B-144621, DECEMBER 12, 1961, 41 COMP. GEN. 395

B-144621, DECEMBER 12, 1961, 41 COMP. GEN. 395

BIDS - EVALUATION - TAX INCLUSION OR EXCLUSION IN THE EVALUATION OF A BID INCLUDING AN AMOUNT REPRESENTING THE ILLINOIS RETAILERS' OCCUPATION TAX, WHICH TAX HAS BEEN THE SUBJECT OF SEVERAL COURT DECISIONS CONCERNING ITS CONSTITUTIONALITY AND THE LATEST DECISION BY THE SUPREME COURT OF THE UNITED STATES IN REMANDING THE CASE TO THE LOWER COURT LEAVES THE CONSTITUTIONALITY OF THE TAX UNRESOLVED, THE PROCUREMENT AGENCY SHOULD ASSUME THAT THE TAX IS VALID; THEREFORE, IF THE INTERESTS OF THE GOVERNMENT DO NOT WARRANT FURTHER DELAY IN MAKING THE AWARD, THE BID SHOULD BE EVALUATED ON THE BASIS OF INCLUSION OF THE AMOUNT REPRESENTING THE TAX AND AWARD MADE TO THE OTHERWISE ACCEPTABLE LOW BIDDER.

TO THE SECRETARY OF THE ARMY, DECEMBER 12, 1961:

WE REFER TO A LETTER DATED OCTOBER 18, 1961, WITH ENCLOSURES, FROM THE CHIEF, CONTRACTS DIVISION, OFFICE OF THE DEPUTY CHIEF OF STAFF FOR LOGISTICS, SUBMITTING FOR OUR DECISION A QUESTION CONCERNING THE EVALUATION OF A BID SUBMITTED BY E. D. ETNYRE AND COMPANY, OREGON, ILLINOIS, IN RESPONSE TO INVITATION FOR BIDS NO. DA-ENG-11-184-61-B-20 JD WHICH CALLED FOR FURNISHING 50 BITUMINOUS MATERIAL DISTRIBUTORS. THIS PROCUREMENT HAS BEEN THE SUBJECT OF TWO PREVIOUS DECISIONS BY OUR OFFICE, B-144621 DATED AUGUST 1 (41 COMP. GEN. 47) AND SEPTEMBER 27, 1961.

THE QUESTION NOW SUBMITTED FOR DECISION INVOLVES THE PROPRIETY OF DEDUCTING FROM THE E. D. ETNYRE AND COMPANY BID THE 3 1/2 PERCENT ILLINOIS RETAILERS' OCCUPATION TAX WHICH THAT COMPANY INCLUDED IN ITS BID PRICE AS REQUIRED BY THE TERMS OF THE INVITATION FOR BIDS. THE CIRCUMSTANCES GIVING RISE TO THIS QUESTION ARE OUTLINED IN A SECOND ENDORSEMENT DATED OCTOBER 6, 1961, FROM THE ACTING CHIEF, CONTRACT LAW BRANCH, PROCUREMENT LAW DIVISION, JAGC, AS FOLLOWS:

1. THIS OFFICE HAS REVIEWED THE ATTACHED FILE AND HAS DETERMINED THE FACTS TO BE AS FOLLOWS:

A. INVITATION FOR BIDS NO. DA-ENG-11-184-61-B-20-JD WAS ISSUED ON JULY 18, 1960, BY THE U.S. ARMY ENGINEER OFFICE, CHICAGO, ILLINOIS, FOR FURNISHING 50 BITUMINOUS MATERIAL DISTRIBUTORS IN ACCORDANCE WITH CERTAIN SPECIFICATIONS, DELIVERY TO BE AS FOLLOWS: TWENTY-THREE TO BE DELIVERED F.O.B. GRANITE CITY ENGINEER DEPOT, GRANITE CITY, ILLINOIS; TWENTY-FIVE TO BE DELIVERED F.O.B. SCHENECTADY GENERAL DEPOT, GUILDERLAND CENTER, NEW YORK; ONE MOUNTED DISTRIBUTOR EITHER F.O.B. GRANITE CITY ENGINEER DEPOT OR F.O.B. CARRIER'S EQUIPMENT, WHARF OR FREIGHT STATION AT GOVERNMENT'S OPTION AT OR NEAR CONTRACTOR'S PLANT AT A SPECIFIED CITY OR SHIPPING POINT AND ONE MOUNTED DISTRIBUTOR F.O.B. MARION ENGINEER DEPOT, MARION, OHIO. THE PROCUREMENT WAS BASED ON A 100 PERCENT SET-ASIDE FOR SMALL BUSINESS. SIX BIDS WERE RECEIVED IN RESPONSE TO THE INVITATION, INCLUDING BIDS SUBMITTED BY E. D. ETNYRE AND CO., STANDARD STEEL WORKS, INC., AND THE SEAMAN CORPORATION. THE TWO LOWEST BIDS BY CITY TANK CORPORATION AND LITTLEFORD BROTHERS, INC., WERE RESPECTIVELY REJECTED ON THE BASIS THAT BIDDER WAS NOT A SMALL BUSINESS AND THAT THE BID WAS NONRESPONSIVE AS TO DELIVERY DATES. AWARD WAS MADE TO STANDARD STEEL WORKS, INC., AS LOWEST RESPONSIBLE BIDDER ( CONTRACT NO. DA-11-184-ENG 18465) AND THE E. D. ETNYRE AND CO. PROTESTED THE AWARD ON THE GROUNDS THAT STANDARD STEEL WORKS, INC., WAS NOT IN FACT A SMALL BUSINESS CONCERN. THE COMPTROLLER GENERAL IN MS. COMP. GEN. B-144621, 1 AUGUST 1961 UPHELD THE PROTEST OF E. D. ETNYRE AND DIRECTED THAT THE AWARD BE CANCELLED BUT THAT THE FIRST INSTALLMENT OF 10 DISTRIBUTORS AND THE TWO PROTOTYPES MANUFACTURED BY THE CONTRACTOR MAY BE ACCEPTED AND PAID FOR ON A QUANTUM VALEBAT BASIS. DCSLOG BY DC COMMENT NO. 1, CONCURRED IN BY THIS OFFICE ( JAGT 1961/7090, 18 AUGUST 1961) ADVISED CHIEF OF ENGINEERS OF THE CONCLUSIONS REACHED IN COMPTROLLER GENERAL DECISION REFERENCED ABOVE, AND FURTHER STATED THAT NO OBJECTION WOULD BE INTERPOSED TO AN AWARD TO E. D. ETNYRE AND CO. FOR THE REMAINING QUANTITY OF DISTRIBUTORS PROVIDED THE REQUIREMENT STILL EXISTS, THE AWARD IS ACCEPTABLE TO THE BIDDER AND THE BID IS OTHERWISE ACCEPTABLE.

B. AT THE TIME OF THE ORIGINAL BID OPENING (17 AUGUST 1960) THE " FEDERAL, STATE AND LOCAL TAXES" CLAUSE ( CLAUSE 23, GENERAL PROVISIONS ( SUPPLY CONTRACT) SF 32, OCTOBER 1957), OF THE IFB REQUIRED ILLINOIS CONTRACTORS TO INCLUDE THE ILLINOIS RETAILERS' OCCUPATION TAX IN THE BID PRICE FOR ITEMS BEING DELIVERED IN ILLINOIS FOR THE REASON THAT THE TAX WAS IN EFFECT AT THAT TIME. THE CLAUSE IN PERTINENT PART READS AS FOLLOWS:

"23. FEDERAL, STATE, AND LOCAL TAXES.

"/A) * * *

"/B) EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL FEDERAL, STATE, AND LOCAL TAXES AND DUTIES IN EFFECT AND APPLICABLE TO THIS CONTRACT ON THE TAX INCLUSIVE DATE, EXCEPT TAXES (OTHER THAN FEDERAL TRANSPORTATION TAXES) FROM WHICH THE GOVERNMENT, THE CONTRACTOR, OR THE TRANSACTIONS OR PROPERTY COVERED BY THIS CONTRACT OR THEN EXEMPT. UNLESS SPECIFICALLY EXCLUDED, DUTIES ARE INCLUDED IN THE CONTRACT PRICE, AND, IF FREIGHT IS INCLUDED IN THE CONTRACT PRICE, FEDERAL TRANSPORTATION TAXES ARE LIKEWISE INCLUDED.

