B-35899, AUGUST 17, 1943, 23 COMP. GEN. 113

B-35899: Aug 17, 1943

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THE AMOUNT PAID THEREFOR IS NOT SUBJECT TO THE TRANSPORTATION OF PROPERTY TAX IMPOSED BY SECTION 621 OF THE REVENUE ACT OF 1942. TRANSPORTATION CHARGES NOT PAID DIRECTLY THE GOVERNMENT TO THE CARRIER OR OTHER PERSON RENDERING TRANSPORTATION SERVICES ARE SUBJECT TO THE SAID TAX AND THEREFORE. MAY BE CONSIDERED AS AN ITEM OF COST FOR WHICH THE CONTRACTOR IS ENTITLED TO REIMBURSEMENT. 1943: I HAVE YOUR LETTER OF JULY 22. A SUPPLEMENT TO THIS CONTRACT WAS ENTERED INTO FOR CONSTRUCTION OF A HELIUM PLANT AT OTIS. TRUE COPY OF WHICH IS ENCLOSED. WAS ISSUED TO THE STACY MFG. WHICH WERE TO BE ERECTED BY THE STACY MFG. 1000 CUBIC FOOT GAS HOLDERS WERE DELIVERED AND ERECTED AT THE EXCELL PLANT SITE.

B-35899, AUGUST 17, 1943, 23 COMP. GEN. 113

CONTRACTS - COST-PLUS - FEDERAL TRANSPORTATION-OF-PROPERTY TAX WHERE UNDER A COST-PLUS-A-FIXED-FEE CONSTRUCTION CONTRACT RESERVING TO THE GOVERNMENT THE RIGHT TO PAY FREIGHT CHARGES DIRECTLY TO COMMON CARRIERS AND "TO PAY DIRECTLY TO THE PERSONS CONCERNED ALL SUMS DUE FROM THE CONSTRUCTOR FOR LABOR, MATERIALS, EQUIPMENT, OR OTHER CHARGES," THE GOVERNMENT MAKES PAYMENT DIRECTLY TO A TRANSPORTATION CONCERN FOR CHARGES INCIDENT TO THE UNLOADING AND HAULING OF EQUIPMENT TO THE PLANT SITE, THE AMOUNT PAID THEREFOR IS NOT SUBJECT TO THE TRANSPORTATION OF PROPERTY TAX IMPOSED BY SECTION 621 OF THE REVENUE ACT OF 1942, WHICH EXEMPTS FROM THE TAX AMOUNTS PAID BY THE UNITED STATES TO CARRIERS OR OTHER PERSONS RENDERING TRANSPORTATION SERVICES. UNDER 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, TRANSPORTATION CHARGES NOT PAID DIRECTLY THE GOVERNMENT TO THE CARRIER OR OTHER PERSON RENDERING TRANSPORTATION SERVICES ARE SUBJECT TO THE SAID TAX AND THEREFORE, A COST- PLUS-A-FIXED-FEE CONTRACTOR WHO PAYS TRANSPORTATION CHARGES DIRECTLY TO THE CARRIER, ETC., MAY NOT BE RELIEVED FROM THE PAYMENT OF THE TAX, NOTWITHSTANDING THE FACT THAT THE GOVERNMENT MAY BE REQUIRED TO REIMBURSE THE CONTRACTOR FOR SUCH TAX AS AN ITEM OF COST UNDER THE CONTRACT. UNDER A COST-PLUS-A-FIXED-FEE CONTRACT FOR THE CONSTRUCTION OF A HELIUM PLANT PROVIDING THAT THE CONTRACTOR SHALL BE REIMBURSED FOR PAYMENTS REQUIRED BY LAW TO BE MADE BY IT ON ACCOUNT OF THE CONTRACT WORK, THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY, WHEN PAID BY THE CONTRACTOR, MAY BE CONSIDERED AS AN ITEM OF COST FOR WHICH THE CONTRACTOR IS ENTITLED TO REIMBURSEMENT.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE INTERIOR, AUGUST 17, 1943:

