B-151025, OCT. 24, 1963

TO FEDERAL HIGHWAY ADMINISTRATOR:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 2, 1963, (YOUR REFERENCE 36- 10) IN RESPONSE TO OUR LETTER OF MAY 15, 1963, B-151025, REQUESTING YOUR VIEWS CONCERNING THE INCLUSION OF MONTANA STATE FUEL TAXES IN THE PRICE OF HIGHWAY CONSTRUCTION CONTRACTS FOR WHICH THE BUREAU OF PUBLIC ROADS PARTIALLY REIMBURSES THE STATE UNDER THE FEDERAL-AID HIGHWAY LAWS.

IN OUR LETTER OF MAY 15 WE TOOK ISSUE WITH THE OPINION OF THE ATTORNEY GENERAL OF MONTANA TO THE EFFECT THAT THE DEFINITION OF THE TERM "HIGHWAY" IN THE MONTANA FUEL TAX STATUTES IS BROAD ENOUGH TO APPLY THE FUEL TAX TO FUEL CONSUMED IN CONSTRUCTION SITE ACTIVITIES OF CONTRACTORS BUILDING HIGHWAYS UPON NEW LOCATIONS. FURTHER, ASSUMING THE CORRECTNESS OF THE ATTORNEY GENERAL'S OPINION, WE QUESTIONED WHETHER THE BUREAU OF PUBLIC ROADS WAS AUTHORIZED TO ALLOW FEDERAL PARTICIPATION IN THE AMOUNT OF SUCH TAX INCLUDED IN THE HIGHWAY CONSTRUCTION CONTRACT PRICE, SINCE THE CONTRACTORS INVOLVED RECEIVED NO BENEFIT FROM PAYMENT OF THE TAX FOR ON- SITE OPERATIONS, AS THEY WERE NOT USING A HIGHWAY, AND THUS THERE WAS NO COST TO THE STATE.

IN CONNECTION WITH THE OPINION OF THE ATTORNEY GENERAL OF THE STATE OF MONTANA, YOU EXPRESS THE VIEW IN YOUR LETTER OF MAY 2, 1963, THAT AS AN EXPRESSION BY THE CHIEF LEGAL OFFICER OF THE STATE THE OPINION STANDS AS AN INTERPRETATION BY THE STATE OF ITS OWN STATUTE AND WILL SO STAND UNTIL OVERTURNED BY A COURT OF COMPETENT JURISDICTION. YOU ALSO POINT OUT THAT MONTANA LAW MAKES IT THE DUTY OF THE ATTORNEY GENERAL TO GIVE HIS OPINION TO STATE BOARDS OR COMMISSIONS, AMONG OTHERS, WHEN REQUIRED, UPON ANY QUESTION OF LAW RELATING TO THEIR RESPECTIVE OFFICES. YOU STATE THAT THE OPINION IN QUESTION WAS REQUESTED BY THE STATE HIGHWAY COMMISSION AND THAT AS AN OFFICIAL ACT OF THE STATE YOU DO NOT BELIEVE THAT SUCH OPINION SHOULD BE CONTRAVENED.

WHILE AS PREVIOUSLY INDICATED WE DO NOT AGREE WITH THE ATTORNEY GENERAL'S OPINION IN THE MATTER, THERE IS APPARENTLY NO DECISION BY A COURT OF MONTANA EXPRESSING A VIEW CONTRARY TO THE POSITION TAKEN BY THE ATTORNEY GENERAL. MOREOVER, WHILE THE OPINION STANDS IT SEEMS APPARENT THAT THE STATE OF MONTANA WILL NOT REFUND TO CONTRACTORS ON HIGHWAY CONSTRUCTION PROJECTS MOTOR FUEL TAXES ON FUEL USED BY THEM AT THE SITE IN THE CONSTRUCTION OF THE PROJECTS.

FURTHER, AS INDICATED IN YOUR LETTER, THE 1963 AMENDMENT OF SECTION 84- 1813, REVISED CODES OF MONTANA, 1947, MAKES IT CLEAR THAT THE MONTANA SPECIAL FUEL TAX IS APPLICABLE TO FUEL CONSUMED IN ON-SITE OPERATIONS BY CONTRACTORS BUILDING HIGHWAYS ON NEW LOCATIONS INCLUDING FEDERAL-AID CONTRACTORS, AND THERE IS NO PROVISION IN THE MONTANA FUEL TAX STATUTE FOR REFUND OF SPECIAL FUEL TAXES.

