B-48370, MAY 21, 1945, 24 COMP. GEN. 834

B-48370: May 21, 1945

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1945: THERE HAVE BEEN RECEIVED BY REFERENCE FROM THE FISCAL DIRECTOR. THE TWO VOUCHERS WILL BE CONSIDERED TOGETHER IN THIS REPLY. THE AMOUNTS COVERED BY THE VOUCHERS PREVIOUSLY WERE REIMBURSED TO THE CONTRACTOR BUT EXCEPTIONS WERE TAKEN TO THE REIMBURSEMENT VOUCHERS BY THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE WITH THE RESULT THAT THE SAID AMOUNTS LATER WERE DEDUCTED FROM OTHER SUMS DUE THE CONTRACTOR. THE FACTS RELATING TO THE TRANSACTIONS COVERED BY THE VOUCHERS ARE FULLY SUMMARIZED IN A STATEMENT BY CONTRACTOR. AFTER POINTING OUT THAT THE AUTOMOTIVE EQUIPMENT IN QUESTION WAS LEASED FROM THE DEFENSE PLANT CORPORATION UNDER AGREEMENT WHICH REQUIRED THE LESSEE TO PAY TO THE PROPER AUTHORITY ALL TAXES WITH RESPECT TO THE EQUIPMENT "WHEN AND AS THE SAME BECOME DUE AND PAYABLE.

B-48370, MAY 21, 1945, 24 COMP. GEN. 834

CONTRACTS - COST-PLUS - STATE LICENSE FEES ON AUTOMOTIVE EQUIPMENT LEASED FROM DEFENSE PLANT CORPORATION PERSONAL PROPERTY OF THE DEFENSE PLANT CORPORATION--- AN AFFILIATE CORPORATION OF THE RECONSTRUCTION FINANCE CORPORATION--- HAVING BEEN EXEMPTED BY SECTION 10 OF THE ACT OF JANUARY 22, 1932, AS AMENDED, FROM STATE TAXATION, INCLUDING "USE" TAXES, A COST-PLUS-A-FIXED-FEE CONTRACTOR MAY NOT BE REIMBURSED LICENSE FEES PAID TO THE STATE OF WASHINGTON AS EXCISE TAXES ON THE USE OF AUTOMOTIVE EQUIPMENT LEASED FROM THE DEFENSE PLANT CORPORATION.

COMPTROLLER GENERAL WARREN TO COL. R. B. CONNER, U.S. ARMY, MAY 21, 1945:

THERE HAVE BEEN RECEIVED BY REFERENCE FROM THE FISCAL DIRECTOR, ARMY SERVICE FORCES--- TOGETHER WITH COMMUNICATIONS DATED FEBRUARY 28 AND APRIL 21, 1945, REQUESTING, APPARENTLY ON YOUR BEHALF, AN ADVANCE DECISION AS TO THE PROPRIETY OF EFFECTING PAYMENT THEREON--- AUDIT VOUCHERS NOS. R1624 AND R1736, PRESENTING RECLAIMS BY THE BOEING AIRCRAFT COMPANY, FOR REIMBURSEMENT OF THE AMOUNTS OF $2,283.95 AND $$2,839.85, RESPECTIVELY, REPRESENTING FEES AND TAXES PAID TO THE STATE OF WASHINGTON FOR MOTOR VEHICLE CERTIFICATES OF OWNERSHIP AND LICENSE PLATES UNDER COST-PLUS-A- FIXED-FEE CONTRACT NO. W 535 AC-19673, DATED JUNE 13, 1941. BY REASON OF THE SIMILARITY OF THE FACTS AND LEGAL ISSUES INVOLVED IN CONNECTION THEREWITH, THE TWO VOUCHERS WILL BE CONSIDERED TOGETHER IN THIS REPLY.

THE AMOUNTS COVERED BY THE VOUCHERS PREVIOUSLY WERE REIMBURSED TO THE CONTRACTOR BUT EXCEPTIONS WERE TAKEN TO THE REIMBURSEMENT VOUCHERS BY THE AUDIT DIVISION OF THE GENERAL ACCOUNTING OFFICE WITH THE RESULT THAT THE SAID AMOUNTS LATER WERE DEDUCTED FROM OTHER SUMS DUE THE CONTRACTOR.