I HAVE YOUR LETTER OF JULY 22, 1943, AS FOLLOWS:

ON APRIL 9, 1942, THE BUREAU OF MINES ENTERED INTO A COST-PLUS-A- FIXED- FEE CONTRACT NO. IM-1222 WITH THE STEARNS-ROGER MFG. CO., FOR THE CONSTRUCTION OF A HELIUM PLANT AT EXCELL, TEXAS. UNDER DATE OF JANUARY 6, 1943, A SUPPLEMENT TO THIS CONTRACT WAS ENTERED INTO FOR CONSTRUCTION OF A HELIUM PLANT AT OTIS, KANSAS.

UNER THE ORIGINAL CONTRACT FOR CONSTRUCTION AT EXCELL, TEXAS, PURCHASE ORDER NO. 51, TRUE COPY OF WHICH IS ENCLOSED, WAS ISSUED TO THE STACY MFG. CO., CINCINNATI, OHIO, FOR 100,000 CUBIC FOOT GAS HOLDERS AND ONE 50,000 CUBIC FOOT GAS HOLDER, WHICH WERE TO BE ERECTED BY THE STACY MFG. CO., AT THE PLANT SITE. THE TWO 100, 1000 CUBIC FOOT GAS HOLDERS WERE DELIVERED AND ERECTED AT THE EXCELL PLANT SITE, BUT AFTER DELIVERY AND PRIOR TO ERECTION OF THE 50,000 CUBIC FOOT GAS HOLDER IT WAS DETERMINED TO TRANSFER THIS HOLDER TO THE PLANT AS OTIS, KANSAS, WHICH WAS ACCOMPLISHED BY SHIPMENT UNDER GOVERNMENT BILL OF LADING.

I AM ENCLOSING ORIGINAL LETTER DATED JUNE 18, 1943, FROM P. V. MULLINS, ASSOCIATE CONTRACTING OFFICER UNDER CONTRACT IM-1222, SUPPLEMENT 3, IN WHICH HE ADVISED, AMONG OTHER THINGS, THAT THE HOLDER HAD TO BE UNLOADED AT THE TOWN OF OTIS BECAUSE THE RAILROAD SIDING AT THE PLANT SITE WAS NOT FINISHED AND READY FOR USE WHEN THE SHIPMENT ARRIVED. IT WAS THEREFORE NECESSARY TO EMPLOY THE SERVICES OF HICKERSON BROTHERS, TRUCKING CONTRACTORS, GREAT BEND, KANSAS TO UNLOAD AND TRANSPORT THE HOLDER FROM THE CARS TO THE PLANT SITE. IN PRESENTING THEIR BILL FOR PAYMENT FOR THE ABOVE SERVICE, HICKERSON BROTHERS HAVE INCLUDED A TOTAL CHARGE OF $13.25, REPRESENTING THE 3 PERCENT FEDERAL TRANSPORTATION TAX.

THERE IS SUBMITTED HEREWITH VOUCHER, STANDARD FORM 1034, REVISED, IN FAVOR OF HICKERSON BROTHERS, IN THE AMOUNT OF $433.78, TOGETHER WITH CERTIFIED INVOICES, LETTER OF AUTHORITY DATED FEBRUARY 12, 1943, AND PHOTOSTATIC COPY OF LETTER DATED DECEMBER 30, 1942 FROM THE WICHITA, KANSAS, OFFICE OF INTERNAL REVENUE SERVICE, TREASURY DEPARTMENT, TO THE PAYEE, SUPPORTING THIS VOUCHER.

YOUR ADVICE IS REQUESTED AS TO WHETHER OR NOT THE 3 PERCENT FEDERAL TRANSPORTATION TAX IS ALLOWABLE UNDER THESE CIRCUMSTANCES.

