B-73659, APR 12, 1948

B-73659: Apr 12, 1948

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THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF OCTOBER 28. FOR DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER TRANSMITTED THEREWITH IN THE AMOUNT OF $36.27 STATED IN FAVOR OF THE MASSMAN CONSTRUCTION COMPANY. THE SUBJECT CLAIM REPRESENTS THE ALLEGED INCREASED FEDERAL EXCISE TAX ON CERTAIN LUBRICATING OIL AND ELECTRIC LIGHT BULBS AND TUBES PROCURED BY THE ABOVE-MENTIONED CONTRACTORS FOR USE IN CONNECTION WITH THE PERFORMANCE OF THE SUBJECT CONTRACT AND THE CLAIM IS STATED TO BE PAYABLE UNDER THE PROVISIONS OF PARAGRAPH 1-32 OF THE SPECIFICATIONS OF THE CONTRACT READING AS FOLLOWS: "ADJUSTMENT OF CONTRACT PRICE BY REASON OF CHANGE IN FEDERAL. THE CONTRACT PRICE WILL BE CONSIDERED TO INCLUDE ALL FEDERAL.

B-73659, APR 12, 1948

PRECIS-UNAVAILABLE

MAJOR WILLIAM L. BENTON, CE, U.S. ARMY:

THOUGH OFFICE OF CHIEF OF ENGINEERS,

DEPARTMENT OF THE ARMY

MAJOR BENTON:

BY THIRD INDORSEMENT DATED FEBRUARY 10, 1948, FROM THE CHIEF OF ENGINEERS, DEPARTMENT OF THE ARMY, THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF OCTOBER 28, 1947, FOR DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER TRANSMITTED THEREWITH IN THE AMOUNT OF $36.27 STATED IN FAVOR OF THE MASSMAN CONSTRUCTION COMPANY, METCALFE CONSTRUCTION COMPANY AND GORDON HAMILTON CONTRACTING COMPANY INC., UNDER CONTRACT NO. W -612 ENG-687, DATED JANUARY 14, 1942, PROVIDING FOR CERTAIN CONSTRUCTION WORK ON A LUMP-SUM BASIS.

THE SUBJECT CLAIM REPRESENTS THE ALLEGED INCREASED FEDERAL EXCISE TAX ON CERTAIN LUBRICATING OIL AND ELECTRIC LIGHT BULBS AND TUBES PROCURED BY THE ABOVE-MENTIONED CONTRACTORS FOR USE IN CONNECTION WITH THE PERFORMANCE OF THE SUBJECT CONTRACT AND THE CLAIM IS STATED TO BE PAYABLE UNDER THE PROVISIONS OF PARAGRAPH 1-32 OF THE SPECIFICATIONS OF THE CONTRACT READING AS FOLLOWS:

"ADJUSTMENT OF CONTRACT PRICE BY REASON OF CHANGE IN FEDERAL, STATE, AND LOCAL TAXES.-- THE CONTRACT PRICE WILL BE CONSIDERED TO INCLUDE ALL FEDERAL, STATE, AND LOCAL TAXES IMPOSED PRIOR TO THE DATE OF OPENING BIDS AND APPLICABLE TO THE UNDERTAKING. IF ANY PRIVILEGE, SALES, GROSS RECEIPT, OR OTHER TAX (EXCLUSIVE OF TAXES ON NET INCOME OR UNDISTRIBUTED PROFITS) APPLICABLE TO THE UNDERTAKING AND PAYABLE DIRECTLY BY THE CONTRACTOR IS IMPOSED OR CHANGED AFTER THE DATE OF OPENING OF BIDS BY FEDERAL OR STATE ENACTMENT, THEN THE CONTRACT PRICE WILL BE INCREASED OR DECREASED ACCORDINGLY AND ANY AMOUNT DUE OR CHARGEABLE AGAINST THE CONTRACTOR AS A RESULT THEREOF WILL BE ADJUSTED ON PAYMENT VOUCHERS AS SEPARATE ITEMS."

AT THE TIME OF THE EXECUTION OF THE SUBJECT CONTRACT ON JANUARY 14, 1942, THE PERTINENT PROVISIONS OF SUBCHAPTER A, ENTITLED "MANUFACTURES' EXCISE TAXES," OF CHAPTER 26 OF THE INTERNAL REVENUE CODE PROVIDED AS FOLLOWS:

"3406. EXCISE TAXES IMPOSED BY THE REVENUE ACT OF 1941.

"(A) IMPOSITION. THERE SHALL BE IMPOSED ON THE FOLLOWING ARTICLES, SOLD BY THE MANUFACTURER, PRODUCER, OR IMPORTER, A TAX EQUIVALENT TO THE RATE, ON THE PRICE FOR WHICH SOLD, SET FORTH IN THE FOLLOWING PARAGRAPHS (INCLUDING IN EACH CASE PARTS OR ACCESSORIES OF SUCH ARTICLES SOLD ON OR IN CONNECTION THEREWITH, OR WITH THE SALE THEREOF):

"(10) ELECTRIC LIGHT BULBS AND TUBES.

"ELECTRIC LIGHT BULBS AND TUBES, NOT INCLUDING ARTICLES TAXABLE UNDER ANY OTHER PROVISION OF THIS SUBCHAPTER, 5 PER CENTUM.

"3413. TAX ON LUBRICATING OILS.