THE FACTS RELATING TO THE TRANSACTIONS COVERED BY THE VOUCHERS ARE FULLY SUMMARIZED IN A STATEMENT BY CONTRACTOR, DATED FEBRUARY 14, 1945, ATTACHED TO VOUCHER NO. R1624. AFTER POINTING OUT THAT THE AUTOMOTIVE EQUIPMENT IN QUESTION WAS LEASED FROM THE DEFENSE PLANT CORPORATION UNDER AGREEMENT WHICH REQUIRED THE LESSEE TO PAY TO THE PROPER AUTHORITY ALL TAXES WITH RESPECT TO THE EQUIPMENT "WHEN AND AS THE SAME BECOME DUE AND PAYABLE," THE CONTRACTOR STATES:

4. THE QUESTION OF WHETHER OR NOT MOTOR VEHICLES RENTED FROM D.P.C. AND USED BY THIS CONTRACTOR IN THE PERFORMANCE OF ITS COST-PLUS A-FIXED-FEE CONTRACTS WERE ENTITLED TO EXEMPT LICENSE PLATES UNDER THE LAWS OF THE STATE OF WASHINGTON WAS RAISED EARLY IN THE TERM OF THE LEASE, AND HAS BEEN THE SUBJECT OF MANY CONFERENCES AND MUCH CORRESPONDENCE BETWEEN THE CONTRACTOR, ITS ATTORNEYS, REPRESENTATIVES OF D.P.C. AND THE ARMY AIR FORCES, THE STATE LICENSE DEPARTMENT, AND THE STATE ATTORNEY GENERAL. THE CONCLUSIONS ARRIVED AT AS THE RESULT OF ALL THIS EFFORT ARE WELL SET FORTH IN AN OPINION DATED MAY 11, 1943, RENDERED BY THE OFFICE OF THE ATTORNEY GENERAL TO THE DIRECTOR OF LICENSES, STATE OF WASHINGTON, A COPY OF WHICH IS ATTACHED TO THIS STATEMENT AS EXHIBIT 7 AND IS BY REFERENCE MADE A PART HEREOF. THE CONCLUSION THEREIN IS THAT THE CONTRACTOR IS SUBJECT TO TAX ON THE VEHICLES, SINCE THE USAGE OF THE VEHICLES DOES NOT MEET THE SECOND PROVISION OF THE APPLICABLE STATUTE, WHICH REQUIRES, BROADLY, BOTH THE (1) GOVERNMENT OWNERSHIP, AND (2) OPERATION EXCLUSIVELY IN GOVERNMENT SERVICE, FOR EXEMPTION FROM TAX. THE OPINION OF THE STATE ATTORNEY GENERAL, THAT "THE MOTOR VEHICLES WHICH ARE USED IN THE OPERATIONS OF THE BOEING AIRCRAFT COMPANY ARE NOT USED EXCLUSIVELY BY THE GOVERNMENT OF THE UNITED STATES IN ITS SERVICE," PRESUMABLY WAS BASED ON THE FACT THAT THE CONTRACTOR, AS A SEPARATE ENTITY, PROFITS BY ITS OPERATION UNDER THE CPFF CONTRACTS PERFORMED FOR THE GOVERNMENT. THIS OPINION BY THE ATTORNEY GENERAL SHOWS THAT THE VEHICLES IN QUESTION COULD NOT LAWFULLY HAVE BEEN OPERATED BY THE CONTRACTOR UPON STATE HIGHWAYS IN NECESSARY PERFORMANCE OF THE CONTRACT WITHOUT THE SUBJECT LICENSES. THEREBY THIS SITUATION IS DISTINGUISHED FROM THAT IN 21 COMP. GEN. 769, CITED IN THE EXCEPTIONS, WHERE THERE WAS NO SHOWING TO THAT EFFECT.

