B-30754, JANUARY 2, 1943, 22 COMP. GEN. 583

B-30754, JANUARY 2, 1943, 22 COMP. GEN. 583

FEDERAL TRANSPORTATION OF PROPERTY TAX - CONTRACT PRICE ADJUSTMENT THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY IS NOT REIMBURSABLE TO A CONTRACTOR UNDER THE TAX CLAUSE IN A LUMP SUM WAR DEPARTMENT CONTRACT REQUIRING REIMBURSEMENT TO THE CONTRACTOR OF PAYMENTS REQUIRED TO BE MADE BY HIM ON ACCOUNT OF TAXES IMPOSED AFTER THE DATE OF AWARD "DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK" COVERED BY THE CONTRACT "OR THE MATERIALS USED IN THE MANUFACTURE THEREOF" OR IMPOSED ,DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, CONSTRUCTION OR SALE OF SUCH SUPPLIES, WORK OR MATERIALS.'

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

THERE HAS BEEN CONSIDERED YOUR LETTER OF NOVEMBER 30, 1942, AS FOLLOWS:

CERTAIN PROBLEMS HAVE ARISEN WITH RESPECT TO THE NEWLY ENACTED EXCISE TAX ON THE TRANSPORTATION OF PROPERTY, INSERTED BY SECTION 620 OF THE REVENUE ACT OF 1942 ( PUBLIC LAW 753, 77TH CONGRESS), AMENDING THE INTERNAL REVENUE CODE BY INSERTING AT THE END OF CHAPTER 30 THEREOF, SUBCHAPTER E-- - TRANSPORTATION OF PROPERTY ( SECTION 3475). THE STATUTE IMPOSES A TAX OF THREE PERCENT OF THE AMOUNT PAID WITHIN THE UNITED STATES ON OR AFTER DECEMBER 1, 1942 FOR THE TRANSPORTATION OF PROPERTY BY RAIL, MOTOR VEHICLE, WATER, OR AIR FROM ONE POINT IN THE UNITED STATES TO ANOTHER, WHERE THE AMOUNTS ARE PAID TO A PERSON ENGAGED IN THE BUSINESS OF TRANSPORTING PROPERTY FOR HIRE. GOVERNMENT TRANSPORTATION IS EXEMPTED FROM THE TAX.

STANDARD LUMP-SUM CONTRACTS NOW IN USE BY THE WAR DEPARTMENT REQUIRE THE INCLUSION OF THE TAX ARTICLE SET FORTH BELOW UNLESS THE ESTIMATED TIME OF PERFORMANCE DOES NOT EXCEED SIXTY DAYS:

"UNLESS OTHERWISE INDICATED, THE PRICES HEREIN INCLUDE ANY FEDERAL, STATE AND LOCAL TAX OR CHARGE HERETOFORE IMPOSED WHICH IS APPLICABLE TO THE SUPPLIES OR WORK COVERED HEREBY. IF AFTER THE DATE OF THE AWARD, THE FEDERAL GOVERNMENT OR ANY STATE OR LOCAL GOVERNMENT SHALL IMPOSE, REMOVE, OR CHANGE ANY DUTY, SALES, USE OF EXCISE TAX OR ANY OTHER TAX OR CHARGE DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK COVERED THEREBY OR THE MATERIALS USED IN THE MANUFACTURE THEREOF OR DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, CONSTRUCTION OR SALE OF SUCH SUPPLIES, WORK, OR MATERIALS, WHICH TAX OR CHARGE MUST BE BORNE BY THE CONTRACTOR BECAUSE OF A SPECIFIC CONTRACTUAL OBLIGATION OR BY OPERATION OF LAW, OR, IN CASE OF A DECREASE OR ELIMINATION OF A TAX, WHERE THE CONTRACTOR IS RELIEVED TO THAT EXTENT, AND IF IN CASE OF AN INCREASE IN AN EXISTING TAX OR THE IMPOSITION OF A NEW TAX THE CONTRACTOR HAS PAID SUCH TAX OR CHARGE TO THE FEDERAL GOVERNMENT OR A STATE OR LOCAL GOVERNMENT, OR ANY OTHER PERSON, THEN THE PRICES NAMED HEREIN WILL BE INCREASED OR DECREASED ACCORDINGLY AND ANY AMOUNT DUE TO THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS A SEPARATE ITEM: PROVIDED, HOWEVER, THAT THE GOVERNMENT RESERVES THE RIGHT TO ISSUE TO THE CONTRACTOR IN LIEU OF SUCH PAYMENT A TAX EXEMPTION CERTIFICATE OR CERTIFICATES ACCEPTABLE TO THE FEDERAL GOVERNMENT OR STATE OR LOCAL GOVERNMENT, AS THE CASE MAY BE, AND THE CONTRACTOR AGREES, IN THE CASE OF ANY SUCH STATE OR LOCAL TAX OR CHARGE, TO TAKE SUCH STEPS AS MAY BE REQUESTED BY THE GOVERNMENT TO CAUSE SUCH TAX OR CHARGE TO BE PAID UNDER PROTEST, TO PRESERVE AND TO CAUSE TO BE ASSIGNED TO THE GOVERNMENT ANY AND ALL RIGHTS TO THE REFUND OF SUCH TAX OR CHARGE, AND TO FURNISH TO THE GOVERNMENT ALL REASONABLE ASSISTANCE AND COOPERATION REQUESTED BY THE GOVERNMENT IN ANY LITIGATION OR PROCEEDING FOR THE RECOVERY OF SUCH TAX OR CHARGE, AND PROVIDED FURTHER, THAT NOTHING CONTAINED HEREIN SHALL BE CONSTRUED AS REQUIRING THE GOVERNMENT TO REIMBURSE THE CONTRACTOR FOR ANY FEDERAL, STATE OR LOCAL INCOME TAXES, INCOME SURTAXES OR EXCESS PROFITS TAXES.' (SEE PROCUREMENT REGULATION 357).

MANY CONTRACTORS HAVE PRESENTED INQUIRIES TO THE SUPPLY SERVICES AS TO WHETHER THE PROPERTY TRANSPORTATION TAX, WHEN EFFECTIVE, WILL BE REGARDED BY THE GOVERNMENT AS A TAX TO BE INCLUDED WITHIN THE PROVISIONS OF THE SECOND SENTENCE OF THIS STANDARD TAX ARTICLE IN THOSE CASES WHERE THE CONTRACTOR MUST PAY OR BEAR THE TAX; THAT IS, WHETHER THE GOVERNMENT WILL REIMBURSE THE CONTRACTOR OR ISSUE A TAX EXEMPTION CERTIFICATE FOR ANY FEDERAL FREIGHT TAX UPON FREIGHT CHARGES WHICH UNDER THE CONTRACT THE CONTRACTOR WOULD BE BOUND TO PAY, IMPOSED WITH RESPECT TO THE TRANSPORTATION, ON OR AFTER DECEMBER 1, 1942, OF ANY PROPERTY OR SUPPLIES COVERED BY OR USED IN CONNECTION WITH THE CONTRACT.

THIS PROBLEM BECOMES OF IMPORTANCE WHERE A LUMP-SUM SUPPLY CONTRACT CALLS FOR DELIVERY OF SUPPLIES AT SOME POINT OF DESTINATION OTHER THAN THE CONTRACTOR'S PLANT AND THE CONTRACTOR IS BOUND TO PAY THE FREIGHT. IT IS ALSO OF IMPORTANCE WHERE CONTRACTORS UNDER LUMP-SUM CONTRACTS MUST MOVE MATERIALS, OR WORK IN PROCESS, FROM PLANT TO PLANT OR OTHERWISE IN CONNECTION WITH THE MANUFACTURING OR CONSTRUCTION OPERATIONS CONDUCTED BY THEM IN A MANNER REASONABLY CONTEMPLATED BY THE CONTRACT.