"THERE SHALL BE IMPOSED UPON LUBRICATING OILS SOLD IN THE UNITED STATES BY THE MANUFACTURER OR PRODUCER A TAX AT THE RATE OF FOUR AND HALF CENTS A GALLON TO BE PAID BY THE MANUFACTURER OR PRODUCER. ***"

BY THE ACT OF FEBRUARY 25, 1944, 59 STAT. 61, THE TAX RATE ON ELECTRIC LIGHT BULBS AND TUBES WAS INCREASED FROM 5 TO 20 PER CENTUM; AND BY THE ACT OF OCTOBER 21, 1942, 56 STAT. 977, THE TAX ON LUBRICATING OIL WAS INCREASED FROM 4 1/2 TO 6 CENTS PER GALLON. HENCE, THERE CAN BE NO DOUBT THAT THE TAXES HERE INVOLVED WERE "CHANGED" WITHIN THE MEANING OF THAT TERM AS USED IN THE ABOVE-QUOTED TAX CLAUSE OF THE SUBJECT CONTRACT. BUT THAT CLAUSE DOES NOT PURPORT TO STIPULATE FOR AN INCREASE OR DECREASE IN THE CONTRACT PRICE ON ACCOUNT OF ANY "CHANGED" TAXES OTHER THAN THOSE "APPLICABLE TO THE UNDERTAKING AND PAYABLE DIRECTLY BY THE CONTRACTOR."

OBVIOUSLY, THE TAXES PRESCRIBED BY THE FEDERAL STATUTES HERE INVOLVED ARE IMPOSED UPON AND PAID BY A MANUFACTURER, PRODUCER OR IMPORTER, AND THERE IS NOTHING IN THE LAWS REQUIRING THAT SUCH TAXES BE COLLECTED FROM A VENDEE OR CONSUMER. OF COURSE, IT IS UNDOUBTEDLY TRUE THAT THE CLAIMANTS WERE REQUIRED TO PAY MORE FOR THE SUBJECT MERCHANDISE THAN THEY WOULD HAVE BEEN REQUIRED TO PAY HAD THE TAXES THEREON NOT BEEN INCREASED, BUT SUCH ADDITIONAL PAYMENTS DID NOT CONSTITUTE OR REPRESENT TAXES. A TAX ONCE PAID CEASES TO BE SUCH, AND WHEN AN EQUIVALENT CHARGE IS PASSED ON TO A SUCCESSIVE PURCHASE OF THE MERCHANDISE ON WHICH THE TAX WAS IMPOSED, IT IS NOTHING MORE THAN A PART OF THE COST OF MERCHANDISE. SEE LASH'S PRODUCTS COMPANY V. UNITED STATES, 278 U.S. 175, 176. ALSO SEE 15 COMP.GEN. 516, AND DECISIONS CITED THEREIN.

MOREOVER, THE LANGUAGE USED BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF UNITED STATES V. COWDEN MANUFACTURING COMPANY, 312 U.S. 34, 37, IS OF SPECIAL IMPORTANCE IN THE CONSIDERATION OF THE INSTANT MATTER. IN THAT CASE THE TAX CLAUSE INVOLVED PROVIDES FOR REIMBURSEMENT TO A CONTRACTOR OF CERTAIN TYPES OF TAXES "PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR" AND THE COURT, IN HOLDING THAT THE GOVERNMENT WAS NOT OBLIGATED TO COMPENSATE THE CONTRACTOR FOR THE AMOUNTS PAID BY IT TO THE SUBCONTRACTOR IN REIMBURSEMENT OF THE TAXES PAID BY THEM ON MATERIALS FORMING A PART OF THE SUPPLIES FURNISHED TO THE GOVERNMENT, SAID, IN PART:

"MOREOVER, THE CLAUSE STIPULATES FOR REIMBURSEMENT OF TAXES 'PAID BY THE CONTRACTOR.' IT IS REASONABLE TO CONCLUDE THAT THIS PHRASE ALSO CONTEMPLATES PAYMENT OF TAXES TO THE UNITED STATES IN CONSEQUENCE OF AN OBLIGATION IMPOSED BY STATUTE UPON RESPONDENT. FOR WHILE IN A SENSE, PERHAPS, RESPONDENT 'PAID' THESE PROCESSING TAXES, IT IS MORE ACCURATE TO SAY THAT THEY WERE 'PAID' BY THE SUBCONTRACTOR WHO MERELY SHIFTED THEIR BURDEN TO RESPONDENT AS A SEPARATE ITEM OF THE CONTRACT PRICE. THE CLAUSE AS A WHOLE INDICATES THAT THIS WAS THE SENSE TO BE ATTRIBUTED TO THE PHRASE QUOTED."

IN VIEW OF THE FOREGOING, IT MUST BE CONCLUDED THAT THE FEDERAL TAXES HERE INVOLVED WERE NOT "PAYABLE DIRECTLY BY" THE CLAIMANTS WITHIN THE MEANING OF THAT TERM AS USED IN THE TAX CLAUSE CONTAINED IN THE SUBJECT CONTRACT AND THAT THE CONTRACT PRICE MAY NOT BE INCREASE BY AN AMOUNT REPRESENTING THE ADDITIONAL CHARGE REQUIRED TO BE PAID BY THE CLAIMANTS ON ACCOUNT OF THE TAX IN QUESTION.

ACCORDINGLY, YOU ARE ADVISED THAT PAYMENT ON THE INSTANT VOUCHER-- WHICH TOGETHER WITH RELATED PAPERS IS RETURNED HEREWITH-- IS NOT AUTHORIZED.

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