INFORMATION IS ALSO DESIRED AS TO THE RESPONSIBILITY OF THE GOVERNMENT IN THE MATTER OF THE FEDERAL TRANSPORTATION TAX AND THE STEARNS-ROGER MFG. CO. PAID HICKERSON BROTHERS, AND THEN CLAIMED REIMBURSEMENT FOR THE ENTIRE AMOUNT OF THE VOUCHER, INCLUDING TAX.

IT IS ALSO DESIRABLE TO KNOW WHO, UNDER A COST-PLUS-A-FIXED-FEE CONTRACT, IS LIABLE FOR THE TRANSPORTATION TAX IN CASES WHERE MERCHANDISE IS PURCHASED FROM A VENDOR, F.O.B. FACTORY, THE TRANSPORTATION CHARGES AND TAX ARE ITEMIZED SEPARATELY ON THE INVOICE, AND THE INVOICE IS PAID BY THE CONTRACTOR FOR REIMBURSEMENT BY THE GOVERNMENT.

IT HAS BEEN THE PRACTICE UNDER THIS COST-PLUS-A-FIXED-FEE CONTRACT FOR THE GOVERNMENT TO MAKE PAYMENTS DIRECT TO SOME OF THE VENDORS, AND TO REIMBURSE THE CONTRACTOR FOR PAYMENTS MADE BY HIM TO OTHER VENDORS.

YOUR EARLY ADVICE ON THE ABOVE QUESTIONS WILL BE APPRECIATED.

IT IS REQUESTED THAT THE ENCLOSED PAPERS BE RETURNED.

THE CITED CONTRACT NO. IM-1222, ENTERED INTO ON A COST-PLUS-A-FIXED FEE BASIS, PROVIDES FOR THE FABRICATION AND INSTALLATION OF EQUIPMENT AND CONSTRUCTION OF BUILDINGS AND APPURTENANCES FOR A PLANT IN EXCELL, TEXAS, FOR THE PROCESSING OF APPROXIMATELY 12,000,000 CUBIC FEET OF NATURAL GAS PER DAY FOR THE EXTRACTION OF THE HELIUM CONTAINED THEREIN, AND FOR THE FABRICATION AND INSTALLATION OF A CARBON DIOXIDE SYSTEM AND A GAS DEHYDRATING SYSTEM AT THE AMARILLO HELIUM PLANT CAPABLE OF EXTRACTING THE CARBON DIOXIDE, HYDROGEN SULPHIDE, AND WATER FROM 10,000,000 CUBIC FEET OF NATURAL GAS PER DAY. THE CONTRACT PROVIDES, GENERALLY, THAT THE GOVERNMENT WILL REIMBURSE THE CONSTRUCTOR FOR THE EXPENDITURES INCURRED INCIDENT TO THE PERFORMANCE OF THE WORK REQUIRED THEREUNDER, PLUS A FIXED FEE OF $60,485 WHICH WAS TO CONSTITUTE COMPLETE COMPENSATION FOR THE CONSTRUCTOR'S SERVICES, INCLUDING PROFIT AND ALL GENERAL OVERHEAD EXPENSES. ARTICLE II OF THE CONTRACT PROVIDES IN PERTINENT PART, AS FOLLOWS:

1. REIMBURSEMENT FOR CONSTRUCTOR'S EXPENDITURES.--- THE CONSTRUCTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF HIS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER AND AS ARE INCLUDED IN THE FOLLOWING TEMS:

A. ALL LABOR, MATERIALS, TOOLS, MACHINERY, EQUIPMENT, SUPPLIES, SERVICES, POWER, AND FUEL NECESSARY FOR EITHER TEMPORARY OR PERMANENT USE FOR THE BENEFIT OF THE WORK.

