B-30754, JUNE 2, 1943, 22 COMP. GEN. 1059

B-30754, JUNE 2, 1943, 22 COMP. GEN. 1059

FEDERAL TRANSPORTATION-OF-PROPERTY TAX - STATUS AS "INCREASE" IN "COST" OF CONTRACT MATERIALS OR ,FREIGHT CHARGES" THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY AND REQUIRED TO BE PAID BY A LUMP SUM CONSTRUCTION CONTRACTOR IN CONNECTION WITH SHIPMENTS OF SPECIFIED MATERIAL AND EQUIPMENT ALLOCATED TO THE CONTRACTOR BY THE GOVERNMENT FOR USE IN PERFORMANCE OF THE CONTRACT WORK DOES NOT REPRESENT AN "INCREASE" IN THE ,COST" OF THE MATERIALS AND EQUIPMENT OR AN "INCREASE" IN THE "FREIGHT CHARGES" WITHIN THE MEANING OF A CONTRACT CLAUSE PROVIDING FOR "AN EQUITABLE ADJUSTMENT" ON ACCOUNT OF "ANY INCREASE OR DECREASE IN THE AMOUNT" SPECIFIED IN THE CONTRACT "TO COVER THE COST OF THE MATERIALS AND EQUIPMENT ALLOCATED TO THE CONTRACTOR" AND THE "FREIGHT CHARGES" THEREON.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, JUNE 2, 1943:

THERE HAS BEEN CONSIDERED YOUR LETTER OF MARCH 26, 1943, AS FOLLOWS:

ENCLOSED HEREWITH IS A COPY OF CIRCULAR LETTER NO. 1587 ( CONSTRUCTION DIVISION NO. 421), DATED MAY 11, 1942, ISSUED BY THE CHIEF OF ENGINEERS, RELATIVE TO CENTRAL PROCUREMENT OR ALLOCATION OF CERTAIN CONSTRUCTION MATERIALS AND EQUIPMENT.

PURSUANT TO THE INSTRUCTIONS CONTAINED IN THIS CIRCULAR LETTER, CONSTRUCTION MATERIALS AND EQUIPMENT HAVE BEEN ALLOCATED TO LUMP SUM CONSTRUCTION CONTRACTORS AND THE PROCEDURE FOLLOWED HAS BEEN TO PROVIDE, IN THE SPECIFICATIONS RELATIVE TO THE CONSTRUCTION WORK, THAT CERTAIN OF THE MATERIALS AND EQUIPMENT WILL BE ALLOCATED BY THE GOVERNMENT TO THE CONTRACTOR. IN SUCH CASES THE GOVERNMENT DESIGNATES THE SOURCE OR SOURCES OF THE MATERIALS AND EQUIPMENT TO BE ALLOCATED AND ALLOCATES SUCH MATERIALS OR EQUIPMENT TO THE CONTRACTOR IN SUFFICIENT QUANTITIES TO CONSTRUCT THE BUILDING OR BUILDINGS FOR WHICH THE CONTRACT WAS AWARDED. SUCH MATERIALS AND EQUIPMENT ARE SET OUT IN THE SPECIFICATIONS AND AN AMOUNT IS SET UP IN THE CONTRACT PRICE TO COVER THE COST THEREOF, PLUS FREIGHT CHARGES TO THE RAILHEAD NEAREST THE JOB SITE. THE CONTRACT ALSO PROVIDES THAT THE CONTRACTOR SHALL KEEP AN ACCURATE RECORD OF THE COST OF THE ALLOCATED MATERIALS AND EQUIPMENT, AND THE FREIGHT CHARGES THEREON TO THE NEAREST RAILHEAD, AND THAT "AN EQUITABLE ADJUSTMENT COVERING AN INCREASE OR DECREASE IN THE AMOUNT SET UP ABOVE SHALL BE MADE AFTER THE COMPLETION OF THE DELIVERY OF THE ALLOCATED MATERIALS AND EQUIPMENT.'

