A-88689, SEPTEMBER 8, 1937, 17 COMP. GEN. 223

A-88689, SEPTEMBER 8, 1937, 17 COMP. GEN. 223

STATES--- SALES TAXES--- INCLUSION IN FEDERAL AID UNEMPLOYMENT COMPENSATION ADMINISTRATION GRANTS THE SOCIAL SECURITY BOARD IS NOT AUTHORIZED TO INCLUDE IN ITS GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION ADMINISTRATION THE AMOUNT OF THE STATE SALES TAX WHICH THE STATE AGENCIES ARE REQUIRED UNDER STATE LAWS TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT NECESSARY TO THE PROPER ADMINISTRATION OF STATE UNEMPLOYMENT COMPENSATION LAWS.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE CHAIRMAN, SOCIAL SECURITY BOARD, SEPTEMBER 8, 1937:

YOUR LETTER DATED AUGUST 30, 1937 (FILE NO. BL:16:GC), IS AS FOLLOWS:

SECTION 302 (A) OF THE SOCIAL SECURITY ACT PROVIDES, IN PART, AS FOLLOWS:

"THE BOARD SHALL FROM TIME TO TIME CERTIFY TO THE SECRETARY OF THE TREASURY FOR PAYMENT TO EACH STATE WHICH HAS AN UNEMPLOYMENT COMPENSATION LAW APPROVED BY THE BOARD UNDER TITLE IX, SUCH AMOUNTS AS THE BOARD DETERMINES TO BE NECESSARY FOR THE PROPER ADMINISTRATION OF SUCH LAW DURING THE FISCAL YEAR IN WHICH SUCH PAYMENT IS TO BE MADE. * * *"

PRIOR TO CERTIFYING A GRANT PURSUANT TO THAT SECTION, THE SOCIAL SECURITY BOARD RECEIVES FROM THE ELIGIBLE STATE AN ITEMIZED BUDGET OF THE EXPENSES DEEMED NECESSARY TO ADMINISTER THE STATE UNEMPLOYMENT COMPENSATION LAW. AFTER REVIEWING AND ADJUSTING THE BUDGET SO SUBMITTED IN ACCORDANCE WITH ITS OWN DETERMINATIONS PURSUANT TO TITLE III OF THE SOCIAL SECURITY ACT, THE BOARD CERTIFIES TO THE SECRETARY OF THE TREASURY FOR PAYMENT TO THE STATE AGENCY CHARGED WITH THE ADMINISTRATION OF SUCH LAW, SUCH AMOUNT AS THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE STATE LAW. ACTUAL EXPENDITURES OF THE FUND SO GRANTED ARE MADE BY THE STATE AGENCY, IN ACCORDANCE WITH THE PURPOSES FOR WHICH THE GRANT IS MADE.

THE STATES OF CALIFORNIA, ARIZONA, AND MISSISSIPPI HAVE INCLUDED IN THE BUDGETS WHICH THEY HAVE SUBMITTED TO THE BOARD ITEMS COVERING THE AMOUNT OF THE STATE SALES TAXES PAID IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT NECESSARY FOR THE ADMINISTRATION OF THE STATE UNEMPLOYMENT COMPENSATION LAW. IN EACH OF THESE STATES THE STATE SALES TAX LAW IS APPLICABLE TO SALES TO THE STATE, ITS DEPARTMENTS, AND POLITICAL SUBDIVISIONS.

THE CALIFORNIA SALES TAX (STATS. 1933, P. 2599, AS AMENDED BY STATS. 1935, PP. 1225, 1252, AND 1256) LEVIES AN EXCISE TAX WITH RESPECT TO THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AT RETAIL. SECTION 8 PROHIBITS THE RETAILER FROM ADVERTISING OR STATING TO THE PUBLIC OR TO ANY CUSTOMER THAT THE TAX OR ANY PART THEREOF WILL BE ASSUMED OR ABSORBED BY THE RETAILER OR THAT IT WILL NOT BE ADDED TO THE SELLING PRICE OF THE PROPERTY SOLD. SECTION 8-1/2 PROVIDES THAT THE TAX SHALL BE COLLECTED BY THE RETAILER FROM THE CONSUMER IN SO FAR AS PRACTICABLE.

