B-39905, FEBRUARY 24, 1944, 23 COMP. GEN. 619

B-39905, FEBRUARY 24, 1944, 23 COMP. GEN. 619

FEDERAL PROPERTY TRANSPORTATION TAX - CONTRACT PRICE ADJUSTMENT EVEN THOUGH A BIDDER'S QUOTED PRICE FOR FURNISHING SUPPLIES TO THE GOVERNMENT F.O.B. DESTINATION INCLUDES AN AMOUNT REPRESENTING THE FEDERAL PROPERTY TRANSPORTATION TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942, THE PROVISIONS OF THE ACT OF NOVEMBER 4, 1943, EXTENDING THE TAX EXEMPTIVE PROVISIONS OF THE 1942 ACT TO AMOUNTS PAID FOR THE TRANSPORTATION OF PROPERTY TO OR FROM THE GOVERNMENT, AFFORD NO BASIS FOR A DEDUCTION OF ANY AMOUNT REPRESENTING THE SAID TAX FROM SUCH PRICES WHERE THE CONTRACT CONTAINS A STANDARD " FEDERAL TAXES" CLAUSE PROVIDING FOR INCREASE OR DECREASE IN CONTRACT PRICES IN RESPECT TO ALL SUBSEQUENT TAX CHANGES "APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES.'

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, FEBRUARY 24, 1944:

I HAVE YOUR LETTER OF JANUARY 30, 1944, AS FOLLOWS:

YOUR ATTENTION IS DIRECTED TO THE ACT OF NOVEMBER 4, 1943, PUB. LAW NO. 180, 78TH CONGRESS, ST SESS., EFFECTIVE DECEMBER 1, 1943, WHICH, IN AMENDING SECTION 3475 (B) OF THE INTERNAL REVENUE CODE, PROVIDES IN SECTION 1 THEREOF AS FOLLOWS:

"/B) GOVERNMENT TRANSPORTATION.--- THE TAX IMPOSED UNDER THIS SECTION SHALL NOT APPLY TO AMOUNTS PAID FOR TRANSPORTATION OF PROPERTY TO OR FROM THE GOVERNMENT OF THE UNITED STATES, OR ANY STATE, TERRITORY, OR POLITICAL SUBDIVISION THEREOF, OR THE DISTRICT OF COLUMBIA, OR TO AMOUNTS PAID TO THE POST OFFICE DEPARTMENT FOR THE TRANSPORTATION OF PROPERTY.'

ALL TERM CONTRACTS AWARDED BY THE PROCUREMENT DIVISION OF THIS DEPARTMENT TO SUPPLY THE COMMON NEEDS OF THE EXECUTIVE DEPARTMENTS AND INDEPENDENT ESTABLISHMENTS OF THE GOVERNMENT CONTAIN, AMONG OTHERS, THE FOLLOWING PROVISION RELATING TO FEDERAL TAXES:

"PRICES INCLUSIVE OF TAX.--- PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. IF ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED 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 ARE PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, AND ANY AMOUNT DUE THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS SEPARATE ITEMS.'

AS TO SUCH TERM CONTRACTS THE BID OPENING DATES OF WHICH OCCURRED SINCE THE ENACTMENT OF SECTION 620 OF THE REVENUE ACT OF 1942 (SECTION 3475 OF THE INTERNAL REVENUE CODE), AND PRIOR TO DECEMBER 1, 1943, WHICH PROVIDE FOR DESTINATION DELIVERY, THE QUESTION HAS ARISEN AS TO WHETHER UNDER THE TERMS OF THE FOREGOING TAX PROVISION, THE GOVERNMENT IS ENTITLED TO ANY ADJUSTMENT IN THE CONTRACT PRICES BY REASON OF THE BROADENING OF THE EXEMPTION PROVISION.