TO PUT ITSELF IN POSITION TO MAKE SUCH ALLOCATIONS, THE GOVERNMENT NEGOTIATES WITH SUPPLIERS OF THE MATERIALS AND EQUIPMENT AND OBTAINS FROM THEM BIDS TO SELL SUCH MATERIALS AND EQUIPMENT AT A SPECIFIED PRICE EITHER TO THE GOVERNMENT OR TO A CONTRACTOR DESIGNATED BY THE GOVERNMENT. AFTER THE GOVERNMENT HAS DESIGNATED TO THE CONTRACTOR THE SOURCE OR SOURCES OF THE MATERIALS AND EQUIPMENT SO ALLOCATED, THE CONTRACTOR PLACES AN APPROVED PURCHASE ORDER AGAINST THE SOURCE DESIGNATED BY THE GOVERNMENT AND THE MATERIALS AND EQUIPMENT ARE SHIPPED FROM THAT ALLOCATED SOURCE TO THE CONTRACTOR AND PAID FOR BY HIM, AND THE CONTRACTOR IS REIMBURSED BY THE GOVERNMENT FOR THE COST OF THE MATERIALS AND EQUIPMENT SO ALLOCATED PLUS FREIGHT CHARGES TO THE RAILHEAD NEAREST THE JOB SITE. THE PROVISIONS OF THE CONTRACT RELATIVE THERETO ARE SET OUT IN ENCLOSURES A AND B ANNEXED TO THE CIRCULAR LETTER. ANY EXCESS MATERIALS OR EQUIPMENT ALLOCATED TO A PARTICULAR JOB BECOME THE PROPERTY OF THE GOVERNMENT, SINCE THE CONTRACTOR IS REIMBURSED FOR THE FULL COST OF SUCH MATERIALS AND EQUIPMENT PLUS FREIGHT CHARGES, AS ABOVE DESCRIBED. THE CONTRACTOR SUBMITS TO THE GOVERNMENT PAID INVOICES AND FREIGHT BILLS COVERING THE COST OF SUCH ALLOCATED MATERIALS AND EQUIPMENT, AND THE AMOUNT OF SUCH FREIGHT CHARGES. INCLUDED IN THE BILLS FOR FREIGHT CHARGES ARE THE AMOUNTS OF ANY FEDERAL TRANSPORTATION TAXES PAID BY THE CONTRACTOR PURSUANT TO SECTION 620 OF THE REVENUE ACT OF 1942.

A QUESTION HAS BEEN RAISED AS TO WHETHER IN SUCH A CASE THE CONTRACTOR IS ENTITLED TO REIMBURSEMENT FOR THE PORTION OF THE FREIGHT CHARGES COVERING THE TRANSPORTATION TAX.

THE OPINION OF THE COMPTROLLER GENERAL, DATED JANUARY 2, 1943, B 30754, DEALING WITH THE EFFECT OF THE TAX ARTICLE THERE CONSIDERED, WITH RESPECT TO THE TRANSPORTATION TAX DOES NOT COVER THE POINT HERE INVOLVED. FURTHER, THE RULING OF THE COMMISSIONER OF INTERNAL REVENUE MENTIONED IN YOUR OPINION OF JANUARY 2, 1943, WOULD INDICATE THAT THE EXEMPTION FROM THE TRANSPORTATION TAX GRANTED BY SUBSECTION (B) OF SAID SECTION 620 IS NOT APPLICABLE BECAUSE THE FREIGHT CHARGES ARE NOT DIRECTLY PAID BY THE GOVERNMENT. THE QUESTION ARISES, HOWEVER, WHETHER REIMBURSEMENT OF THE AMOUNT OF SUCH TRANSPORTATION TAX DOES NOT FAIRLY COME WITHIN THE PURVIEW OF THE GOVERNMENT'S CONTRACTUAL OBLIGATION TO REIMBURSE THE CONTRACTOR FOR "FREIGHT CHARGES TO THE RAILHEAD NEAREST THE JOB SITE.' IT SEEMS CLEAR FROM THE ALLOCATED MATERIALS CLAUSES (THE TEXTS OF WHICH ARE SHOWN IN PARAGRAPH B OF ENCLOSURES A AND B ABOVE REFERRED TO) THAT IT WAS THE INTENTION OF BOTH THE GOVERNMENT AND THE CONTRACTOR THAT THE GOVERNMENT WOULD ASSUME THE RISK THAT THE TOTAL CHARGES FOR (1) THE COST OF THE ALLOCATED MATERIALS AND EQUIPMENT AND (2) THE TRANSPORTATION THEREOF TO THE DESIGNATED RAILHEAD WOULD AMOUNT TO A LARGER SUM THAN THAT SPECIFIED IN THE CONTRACT, AND THAT THE CONTRACTOR WAS TO BE PROTECTED AGAINST SUCH RISK. THE PROVISION OF THE CONTRACT THAT "AN EQUITABLE ADJUSTMENT COVERING AN INCREASE OR DECREASE IN THE AMOUNT SET UP ABOVE SHALL BE MADE AFTER THE COMPLETION OF THE DELIVERY OF THE ALLOCATED MATERIALS AND EQUIPMENT" REQUIRES THIS INTERPRETATION. WHETHER THE PROVISIONS OF THE CONTRACT WITH RESPECT TO "FREIGHT CHARGES" FAIRLY INCLUDE THE TRANSPORTATION TAX, HOWEVER, IS NOT CLEAR. CERTAINLY THIS QUESTION WAS NOT RAISED OR DEALT WITH BY YOUR OPINION OF JANUARY 2, 1943.