THE MISSISSIPPI (LAWS, 1934, C. 119, AS AMENDED BY LAWS, 1936, C. 158) AND ARIZONA (LAWS, 1935, C. 77) SALES TAX STATUTES DIFFER FROM THE CALIFORNIA STATUTE IN THAT THEY CONTAIN NO PROVISION PROHIBITING THE SELLER FROM ASSUMING OR ABSORBING THE TAX. BOTH OF THESE STATES LEVY AN ANNUAL EXCISE TAX UPON ALL PERSONS SELLING TANGIBLE PERSONAL PROPERTY (EXCEPT STOCKS OR BONDS) AT RETAIL. THE AMOUNT OF THE TAX IS MEASURED BY THE AMOUNT OR VOLUME OF BUSINESS.

SEVERAL OTHER STATES ELIGIBLE FOR GRANTS UNDER TITLE III OF THE SOCIAL SECURITY ACT HAVE IN EFFECT SALES TAX STATUTES WHICH ARE VERY SIMILAR TO THOSE IN CALIFORNIA, ARIZONA, AND MISSISSIPPI, AND WHICH, LIKE THOSE IN CALIFORNIA, ARIZONA, AND MISSISSIPPI, ARE APPLICABLE TO SALES TO THE STATE, ITS GOVERNMENTAL DEPARTMENTS AND POLITICAL SUBDIVISIONS.

YOUR OPINION IS REQUESTED WITH RESPECT TO WHETHER OR NOT THE SOCIAL SECURITY BOARD IS AUTHORIZED TO INCLUDE IN ITS GRANTS TO STATES THE AMOUNT OF THE STATE SALES TAX WHICH THE STATE AGENCIES ARE REQUIRED TO PAY IN CONNECTION WITH THEIR PURCHASES OF SUPPLIES AND EQUIPMENT WHICH THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE STATE UNEMPLOYMENT COMPENSATION LAW.

AN APPROPRIATION HAS BEEN MADE FOR THE FISCAL YEAR 1938 "FOR GRANTS TO STATES FOR UNEMPLOYMENT COMPENSATION ADMINISTRATION AS AUTHORIZED IN TITLE III, OF THE SOCIAL SECURITY ACT, APPROVED AUGUST 14, 1935.' ACT OF JUNE 28, 1937, 50 STAT. 343.

THE RULE IS WELL ESTABLISHED THAT THE FEDERAL GOVERNMENT OR ITS ACTIVITIES MAY NOT BE TAXED BY STATES OR THEIR POLITICAL SUBDIVISIONS. COMP. GEN. 295, AND CASES THEREIN CITED. IT FOLLOWS FROM THIS FUNDAMENTAL RULE THAT THERE MAY NOT BE COLLECTED FROM THE FEDERAL GOVERNMENT THE AMOUNT OF A SALES TAX IMPOSED BY A STATE EITHER DIRECTLY AS SUCH OR INDIRECTLY AS A PART OF THE PRICE OF THE COMMODITY. 15 COMP. GEN. 380. SALES TAX IMPOSED BY A STATE ON SALES TO ITSELF OR ONE OF ITS DEPARTMENTS MERELY RESULTS IN TRANSFERRING THE AMOUNT OF THE TAX COLLECTED FROM ONE ACCOUNT OF THE STATE TO ANOTHER AND THE AMOUNT OF THE TAX BECOMES AVAILABLE TO THE STATE FOR EXPENDITURE FOR OTHER PURPOSES. THUS, IN THE INSTANT MATTER, IF THE FEDERAL GOVERNMENT WERE TO PAY THE AMOUNT OF THE TAX IMPOSED BY THE SEVERAL STATES ON THE PURCHASE OF SUPPLIES AND EQUIPMENT NECESSARY FOR THE ADMINISTRATION OF THE RESPECTIVE STATE UNEMPLOYMENT COMPENSATION LAWS, SUCH AMOUNT WOULD BECOME AVAILABLE FOR USE BY THE STATE FOR PURPOSES HAVING NO CONNECTION WITH THE ADMINISTRATION OF SUCH LAWS.

ACCORDINGLY, IT MUST BE HELD THAT THE SOCIAL SECURITY BOARD IS NOT AUTHORIZED TO INCLUDE IN ITS GRANTS TO STATES THE AMOUNT OF THE STATE SALES TAX WHICH THE STATE AGENCIES ARE REQUIED UNDER STATE LAWS TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE STATE UNEMPLOYMENT COMPENSATION LAWS, THE APPROPRIATION OF FEDERAL FUNDS NOT BEING AVAILABLE FOR THAT PURPOSE.