ATTENTION IS INVITED TO THE FACT THAT BY SECTION 3475 (C) THE TAX IS ONE PAID BY THE PERSON PAYING THE FREIGHT CHARGES. IT IS MERELY COLLECTED BY THE CARRIER PERFORMING THE TRANSPORTATION SERVICE. ATTENTION IS ALSO INVITED TO THE FACT THAT THE STANDARD WAR DEPARTMENT TAX ARTICLE VARIES IN SOME RESPECTS FROM THE SIMILAR ARTICLE USED BY OTHER DEPARTMENTS OF THE GOVERNMENT.

THE GENERAL PURPOSE OF THE SECOND SENTENCE OF THE TAX ARTICLE, WHICH WAS INTRODUCED FOR USE IN WAR DEPARTMENT CONTRACTS IN JANUARY, 1942, WAS TO PROVIDE FAIR PROTECTION TO THE CONTRACTOR FROM THE BURDEN OF TAXES IMPOSED AFTER THE DATE OF THE AWARD, WHICH BECAUSE NOT IN EXISTENCE AT THE TIME OF THE AWARD, HE COULD NOT ANTICIPATE. IT WAS DESIRED BY THE WAR DEPARTMENT TO RELIEVE THE CONTRACTOR SO FAR AS POSSIBLE FROM THE NECESSITY OF MAKING A CONTINGENT ALLOWANCE IN LONG TERM CONTRACTS AGAINST THE POSSIBILITY OF INCREASED EXCISE TAXES AFFECTING THE COST OF THE PERFORMANCE OF HIS CONTRACT. THE TAX ARTICLE WAS PRESCRIBED SHORTLY AFTER THE ENACTMENT OF THE REVENUE ACT OF 1941 WHICH MATERIALLY INCREASED THE BURDEN AND RATES OF FEDERAL EXCISE TAXES AND WAS INTENDED TO AVOID ANY POSSIBILITY THAT CONTRACTORS GENERALLY WOULD FEAR A REPETITION OF SUCH A GENERAL INCREASE IN EXCISES AND INSIST UPON UNREASONABLE PRICE ALLOWANCES AS A HEDGE AGAINST SUCH A POSSIBILITY. IT IS BELIEVED THAT THIS CONTRACT ARTICLE HAS BEEN EFFECTIVE IN BRINGING ABOUT CLOSER PRICING.

THE FREIGHT TAX HEREUNDER DISCUSSED, ALTHOUGH SOMEWHAT NOVEL IN FORM, WHEN PAID OR BORNE BY THE CONTRACTOR, IS AS DIRECT AND SUBSTANTIAL A FINANCIAL BURDEN AS ANY OTHER EXCISE TAX OF SIMILAR RATE IMPOSED WITH RESPECT TO SUPPLIES OR WORK TO BE PERFORMED UNDER THE CONTRACT. IT IS IN GENERAL THE TYPE OF NEW TAX FROM WHICH IT WAS INTENDED BY THE WAR DEPARTMENT TO PROTECT THE CONTRACTOR IN THE TAX ARTICLE ABOVE QUOTED. UNLESS INFORMED BY YOUR OFFICE THAT YOU WOULD BE OBLIGED TO OBJECT TO SUCH A CONSTRUCTION, THE DEPARTMENT, AS A MATTER OF FAIR INTERPRETATION OF THE ARTICLE AND OF THE INTENT OF ITS FRAMERS, WOULD ADOPT AN ADMINISTRATIVE CONSTRUCTION THAT THE STANDARD TAX ARTICLE PERMITS THE GOVERNMENT UNDER CONTRACTS EXISTING ON DECEMBER 1, 1942, WHEN THE TAX BECOMES EFFECTIVE, TO REIMBURSE THE CONTRACTOR (OR FURNISH HIM WITH TAX EXEMPTION CERTIFICATES) FOR THE AMOUNT OF ANY FEDERAL FREIGHT TAX UPON FREIGHT CHARGES WHICH UNDER THE CONTRACT THE CONTRACTOR WOULD BE BOUND TO PAY AND DOES IN FACT PAY OR BEAR, IMPOSED WITH RESPECT TO THE TRANSPORTATION OF PROPERTY OR SUPPLIES IN CONNECTION WITH THE CONTRACT. IT IS BELIEVED THAT SUCH AN INTERPRETATION OF THE STANDARD TAX ARTICLE WOULD BE JUST AND CONSISTENT WITH SOUND PROCUREMENT POLICY AND THE PURPOSE OF THE TAX ARTICLE TO OBTAIN CLOSE PRICING.