N. PAYMENTS FROM HIS OWN FUNDS MADE BY THE CONSTRUCTOR UNDER THE SOCIAL SECURITY ACT, AND ANY DISBURSEMENTS REQUIRED BY LAW, WHICH THE CONSTRUCTOR MAY BE REQUIRED ON ACCOUNT OF THIS CONTRACT TO PAY ON OR FOR ANY PLANT, EQUIPMENT, PROCESS, ORGANIZATION, MATERIALS, SUPPLIES, OR PERSONNEL; AND, IF APPROVED IN WRITING BY THE CONTRACTING OFFICER IN ADVANCE, PERMIT AND LICENSE FEES AND ROYALTIES ON PATENTS USED INCLUDING THOSE OWNED BY THE CONSTRUCTOR.

4. (A) THE GOVERNMENT RESERVES THE RIGHT TO PAY DIRECTLY TO COMMON CARRIERS ANY OR ALL FREIGHT CHARGES ON CONSTRUCTION PLANT, MATERIALS, AND SUPPLIES.

5. THE GOVERNMENT RESERVES THE RIGHT TO PAY DIRECTLY TO THE PERSONS CONCERNED ALL SUMS DUE FROM THE CONSTRUCTOR FOR LABOR, MATERIAL, EQUIPMENT, OR OTHER CHARGES.

THE SCOPE OF THE CONTRACT, THE ESTIMATED COST OF PERFORMANCE AND THE FIXED FEE WERE INCREASED BY SUPPLEMENTAL AGREEMENTS DATED JULY 2, 1942, SEPTEMBER 16, 1942, AND JANUARY 6, 1943, THE LATTER OF WHICH OBLIGATED THE CONSTRUCTOR, INTER ALIA, TO CONSTRUCT A HELIUM PLANT, INCLUDING A CARBON DIOXIDE REMOVAL PLANT, AT OTIS, KANSAS.

THE REFERRED-TO TAX OF 3 PERCENT IS THAT IMPOSED BY THE REVENUE ACT OF 1942, APPROVED OCTOBER 21, 1942, 56 STAT. 798, 979, ON AMOUNTS PAID WITHIN THE UNITED STATES FOR THE TRANSPORTATION, ON AND AFTER DECEMBER 1, 1942, OF PROPERTY BY RAIL, MOTOR VEHICLE, WATER, OR AIR. HOWEVER, THE SAID ACT EXPRESSLY PROVIDES THAT THE TAX SO IMPOSED 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.

THE COMMISSIONER OF INTERNAL REVENUE, WITH THE APPROVAL OF THE SECRETARY OF THE TREASURY ON FEBRUARY 1, 1943, PROMULGATED REGULATIONS RELATIVE TO THE TAX WHICH ARE, IN PART, AS FOLLOWS:

SEC. 143.1 MEANING OF TERMS.--- AS USED IN THESE REGULATIONS, UNLESS OTHERWISE SPECIFIED OR INDICATED BY THE CONTEXT:

(A) GENERAL.--- THE TERMS DEFINED IN THE APPLICABLE PROVISIONS OF LAW SHALL HAVE THE MEANINGS SO ASSIGNED TO THEM.

(B) PERSON ENGAGED IN THE BUSINESS OF TRANSPORTING PROPERTY FOR HIRE. THE TERM "PERSON ENGAGED IN THE BUSINESS OF TRANSPORTING PROPERTY FOR HIRE" INCLUDES A COMMON CARRIER, CONTRACT CARRIER, LOCAL MOVING OR DRAYAGE CONCERN, FREIGHT FORWARDER, EXPRESS COMPANY, OR OTHER PERSON TRANSPORTING PROPERTY FOR HIRE WHOLLY OR IN PART BY RAIL, MOTOR VEHICLE, WATER OR AIR.

(C) CARRIER.--- THE TERM "CARRIER" IS COEXTENSIVE WITH THE TERM "PERSON ENGAGED IN THE BUSINESS OF TRANSPORTING PROPERTY FOR HIRE.'

