B-73660, APR 13, 1948

B-73660: Apr 13, 1948

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THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF NOVEMBER 20. FOR DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER TRANSMITTED THEREWITH IN THE AMOUNT OF $15.63 STATED IN FAVOR OF THE MASSMAN CONSTRUCTION COMPANY. THE INSTANT CLAIM IS REPRESENTED AS BEING THE AMOUNT OF THE TENNESSEE SALES AND USE TAXES PAID BY THE ABOVE-MENTIONED CONTRACTORS ON VARIOUS ITEMS OF MERCHANDISE PROCURED OR RENTED BY THEM DURING JULY. 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-73660, APR 13, 1948

PRECIS-UNAVAILABLE

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

BY THIRD INDORSEMENT DATED FEBRUARY 12, 1948, FROM THE CHIEF OF ENGINEERS, DEPARTMENT OF THE ARMY, THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF NOVEMBER 20, 1947, FOR DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER TRANSMITTED THEREWITH IN THE AMOUNT OF $15.63 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 INSTANT CLAIM IS REPRESENTED AS BEING THE AMOUNT OF THE TENNESSEE SALES AND USE TAXES PAID BY THE ABOVE-MENTIONED CONTRACTORS ON VARIOUS ITEMS OF MERCHANDISE PROCURED OR RENTED BY THEM DURING JULY, AUGUST AND SEPTEMBER, 1947, 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."

THE TENNESSEE RETAILERS' SALES TAX ACT, PUBLIC ACTS OF TENNESSEE, 1947, CHAPTER 3, APPROVED JANUARY 22, 1947, PROVIDES FOR THE COLLECTION COMMENCING JUNE 1, 1947, OF AN EXCISE TAX AT THE RATE PRESCRIBED THEREIN FOR THE PRIVILEGE OF SELLING AT RETAIL, RENTING, USING, CONSUMING, DISTRIBUTING OR STORING FOR USE OR CONSUMPTION OF TANGIBLE PERSONNEL PROPERTY IN THE STATE, WITH CERTAIN EXCEPTIONS NOT HERE MATERIAL. THE ACT EXPRESSLY STIPULATES, IN PERTINENT PART, THAT THE "PRIVILEGE TAX HEREIN LEVIED, MEASURED BY RETAIL SALES SHALL BE COLLECTED BY THE DEALER FROM THE PURCHASER OR CONSUMER" (SECTION 5(A)); THAT "DEALERS SHALL, AS FAR AS PRACTICABLE ADD THE AMOUNTS OF THE TAX IMPOSED UNDER THIS ACT TO THE SALES PRICE OR CHARGE" (SECTION 5(B)); THAT A "PERSON ENGAGED IN ANY BUSINESS TAXABLE UNDER THIS ACT SHALL NOT ADVERTISE OR HOLD OUT TO THE PUBLIC, IN ANY MANNER, DIRECTLY OR INDIRECTLY, THAT HE WILL ABSORB ALL OR ANY PART OF THE TAX, OR THAT HE WILL RELIEVE THE PURCHASER OF THE PAYMENT OF ALL OR ANY PART OF THE TAX" (SECTION 5(E)); AND THAT "ANY DEALER WHO SHALL FAIL, NEGLECT, OR REFUSE TO COLLECT THE TAX HEREIN PROVIDED, EITHER BY HIMSELF OR THROUGH HIS AGENTS OR EMPLOYEES, SHALL, IN ADDITION TO THE PENALTY OF BEING LIABLE FOR AND PAYING THE TAX HIMSELF, BE GUILTY OF A MISDEMEANOR" (SECTION 5(D)); AND SUBJECT TO CERTAIN CRIMINAL PENALTIES. HENCE, THE LEGAL INCIDENCE OF THE TAX MUST BE REGARDED AS RESTING UPON A VENDEE OR USER; AND SINCE A VENDOR OR HIRER MERELY SERVES AS A COLLECTING AGENT FOR THE TAX, THE CONCLUSION IS REQUIRED SO FAR AS THE MATTER HERE FOR CONSIDERATION IS CONCERNED, THAT THE TAX, LEVIED AS IT WAS SUBSEQUENT TO THE EXECUTION OF THE SUBJECT CONTRACT, IS "PAYABLE DIRECTLY BY THE CONTRACTOR" WITHIN THE MEANING OF THE TERM AS USED IN THE ABOVE-QUOTED TAX CLAUSE.