ALSO, YOU EXPRESS THE VIEW THAT SERIOUS OBJECTION TO THE VALIDITY OF THE MONTANA FUEL TAX AS APPLIED TO FUELS CONSUMED IN ON-SITE CONSTRUCTION OPERATIONS ON NEW HIGHWAYS, BECAUSE NO COMMENSURATE BENEFIT IS BESTOWED UPON THE CONTRACTOR, IS PRECLUDED BY EXPRESSIONS OF THE UNITED STATES SUPREME COURT AND YOU QUOTE THE FOLLOWING LANGUAGE FROM NASHVILLE, C. AND ST.L.RY. V. WALLACE, 288 U.S. 249 (1933):

"APPELLANT OBJECTS THAT THE TAX VIOLATES THE FOURTEENTH AMENDMENT IN THAT IT IS LEVIED AS A CHARGE FOR THE USE OF THE HIGHWAYS WHICH APPELLANT DOES NOT USE. BUT THE LEVY IS A TAX, NOT A TOLL OR CHARGE FOR USE OF THE HIGHWAYS * * * AND THE CONSTITUTIONAL POWER TO LEVY TAXES DOES NOT DEPEND UPON THE ENJOYMENT BY THE TAXPAYER OF ANY SPECIAL BENEFIT FROM THE USE OF THE FUNDS RAISED BY TAXATION. * * *"

WE AGREE THAT IN VIEW OF THE DECISION OF THE UNITED STATES SUPREME COURT IN THE NASHVILLE CASE A CONTRACTOR ENGAGED IN THE CONSTRUCTION OF A NEW HIGHWAY WOULD NOT BE LEGALLY ENTITLED TO REFUND OF MOTOR FUEL TAXES PAID TO A STATE FOR FUEL CONSUMED IN ON-SITE OPERATIONS IN CONSTRUCTING NEW HIGHWAYS ON THE BASIS THAT THE STATE HAS RENDERED NO HIGHWAY SERVICE TO THE CONTRACTOR, NOR CAN THE VALIDITY OF THE TAX BE SUCCESSFULLY ATTACHED ON THAT BASIS.

YOU NOTE THAT THE TERM "CONSTRUCTION" IS DEFINED IN 23 U.S.C. 101 (A) AS FOLLOWS:

"THE TERM "CONSTRUCTION" MEANS THE SUPERVISING, INSPECTING, ACTUAL BUILDING, AND ALL EXPENSES INCIDENTAL TO THE CONSTRUCTION OR RECONSTRUCTION OF A HIGHWAY, INCLUDING LOCATING, SURVEYING, AND MAPPING (INCLUDING THE ESTABLISHMENT OF TEMPORARY AND PERMANENT GEODETIC MARKERS IN ACCORDANCE WITH SPECIFICATIONS OF THE COAST AND GEODETIC SURVEY IN THE DEPARTMENT OF COMMERCE), COSTS OF RIGHTS-OF-WAY, AND ELIMINATION OF HAZARDS OF RAILWAY-GRADE CROSSINGS.'

YOU STATE THAT 23 U.S.C. 120 PROVIDES THE BASIS FOR COMPUTING THE FEDERAL SHARE OF THE COSTS OF FEDERAL-AID PROJECTS AND, CONCEIVABLY, BY VIRTUE OF THE INCLUSION OF THE COST OF STATE TAXES THEREIN, IT COULD BE ARGUED THAT THE FEDERAL-AID PARTICIPATION RATIO IS ALTERED. HOWEVER, IN VIEW OF THE BROAD PHRASE "ALL EXPENSES INCIDENTAL TO THE CONSTRUCTION OR RECONSTRUCTION OF A HIGHWAY" APPEARING IN THE DEFINITION OF "CONSTRUCTION" IN 23 U.S.C. 101 (A), YOU BELIEVE THAT SUCH AN ARGUMENT MUST BE REJECTED. YOU STATE IF SUCH AN ARGUMENT WERE PUT FORWARD MONTANA COULD VALIDLY POINT OUT THAT THE COST OF CONSTRUCTION INCLUDES VARIOUS OTHER DIRECT AND INDIRECT TAXES PAID BY CONTRACTORS. YOU ADVISE THAT IN MANY JURISDICTIONS STATE AND LOCAL SALES AND USE TAXES ON MATERIALS AND TAXES ON THE VALUE OF PUBLIC WORKS CONSTRUCTION, ALL LEVIED FOR THE PURPOSE OF RAISING REVENUE FOR GENERAL GOVERNMENTAL PURPOSES, ARE INCLUDED IN THE COST OF CONSTRUCTION, THUS BECOMING PART OF THE COST OF THE PROJECT. YOU STATE THAT YOU PERCEIVE NO REASON FOR SEPARATING THE MOTOR FUEL TAX FROM SUCH OTHER TAXES, THE COSTS OF WHICH ARE PARTICIPATED IN BY FEDERAL-AID FUNDS WITHOUT QUESTION.