IT IS REQUESTED, THEREFORE, THAT YOU ADVISE ME WHETHER YOUR OFFICE WILL APPROVE THE REIMBURSEMENT TO CONTRACTORS OF THE AMOUNT OF THE FEDERAL PROPERTY TRANSPORTATION TAXES PAID OR BORNE BY THEM ON OR AFTER DECEMBER 1, 1942, WITH RESPECT TO FREIGHT CHARGES WHICH THE GOVERNMENT IS REQUIRED TO PAY UNDER THE ALLOCATED MATERIALS AND EQUIPMENT CLAUSES DISCUSSED IN THIS LETTER.

SECTION 3475 OF THE INTERNAL REVENUE CODE, ENTITLED " TRANSPORTATION OF PROPERTY," AS ENACTED BY SECTION 620 OF THE REVENUE ACT OF 1942, 56 STAT. 798, 979, PROVIDES, IN PERTINENT PART:

(A)TAX.--- THERE SHALL BE IMPOSED UPON THE AMOUNT PAID WITHIN THE UNITED STATES AFTER THE EFFECTIVE DATE OF THIS SECTION ( DECEMBER 1, 1942) FOR THE TRANSPORTATION ON AND AFTER SUCH EFFECTIVE DATE, OF PROPERTY BY RAIL, MOTOR VEHICLE, WATER, OR AIR FROM ONE POINT IN THE UNITED STATES TO ANOTHER, A TAX EQUAL TO 3 PERCENTUM OF THE AMOUNT SO PAID, EXCEPT THAT, IN THE CASE OF COAL, THE RATE OF TAX SHALL BE 4 CENTS PER SHORT TON. * * *

(B) EXEMPTION OF GOVERNMENT TRANSPORTATION.--- THE TAX IMPOSED UNDER THIS SECTION 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.

(C) RETURNS AND PAYMENT.--- THE TAX IMPOSED BY THIS SECTION SHALL BE PAID BY THE PERSON MAKING THE PAYMENT SUBJECT TO THE TAX. EACH PERSON RECEIVING ANY PAYMENT SPECIFIED IN SUBSECTION (A) SHALL COLLECT THE AMOUNT OF THE TAX IMPOSED FROM THE PERSON MAKING SUCH PAYMENT, AND SHALL * * * MAKE A RETURN * * * AND PAY THE TAXES * * *.

IT IS A UNIVERSALLY ACCEPTED RULE OF LAW THAT VALID CONTRACTS ARE TO BE ENFORCED AND PERFORMED AS WRITTEN AND THAT THE FACT THAT SUPERVENING OR UNFORESEEN CAUSES RENDER PERFORMANCE MORE BURDENSOME OR LESS PROFITABLE, OR EVEN OCCASION A LOSS, IS NOT SUFFICIENT TO EXCUSE PERFORMANCE OR TO ENTITLE A CONTRACTOR TO ADDITIONAL COMPENSATION. HENCE THERE CAN BE NO OBLIGATION ON THE PART OF THE UNITED STATES TO REIMBURSE A CONTRACTOR FOR THE AMOUNT OF A TAX OR OTHER CHARGE REQUIRED TO BE PAID BY HIM IN CONNECTION WITH THE PERFORMANCE OF HIS GOVERNMENT CONTRACT AND WHICH WAS NOT INCLUDED IN HIS QUOTED PRICES UNLESS THE CONTRACT EXPRESSLY SO PROVIDES. AND IT IS APPARENT FROM THE DECISIONS OF THE SUPREME COURT OF THE UNITED STATES IN THE CASES OF UNITED STATES V. GLENN L. MARTIN CO., 308 U.S. 62; AND UNITED STATES V. COWDEN MANUFACTURING CO., 312 U.S. 34, THAT THE SCOPE OF THE REIMBURSEMENT PROVISIONS CONTAINED IN A GOVERNMENT CONTRACT SHOULD NOT BE EXTENDED BY ADMINISTRATIVE OR JUDICIAL INTERPRETATION TO EMBRACE A CASE NOT CLEARLY COMING WITHIN THE MEANING OF THE LANGUAGE USED.