"/C) * * * (2) IF THE CONTRACTOR IS NOT REQUIRED TO PAY OR BEAR THE BURDEN * * * OF ANY TAX * * * WHICH (I) WAS TO BE INCLUDED IN THE CONTRACT PRICE PURSUANT TO THE REQUIREMENTS OF PARAGRAPH (B) * * * THE CONTRACT PRICE SHALL ALSO BE CORRESPONDINGLY DECREASED * * *.

"/4) NOTHING IN THIS PARAGRAPH (C) SHALL BE APPLICABLE TO * * * ANY STATE OR LOCAL TAXES, EXCEPT THOSE LEVIED ON OR MEASURED BY THE CONTRACT OR SALES PRICE OF THE SERVICES OR COMPLETED SUPPLIES FURNISHED UNDER THIS CONTRACT, INCLUDING * * * FRANCHISE OR OCCUPATION TAXES MEASURED BY SALES OR RECEIPTS FROM SALES.'

PROVISION WAS ALSO MADE IN CLAUSE 8 OF " SPECIAL TERMS AND CONDITIONS" OF THE IFB AS FOLLOWS:

"8. FEDERAL, STATE AND LOCAL TAXES: BID PRICES SHALL INCLUDE ANY FEDERAL, STATE OR LOCAL SALES TAX, USE OR OTHER TAX FROM WHICH THE CONTRACTOR OR THIS TRANSACTION OF THE PROCUREMENT OF THE SUPPLIES IS NOT EXEMPT. ADDITION, THE PRICE SHALL INCLUDE ANY TAX FROM WHICH THE TRANSACTION MAY BE EXEMPT SOLELY BECAUSE OF EXPORT FROM THE UNITED STATES. EVIDENCE OF EXPORT WILL NOT BE FURNISHED BY THE GOVERNMENT.'

ON 17 AUGUST 1960 (THE DATE OF THE BID OPENING) THE 3 1/2 PERCENT ILLINOIS RETAILERS' OCCUPATION TAX WAS IN EFFECT AND APPLICABLE TO THE CONTRACT. AT THAT TIME IT WAS READILY ASCERTAINABLE THAT ETNYRE AND CO., UNDER ILLINOIS LAW, WAS RESPONSIBLE FOR THE PAYMENT OF THE 3 1/2 PERCENT TAX ON THE 24 DISTRIBUTORS TO BE DELIVERED IN ILLINOIS. BY THE TERMS OF THE IFB ETNYRE'S BID PRICE INCLUDED THIS TAX. IF THE AMOUNT OF THE TAX IS DEDUCTED FROM ETNYRE'S BID THAT BID WILL BE THE LOW ONE; IF NOT, THEN SEAMAN CORPORATION WILL BE THE LOW BIDDER.

(C) ON 24 FEBRUARY 1961 THE ILLINOIS RETAILERS' OCCUPATION TAX, AS APPLIED TO SALES TO THE FEDERAL GOVERNMENT, WAS HELD UNCONSTITUTIONAL AND THE STATE WAS PERMANENTLY ENJOINED FROM COLLECTING THE TAX ON SUCH SALES. UNITED STATES V. DEPARTMENT OF REVENUE, 191 F. SUPP. 723 ( N.D. ILL., 1961).

THE DECISION IN UNITED STATES, ET AL. V. DEPARTMENT OF REVENUE OF ILLINOIS, ET AL., CITED ABOVE, HOLDING THE ILLINOIS RETAILERS' OCCUPATION TAX UNCONSTITUTIONAL, WAS BASED ON THE GROUND THAT THE TAX WAS DISCRIMINATORY IN THAT IT PROVIDED NO EXEMPTIONS FOR SALES TO THE UNITED STATES BUT DID PROVIDE EXEMPTIONS IN THE CASE OF SALES TO THE STATE OF ILLINOIS, ITS POLITICAL SUBDIVISIONS, AGENCIES AND INSTRUMENTALITIES AND TO CHARITABLE, RELIGIOUS AND EDUCATIONAL ORGANIZATIONS.