SOME CONTRACTORS HAVE ARGUED THAT THE FEDERAL EXCISE TAX ON THE TRANSPORTATION OF THE SUPPLIES COVERED BY THE CONTRACT TO THE DELIVERY POINT, EVEN IF NOT AN EXCISE DIRECTLY APPLICABLE TO THE SUPPLIES, IS CERTAINLY A TAX DIRECTLY APPLICABLE TO THE "WORK COVERED" BY THE CONTRACT WITHIN THE MEANING OF THE SECOND SENTENCE OF THE TAX ARTICLE. THE CONTENTION IS THAT THE TRANSPORTATION, WHICH MUST BE PAID BY THE CONTRACTOR, IS PART OF THE "WORK" REQUIRED BY THE CONTRACT. THIS IS BROUGHT TO YOUR ATTENTION SO THAT YOU MAY HAVE IN MIND THIS ARGUMENT WHICH HAS BEEN PRESENTED BY SOME CONTRACTORS.

IT IS REQUESTED THAT YOU ADVISE ME WHETHER YOUR OFFICE WILL BE OBLIGED TO OBJECT TO THE REIMBURSEMENT OF CONTRACTORS WITH RESPECT TO FEDERAL PROPERTY TRANSPORTATION TAXES PAID OR BORNE BY THEM ON OR AFTER DECEMBER 1, 1942, WITH RESPECT TO FREIGHT CHARGES FOR THE TRANSPORTATION OF SUPPLIES OR MATERIALS UNDER OR IN CONNECTION WITH EXISTING LUMP-SUM CONTRACTS (1) WHEN SUCH FREIGHT TAXES MUST BE BORNE BY SUCH CONTRACTORS BY REASON OF CONTRACTUAL OBLIGATION OR BY OPERATION OF LAW AND (2) WHERE THE TRANSPORTATION TAXED WAS REQUIRED OR REASONABLY CONTEMPLATED BY THE CONTRACT.

THE TAXING STATUTE HERE INVOLVED--- SECTION 3475 OF THE INTERNAL REVENUE CODE, ENTITLED " TRANSPORTATION OF PROPERTY," AS ENACTED BY SECTION 620 OF THE REVENUE ACT OF 1942, APPROVED OCTOBER 21, 1942, 56 STAT. 979, PUBLIC LAW 753, 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. * * *

THE FOREGOING STATUTORY PROVISIONS LEAVE NO ROOM FOR DOUBT THAT, AS BETWEEN A GOVERNMENT CONTRACTOR AND A COMMON CARRIER OR OTHER PERSON FURNISHING COMPENSABLE PROPERTY TRANSPORTATION SERVICE TO HIM IN CONNECTION WITH THE PERFORMANCE OF SUCH CONTRACT, THE LEGAL INCIDENCE OF THE TAX IMPOSED THEREBY MUST BE REGARDED AS UPON THE SHIPPER, I.E. THE GOVERNMENT CONTRACTOR. BUT THAT FACT DOES NOT ENTITLE THE CONTRACTOR TO AVAIL HIMSELF OF THE BENEFIT OF THE TERMS OF THE STATUTE PROVIDING THAT THE TAX SHOULD NOT BE APPLICABLE TO AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION. CF. WHEELER LUMBER COMPANY V. UNITED STATES, 281 U. S. 572. ALSO, SEE THE STATEMENT DATED DECEMBER 7, 1942, OF THE COMMISSIONER OF INTERNAL REVENUE ( MT: M), ADDRESSED TO COLLECTORS OF INTERNAL REVENUE AND OTHERS CONCERNED, WHEREIN IT IS SAID THAT THE AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY "ARE EXEMPT FROM TAX ONLY WHEN THE PAYMENT IS MADE DIRECTLY TO THE CARRIER BY THE GOVERNMENTAL AGENCY.' THE SAID STATEMENT CONTINUES AS FOLLOWS:

* * * TRANSPORTATION CHARGES NOT PAID DIRECTLY TO THE CARRIER (FOR EXAMPLE, CHARGES PAID BY GOVERNMENT CONTRACTORS OPERATING ON A COST PLUS- FIXED-FEE OR OTHER BASIS) ARE SUBJECT TO THE TAX. THE FACT THAT IN SUCH A CASE THE CONTRACTOR MAY BE REIMBURSED FOR THE TRANSPORTATION CHARGES PAID WILL NOT AFFECT THE TAX LIABILITY. NO PROOF OF EXEMPTION WILL BE REQUIRED IN ANY CASE WHERE A SHIPMENT IS MADE UNDER A GOVERNMENT BILL OF LADING, STANDARD FORM 1058A, OR WHERE THE TRANSPORTATION CHARGE IS PAID DIRECTLY BY THE GOVERNMENTAL AGENCY ENTITLED TO EXEMPTION. HENCE, THERE WOULD BE NO REASONABLE BASIS FOR THE ISSUANCE TO A GOVERNMENT CONTRACTOR OF A TAX EXEMPTION CERTIFICATE TO COVER THE AMOUNT OF THE PROPERTY TRANSPORTATION TAX HERE INVOLVED EVEN THOUGH THE TERMS OF THE CONTRACT AND OTHER CIRCUMSTANCES IN A PARTICULAR CASE WERE SUCH AS TO REQUIRE THE REIMBURSEMENT OF THE CONTRACTOR BY THE GOVERNMENT OF THE AMOUNT OF THE TAX PAID BY HIM.

AS POINTED OUT IN YOUR LETTER, SUPRA, THE TAX ARTICLE OR CLAUSE QUOTED THEREIN, AND WHICH IS REQUIRED BY THE TERMS OF WAR DEPARTMENT PROCUREMENT REGULATION 357 TO BE INCLUDED IN ALL LUMP-SUM CONTRACTS WHERE THE ESTIMATED TIME OF PERFORMANCE EXCEEDS SIXTY DAYS, VARIES IN SOME RESPECTS FROM THE TAX ARTICLE OR CLAUSE WHICH IS IN USE BY OTHER AGENCIES OF THE GOVERNMENT. ALSO, IT IS NOTED THAT AFTER SETTING FORTH THE PURPOSE OF THE REIMBURSEMENT PROVISIONS OF THE TAX CLAUSE HERE INVOLVED YOU EXPRESS THE VIEW THAT THE PROPERTY TRANSPORTATION TAX LAID BY THE ABOVE-QUOTED STATUTORY PROVISIONS IS IN GENERAL THE TYPE OF SUBSEQUENTLY IMPOSED TAX ON ACCOUNT OF THE PAYMENT OF WHICH THE FRAMERS OF THE SAID CONTRACT PROVISIONS INTENDED TO PROTECT A CONTRACTOR. HOWEVER, ALTHOUGH IT IS APPARENT THAT THE PURPOSE OF THE SAID REIMBURSEMENT PROVISIONS WAS TO PROVIDE PROTECTION TO A CONTRACTOR FROM THE BURDEN OF TAXES IMPOSED SUBSEQUENT TO THE AWARD OF A CONTRACT AND THUS TO OBVIATE DEMANDS BY A CONTRACTOR FOR PRICE ALLOWANCES TO COVER THE POSSIBILITY OF INCREASED EXCISE TAXES AFFECTING THE COST OF THE PERFORMANCE OF HIS CONTRACT, IT IS WELL ESTABLISHED THAT IN DETERMINING THE INTENTION OF THE PARTIES WITH RESPECT TO THE TERMS OF A WRITTEN CONTRACT THE QUESTION IS NOT WHAT INTENTION MAY HAVE EXISTED IN THE MINDS OF THE PARTIES BUT WHAT INTENTION IS EXPRESSED BY THE LANGUAGE USED IN THE CONTRACT. THE TERMS OF THE TAX CLAUSE HERE FOR CONSIDERATION PROVIDE THAT A CONTRACTOR SHALL BE REIMBURSED FOR SUCH PAYMENTS AS ARE REQUIRED TO BE MADE BY HIM ON ACCOUNT OF TAXES IMPOSED "AFTER THE DATE OF THE AWARD" AND AS ARE "DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK COVERED HEREBY OR THE MATERIALS USED IN THE MANUFACTURE THEREOF OR" AS ARE IMPOSED "DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, CONSTRUCTION OR SALE OF SUCH SUPPLIES, WORK, OR MATERIALS.' IN VIEW OF THE PRECISE LANGUAGE THUS USED IT WOULD SEEM TO BE CLEAR THAT THE PROVISO CONTAINED IN SAID CLAUSE WHICH STIPULATES "THAT NOTHING CONTAINED HEREIN SHALL BE CONSTRUED AS REQUIRING THE GOVERNMENT TO REIMBURSE THE CONTRACTOR FOR ANY FEDERAL, STATE OR LOCAL INCOME TAXES, INCOME SURTAXES OR EXCESS PROFITS TAXES" WAS EMBODIED THEREIN OUT OF ABUNDANT CAUTION AND CANNOT PROPERLY BE REGARDED AS INDICATING AN INTENT THAT A CONTRACTOR SHOULD BE ENTITLED TO REIMBURSEMENT FOR THE AMOUNT OF ALL OTHER TYPES OF SUBSEQUENTLY IMPOSED TAXES REQUIRED TO BE PAID BY HIM IN CONNECTION WITH THE PERFORMANCE OF HIS GOVERNMENT CONTRACT.