IN KEEPING WITH THE FOREGOING IT WAS HELD IN THE DECISION OF JANUARY 2, 1943, 22 COMP. GEN. 583, MENTIONED BY YOU, THAT A CONTRACT CLAUSE PROVIDING FOR THE REIMBURSEMENT TO A CONTRACTOR OF PAYMENTS MADE BY HIM ON ACCOUNT OF SUBSEQUENTLY IMPOSED TAXES "DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK" COVERED BY THE CONTRACT "OR THE MATERIALS USED IN THE MANUFACTURE THEREOF" OR LAID ,DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, CONSTRUCTION OR SALE OF SUCH SUPPLIES, WORK OR MATERIALS" DOES NOT COMPREHEND A PAYMENT REPRESENTING THE PROPERTY TRANSPORTATION TAX IMPOSED BY THE ABOVE QUOTED STATUTORY PROVISIONS. ALSO, SEE 22 COMP. GEN. 623.

HERE IT APPEARS THAT THE PERTINENT TERMS OF THE LUMP SUM CONSTRUCTION CONTRACT ALLOCATED MATERIALS CLAUSES TO WHICH YOU REFER AND WHICH ARE CONTAINED IN THE ENCLOSURES MARKED "A" AND "B" ACCOMPANYING CIRCULAR LETTER NO. 1587 ( CONSTRUCTION DIVISION NO. 421), DATED MAY 11, 1942, ISSUED BY THE CHIEF OF ENGINEERS, PROVIDE FOR "AN EQUITABLE ADJUSTMENT" ON ACCOUNT OF ANY "INCREASE OR DECREASE IN THE AMOUNT" INCLUDED IN THE CONTRACT PRICE AND SET FORTH IN SAID CLAUSES "TO COVER THE COST OF THE MATERIALS AND EQUIPMENT ALLOCATED TO THE CONTRACTOR" AND THE "FREIGHT CHARGES TO THE RAILHEAD NEAREST THE JOB SITE.'

SUCH PROVISIONS CLEARLY REQUIRE A FAIR AND JUST SETTLEMENT BY THE GOVERNMENT AND THE CONTRACTOR IN RESPECT TO THE MATTERS COMING WITHIN THE SCOPE OF THE SAID CLAUSES. HOWEVER, IT IS TO BE OBSERVED THAT THE CLAUSES DO NOT PURPORT TO STIPULATE FOR SUCH AN ADJUSTMENT WITH RESPECT TO ALL EXPENSES THAT A CONTRACTOR MAY INCUR IN CONNECTION WITH THE ACQUISITION AND TRANSPORTATION OF ALLOCATED MATERIALS AND EQUIPMENT--- JUST AS THE CONTRACT CLAUSES INVOLVED IN THE ABOVE CITED DECISIONS DID NOT AUTHORIZE REIMBURSEMENT TO A CONTRACTOR FOR ALL PAYMENTS MADE BY HIM ON ACCOUNT OF SUBSEQUENTLY IMPOSED TAXES--- BUT ONLY WITH RESPECT TO AN "INCREASE" IN THE AMOUNT REPRESENTING THE "COST" OF THE MATERIALS AND EQUIPMENT AND "FREIGHT CHARGES" THEREON TO THE RAILHEAD NEAREST THE JOB SITE.

OBVIOUSLY, THE FEDERAL PROPERTY TRANSPORTATION TAX REQUIRED TO BE PAID BY A LUMP SUM CONSTRUCTION CONTRACTOR IN CONNECTION WITH SHIPMENTS OF MATERIALS AND EQUIPMENT SUBSEQUENT TO THEIR ACQUISITION BY HIM MAY NOT PROPERLY BE REGARDED AS A PART OF THEIR "COST.' NOR DOES IT APPEAR THAT THE WORDS "FREIGHT CHARGES" AS USED IN THE CLAUSES HERE INVOLVED COMPREHEND AN AMOUNT REPRESENTING SUCH TAX. ON THE CONTRARY, IN THE ABSENCE OF ANYTHING TO SUGGEST THAT SAID WORDS WERE USED IN A DIFFERENT SENSE, IT WOULD SEEM TO BE CLEAR THAT THEY SHOULD BE TAKEN IN THEIR ORDINARY AND POPULAR SENSE--- THAT IS, AS SIGNIFYING THE COMPENSATION WHICH A CARRIER IS ENTITLED TO COLLECT FROM A SHIPPER FOR THE SERVICES RENDERED IN CONNECTION WITH THE TRANSPORTATION OF PROPERTY.

