863.

SINCE THE PANHANDLE AND OTHER SALES TAX CASES DO NOT APPEAR TO HAVE BEEN OVERRULED BY ANY DECISION OF THE SUPREME COURT OF THE UNITED STATES, AND IN THE ABSENCE OF ANY CONGRESSIONAL ENACTMENT PROVIDING FUNDS FOR THE PAYMENT OF THE TAX IMPOSED BY THE CALIFORNIA STATUTE OR CONSENTING TO THE PAYMENT OF THE TAX BY THE UNITED STATES, I AM CONSTRAINED TO HOLD THAT PAYMENT TO A RETAILER OF THE AMOUNT OF SUCH TAX IN ADDITION TO THE PRICE OTHERWISE DETERMINED OF TANGIBLE PERSONAL PROPERTY SOLD TO THE UNITED STATES IS NOT AUTHORIZED, AND THERE WOULD SEEM TO BE NO LOGICAL DISTINCTION IN THIS RESPECT BETWEEN A VOUCHER IN WHICH A CLAIM FOR THE TAX IS INCLUDED AS A PART OF THE GROSS PURCHASE PRICE AND ONE IN WHICH THE CLAIM FOR THE TAX APPEARS AS A SEPARATE ITEM.