A-87090, OCTOBER 16, 1937, 17 COMP. GEN. 340

A-87090, OCTOBER 16, 1937, 17 COMP. GEN. 340

TAXES - FEDERAL - PROCESSING - CONTRACT PRICE INCLUSION - PRICE REDUCTION BECAUSE OF CONTRACTOR'S NONPAYMENT OF TAX WHERE CONTRACTS SPECIFICALLY PROVIDED THAT BID PRICES INCLUDED ALL APPLICABLE FEDERAL TAXES AND THAT IN THE EVENT OF CHANGE IN THE TAXES SUBSEQUENT TO THE OPENING OF THE BIDS THERE WOULD BE A CORRESPONDING CHANGE IN THE CONTRACT PRICES, AND THE RECORDS SHOW THAT PROCESSING TAXES WERE NOT PAID BY THE CONTRACTOR ON THE ARTICLES FURNISHED, AMOUNTS EQUAL TO THE PROCESSING TAXES ARE PROPERLY CHARGEABLE TO THE CONTRACTOR NOTWITHSTANDING THE TAX WAS NOT SHOWN IN THE CONTRACTS AS A SEPARATE ITEM, AND THE CONTENTION THAT PART OF THE SAID TAX WAS ABSORBED BY THE CONTRACTOR AND NOT INCLUDED IN THE PRICE.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ABILENE FLOUR MILLS CO., OCTOBER 16, 1937:

CONSIDERATION HAS BEEN GIVEN YOU LETTER OF JULY 14, 1937, WITH FURTHER REFERENCE TO THE CLAIM OF THE UNITED STATES AGAINST THE ABILENE FLOUR MILLS CO., ABILENE, KANS., IN THE SUM OF $8,161.07, RESULTING FROM PAYMENT BY THE GOVERNMENT AT CONTRACT PRICES FOR FLOUR DELIVERED AFTER APRIL 1935, UNDER SEVERAL CONTRACTS CONTAINING STIPULATIONS THAT BID PRICES INCLUDED ALL APPLICABLE FEDERAL TAXES, AND THAT IN THE EVENT OF INCREASE OR DECREASE IN FEDERAL TAXES APPLICABLE TO SUPPLIES COVERED BY SAID CONTRACTS, SUBSEQUENT TO THE DATES OF OPENING OF BIDS, CONTRACT PRICES WOULD BE INCREASED OR DECREASED ACCORDINGLY, THE PROCESSING TAXES NOT HAVING BEEN PAID TO THE GOVERNMENT BY THE CONTRACTOR.

THE RECORDS OF THIS OFFICE SHOW THAT THE ABILENE FLOUR MILLS CO. MADE NO PAYMENT OF PROCESSING TAXES ON FLOUR PROCESSED AFTER APRIL 1935. THE AMOUNT OF THE PROCESSING TAXES APPLICABLE TO THE FLOUR DELIVERED UNDER THE SEVERAL CONTRACTS, COMPUTED UPON THE RATE OF $1.38PER BARREL AS FIXED BY THE SECRETARY OF AGRICULTURE, AMOUNTED TO $8,161.07. YOUR CLAIM IS AND HAS BEEN THAT--- NOTWITHSTANDING THE CONTRACTS SPECIFICALLY PROVIDED THAT PROCESSING TAXES THEN APPLICABLE WERE INCLUDED IN CONTRACT PRICES--- THE WHOLE AMOUNT OF THE TAXES WAS NOT IN FACT INCLUDED IN THE PRICES CHARGED THE GOVERNMENT, BUT WAS IN PART ABSORBED BY THE ABILENE FLOUR MILLS CO. A TABULATION ACCOMPANYING YOUR LETTER OF MAY 26, 1937, PURPORTED TO SHOW THAT ONLY $0.4337 TAX PER BARREL OF FLOUR WAS PASSED ON TO THE GOVERNMENT, THE BALANCE OF $0.9463 BEING ABSORBED BY THE CONTRACTOR.