SUBSEQUENT TO THE SUBMISSION OF YOUR QUESTION TO THIS OFFICE, HOWEVER, THE UNITED STATES SUPREME COURT IN DEPARTMENT OF REVENUE OF ILLINOIS, ET AL. V. UNITED STATES, ET AL., SUP. CT. NO. 245, DECIDED NOVEMBER 6, 1961, VACATED THE JUDGMENT OF THE DISTRICT COURT IN UNITED STATES V. DEPARTMENT OF REVENUE, 191 F. SUPP. 723, AND REMANDED THE CASE TO THAT COURT FOR FURTHER CONSIDERATION. THE PER CURIAM OPINION OF THE UNITED STATES SUPREME COURT READS, IN ITS ENTIRETY, AS FOLLOWS:

IN THE LIGHT OF THE REPRESENTATIONS OF THE SOLICITOR GENERAL AND UPON CONSIDERATION OF THE ENTIRE RECORD, THE JUDGMENT OF THE DISTRICT COURT IS VACATED. THE CASE IS REMANDED TO THE DISTRICT COURT FOR FURTHER CONSIDERATION IN THE LIGHT OF DEVELOPMENTS WHICH HAVE OCCURRED SINCE THE INJUNCTION WAS ISSUED, WITHOUT PREJUDICE TO CONSIDERATION BY THAT COURT OF ANY APPLICATION BY APPELLEES FOR SUCH TEMPORARY EQUITABLE RELIEF AS THEY MAY REQUEST PENDING THE FURTHER PROCEEDINGS HEREBY ORDERED.

THE PER CURIAM OPINION DOES NOT INDICATE WHAT THE REPRESENTATIONS OF THE SOLICITOR GENERAL WERE OR WHAT DEVELOPMENTS OCCURRED AFTER THE INJUNCTION OF THE DISTRICT COURT WAS ISSUED WHICH CAUSED THE VACATION OF JUDGMENT AND REMAND TO THE LOWER COURT FOR FURTHER CONSIDERATION. HOWEVER, INFORMAL ADVICE FROM THE DEPARTMENT OF JUSTICE AND TWO MEMORANDUMS IN RESPONSE TO JURISDICTIONAL STATEMENT FILED BY THE SOLICITOR GENERAL WITH THE UNITED STATES SUPREME COURT WHEN THE CASE WAS BEFORE THAT COURT INDICATE THE FOLLOWING SEQUENCE OF EVENTS AND THE REASONS UNDERLYING THE COURT'S DECISION TO VACATE JUDGMENT AND REMAND THE CASE TO THE DISTRICT COURT. JUNE 30, 1961, THE ILLINOIS LEGISLATURE AMENDED THE ILLINOIS RETAILERS' OCCUPATION ( SALES) TAX ACT SO AS TO REMOVE THE EXEMPTION PREVIOUSLY ACCORDED TO THE STATE AND ITS INSTRUMENTALITIES BUT RETAINED AN EXCEPTION FOR SALES TO CHARITABLE, RELIGIOUS AND EDUCATIONAL INSTITUTIONS. THEREAFTER, THE ILLINOIS SUPREME COURT IN PEOPLE EX REL. HOLLAND COAL COMPANY V. ISAACS, DIRECTOR OF REVENUE, 176 N.E.2D 889, (AS MODIFIED SEPTEMBER 22, 1961) HELD, IN A TAXPAYER'S SUIT, THAT EXEMPTING SALES TO STATE INSTRUMENTALITIES FROM THE MEASURE OF THE TAX WHILE NOT EXEMPTING SALES TO THE UNITED STATES WAS UNCONSTITUTIONALLY DISCRIMINATORY BUT THAT THE EXEMPTION OF SALES TO PRIVATE CHARITABLE ORGANIZATIONS WAS NOT UNCONSTITUTIONAL AND THAT THAT PART OF THE EXEMPTION COULD REMAIN IN EFFECT NOTWITHSTANDING THE INVALIDATION OF THE STATE EXEMPTION. IN EFFECT THE COURT HELD THAT THE TAX STATUTE IN AMENDED FORM WAS CONSTITUTIONAL.