(D) TRANSPORTATION.--- THE TERM "TRANSPORTATION" AS USED HEREIN MEANS THE MOVEMENT OF PROPERTY BY A PERSON ENGAGED IN THE BUSINESS OF TRANSPORTING PROPERTY FOR HIRE, INCLUDING INTERSTATE, AND INTRA-CITY OR OTHER LOCAL MOVEMENTS, AS WELL AS TOWING, FERRYING, SWITCHING, ETC. IN GENERAL, IT INCLUDES ACCESSORIAL SERVICES FURNISHED IN CONNECTION WITH A TRANSPORTATION MOVEMENT, SUCH AS LOADING, UNLOADING, BLOCKING AND STAKING, ELEVATION, TRANSFER IN TRANSIT, VENTILATION, REFRIGERATION, ICING, STORAGE, DEMURRAGE, LIGHTERAGE, TRIMMING OF CARGO IN VESSELS, WHARFAGE, HANDLING, FEEDING AND WATERING LIVESTOCK, AND SIMILAR SERVICES AND FACILITIES.

(E) PROPERTY.--- THE TERM "PROPERTY" MEANS ANY PHYSICAL MATTER REGARDLESS OF VALUE OVER WHICH THE RIGHT OF OWNERSHIP OR CONTROL MAY BE EXERCISED, INCLUDING CURRENCY, DOCUMENTS, PAPERS OF ALL KINDS, ETC.

SEC. 143.20 PAYMENTS BY OR TO THE UNITED STATES.--- AN AMOUNT PAID TO THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF FOR THE TRANSPORTATION OF PROPERTY IS EXEMPT FROM TAX.

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.

IN NEITHER CASE WILL AN EXEMPTION CERTIFICATE BE REQUIRED.

SINCE IT APPEARS THAT THE ARRANGEMENT UNDER WHICH HICKERSON BROTHERS UNLOADED THE EQUIPMENT AT OTIS, KANSAS, AND HAULED SAME TO THE PLANT SITE WAS MADE ON BEHALF OF THE GOVERNMENT BY THE STEARNS-ROGER MANUFACTURING COMPANY UNDER ITS CONTRACT NO. IM-1222, AS AMENDED, IT IS CLEAR THAT IN DOING SO THE CONTRACTOR ACTED MERELY AS AN AGENT OF THE GOVERNMENT. FURTHERMORE, IT IS UNDERSTOOD FROM YOUR SUBMISSION THAT PAYMENT HAS NOT BEEN MADE FOR THE SERVICES BY THE CONTRACTOR AND THAT PAYMENT WILL BE MADE BY THE GOVERNMENT UNDER THE RIGHT RESERVED IN THE CONTRACT TO PAY FREIGHT CHARGES DIRECTLY TO COMMON CARRIERS AND "TO PAY DIRECTLY TO THE PERSONS CONCERNED ALL SUMS DUE FROM THE CONSTRUCTOR FOR LABOR, MATERIALS, EQUIPMENT, OR OTHER CHARGES.' THEREFORE, THE TAX IS NOT APPLICABLE TO THE AMOUNT PROPERLY FOR PAYMENT FOR THE SERVICES INVOLVED IN THIS PARTICULAR CASE.

WITH RESPECT TO THE QUESTION PRESENTED IN THE SIXTH PARAGRAPH OF YOUR LETTER, THE TAXING STATUTE SPECIFICALLY PROVIDES, AS ABOVE INDICATED, THAT THE TAX SHALL NOT APPLY TO AMOUNTS PAID BY THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES. MANIFESTLY, THIS MEANS THAT IN ANY CASE WHERE TRANSPORTATION CHARGES ARE NOT PAID DIRECTLY BY THE GOVERNMENT TO THE CARRIER, OR OTHER PERSON RENDERING TRANSPORTATION SERVICES, SUCH CHARGES ARE SUBJECT TO THE TAX. IN THIS CONNECTION SEE STATEMENT DATED DECEMBER 7, 1942, OF THE COMMISSIONER OF INTERNAL REVENUE, ADDRESSED TO COLLECTORS OF INTERNAL REVENUE AND OTHERS CONCERNED, WHEREIN IT IS SAID:

AS INDICATED IN (G) ABOVE, AMOUNTS PAID BY THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OR BY A STATE OR POLITICAL SUBDIVISION OF A STATE ARE EXEMPT FROM TAX ONLY WHEN THE PAYMENT IS MADE DIRECTLY TO THE CARRIER BY THE GOVERNMENTAL AGENCY. TRANSPORTATION CHARGES NOT PAID DIRECTLY TO THE CARRIER (FOR EXAMPLE, CHARGES PAID BY GOVERNMENT CONTRACTORS OPERATING ON A COST-PLUS-FIXED FEE OR OTHER BASIS) ARE SUBJECT TO THE TAX. THE FACT THAT IN SUCH A CASE THE CONTRACTOR MAY BE REIMBURSED FOR THE TRANSPORTATION CHARGES PAID WILL NOT AFFECT THE TAX LIABILITY. PROOF OF EXEMPTION WILL BE REQUIRED IN ANY CASE WHERE A SHIPMENT IS MADE UNDER A GOVERNMENT BILL OF LADING, STANDARD FORM 1058A, OR WHERE THE TRANSPORTATION CHARGE IS PAID DIRECTLY BY THE GOVERNMENTAL AGENCY ENTITLED TO EXEMPTION. ( ITALICS SUPPLIED.)

CONSEQUENTLY, THERE WOULD APPEAR TO BE NO LEGAL BASIS FOR RELIEVING A GOVERNMENT CONTRACTOR FROM THE PAYMENT OF THE TAX, EVEN THOUGH THE TERMS OF THE PARTICULAR CONTRACT REQUIRE REIMBURSEMENT BY THE GOVERNMENT TO THE CONTRACTOR OF THE AMOUNT OF THE TAX PAID BY IT. COMPARE 22 COMP. GEN. 583.

ARTICLE II N OF THE CONTRACT HERE INVOLVED, AS ABOVE INDICATED, PROVIDES THAT THE CONTRACTOR SHALL BE REIMBURSED PAYMENTS MADE FROM ITS OWN FUNDS FOR DISBURSEMENTS REQUIRED BY LAW, WHICH IT MAY BE REQUIRED ON ACCOUNT OF THE CONTRACT, TO PAY ON OR FOR ANY PLANT, EQUIPMENT, PROCESS, ORGANIZATION, MATERIALS, SUPPLIES, OR PERSONNEL. SINCE THE TAX UNQUESTIONABLY CONSTITUTES A DISBURSEMENT REQUIRED BY LAW, YOU ARE ADVISED THAT, ON THE BASIS OF THE FACTS STATED BY YOU, IT APPEARS PROPER TO CONSIDER SAME, WHEN PAID BY THE CONTRACTOR, AS AN ITEM OF COST FOR WHICH THE CONTRACTOR WOULD BE ENTITLED TO REIMBURSEMENT UNDER THE TERMS OF THE CONTRACT.

WITH RESPECT TO THE QUESTION PRESENTED IN THE SEVENTH PARAGRAPH OF YOUR LETTER, YOU ARE ADVISED THAT ON THE BASIS OF THE FACTS PRESENTED THEREIN THE CONTRACTOR WOULD BE ENTITLED, ALSO, TO REIMBURSEMENT FOR THE AMOUNT OF THE TAX FOR THE REASON THAT THE TRANSPORTATION CHARGES WOULD NOT BE PAYABLE BY THE UNITED STATES DIRECTLY SO AS TO ENTITLE THE GOVERNMENT TO THE BENEFIT OF THE TERMS OF THE STATUTE PROVIDING THAT THE TAX SHALL NOT BE APPLICABLE TO AMOUNTS PAID BY THE UNITED STATES FOR TRANSPORTATION.

ACCORDINGLY, THE VOUCHER AND RELATED PAPERS ARE RETURNED HEREWITH AND YOU ARE ADVISED, THAT PAYMENT OF THE TAX, WHICH IS INCLUDED IN THE AMOUNT OF THE VOUCHER, IS NOT AUTHORIZED.