5. THE AAF DISTRICT JUDGE ADVOCATE, IN A LETTER ADDRESSED TO THE AAF DISTRICT AUDITOR DATED SEPTEMBER 18, 1943, REACHED A CONCLUSION IDENTICAL TO THAT OF THE STATE ATTORNEY GENERAL AND FURTHER POINTED THE DIFFERENCE BETWEEN THIS CASE AND THAT INVOLVED IN 21 COMP. GEN. 769, CITED IN THE NOTICES OF EXCEPTION. A COPY OF THAT CORRESPONDENCE IS ALSO ATTACHED HERETO AS EXHIBIT 8 AND IS BY REFERENCE MADE A PART THEREOF.

6. SUBSEQUENT TO THE DECISION OF THE DISTRICT JUDGE ADVOCATE REFERRED TO HEREINABOVE, FURTHER OBJECTIONS TO PAYMENT OF THE SUBJECT LICENSE FEES AND TAXES WERE RAISED BY THE ARMY AIR FORCES. HOWEVER, BY LETTER ADDRESSED TO THE AAF DISTRICT AUDITOR DATED SEPTEMBER 9, 1944, THE DISTRICT JUDGE ADVOCATE ADVISED THAT THE JUDGE ADVOCATE GENERAL'S OFFICE "HAS CONCLUDED THAT THE PAYMENT OF SUCH TAXES WILL BE PROPER IN THIS INSTANCE," SEEMINGLY AS THE RESULT OF FURTHER STUDY AND CONFERENCES WITH STATE OFFICIALS ON THE MATTER. PURSUANT TO THAT DECISION, THE CONTRACTING OFFICER AT THIS ACTIVITY BY LETTER DATED SEPTEMBER 22, 1944, NOTIFIED THE CONTRACTOR "THAT THERE IS NOW NO FURTHER OBJECTION TO CONTRACTOR'S PAYMENT OF SUCH FEES AND TAXES," AND THAT "THESE WILL BE CONSIDERED ALLOWABLE ITEMS OF OVERHEAD COST UNDER BOEING'S CURRENT CPFF SUPPLY CONTRACTS.' COPIES OF THIS LATTER CORRESPONDENCE ARE ATTACHED HERETO AS EXHIBITS 9 AND 10, AND ARE BY REFERENCE MADE A PART OF THIS STATEMENT.

7. IT IS OBVIOUS THAT THIS CONTRACTOR, IN ORDER TO AVOID VIOLATION OF THE STATE CODE, (A MISDEMEANOR, EACH OFFENSE PUNISHABLE BY A FINE OF $250.00) HAS ACTED IN GOOD FAITH AND IN ACCORDANCE WITH PROVISIONS OF THE APPLICABLE LAWS OF THE STATE OF WASHINGTON AS CONSTRUED BY THE JUDGE ADVOCATE GENERAL, THE DISTRICT JUDGE ADVOCATE OF THE ARMY AIR FORCES, AND THE OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF WASHINGTON.

8. FOR THE REASONS SET FORTH ABOVE, THE CONTRACTOR REQUESTS RECONSIDERATION OF THE ALLOWABILITY OF THE SUBJECT EXPENDITURES AS ITEMS OF COST UNDER CPFF CONTRACT.

THE SUPREME COURT OF THE STATE OF WASHINGTON HAS HELD THAT THE MOTOR VEHICLE TAX IMPOSED BY THE STATE IS AN EXCISE TAX ON THE USE OF PERSONAL PROPERTY RATHER THAN A PROPERTY TAX. STATE V. SALTER, 190 WASH. 703, 70 P.2D 1056; CITY OF SPOKANE V. STATE, 198 WASH. 682, 89 P.2D 826. APPARENTLY, IN VIEW THEREOF, THE ATTORNEY GENERAL OF THE STATE OF WASHINGTON AND THE ADMINISTRATIVE OFFICIALS REFERRED TO BY THE CONTRACTOR ARE OF THE OPINION THAT THE IMPLIED CONSTITUTIONAL IMMUNITY OF THE UNITED STATES FROM STATE TAXATION OF GOVERNMENT PROPERTY IS NOT FOR APPLICATION IN THESE CASES AND THAT, CONSEQUENTLY, THE QUESTION AS TO THE CONTRACTOR'S LIABILITY FOR THE LICENSE FEES IS FOR DETERMINATION SOLELY ON THE BASIS OF WHETHER THE TRUCKS AND AUTOMOBILES WERE USED EXCLUSIVELY IN THE SERVICES OF THE GOVERNMENT, AS REQUIRED BY THE EXEMPTION PROVISIONS OF THE APPLICABLE STATE STATUTE. HOWEVER, IT DOES NOT APPEAR THAT THE USE TO WHICH THE EQUIPMENT MAY HAVE BEEN PUT CAN HAVE ANY MATERIAL BEARING ON SUCH QUESTION.