THE DEPARTMENT OF JUSTICE NOTES THAT WHILE THE ILLINOIS SUPREME COURT HAS NOW HELD THAT THE TAXING STATUTE IN ITS PRESENT FORM (WITH THE AMENDMENT LIMITING THE EXEMPTION PROVISION TO PRIVATE CHARITIES) IS CONSTITUTIONAL, THE DISTRICT COURT HAS NOT YET HAD AN OPPORTUNITY TO CONSIDER THAT QUESTION AND IT NEED NOT FOLLOW THE VIEWS OF THE ILLINOIS SUPREME COURT. MOREOVER, SHOULD THE DISTRICT COURT CONCLUDE THAT THE CONSTITUTIONAL DEFECT UPON WHICH IT ORIGINALLY RELIED HAS NOW BEEN REMEDIED, THERE WOULD REMAIN THE QUESTION, ON WHICH THE DISTRICT COURT HAS NOT YET PASSED, WHETHER THE TAX IS UNCONSTITUTIONAL ON THE ALTERNATIVE GROUND URGED BEFORE THE DISTRICT COURT THAT IT CONSTITUTES A DIRECT TAX ON THE "PURCHASES OF THE GOVERNMENT ITSELF.' ( KERN LIMERICK V. SCURLOCK, 347 U.S. 110, 123).

ON THE BASIS OF THE PRESENT RECORD IT CANNOT BE SAID CONCLUSIVELY THAT THE ILLINOIS RETAILERS' OCCUPATION TAX STATUTE IS UNCONSTITUTIONAL. THIS IS ESPECIALLY TRUE IN VIEW OF THE UNITED STATES SUPREME COURT'S ACTION IN VACATING THE LOWER COURT JUDGMENT. THE RULE WITH REGARD TO THE EFFECT OF VACATING A JUDGMENT IS THAT WHERE A JUDGMENT IS VACATED OR SET ASIDE BY A VALID ORDER OR JUDGMENT, IT IS ENTIRELY DESTROYED AND THE RIGHTS OF THE PARTIES ARE LEFT AS THOUGH NO SUCH JUDGMENT HAD EVER BEEN ENTERED; NO FURTHER STEPS CAN BE LEGALLY TAKEN TO ENFORCE THE VACATED JUDGMENT BUT THE ACTION IS LEFT STILL PENDING AND UNDETERMINED, AND FURTHER PROCEEDINGS MAY BE HAD OR TAKEN THEREIN. 49 C.J.S. JUDGMENTS SECTION 306, AND AUTHORITIES CITED THEREIN. AS OF THIS TIME, THEREFORE, THE ONLY OPINION OUTSTANDING AS TO THE CONSTITUTIONALITY OF THE TAX IS THAT OF THE ILLINOIS SUPREME COURT ( PEOPLE EX REL. HOLLAND COAL COMPANY V. ISAACS, DIRECTOR OF REVENUE, SUPRA) IN FAVOR OF THE VALIDITY OF THE TAX. ALTHOUGH THE DISTRICT COURT, AS NOTED BY THE DEPARTMENT OF JUSTICE, IS NOT BOUND BY THE STATE COURT'S OPINION, IT MAY VERY WELL, IN LIGHT OF THE STATUTE'S AMENDMENT BY THE STATE LEGISLATURE, HOLD THE TAX STATUTE IN ITS PRESENT FORM CONSTITUTIONAL. BE THAT AS IT MAY, FOR OUR PRESENT PURPOSES IT MUST BE CONCLUDED THAT THE CONSTITUTIONAL QUESTION IS, AT BEST, UNSETTLED. MOREOVER, UNTIL THE FEDERAL COURTS HOLD OTHERWISE, WE MUST ASSUME THAT THE TAX STATUTE IS VALID.

IT HAS BEEN REPORTED INFORMALLY THAT THE DEPARTMENT OF THE ARMY IS URGENTLY IN NEED OF THE MATERIAL DISTRIBUTORS YET TO BE AWARDED. IN VIEW OF THE FACT THAT THE FEDERAL COURTS MAY NOT DEFINITIVELY RESOLVE THE CONSTITUTIONAL QUESTION ON THE ILLINOIS TAX FOR SEVERAL MONTHS, AND EVEN THEN MAY FIND IN FAVOR OF THE TAX, IT APPARENTLY WOULD NOT BE IN THE BEST INTERESTS OF THE GOVERNMENT TO FURTHER DELAY MAKING AN AWARD FOR THE FURNISHING OF THE REMAINING DISTRIBUTORS. THIS OFFICE WOULD NOT OBJECT, THEREFORE, TO THE AWARD OF A CONTRACT FOR FURNISHING THE REMAINING DISTRIBUTORS TO THE SEAMAN CORPORATION PROVIDING THE AWARD IS ACCEPTABLE TO THAT CORPORATION AND ITS BID IS OTHERWISE ACCEPTABLE.