THE FURTHER QUESTION REMAINS AS TO WHETHER THE TENNESSEE TAX PAYMENTS FOR WHICH THE CLAIMANTS SEEK REIMBURSEMENT PROPERLY MAY BE VIEWED AS "APPLICABLE TO THE UNDERTAKING" COVERED BY THE SUBJECT CONTRACT, THAT IS, THE CONSTRUCTION OF CENTER HILL DAM AND APPURTENANCES, INCLUDING ACCESS ROAD, CANEY FORK RIVER, DEKALB COUNTY, TENNESSEE. IN THIS CONNECTION, THE PROVISION REASONABLY MAY BE CONSTRUED AS COMPREHENDING TAXES OR TAX CHANGES WHICH RESULT DIRECTLY IN INCREASING THE COST OF PERFORMING THE CONTRACT WORK-- NOT NECESSARILY CONFINED TO TAXES ON ITEMS ACTUALLY INCORPORATED INTO THE DAM AND APPURTENANCES. IN OTHER WORDS, IT MUST BE CONSIDERED THAT A TAX ON ANYTHING THAT IS INDISPENSABLE TO THE WORK AND COMPLETELY EXPENDED OR CONSUMED EXCEPT FOR SOME SLIGHT SALVAGE VALUE, IN THE PERFORMANCE OF THE CONTRACT FALLS WITHIN THE REASONABLE AND INTENDED MEANING OF THE WORDS "APPLICABLE TO THE UNDERTAKING." OF COURSE, THE OBLIGATION OF THE GOVERNMENT WITH RESPECT TO THE TAX ON ANY SINGLE ITEM CAN BE DETERMINED ONLY AFTER ALL THE FACTS CONCERNING THE PURCHASE, NEED, AND USE OF THAT PARTICULAR ITEM HAVE BEEN CONSIDERED IN THE LIGHT OF THE ABOVE PRINCIPLES.

IN THE CASE OF THE VARIOUS TAXES INCLUDED IN THE INSTANT VOUCHER THE ONLY INFORMATION IN THE PRESENT RECORD CONCERNING THE PURCHASE, NEED, AND USE OF THE VARIOUS ITEMS IS THAT CONTAINED IN THE ADMINISTRATIVE REPORT." HOWEVER, THE STATEMENTS CONTAINED THEREIN APPEAR TO HAVE BEEN MADE WITHOUT PERSONAL KNOWLEDGE OF THE FACTS, REFERENCE BEING MADE ONLY TO THE GENERAL, TYPICAL, OR ORDINARY USES OF INDIVIDUAL ITEMS. ACCORDINGLY, YOU MAY BE ADVISED THAT PAYMENT ON THE SUBJECT VOUCHER IS AUTHORIZED TO THE EXTENT CONSISTENT WITH THE PRINCIPLES SET OUT HEREIN. IF THERE BE DOUBT AS TO THE LIABILITY OF THE GOVERNMENT TO REIMBURSE THE CLAIMANTS FOR CERTAIN TAXES, THE MATTER SHOULD BE TRANSMITTED TO THE CLAIMS DIVISION OF THE GENERAL ACCOUNTING OFFICE FOR DIRECT SETTLEMENT, TOGETHER WITH A FULL STATEMENT OF THE PERTINENT FACTS.

THE VOUCHER AND RELATED PAPERS ARE RETURNED HEREWITH.