IT WAS POINTED OUT IN MY LETTER TO YOU OF JULY 8, 1937, THAT THE FIGURES PRESENTED DID NOT ESTABLISH YOUR POINT, AND THAT, EVEN SO, IF THE FACT WERE PROVEN, IT WOULD BE WITHOUT FORCE, SINCE SUCH A CONTENTION COULD NOT PREVAIL AGAINST THE POSITIVE PROVISIONS OF THE WRITTEN CONTRACTS. THE RULE THAT IN THE ABSENCE OF AMBIGUITY PERMITTING CONSTRUCTION, OR FORFEITURE OF RIGHTS BY CONDUCT OF THE PARTIES, A CONTRACT "CANNOT BUT BE ENFORCED AS WRITTEN" IS OF TOO LONG STANDING FOR QUESTION. PENN BRIDGE COMPANY V. UNITED STATES, 59 CT.CLS. 892-896.

YOUR LETTER OF JULY 14, 1937, SUGGESTS THE POSSIBILITY THAT THE GOVERNMENT HAS NOT AN ENFORCEABLE CLAIM AGAINST THE MILLING COMPANY FOR THE TAX, IN THAT THERE WAS NO AGREEMENT THAT THE CUSTOMER--- THE GOVERNMENT--- WAS ENTITLED TO ANY REIMBURSEMENT OF ANY AMOUNT REPRESENTING A TAX OR OTHERWISE; THE PRICE DID NOT AND COULD NOT INCLUDE ALL THE TAX ALLEGED BY THE GOVERNMENT TO HAVE BEEN PASSED ON; AND THE SAID TAX WAS NOT SEPARATELY SET FORTH AS A DISTINCT ITEM.

THE OBVIOUS IMPORT OF THE TAX-INCLUSION STIPULATION OF THE CONTRACTS, WITH ITS PROVISION THAT IN THE EVENT OF CHANGE IN THE TAX THERE WOULD BE A CORRESPONDING CHANGE IN THE CONTRACT PRICES, UP OR DOWN AS THE CASE MIGHT BE, WAS THAT, AT THE DATES BIDS WERE OPENED, THE CONTRACTOR WAS OBLIGATED TO PAY TO THE UNITED STATES, IN ITS CAPACITY AS A SOVEREIGN, CERTAIN TAXES PER BUSHEL OR BARREL ON THE PROCESSING OF THE WHEAT INTO FLOUR, THAT SUCH TAXES WERE INCLUDED IN THE BID PRICES AS AN ELEMENT OF COST, AND THAT THE UNITED STATES IN ITS CAPACITY AS A CONTRACTOR ASSUMED TO SAVE THE CONTRACTOR HARMLESS AS TO THE EXISTING TAX AND TO PROTECT IT AGAINST POSSIBLE LOSS BY REASON OF ANY FUTURE INCREASE THEREIN. ON THE OTHER HAND, THE CONTRACTOR'S UNDERTAKING WAS TO PROTECT THE GOVERNMENT AGAINST HAVING TO PAY THE STIPULATED CONTRACT PRICE IN THE EVENT THERE WAS A REDUCTION--- OR EXTINCTION--- OF THE THEN-EXISTING TAX AND TO REDUCE PRICES TO THE GOVERNMENT ACCORDINGLY. IT COULD NOT BE SERIOUSLY CONTENDED THAT THE ACTION OF THE CONTRACTOR IN CHARGING THE GOVERNMENT THE AMOUNT OF THE TAX ON THE ONE HAND AND WITHHOLDING THE PAYMENT OF THE TAX TO THE UNITED STATES ON THE OTHER WAS IN COMPLIANCE WITH THE LETTER OR MANIFEST PURPOSE OF THE CONTRACT PROVISION.

THE TAX WAS AN ITEM DISTINCT FROM ALL OTHER ELEMENTS OF COST. AS YOU STATE: "THE MILLER BOOKS HIS ORDER, INCURS HIS SALES EXPENSE, BUYS HIS WHEAT, AND INCURS ALL HIS MANUFACTURING AND CONTAINER COSTS, ADDING THE TAX UPON COMPLETION OF THE PROCESSING.' IT IS PLAIN THAT THE AMOUNT OF THE TAX IS ADDED AS DISTINCT FROM THE ELEMENTS OF COST INCIDENT TO THE PURCHASING AND PROCESSING OF THE WHEAT AND THAT THE MILLER'S PROFIT IS SUPERIMPOSED UPON THE WHOLE. HENCE, DEDUCTION OF THE AMOUNT OF THE TAX FROM THE CONTRACT PRICE ADDS NOT ONE CENT TO CONTRACTOR'S COST AND SUBTRACTS NOT ONE PENNY FROM ITS PROFIT.

