B-144504, OCT. 22, 1965, 45 COMP. GEN. 192

B-144504, OCT. 22, 1965, 45 COMP. GEN. 192

CONTRACTS - TAX MATTERS - SALES, ETC., TAX INCLUSION OR EXCLUSION ALTHOUGH THE UNITED STATES GOVERNMENT IS LIABLE FOR THE KENTUCKY VETERANS' BONUS SALES AND USE TAX, ENACTED JULY 1, 1960, ON INTRASTATE TELEPHONE SERVICE FROM APRIL 1, 1965, THE DATE THE KENTUCKY PUBLIC SERVICE COMMISSION APPROVED A TARIFF AMENDMENT AUTHORIZING THE ADDITION OF THE SALES TAX TO THE BILLS OF SUBSCRIBERS, AS THE CONTRACT PROVIDED FOR PRICES AT A LEVEL APPROVED BY THE APPROPRIATE STATE REGULATORY AGENCY, THE TAX MAY NOT BE PAID ON SERVICES FURNISHED THE GOVERNMENT PRIOR TO APRIL 1, 1965, THE DATE THE TAX BECAME PART OF THE LAWFULLY-IN EFFECT TARIFF RATE, ABSENT A CONTRACT PROVISION AUTHORIZING REIMBURSEMENT OF THE TAX IMPOSED ON THE VENDOR, WHOSE FAILURE TO PASS ON THE TAX TO THE VENDEE, AS AUTHORIZED BY THE TAX LAW, DOES NOT AFFECT ITS LIABILITY FOR THE TAX.

TO C. E. CARTER, DEPARTMENT OF THE ARMY, OCTOBER 22, 1965:

YOUR LETTER OF SEPTEMBER 17, 1965 (YOUR REFERENCE ORNDC-F), AND ATTACHMENTS, CONCERN PAYMENT OF THE KENTUCKY VETERANS' BONUS SALES AND USE TAX INCIDENT TO TELEPHONE SERVICE FURNISHED BY THE SOUTHERN BELL TELEPHONE AND TELEGRAPH COMPANY (COMPANY), UNDER (ACCORDING TO YOUR LETTER), CONTRACT NO. DA-49-068-SC-059, ENTERED INTO SEPTEMBER 1, 1950. APPARENTLY THE LAST DIGIT OF THE CONTRACT NUMBER SHOULD BE "ZERO" RATHER THAN "NINE," SINCE THE COPY OF THE CONTRACT YOU INFORMALLY TRANSMITTED HERE AS BEING THE CONTRACT INVOLVED, CONTAINS THE NUMBER A-49-068-SC-050," AND THE ATTACHMENTS WITH YOUR LETTER REFER TO THE CONTRACT BY THIS NUMBER.

THE FACTS IN BRIEF ARE SET FORTH BELOW.

THE STATE OF KENTUCKY PASSED A KENTUCKY VETERANS' BONUS SALES AND USE TAX WHICH BECAME EFFECTIVE JULY 1, 1960. SINCE THAT DATE THE COMPANY HAS INCLUDED THE TAX IN THEIR BILLINGS FOR TELEPHONE SERVICES. IN MAKING PAYMENTS OF THESE INVOICES YOUR OFFICE HAS DEDUCTED THE AMOUNT OF THE TAX. THE COMPANY HOWEVER, HAS ADDED THE ACCUMULATIVE TOTAL OF THE TAX TO EACH BILL.

A TARIFF AMENDMENT AUTHORIZING THE ADDITION OF THE KENTUCKY SALES TAX TO THE BILLS OF SUBSCRIBERS OF TELEPHONE SERVICES, EFFECTIVE APRIL 1, 1965, WAS FILED WITH THE KENTUCKY PUBLIC SERVICE COMMISSION BY THE COMPANY. THIS TARIFF CHANGE IS CONSIDERED BY THE DEPARTMENT OF THE ARMY TO CONSTITUTE A RECOGNITION BY THE COMMISSION OF THE APPLICABILITY OF THE KENTUCKY SALES TAX TO INTRASTATE TELEPHONE SERVICES. ACCORDINGLY, IT APPEARS THAT YOUR OFFICE HAS PAID THE TAX INCLUDED IN BILLS FOR TELEPHONE SERVICES FURNISHED BY THE COMPANY ON AND AFTER APRIL 1, 1965. THE RECORD INDICATES THAT YOUR DEPARTMENT CONSIDERED THAT THE APRIL 1, 1965, TARIFF AMENDMENT MADE THE TAX INVOLVED PART OF THE RATE FOR TELEPHONE SERVICES AFTER SUCH DATE.