THE AGREEMENT UNDER WHICH THE EQUIPMENT WAS LOANED TO THE CONTRACTOR BY THE DEFENSE PLANT CORPORATION EXPRESSLY LIMITED THE CONTRACTOR'S LIABILITY FOR STATE AND LOCAL TAXES TO THOSE WHICH IT WAS LEGALLY BOUND TO PAY AND, AS A MATTER OF FACT, EXPRESSLY EXCEPTED "USE TAXES IN CONNECTION WITH THE PROGRAMS.' SIMILARLY, WHILE IT MAY BE THAT THE REIMBURSEMENT PROVISIONS OF THE PRIME CONTRACT AND OF SECTION 26.9 OF TREASURY DECISION 5000, INCORPORATED THEREIN BY REFERENCE, ARE SUFFICIENTLY BROAD TO AUTHORIZE REIMBURSEMENT TO THE CONTRACTOR FOR STATE AND LOCAL TAXES, THE SAID PROVISIONS NATURALLY MUST BE CONSTRUED AS CONTEMPLATING SUCH REIMBURSEMENT ONLY TO THE EXTENT SUCH TAXES ARE LAWFULLY ASSESSED.

THAT THE TITLE TO THE EQUIPMENT UNDER THE LEASE WAS VESTED AND REMAINED IN THE DEFENSE PLANT CORPORATION DURING THE PERIODS COVERED BY THE VOUCHERS IS NOT HERE DISPUTED IN THE RECORD. WITH RESPECT TO THE EXEMPTION FROM TAXATION OF THE PROPERTY OF THE RECONSTRUCTION FINANCE CORPORATION AND ITS AFFILIATES, SECTION 10 OF THE ACT OF JANUARY 22, 1932, 47 STAT. 9, AS AMENDED BY SECTION 3 OF THE ACT OF JUNE 10, 1941, 55 STAT. 248, PROVIDES, QUOTING FROM 15 U.S.C. 610, AS FOLLOWS:

ANY AND ALL NOTES, DEBENTURES, BONDS, OR OTHER SUCH OBLIGATIONS ISSUED BY THE CORPORATION SHALL BE EXEMPT BOTH AS TO PRINCIPAL AND INTEREST FROM ALL TAXATION (EXCEPT SURTAXES, ESTATE, INHERITANCE, AND GIFT TAXES) NOW OR HEREAFTER IMPOSED BY THE UNITED STATES, BY ANY TERRITORY, DEPENDENCY, OR POSSESSION THEREOF, OR BY ANY STATE, COUNTY, MUNICIPALITY, OR LOCAL TAXING AUTHORITY, EXCEPT AS PROVIDED IN SECTION 742A (A) OF TITLE 31. THE CORPORATION, INCLUDING ITS FRANCHISE, ITS CAPITAL, RESERVES, AND SURPLUS, AND ITS INCOME SHALL BE EXEMPT FROM ALL TAXATION NOW OR HEREAFTER IMPOSED BY THE UNITED STATES, BY ANY TERRITORY, DEPENDENCY, OR POSSESSION THEREOF, OR BY ANY STATE, COUNTY, MUNICIPALITY, OR LOCAL TAXING AUTHORITY; EXCEPT THAT ANY REAL PROPERTY OF THE CORPORATION SHALL BE SUBJECT TO STATE, TERRITORIAL, COUNTY, MUNICIPAL, OR LOCAL TAXATION TO THE SAME EXTENT ACCORDING TO ITS VALUE AS OTHER REAL PROPERTY IS TAXED. THE EXEMPTIONS PROVIDED FOR IN THE PRECEDING SENTENCE WITH RESPECT TO TAXATION (WHICH SHALL, FOR ALL PURPOSES, BE DEEMED TO INCLUDE SALES, USE, STORAGE, AND PURCHASE TAXES) SHALL BE CONSTRUED TO BE APPLICABLE NOT ONLY WITH RESPECT TO (1) THE DEFENSE PLANT CORPORATION, THE DEFENSE SUPPLIES CORPORATION, THE METALS RESERVE COMPANY, THE RUBBER RESERVE COMPANY, AND ANY OTHER CORPORATION HERETOFORE OR HEREAFTER ORGANIZED OR CREATED BY THE RECONSTRUCTION FINANCE CORPORATION UNDER SECTION 606B OF THIS TITLE, AS AMENDED, TO AID THE GOVERNMENT OF THE UNITED STATES IN ITS NATIONAL DEFENSE PROGRAM, (2) THE RFC MORTGAGE COMPANY, THE FEDERAL NATIONAL MORTGAGE ASSOCIATION, AND ANY OTHER PUBLIC CORPORATION HERETOFORE OR HEREAFTER ORGANIZED BY OR AT THE INSTANCE OF THE RECONSTRUCTION FINANCE CORPORATION, AND (3) THE DISASTER LOAN CORPORATION, AND ANY OTHER PUBLIC CORPORATION WHICH IS NOW OR WHICH MAY BE HEREAFTER WHOLLY FINANCED AND WHOLLY MANAGED BY THE RECONSTRUCTION FINANCE CORPORATION. SUCH EXEMPTIONS SHALL ALSO BE CONSTRUED TO BE APPLICABLE TO THE LOANS MADE, AND PERSONAL PROPERTY OWNED, BY THE RECONSTRUCTION FINANCE CORPORATION OR BY ANY CORPORATION REFERRED TO IN CLAUSE (1), (2) OR (3) OF THE PRECEDING SENTENCE, BUT SUCH EXEMPTIONS SHALL NOT BE CONSTRUED TO BE APPLICABLE IN ANY STATE TO ANY BUILDINGS WHICH ARE CONSIDERED BY THE LAWS OF SUCH STATE TO BE PERSONAL PROPERTY FOR TAXATION PURPOSES. (ITALICS SUPPLIED.)

THE CONGRESS THUS HAS SPECIFICALLY EXEMPTED THE "PERSONAL PROPERTY" OF THE " DEFENSE PLANT CORPORATION" FROM STATE TAXATION, INCLUDING FOR ALL PURPOSES "USE" AND OTHER TAXES, AND, CONSIDERING THE PURPOSE FOR WHICH THE DEFENSE PLANT CORPORATION WAS CREATED, THERE CAN BE NO DOUBT THAT THIS CONGRESSIONAL EXEMPTION WAS INTENDED TO COVER THE ASSESSMENT OF STATE TAXES WHICH OTHERWISE WOULD APPLY TO THE USE OF THE CORPORATION'S EQUIPMENT AND MACHINERY LEASED TO INDEPENDENT CONTRACTORS ENGAGED IN PRODUCING WAR SUPPLIES FOR THE GOVERNMENT. SEE HEARING BEFORE THE COMMITTEE ON BANKING AND CURRENCY, UNITED STATES SENATE, 77TH CONGRESS, ST SESSION, ON S. 1438, PAGES 8 TO 11. ALSO, SEE SENATE REPORT NO. 292, 77TH CONGRESS, ST SESSION, ON S. 1438, WHEREIN, WITH REFERENCE TO THE INTENT AND PURPOSES OF SECTION 3 OF THE SAID BILL WHICH LATER BECAME SECTION 3 OF THE ACT OF JUNE 10, 1941, SUPRA, THE COMMITTEE STATED:

THIS SECTION OF THE BILL REAFFIRMS THE ORIGINAL POLICY OF THE CONGRESS WITH RESPECT TO SUCH EXEMPTIONS * * * MAKING IT CLEAR (1) THAT SUCH EXEMPTIONS APPLY TO SALES, USE, STORAGE, AND PURCHASE TAXES, AND (2) THAT THE EXEMPTIONS APPLY TO THE LOANS AND PERSONAL PROPERTY OF THE CORPORATION.