AS TO YOUR SUGGESTION THAT THE TAX WAS NOT SEPARATELY SET FORTH AS A DISTINCT ITEM, THERE WOULD APPEAR NO NECESSITY FOR STATING THE AMOUNT OF THE TAX SEPARATELY. THE CONTRACTS SPECIFICALLY PROVIDED THAT THE APPLICABLE TAX WAS INCLUDED IN THE CONTRACT PRICES. THE REGULATIONS OF THE SECRETARY OF AGRICULTURE, IMPOSING THE PROCESSING TAX, FIXED THE AMOUNT THEREOF. IT IS A MAXIM OF THE LAW THAT THAT IS CERTAIN WHICH MAY BE MADE CERTAIN, AND SINCE IT WAS NECESSARY ONLY TO TURN FROM THE CONTRACT TO THE REGULATIONS FIXING THE PROCESSING TAX, THE AMOUNT OF SUCH TAX WAS AS EASILY DETERMINABLE AS IF IT HAD BEEN SPECIFIED IN EXACT FIGURES IN THE BIDS.

IN VIEW OF THE PROVISIONS OF THE SEVERAL CONTRACTS, AND THE FACT THAT THE ABILENE FLOUR MILLS CO. DID NOT PAY THE PROCESSING TAX, WHILE THE GOVERNMENT PAID AT PRICES INCLUSIVE THEREOF, THE RIGHT OF THE GOVERNMENT TO RECOVER AN EQUIVALENT AMOUNT FROM THE CONTRACTOR WOULD APPEAR COMPLETE.

REFERRING TO YOUR SUGGESTION THAT YOU ARE "AGREEABLE TO THE ADOPTION AS A BASIS OF SETTLEMENT, THE PROCEDURE WHICH HAS BEEN ADOPTED BY YOUR OFFICE IN THE CASE OF THE ISMERT-HINCKE MILLING CO., FILE NO. A 85679," YOU ARE INFORMED THAT PURSUANT TO CORRESPONDENCE WITH THE COMMISSIONER OF INTERNAL REVENUE, REFERRED TO IN YOUR LETTER, AND OTHER CORRESPONDENCE RELATIVE TO SIMILAR MATTERS, IT HAS BEEN DETERMINED THAT THIS OFFICE WILL PROCEED WITH COLLECTION OF AN AMOUNT EQUAL TO THE FULL AMOUNT OF PROCESSING TAXES IN ALL CASES WHERE THE CONTRACTS PROVIDED THAT PRICES INCLUDED ALL FEDERAL TAXES AND IN CASE OF CHANGE IN THE AMOUNT OF THE TAXES CONTRACT PRICES WOULD BE ADJUSTED ACCORDINGLY, WHERE THE RECORDS SHOW THAT THE PROCESSING TAXES WERE NOT PAID ON THE ARTICLES FURNISHED, WITHOUT CONSIDERATION OF CLAIMS THAT ANY PART OF THE APPLICABLE TAX WAS ABSORBED BY A CONTRACTOR, LEAVING CONTRACTORS FREE TO OBTAIN CREDIT OR ADJUSTMENT WITH THE COMMISSIONER OF INTERNAL REVENUE IN CONNECTION WITH PAYMENT OF THE UNJUST ENRICHMENT OR SO-CALLED WINDFALL TAX PROVIDED FOR BY TITLE III OF THE REVENUE ACT OF JUNE 22, 1936, 49 STAT. 1739, AND THE REGULATIONS OF THE COMMISSIONER OF INTERNAL REVENUE.

ACCORDINGLY, AS STATED IN MY LETTER TO YOU OF JULY 8, 1937, THERE IS NO AUTHORITY FOR SETTLEMENT OF THE CLAIM OF THE UNITED STATES AGAINST THE ABILENE FLOUR MILLS CO. FOR ANY LESSER AMOUNT THAN THAT HERETOFORE FOUND DUE, TO WIT, $8,161.07, AND BANK DRAFT OR CERTIFIED CHECK FOR THAT AMOUNT, PAYABLE TO THE TREASURER OF THE UNITED STATES, SHOULD BE FORWARDED TO THIS OFFICE FORTHWITH.