B-32994, MARCH 25, 1943, 22 COMP. GEN. 915

B-32994: Mar 25, 1943

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1943: I HAVE YOUR LETTER OF MARCH 8. AS FOLLOWS: REFERENCE IS MADE TO YOUR DECISION DATED JANUARY 8. A NUMBER OF CONTRACTORS HAVE REQUESTED INFORMATION RELATIVE TO WHETHER THEIR CONTRACTS FOR FURNISHING COAL TO THE VETERANS ADMINISTRATION ON AN F.O.B. THE MATTER OF AMENDING SUCH CONTRACTS TO PROVIDE THAT COAL MAY BE TRANSPORTED UNDER GOVERNMENT BILLS OF LADING WAS GIVEN CAREFUL CONSIDERATION BY THE LEGAL AUTHORITIES OF THE VETERANS ADMINISTRATION AND IT WAS DETERMINED THAT NO MATERIAL ADVANTAGE WOULD ACCRUE TO THE GOVERNMENT BY SUCH AMENDMENT AND THAT THE VETERANS ADMINISTRATION MIGHT SUBJECT ITSELF TO SEVERE CRITICISM IF IT ATTEMPTED BY MEANS OF CONTRACT TO ASSIST A CONTRACTOR IN AVOIDING THE PAYMENT OF A TAX FOR WHICH HE IS LEGALLY LIABLE.

B-32994, MARCH 25, 1943, 22 COMP. GEN. 915

CONTRACTS - MODIFICATIONS TO RELIEVE CONTRACTORS OF LIABILITY FOR FEDERAL PROPERTY TRANSPORTATION TAX AN EXISTING VETERANS' ADMINISTRATION CONTRACT PROVIDING FOR DELIVERY OF COAL TO THE GOVERNMENT F.O.B. DESTINATION, OR ON A DELIVERED AND STORED BASIS, MAY NOT BE AMENDED TO PROVIDE FOR TRANSPORTATION OF THE COAL ON GOVERNMENT BILLS OF LADING OR ON AN F.O.B. POINT OF ORIGIN BASIS SO AS TO RELIEVE THE CONTRACTOR OF ITS LIABILITY FOR PAYMENT OF THE PROPERTY TRANSPORTATION TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 WHICH OTHERWISE IT WOULD BE REQUIRED TO PAY.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, MARCH 25, 1943:

I HAVE YOUR LETTER OF MARCH 8, 1943, AS FOLLOWS:

REFERENCE IS MADE TO YOUR DECISION DATED JANUARY 8, 1943, B-31073, IN REGARD TO THE FEDERAL TAX OF FOUR CENTS IMPOSED ON THE COST OF TRANSPORTATION OF COAL AS AFFECTING CONTRACT VAM-17090 WITH THE LOGAN AND KANAWHA COAL COMPANY FOR FURNISHING AMONG OTHER ITEMS, AN ESTIMATED QUANTITY OF 1300 TONS OF BITUMINOUS COAL TO THE VETERANS ADMINISTRATION, KECOUGHTAN, VIRGINIA.

A NUMBER OF CONTRACTORS HAVE REQUESTED INFORMATION RELATIVE TO WHETHER THEIR CONTRACTS FOR FURNISHING COAL TO THE VETERANS ADMINISTRATION ON AN F.O.B. DESTINATION BASIS OR A DELIVERED AND STORED BASIS MAY BE AMENDED TO PROVIDE FOR DELIVERY F.O.B. MINES AND GOVERNMENT BILLS OF LADING ISSUED FOR THE TRANSPORTATION OF THE COAL.