THIS SECTION ALSO CLARIFIES THE POSITION OF VARIOUS CORPORATIONS OF A PUBLIC NATURE AFFILIATED WITH THE RECONSTRUCTION FINANCE CORPORATION BY PROVIDING THAT THE TAX EXEMPTIONS APPLICABLE TO THE RECONSTRUCTION FINANCE CORPORATION SHALL BE CONSTRUED AS APPLICABLE (1) TO PUBLIC CORPORATIONS ORGANIZED OR CREATED BY OR AT THE INSTANCE OF THE RECONSTRUCTION FINANCE CORPORATION, INCLUDING THE DEFENSE PLANT CORPORATION * * *.

THE SUPREME COURT OF THE UNITED STATES HAS RECOGNIZED THAT ANY CONSTITUTIONAL EXERCISE OF THE FEDERAL GOVERNMENT'S DELEGATED POWERS IS GOVERNMENTAL, SO THAT "WHEN CONGRESS CONSTITUTIONALLY CREATES A CORPORATION THROUGH WHICH THE FEDERAL GOVERNMENT LAWFULLY ACTS, THE ACTIVITIES OF SUCH CORPORATION ARE GOVERNMENTAL," AND " CONGRESS HAS THE POWER TO PROTECT THE INSTRUMENTALITIES WHICH IT HAS CONSTITUTIONALLY CREATED" BY PRESCRIBING IMMUNITY FOR THEIR ACTIVITIES. FED. LAND BANK V. BISMARCK CO., 314 U.S. 95. MOREOVER, TO THE EXTENT THE STATUTE INCORPORATED INTO 15 U.S.C. 610, SUPRA, MIGHT BE SAID TO BE IN CONFLICT WITH THE TAXING STATUTE OF THE STATE OF WASHINGTON THE FORMER NECESSARILY IS TO BE REGARDED AS CONTROLLING, IT BEING WELL SETTLED THAT A FEDERAL STATUTE, SPECIFIC IN ITS COVERAGE, MUST PREVAIL OVER ANY INCONSISTENT LAWS OF A STATE. THOMSON V. PACIFIC RAILROAD, 9 WALL. 579, 588; SMITH V. KANSAS CITY TITLE CO., 255 U.S. 180, 209; FEDERAL LAND BANK V. CROSLAND, 261 U.S. 374; FEDERAL LAND BANK V. PRIDDY, 295 U.S. 229. IN THIS CONNECTION IT WILL BE NOTED THAT IN ALABAMA V. KING AND BOOZER, 314 U.S. 1, WHICH IS THE CASE CHIEFLY RELIED UPON BY THE ATTORNEY GENERAL OF THE STATE OF WASHINGTON IN HIS OPINION OF MAY 11, 1943, THE SUPREME COURT OF THE UNITED STATES PARTICULARLY STRESSED THE ABSENCE OF CONGRESSIONAL EXEMPTION WITH RESPECT TO STATE TAXATION UNDER "COST-PLUS" CONTRACTS WITH THE GOVERNMENT. ACCORDINGLY, IN VIEW OF THE SPECIFIC CONGRESSIONAL EXEMPTION HERE INVOLVED, AS HEREINBEFORE SET FORTH, THERE APPEARS NO ALTERNATIVE TO THE CONCLUSION THAT THE CONTRACTOR WAS NOT LEGALLY OBLIGATED FOR THE LICENSE FEES COVERED BY THE VOUCHERS AND THAT, THEREFORE, PAYMENT ON THE VOUCHERS IS NOT AUTHORIZED.

THE VOUCHERS, TOGETHER WITH THEIR SUPPORTING PAPERS, ARE RETURNED HEREWITH.