MOREOVER, ALTHOUGH YOU REFER TO THE CONTENTION ADVANCED BY SOME CONTRACTORS THAT THE TAX HERE INVOLVED IS DIRECTLY APPLICABLE TO THE "WORK COVERED" BY A CONTRACT INVOLVING THE TRANSPORTATION OF SUPPLIES AT THE EXPENSE OF THE CONTRACTOR BECAUSE THE TRANSPORTATION IS A PART OF THE "WORK" REQUIRED OF THE CONTRACTOR WITHIN THE MEANING OF THAT WORD AS USED IN THE SAID TAX CLAUSE, THERE IS NOTHING IN YOUR LETTER TO INDICATE THAT YOU CONCUR IN THAT VIEW. FURTHERMORE, SINCE IT APPEARS THAT THE CLAUSE IS USED IN BOTH CONSTRUCTION AND SUPPLY CONTRACTS AND IN VIEW OF THE TERMS OF THE CLAUSE PROVIDING FOR THE REIMBURSEMENT OF AMOUNTS PAID ON ACCOUNT OF TAXES UPON CERTAIN SPECIFIED OPERATIONS, IT IS BELIEVED YOU WILL AGREE THAT THE WORD "WORK" AS THERE USED WAS NOT INTENDED TO DESCRIBE THE VARIOUS MATTERS INVOLVED IN THE PERFORMANCE OF A CONTRACT BUT IS USED IN CONTRADISTINCTION TO THE WORLD "SUPPLIES" APPEARING THEREIN. THAT IS TO SAY, THAT THE "SUPPLIES" COMPREHENDED BY THE PROVISIONS OF SAID CLAUSE ARE THE COMPLETED ARTICLES FURNISHED TO THE GOVERNMENT UNDER THE TERMS OF A SUPPLY CONTRACT ( UNITED STATES V. COWDEN MANUFACTURING COMPANY, 312 U.S. 34), WHILE THE "WORK" TO WHICH REFERENCE IS MADE IS THE BUILDING OR OTHER STRUCTURE ERECTED FOR THE GOVERNMENT PURSUANT TO THE TERMS OF A CONSTRUCTION CONTRACT.