THE MATTER OF AMENDING SUCH CONTRACTS TO PROVIDE THAT COAL MAY BE TRANSPORTED UNDER GOVERNMENT BILLS OF LADING WAS GIVEN CAREFUL CONSIDERATION BY THE LEGAL AUTHORITIES OF THE VETERANS ADMINISTRATION AND IT WAS DETERMINED THAT NO MATERIAL ADVANTAGE WOULD ACCRUE TO THE GOVERNMENT BY SUCH AMENDMENT AND THAT THE VETERANS ADMINISTRATION MIGHT SUBJECT ITSELF TO SEVERE CRITICISM IF IT ATTEMPTED BY MEANS OF CONTRACT TO ASSIST A CONTRACTOR IN AVOIDING THE PAYMENT OF A TAX FOR WHICH HE IS LEGALLY LIABLE. THE CONTRACTORS WERE SO ADVISED.

THERE IS FORWARDED HEREWITH LETTER DATED FEBRUARY 13, 1943, FROM MR. F. F. ESTES, TRAFFIC MANAGER, NATIONAL COAL ASSOCIATION, IN WHICH THE MATTER OF AMENDING THE CONTRACTS AND ISSUING GOVERNMENT BILLS OF LADING IS AGAIN PRESENTED. IT WILL BE NOTED THAT MR. ESTES STATES HE UNDERSTANDS THAT THE WAR DEPARTMENT AND THE NAVY DEPARTMENT HAVE IN COOPERATION WITH THEIR SUPPLIERS OF COAL WORKED OUT SUCH ARRANGEMENTS.

A DECISION IS, THEREFORE, REQUESTED AS TO WHETHER CONTRACTS AWARDED ON AN F.O.B. DESTINATION BASIS OR A DELIVERED AND STORED BASIS MAY BE AMENDED TO PROVIDE THAT COAL MAY BE TRANSPORTED UNDER GOVERNMENT BILLS OF LADING.

CONTRACT VAM-17045 WITH THE INTER-STATE COAL COMPANY, INDIANAPOLIS, INDIANA, TO WHICH REFERENCE IS MADE IN THE ATTACHED LETTER FROM THE NATIONAL COAL ASSOCIATION IS ON FILE IN THE GENERAL ACCOUNTING OFFICE.

IT IS REQUESTED THAT THE LETTER FROM THE NATIONAL COAL ASSOCIATION BE RETURNED WITH YOUR REPLY.

THE LETTER OF FEBRUARY 13, 1943, FROM THE TRAFFIC MANAGER OF THE NATIONAL COAL ASSOCIATION, READS AS FOLLOWS:

THERE HAS BEEN REFERRED TO ME COPY OF YOUR LETTER OF FEBRUARY 5 ADDRESSED TO THE INTER-STATE COAL COMPANY, INDIANAPOLIS, INDIANA, FILE ERB 160 INTER -STATE COAL COMPANY, WHICH DEALS WITH THE QUESTION OF THE TRANSPORTATION TAX OF 4 CENTS PER TON APPLICABLE ON BITUMINOUS COAL. A BRIEF STATEMENT OF THE FACTS, AS I UNDERSTAND THEM, IS AS FOLLOWS:

THE COAL COMPANY BID ON SUPPLYING COAL DURING THE FISCAL YEAR ENDING JUNE 30, 1943, THE BID PRICE BEING ON AN F.O.B. DESTINATION BASIS, WHICH OF COURSE INVOLVES PAYMENT OF THE FREIGHT CHARGES BY THE SHIPPER. DURING THE PERIOD IN WHICH THIS CONTRACT RUNS, NAMELY, EFFECTIVE DECEMBER 1, THE REVENUE ACT OF 1942 PROVIDES FOR A TRANSPORTATION TAX OF 4 CENTS PER NET TON ON BITUMINOUS COAL. THIS ACT PROVIDES IN SECTION 3475, PARAGRAPH (B), THAT "THE TAX IMPOSED UNDER THIS SECTION SHALL NOT APPLY TO AMOUNTS PAID BY OR TO THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY.' IN THEIR INTERPRETATION OF THIS EXEMPTION THE TREASURY DEPARTMENT, IN THEIR RULES AND REGULATIONS DATED FEBRUARY 1, AND PUBLISHED IN THE FEDERAL REGISTER OF FEBRUARY 3, 1943, HAVE READ INTO THE LAW THE WORD,"DIRECTLY," AND IN THEIR SECTION 143.20 STATE "AN AMOUNT PAID DIRECTLY TO A CARRIER BY THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF FOR THE TRANSPORTATION OF PROPERTY IS LIKEWISE EXEMPT.' THE PRINCIPLE LAID DOWN IN YOUR LETTER OF FEBRUARY 5 WOULD INDICATE THAT UNTIL THE EXPIRATION OF THE PRESENT CONTRACTS ALL COAL SUPPLIED ON A DELIVERED BASIS TO VETERANS HOSPITALS, WHERE THE CHARGE IS PAID BY THE SHIPPER, WOULD INVOLVE AN ABSORPTION BY THE SHIPPER OF 4 CENTS PER TON, WHICH IS TANTAMOUNT TO A REDUCTION OF THE CONTRACT PRICE OF THE COAL BY THE SHIPPER OR SUPPLIER OF THAT COAL.

IT IS MY UNDERSTANDING THAT THE COMPTROLLER GENERAL HAS INDICATED THAT HE WILL NOT APPROVE ANY PAYMENT BY THE GOVERNMENT AGENCY OF THE 4 CENTS TAX ADDED TO THE FREIGHT CHARGE, WHERE THAT TAX HAS BEEN PAID BY THE COAL SHIPPER. THEREFORE, IT WOULD SEEM ONLY EQUITABLE THAT THE VARIOUS GOVERNMENTAL BUYERS OF COAL SHOULD IN SOME WAY COOPERATE WITH THE SUPPLIER AND SHIPPER OF COAL, SO THAT THIS 4 CENTS PER TON WILL NOT BE AN ADDED BURDEN TO THE SUPPLIER OF COAL BY HIS NECESSITY TO ABSORB IT. CERTAINLY THERE SEEM TO BE EITHER ONE OR TWO ARRANGEMENTS WHEREBY THIS COULD BE ACCOMPLISHED, AND, FOR YOUR INFORMATION, I UNDERSTAND BOTH THE WAR DEPARTMENT AND THE NAVY DEPARTMENT HAVE, IN COOPERATION WITH THEIR SUPPLIERS OF COAL, WORKED OUT SUCH ARRANGEMENTS. THESE ARRANGEMENTS ARE: (1) THAT THE PRESENT CONTRACT BE CHANGED FROM AN F.O.B. DESTINATION TO AN F.O.B. ORIGIN BASIS, OR (2) THAT COMMERCIAL BILLS OF LADING BE EXCHANGED AT DESTINATION FOR GOVERNMENT BILLS OF LADING, WHICH WOULD PROVIDE FOR EXEMPTION FROM THE TAX.