IN THIS CONNECTION ATTENTION IS INVITED TO THE DECISION OF JANUARY 7, 1943, TO THE SECRETARY OF THE NAVY, B-31455, WHERE THE CONTRACT INVOLVED CONTAINED A PROVISION SOMEWHAT SIMILAR TO THE CLAUSE INVOLVED IN THE DECISION IN 22 COMP. GEN. 583, SUPRA, AND, ALSO, A CLAUSE PROVIDING THAT "SUCH CHANGES AS MAY OCCUR IN THE TARIFF FREIGHT RATES OR TRANSPORTATION CHARGES USED IN DETERMINING DELIVERED PRICES, EXCEPT SWITCHING AFTER APRIL 20, 1942, WILL BE FOR THE ACCOUNT OF THE GOVERNMENT; " AND, IN HOLDING THAT SUCH PROVISIONS DID NOT AUTHORIZE REIMBURSEMENT TO A CONTRACTOR OF THE AMOUNT PAID BY HIM ON ACCOUNT OF THE FEDERAL PROPERTY TRANSPORTATION TAX, IT WAS SAID:

OF COURSE, THERE CAN BE NO DOUBT THAT--- AS BETWEEN A SHIPPER AND A CARRIER--- THE LEGAL INCIDENCE OF THE TAX IMPOSED BY THE ABOVE-QUOTED STATUTORY PROVISIONS IS UPON THE SHIPPER, HERE THE CONTRACTOR; AND IT IS CLEAR THAT THE TAX--- IMPOSED AS IT IS UPON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY--- DOES NOT REPRESENT A CHARGE FOR ANY SERVICE IN CONNECTION WITH THE TRANSPORTATION OF THE COMMODITY INVOLVED IN A PARTICULAR CASE BUT IS A CHARGE REPRESENTING A PECUINARY BURDEN IMPOSED FOR THE SUPPORT OF THE GOVERNMENT. ALSO, IT IS APPARENT THAT IN BILLING AND COLLECTING THE TAX FOR THE BENEFIT OF THE UNITED STATES THE CARRIER IS ACTING MERELY IN THE CAPACITY OF AN AGENT OR TRUSTEE AND THAT THE PAYMENT OF THE AMOUNT OF THE TAX BY THE SHIPPER IS MADE NOT FOR THE PURPOSE OF LIQUIDATING ANY CHARGE FOR TRANSPORTATION SERVICE BUT IN ORDER TO SATISFY THE DEMAND OF THE UNITED STATES IN ITS SOVEREIGN CAPACITY. * * *

THE RATIONALE OF THAT HOLDING APPLIES WITH EQUAL FORCE IN THE INSTANT CASE. HENCE, SINCE THE FEDERAL PROPERTY TRANSPORTATION TAX REQUIRED TO BE PAID BY A GOVERNMENT LUMP SUM CONSTRUCTION CONTRACTOR IN CONNECTION WITH THE SHIPMENT OF ALLOCATED MATERIALS AND EQUIPMENT MUST BE REGARDED AS AN AMOUNT PAID IN ADDITION TO AND NOT AS A PART OF THE COMPENSATION TO WHICH THE CARRIER IS ENTITLED, THERE CAN BE NO REASONABLE BASIS FOR THE VIEW THAT SUCH TAX REPRESENTS AN "INCREASE" IN THE "FREIGHT CHARGES" PAID BY THE CONTRACTOR, WITHIN THE MEANING OF THE PROVISIONS OF THE ALLOCATED MATERIALS CLAUSES HERE INVOLVED.

IN VIEW OF THE FOREGOING, YOU ARE ADVISED THAT PAYMENT IS NOT AUTHORIZED ON THE BASIS OF THE PROVISIONS CONTAINED IN SAID ALLOCATED MATERIALS CLAUSES OF ANY CLAIM BY A CONTRACTOR FOR REIMBURSEMENT OF AN AMOUNT PAID BY HIM ON ACCOUNT OF THE PROPERTY TRANSPORTATION TAX IMPOSED BY SECTION 3475 OF THE INTERNAL REVENUE CODE.