THE COMPANY CONTINUES TO BILL THE GOVERNMENT FOR THE SALES TAX FOR BILLS RENDERED PRIOR TO APRIL 1, 1965. YOU REQUEST A DECISION AS TO WHETHER IT WOULD BE PROPER TO PAY THE KENTUCKY SALES TAX ON TELEPHONE BILLS RENDERED PRIOR TO APRIL 1, 1965, FOR TELEPHONE SERVICES FURNISHED UNDER CONTRACT NO. DA-49-068-SC-050.

ARTICLE 10 OF THE CONTRACT NO. DA-49-068-SC-050 INVOLVED HERE PROVIDES, IN PART, AS FOLLOWS:

SUBJECT, IF REQUIRED BY LAW, TO APPROVAL BY GOVERNMENTAL REGULATORY AGENCIES HAVING JURISDICTION WITH RESPECT TO TELEPHONE COMPANIES, THE DEPARTMENT SHALL PAY TO THE COMPANY FOR FACILITIES AND SERVICES FURNISHED BY IT UNDER THIS CONTRACT AMOUNTS DETERMINED AS FOLLOWS:

IT IS CLEAR FROM THE CONTRACT PAYMENT PROVISIONS WHICH FOLLOW ARTICLE 10 THAT IT WAS CONTEMPLATED THAT THE CONTRACT PRICES GENERALLY WOULD BE AT A LEVEL APPROVED BY THE APPROPRIATE STATE REGULATORY AGENCY WITH CERTAIN MODIFICATIONS AS SET FORTH IN THE CONTRACT. FURTHER, THE CONTRACT CONTAINS NO PROVISION THAT REQUIRES THE GOVERNMENT TO REIMBURSE THE CONTRACTOR THE TAXES INVOLVED HERE AS TAXES.

THE KENTUCKY "VETERANS' BONUS SALES AND USE TAX LAW" IMPOSES A TAX ON THE VENDOR, AND ALTHOUGH UNDER SECTION 21 THEREOF THE VENDOR MAY PASS ON THE TAX TO THE VENDEE, THIS IS NOT MANDATORY AND THE VENDOR'S FAILURE TO DO SO DOES NOT AFFECT HIS LIABILITY FOR THE TAX. WHERE THE INCIDENCE OF A STATE TAX IS UPON A VENDOR OF GOODS OR SERVICES TO THE GOVERNMENT, THE CONSTITUTIONAL PRINCIPLE UNDER WHICH THE FEDERAL GOVERNMENT IS IMMUNE TO STATE TAXATION IS NOT INVOLVED. 33 COMP. GEN. 53; 32 ID. 423; 24 ID. 150. HOWEVER, IN THE ABSENCE OF A CONTRACTUAL PROVISION REQUIRING THE GOVERNMENT TO REIMBURSE THE VENDOR, IT IS THE RESPONSIBILITY OF THE VENDOR TO PAY SUCH TAXES AND THE GOVERNMENT IS IN NO WAY LIABLE.

ALSO, IT IS A WELL-ESTABLISHED RULE THAT RATES FIXED BY A CONTRACT BETWEEN A PUBLIC UTILITY AND A PATRON ARE NEVERTHELESS SUBJECT TO LEGISLATIVE REGULATION AND ARE SUPERSEDED BY A SCHEDULE OF RATES PRESCRIBED BY THE LEGISLATURE OR A COMMISSION TO WHICH IT HAS DELEGATED ITS REGULATORY POWER.

AS INDICATED ABOVE, THE CONTRACT BETWEEN THE COMPANY AND THE GOVERNMENT DOES NOT CONTAIN ANY PROVISION THAT WOULD REQUIRE THE GOVERNMENT TO REIMBURSE THE CONTRACTOR THE TAXES INVOLVED HERE. FURTHER, IT WAS NOT UNTIL APRIL 1, 1965, SUCH TAXES WERE, IN EFFECT, INCLUDED IN THE COMPANY'S SCHEDULE OF RATES AND APPROVED BY THE KENTUCKY PUBLIC SERVICE COMMISSION. HENCE, IT WAS NOT UNTIL APRIL 1, 1965, THAT THE TAX MAY BE SAID TO HAVE BECOME PART OF THE COMPANY'S LAWFULLY-IN-EFFECT TARIFF OR RATE. ACCORDINGLY, THE AMOUNT OF THE KENTUCKY SALES TAX BILLED THE GOVERNMENT BY THE SOUTHERN BELL TELEPHONE AND TELEGRAPH COMPANY FOR SERVICES RENDERED PRIOR TO APRIL 1, 1965, UNDER CONTRACT NO. DA-49-068-SC-050 MAY NOT BE PAID.