WHILE I AM FULLY APPRECIATIVE OF THE LEGAL AND TECHNICAL RAMIFICATIONS INVOLVED IN THESE VARIOUS CONTRACTS AND METHODS OF HANDLING COAL, I MENTION SOME OF THE POINTS IN EQUITY OF OUR POSITION AND REQUEST. FOR EXAMPLE, LET US TAKE THE CONTRACT FOR 12,000 TONS OF COAL TO BE SUPPLIED DURING THE FISCAL YEAR ENDING JUNE 30, 1943, TO THE VETERANS ADMINISTRATION FACILITY AT MARION, INDIANA, AT A DELIVERED PRICE OF $2.77, MADE UP OF AN F.O.B. MINE PRICE OF $1.07 AND A FREIGHT RATE OF $1.70. LET US ASSUME, FOR EXAMPLE, THAT THE $1.07 PRICE WERE THE MINIMUM PRICE AS ESTABLISHED BY THE COAL DIVISION. IF THE SHIPPER WERE COMPELLED TO PAY THE 4 CENTS TRANSPORTATION TAX, WITH NO REIMBURSEMENT FROM THE GOVERNMENT, IT WOULD AMOUNT TO A LOWERING OF HIS $1.07 MINIMUM PRICE TO $1.03, WHICH WOULD INVOLVE A NONCOMPLIANCE WITH THE ORDERS OF THE BITUMINOUS COAL DIVISION AND THE SHIPPER COULD NOT PERFORM ON HIS CONTRACT WITHOUT INFRINGING ON THE COAL DIVISIONS LAWS AND SUBJECTING HIMSELF TO A SEVERE PENALTY. IN CONNECTION WITH COMMERCIAL CONTRACTS, THE O.P.A. HAS ALLOWED THE MAXIMUM PRICE CEILINGS TO BE RAISED SO THAT THE 4 CENTS TRANSPORTATION TAX MAY BE PASSED ON TO THE BUYER. WE ARE NOT, HOWEVER, HERE ARGUING SPECIFICALLY FOR THE PASSING ON OF THIS TAX TO THE BUYERS OF GOVERNMENT COAL. WHAT WE ARE CONTENDING IS THAT BY SIMPLE ARRANGEMENT THESE COAL SHIPMENTS TO GOVERNMENT AGENCIES CAN BE MADE EXEMPT FROM THE TRANSPORTATION TAX BY THE TWO ALTERNATIVES ABOVE MENTIONED. I AM QUITE SURE, AND I HAVE EVERY HOPE THAT YOU, YOUR GENERAL SOLICITOR AND THE COMPTROLLER GENERAL, WILL AGREE THAT THE INTENT OF CONGRESS IN PASSING THIS TRANSPORTATION TAX IN THE 1942 REVENUE BILL WAS TO EXEMPT COAL SOLD TO THE VARIOUS GOVERNMENT DEPARTMENTS FROM THE TRANSPORTATION TAX, AND THAT SUCH EXEMPTION WAS NOT TO BE ALLOWED AT THE EXPENSE OF THE SHIPPER AND SUPPLIER OF COAL THROUGH SOME VARYING TECHNICALITIES AS TO WHETHER THE COAL WERE SOLD F.O.B. ORIGIN OR F.O.B. DESTINATION, AND I DO NOT BELIEVE THAT ANYONE WOULD SERIOUSLY CONTEND THAT GOVERNMENT AGENCIES SHOULD ENJOY THIS TAX EXEMPTION AT THE EXPENSE OF ITS OWN TAXPAYERS AND SUPPLIERS OF COAL BY THE PAYMENT OF THE 4 CENTS TAX ON THE FREIGHT CHARGES WHICH, FOR THE CONVENIENCE OF THE GOVERNMENT, THEY HAD PREPAID.

THEREFORE, I WISH TO RESPECTFULLY REQUEST THAT THE VETERANS ADMINISTRATION SUBMIT TO THE COMPTROLLER GENERAL FOR OFFICIAL RULING WHETHER OR NOT IT WILL BE IN LINE AND PROPER FOR THESE VARIOUS VETERANS ADMINISTRATION FACILITIES TO ADJUST THEIR CONTRACTS, PROVIDING THE VETERANS ADMINISTRATION IS WILLING TO DO SO, TO AN F.O.B. ORIGIN BASIS, OR, AS AN ALTERNATIVE, TO EXCHANGE THE COMMERCIAL BILLS OF LADING FOR GOVERNMENT BILLS OF LADING AT DESTINATION, EITHER OF WHICH CHANGES WOULD RELIEVE THE SHIPPER FROM THE PAYMENT OF THE 4 CENTS TRANSPORTATION TAX, AND AT THE SAME TIME, IN OUR OPINION, MORE FULLY CARRY OUT THE REAL INTENT OF CONGRESS IN THE PASSAGE OF THE REVENUE ACT OF 1942.