IT IS, OF COURSE, OF THE UTMOST IMPORTANCE THAT THE REIMBURSEMENT PROVISIONS WITH RESPECT TO SUBSEQUENTLY IMPOSED TAXES CONTAINED IN THE TAX CLAUSE HERE INVOLVED DO NOT PURPORT TO STIPULATE FOR THE PAYMENT OF ALL APPLICABLE TAXES BUT ONLY SUCH TAXES AS ARE DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK OR THE MATERIALS USED IN THEIR MANUFACTURE OR AS ARE LAID DIRECTLY UPON THE OPERATIONS RESPECTING THE SUPPLIES, WORK, OR MATERIALS, AS ARE SPECIFICALLY MENTIONED THEREIN, OR UPON THE SALE OF SUCH SUPPLIES, WORK, OR MATERIALS. OBVIOUSLY, THE TAX HERE INVOLVED--- LAID AS IT IS UPON "THE AMOUNT PAID * * * FOR THE TRANSPORTATION * * * OF PROPERTY * * * BY RAIL, MOTOR VEHICLE, WATER, OR AIR"--- CANNOT BE VIEWED AS A TAX "DIRECTLY UPON THE IMPORTATION, PRODUCTION, PROCESSING, MANUFACTURE, CONSTRUCTION OR SALE" OF THE SUPPLIES OR WORK COVERED BY A GOVERNMENT CONTRACT OR THE MATERIALS USED IN THE MANUFACTURE THEREOF.

FURTHERMORE, THERE APPEARS TO BE A SUBSTANTIAL BASIS FOR THE VIEW THAT THE TAX IS NOT "DIRECTLY APPLICABLE TO THE SUPPLIES OR WORK COVERED BY A GOVERNMENT CONTRACT OR THE MATERIALS USED IN THE MANUFACTURE THEREOF. THIS CONNECTION IT IS TO BE OBSERVED THAT THE TAX 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; AND IT BECOMES PAYABLE IRRESPECTIVE OF THE NATURE OR INTRINSIC VALUE OF THE COMMODITY TRANSPORTED. AND ALTHOUGH THE EFFECT OF THE TAX IS TO CAST AN ADDITIONAL BURDEN UPON A CONTRACTOR WHO PAYS PROPERTY TRANSPORTATION CHARGES IN CONNECTION WITH THE PERFORMANCE OF A GOVERNMENT CONTRACT IT WOULD SEEM THAT, SO FAR AS THE PROPERTY TRANSPORTED IS CONCERNED, THE BURDEN IS INDIRECT RATHER THAN DIRECT AND, THEREFORE, THE TAX MAY NOT PROPERLY BE REGARDED AS DIRECTLY APPLICABLE TO SUCH PROPERTY. AT LEAST INSOFAR AS INCREASING THE COST OF THE PERFORMANCE OF A CONTRACT IS CONCERNED THE PROPERTY TRANSPORTATION TAX HERE INVOLVED WOULD APPEAR TO BE NO MORE DIRECT THAN WERE THE SOCIAL SECURITY TAXES WHICH WERE HELD BY THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF UNITED STATES V. GLENN L. MARTIN COMPANY, 308 U.S. 62, NOT TO COME WITHIN THE SCOPE OF THE PROVISIONS OF THE TAX CLAUSE THERE INVOLVED; AND, IN THE LIGHT OF THE DECISION IN THAT CASE, THIS OFFICE WOULD NOT BE JUSTIFIED IN CONCLUDING THAT THE SAID PROPERTY TRANSPORTATION TAX COMES WITHIN THE SCOPE OF THE REIMBURSEMENT PROVISIONS OF THE TAX CLAUSE HERE INVOLVED.

CAREFUL CONSIDERATION HAS BEEN GIVEN TO THE VARIOUS MATTERS SET FORTH IN YOUR LETTER, BUT I AM CONSTRAINED TO HOLD THAT, IN THE ABSENCE OF A JUDICIAL DETERMINATION IN THE MATTER, PAYMENT IS NOT AUTHORIZED ON THE BASIS OF THE REIMBURSEMENT PROVISIONS CONTAINED IN THE TAX CLAUSE QUOTED BY YOU OF ANY CLAIM BY A LUMP-SUM 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.