ADJUSTMENT OF THE CONTRACT PRICE UNDER THE FOREGOING CONTRACT PROVISION IS PROVIDED FOR ONLY WHERE A TAX APPLICABLE TO THE PRODUCTION, MANUFACTURE OR SALE OF THE ARTICLES CONTRACTED FOR IS IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THE BID ON THE BASIS OF WHICH THE CONTRACT IS AWARDED. SINCE THE 3 PERCENT TRANSPORTATION TAX IS IMPOSED ON THE AMOUNT PAID FOR TRANSPORTATION OF THE ARTICLES CONTRACTED FOR, AND NOT ON THE MANUFACTURE, SALE OR PRODUCTION OF SUCH ARTICLES, THIS DEPARTMENT BELIEVES THAT THE GOVERNMENT IS NOT ENTITLED TO DOWNWARD PRICE ADJUSTMENTS UNDER ANY TERM CONTRACTS CONTAINING THE TAX PROVISION HEREINABOVE REFERRED TO.

HOWEVER, THE QUESTION AS TO WHETHER AND TO WHAT EXTENT SUCH ADJUSTMENTS SHOULD BE MADE IS CONTINUALLY BEING PRESENTED TO THE PROCUREMENT DIVISION OF THIS DEPARTMENT BY GOVERNMENTAL AGENCIES AUTHORIZED TO PURCHASE UNDER SUCH CONTRACTS, AND THERE IS SOME DOUBT THAT ALL AGENCIES WOULD BE SATISFIED WITH PROCUREMENT DIVISION INSTRUCTIONS BASED ON THE DEPARTMENT'S CONCLUSION, IN THE ABSENCE OF CONFIRMING ADVICE FROM YOUR OFFICE. WOULD, THEREFORE, BE APPRECIATED IF YOU WILL ADVISE WHETHER SUCH INSTRUCTIONS, IF ISSUED, WOULD LEAD TO ANY EXCEPTION BY YOUR OFFICE IN THE SETTLEMENT OF ACCOUNTS.

IT IS APPARENT FROM A READING OF THE CONTRACTUAL PROVISIONS RELATING TO FEDERAL TAXES SET FORTH IN YOUR ABOVE-QUOTED LETTER THAT, AS POINTED OUT BY YOU, THEY DO NOT PURPORT TO STIPULATE FOR AN ADJUSTMENT IN CONTRACT PRICES IN RESPECT TO ALL SUBSEQUENTLY IMPOSED TAXES BUT ONLY SUCH OF THAT NATURE AS ARE "APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES" COVERED BY THE CONTRACT. ALSO, IT IS TO BE OBSERVED THAT THE INQUIRY AS TO THE LEGAL EFFECT--- SO FAR AS THE FEDERAL PROPERTY TRANSPORTATION TAX IMPOSED BY THE TERMS OF SECTION 3475 OF THE INTERNAL REVENUE CODE (26 U.S.C. 3475, 56 STAT. 979) IS CONCERNED--- OF CONTRACTUAL PROVISIONS OF THE TYPE HERE INVOLVED WAS CONSIDERED IN A DECISION OF JANUARY 8, 1943, TO THE ADMINISTRATOR OF VETERAN'S AFFAIRS, 22 COMP. GEN. 623.

IN THAT CASE THE QUESTION FOR DETERMINATION WAS WHETHER THE TERMS OF THE PRICE ADJUSTMENT CLAUSES INVOLVED AUTHORIZED THE REIMBURSEMENT OF A CONTRACTOR FOR THE TAX REQUIRED TO BE PAID BY IT IN CONNECTION WITH THE DELIVERY OF CERTAIN COAL TO A VETERANS' ADMINISTRATION FACILITY AND AFTER QUOTING FROM CERTAIN PORTIONS OF THE OPINIONS OF THE SUPREME COURT OF THE UNITED STATES IN THE CASES OF UNITED STATES V. COWDEN MANUFACTURING CO., 308 U.S. 62, WHEREIN CONTRACTUAL PROVISIONS CONTAINING SUBSTANTIALLY THE SAME LANGUAGE AS THAT APPEARING IN THE " FEDERAL TAXES" CLAUSES THERE AND HERE FOR CONSIDERATION BY THIS OFFICE WERE HELD NOT TO COMPREHEND FEDERAL TAXES OF THE TYPE INVOLVED, IT WAS SAID:

THE TAX HERE INVOLVED IS NOT LAID ON THE PROPERTY TRANSPORTED--- OR, FOR THAT MATTER ON THE ACT OF TRANSPORTATION ITSELF--- BUT ON "THE AMOUNT * * * PAID * * * FOR THE TRANSPORTATION * * * OF PROPERTY * * * BY RAIL, MOTOR VEHICLE, WATER, OR AIR; " AND IT BECOMES PAYABLE IRRESPECTIVE OF THE NATURE OR VALUE OF THE COMMODITY TRANSPORTED AND REGARDLESS OF WHETHER THE TRANSPORTATION SERVICE IS FURNISHED IN CONNECTION WITH THE CONSUMMATION OF A SALE OF THE PROPERTY TRANSPORTED. SUCH BEING THE CASE IT IS OBVIOUS THAT THE TAX, LIKE THE TAXES CONSIDERED BY THE SUPREME COURT OF THE UNITED STATES IN THE COWDEN AND GLENN L. MARTIN CASES IS NOT A TAX "OF THE TYPE OF SALES TAXES AND PROCESSING TAXES "APPLICABLE DIRECTLY UPON PRODUCTION, MANUFACTURE, OR SALE" " OF THE SUPPLIES COVERED BY THE INSTANT CONTRACT. NOR IS ANY REASONABLE BASIS APPARENT FOR A CONTENTION THAT THE PROPERTY TRANSPORTATION (TAX) HERE INVOLVED IS PAYABLE "ON THE ARTICLES OR SUPPLIES"--- THAT IS, THE COAL--- SOLD TO THE GOVERNMENT. CONSEQUENTLY, IT MUST BE HELD THAT SAID TAX DOES NOT COME WITHIN THE SCOPE OF THE REIMBURSEMENT PROVISIONS OF THE TAX CLAUSE HERE INVOLVED.

THE TERMS OF THE SUBJECT " FEDERAL TAXES" CLAUSE OF COURSE, CAN BE VIEWED IN NO DIFFERENT LIGHT WHERE A CONTRACTOR'S LIABILITY FOR THE TAX INCLUDED IN ITS QUOTED PRICES IS EXTINGUISHED OR DECREASED BY THE CONGRESS THAN WHERE NO AMOUNT REPRESENTING THE TAX WAS INCLUDED IN THE PRICES QUOTED BY THE CONTRACTOR AND THE TAX IS IMPOSED SUBSEQUENT TO THE TIME SET FOR THE OPENING OF ITS BID. IN OTHER WORDS, THERE CAN BE NO MORE JUSTIFICATION FOR REGARDING THE FEDERAL PROPERTY TRANSPORTATION TAX AS COMING WITHIN THE SCOPE OF THE " FEDERAL TAXES" CLAUSE HERE INVOLVED IN A CASE WHERE, AS HERE, SUCH A VIEW WOULD RESULT IN A SAVING TO THE GOVERNMENT THAN WHERE, AS WAS THE SITUATION IN THE ABOVE CITED DECISION OF THIS OFFICE, SUCH A VIEW WOULD REQUIRE THE PAYMENT BY THE GOVERNMENT OF A HIGHER PRICE THAN WAS QUOTED BY THE CONTRACTOR.

CONSEQUENTLY, EVEN THOUGH THERE IS EVERY REASON TO SUPPOSE THAT THE PRICES QUOTED FROM OCTOBER 21, 1942--- THE DATE OF THE ENACTMENT OF THE FEDERAL PROPERTY TRANSPORTATION TAX LAW--- TO NOVEMBER 4, 1943--- THE DATE OF THE ENACTMENT OF THE AMENDMENT IN THE EXEMPTIVE PROVISIONS THEREOF HERE INVOLVED--- FOR FURNISHING SUPPLIES TO THE GOVERNMENT F.O.B. DESTINATION ON OR AFTER DECEMBER 1, 1942--- THE EFFECTIVE DATE OF SAID TAX--- INCLUDED AN AMOUNT REPRESENTING THE TAX, YOU ARE ADVISED THAT THIS OFFICE CONCURS IN YOUR VIEW THAT NO DEDUCTION IS AUTHORIZED-- ON THE BASIS OF THE PROVISIONS OF THE SUBJECT " FEDERAL TAXES" CLAUSE- - OF ANY AMOUNT REPRESENTING THE TAX FROM SUCH PRICES.

NO OBJECTION IS PERCEIVED TO THE ISSUANCE OF INSTRUCTIONS IN CONFORMITY WITH THE ABOVE-STATED CONCLUSION.