IN THE DECISION OF JANUARY 8, 1943, B-31073, 22 COMP. GEN. 623, TO WHICH YOU REFER, THERE WAS CONSIDERED THE BASIC QUESTION AS TO WHETHER, UNDER THE CONTRACT THERE INVOLVED, THE GOVERNMENT IS OBLIGATED TO REIMBURSE A VETERANS' ADMINISTRATION COAL CONTRACTOR FOR PAYMENT OF THE FEDERAL " TRANSPORTATION OF PROPERTY" TAX PRESCRIBED BY THE TERMS OF SECTION 620 OF THE REVENUE ACT OF 1942, APPROVED OCTOBER 21, 1942, 56 STAT. 798, 979. FOR REASONS SET FORTH IN THE SAID DECISION IT WAS HELD, QUOTING FROM THE SYLLABUS:

THE PROVISIONS OF SECTION 620 OF THE REVENUE ACT OF 1942, EXEMPTING AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY FROM THE PROPERTY TRANSPORTATION TAX IMPOSED THEREBY, FURNISH NO BASIS FOR THE ISSUANCE OF A TAX EXEMPTION CERTIFICATE TO A GOVERNMENT CONTRACTOR TO COVER THE AMOUNT OF THE TAX APPLICABLE TO TRANSPORTATION CHARGES ON THE CONTRACT MATERIAL WHICH THE CONTRACTOR IS REQUIRED TO PAY PURSUANT TO ITS CONTRACT OBLIGATION.

THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY--- THE LEGAL INCIDENCE OF WHICH IS ON THE SHIPPER RATHER THAN THE CARRIER, THE LATTER BEING MERELY A COLLECTING AGENT FOR THE TAX--- IS NOT A PART OF THE COMPENSATION TO WHICH THE CARRIER IS ENTITLED FOR ITS SERVICES, AND, THEREFORE, DOES NOT REPRESENT AN "INCREASE" IN THE "FREIGHT RATE" WITHIN THE MEANING OF A PROVISION IN A VETERANS' ADMINISTRATION COAL CONTRACT REQUIRING AN ADJUSTMENT IN PRICE IN THE EVENT OF AN INCREASE OR DECREASE IN THE "FREIGHT RATE IN EFFECT ON DATE OF OPENING OF BIDS.'

THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY IS NOT REIMBURSABLE TO A CONTRACTOR UNDER THE "FEDERAL TAXES" CLAUSE IN A VETERANS' ADMINISTRATION COAL CONTRACT PROVIDING FOR REIMBURSEMENT TO THE CONTRACTOR OF ANY ,SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES" IMPOSED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID, AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES COVERED BY THIS BID, AND * * * PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR.

SINCE IT THUS CLEARLY APPEARS THAT COAL CONTRACTORS WHO, BY THE TERMS OF THEIR CONTRACTS ARE REQUIRED TO DELIVER COAL TO THE GOVERNMENT F.O.B. DESTINATION, OR ON A DELIVERED AND STORED BASIS, ARE LIABLE FOR THE INVOLVED TAX AND MAY NOT--- IN THE ABSENCE OF AN EXPRESS PROVISION IN THE CONTRACT TO THAT EFFECT--- BE REIMBURSED THE AMOUNT OF THE TAX EITHER DIRECTLY OR THROUGH THE ISSUANCE OF TAX EXEMPTION CERTIFICATES, THE QUESTION NOW IS PRESENTED AS TO WHETHER SUCH CONTRACTS MAY BE AMENDED TO PROVIDE FOR TRANSPORTATION OF THE COAL ON GOVERNMENT BILLS OF LADING, OR ON AN F.O.B. POINT OF ORIGIN BASIS.

IT IS WELL SETTLED THAT MUTUAL ASSENT OF THE PARTIES IS INDISPENSABLE TO ANY MODIFICATION OR AMENDMENT OF A LEGALLY VALID CONTRACT. UTLEY V. DONALDSON, 94 U.S. 29, 47; HAWKINS V. UNITED STATES, 96 U.S. 689, 694. UNQUESTIONABLY THEN, IT MAY BE STATED AS A GENERAL PROPOSITION OF LAW THAT THE UNITED STATES IS ENTITLED TO INSIST UPON DELIVERY OF THE COAL EXACTLY AS CALLED FOR BY THE TERMS OF THE CONTRACTS. IT IS WELL SETTLED, ALSO, THAT, SINCE A VALUABLE CONSIDERATION IS NECESSARY TO SUPPORT A WAIVER OR RELEASE OF RIGHTS ACQUIRED UNDER A CONTRACT, OFFICIALS OF THE GOVERNMENT MAY NOT LEGALLY AMEND OR MODIFY EXISTING GOVERNMENT CONTRACTS EXCEPT IN THE INTEREST OF THE UNITED STATES. SEE 18 COMP. GEN. 114, 116, AND COURT CASES THERE CITED. HERE, AS APPEARS TO BE CONCEDED IN YOUR LETTER, THE MAKING OF THE PROPOSED AMENDMENTS WOULD RESULT IN THE CONTRACTORS AVOIDING PAYMENT OF THE TAX WHICH OTHERWISE THEY LEGALLY WOULD BE REQUIRED TO PAY. HENCE, THE AMENDMENT WOULD BE IN THE INTEREST OF THE CONTRACTORS RATHER THAN THE UNITED STATES. IN OTHER WORDS, THERE WOULD APPEAR TO BE NO ROOM FOR DOUBT THAT THE SAID AMENDMENTS, IF MADE, WOULD OPERATE TO THE DETRIMENT OF THE UNITED STATES INSTEAD OF TO ITS BENEFIT.

WITH RESPECT TO THE CONTENTION ADVANCED BY THE NATIONAL COAL ASSOCIATION TO THE EFFECT THAT FAILURE ON THE PART OF THE GOVERNMENT TO RELIEVE THE CONTRACTORS FROM THEIR OBLIGATION TO PAY THE TAX WOULD, IN SOME INSTANCES, CAUSE A REDUCTION OF THEIR CONTRACT PRICES BELOW THE MINIMUM PRICES ESTABLISHED PURSUANT TO THE BITUMINOUS COAL ACT OF 1937, 50 STAT. 72, ATTENTION IS INVITED TO 18 COMP. GEN. 160; 19 ID. 453; ALSO B-27882, FEBRUARY 9, 1943. 22 COMP. GEN. 772.

LIKEWISE, AS APPARENTLY REALIZED BY THE NATIONAL COAL ASSOCIATION, THE FACT THAT THE OFFICE OF PRICE ADMINISTRATION MAY HAVE AUTHORIZED MAXIMUM PRICE CEILINGS ON COAL TO BE RAISED PROPORTIONATELY WHERE COAL CONTRACTORS ARE REQUIRED TO PAY THE TAX PURSUANT TO THE TERMS OF THEIR CONTRACTS, MAY NOT BE ACCEPTED AS IMPOSING ANY LEGAL OBLIGATION ON THE UNITED STATES TO EXECUTE AMENDMENTS WHICH IN EFFECT WOULD INCREASE ITS LIABILITY BY PROVIDING FOR PAYMENT OF SUCH INCREASED MAXIMUM PRICES, THE GOVERNMENT'S INTEREST IN THAT RESPECT BEING TO REQUIRE ONLY THAT NOT MORE THAN THE MAXIMUM PRICES ESTABLISHED BE PAID. 22 COMP. GEN. 13. ACCORDINGLY, ON THE BASIS OF THE FOREGOING, THERE APPEARS NO LEGAL BASIS WHICH WOULD WARRANT THIS OFFICE IN APPROVING THE PROPOSED AMENDMENTS.