AS INDICATED IN YOUR LETTER, THERE APPEARS TO BE NO LEGAL REASON FOR SEPARATING THE MOTOR FUEL TAXES FROM OTHER TYPES OF STATE SALES AND USE TAXES, THE COSTS OF WHICH ARE PARTICIPATED IN BY FEDERAL-AID FUNDS.

IN THIS CONNECTION WE NOTE THE FOLLOWING BUREAU OF PUBLIC ROADS ADMINISTRATIVE PRONOUNCEMENTS:

GENERAL ADMINISTRATIVE MEMORANDUM NO. 107, ISSUED JULY 19, 1949, PROVIDES THAT:

" "WHERE A CONTRACT HAS BEEN AWARDED ON THE BASIS OF UNIT PRICES FOR ALL OF THE ITEMS OF WORK ENTERING INTO A PROJECT AND NO SEPARATE TAX ITEMS APPEAR IN EITHER THE CONTRACT, REIMBURSEMENT VOUCHER OR SUPPORTING PAPERS, THE VOUCHER MAY BE PAID EVEN THOUGH THE STATE MAY HAVE COLLECTED A TAX ON THE MATERIALS USED. IN SUCH CASES IT CANNOT BE DETERMINED WHETHER THE CONTRACTOR HAS ABSORBED THE TAX OR WHETHER HE HAS DISTRIBUTED IT IN THE INDIVIDUAL ITEMS OF HIS BID.'"

GENERAL ADMINISTRATIVE MEMORANDUM NO. 271, MARCH 26, 1945, PROVIDES, IN PART, AS FOLLOWS:

" "* * * THEREFORE IT WILL BE THE POLICY OF THE PUBLIC ROADS ADMINISTRATION HEREAFTER TO CONSIDER ALL SUCH SPECIAL TAXES AS REIMBURSABLE ITEMS WHEN PAID BY CONTRACTORS, RAILROAD COMPANIES OR PUBLIC UTILITIES EXCEPT IN CASES WHERE THE STATE OR LOCAL LAW PROVIDES FOR AN APPLICABLE TAX EXEMPTION.'"

POLICY AND PROCEDURE MEMORANDUM 30-3, DATED AUGUST 15, 1955, PROVIDES AT PARAGRAPH 4.I. THAT:

" "I. TAXES ON MATERIALS AND SUPPLIES LEVIED BY STATE AND/OR LOCAL GOVERNMENTS, AND WHICH ARE PAID BY RAILROAD OR UTILITY COMPANIES ARE REIMBURSABLE.'"

PARAGRAPH 12.A. OF POLICY AND PROCEDURE MEMORANDUM 30-4, DATED DECEMBER 31, 1957, PROVIDES THAT EXPENSES OF "FUEL AND LUBRICANTS FOR VEHICLES (INCLUDING SALES AND EXCISE TAXES THEREON)" ARE ELIGIBLE FOR REIMBURSEMENT WITH FEDERAL-AID FUNDS.

ALSO, WE UNDERSTAND THAT THE CONGRESS IS AWARE THAT STATE TAXES HAVE BEEN ELIGIBLE TO PARTICIPATE AS A COST UNDER FEDERAL-AID HIGHWAY PROGRAMS AND THAT A BILL (H.R. 5590, 88TH CONGRESS) HAS BEEN INTRODUCED IN THE CONGRESS TO PROHIBIT PARTICIPATION OF FEDERAL-AID HIGHWAY FUNDS IN CERTAIN STATE AND LOCAL TAXES, INCLUDING SALES AND USE TAXES ON CERTAIN ITEMS. TESTIFYING ON H.R. 5590, ON JUNE 12, 1963, BEFORE THE HOUSE SUBCOMMITTEE ON ROADS (SEE PAGE 90, HEARINGS ON FEDERAL-AID HIGHWAY ACT AMENDMENTS, OF 1963) A REPRESENTATIVE OF THE GENERAL ACCOUNTING OFFICE POINTED OUT THAT AN ESTIMATE PREPARED BY THE BUREAU OF PUBLIC ROADS INDICATES THAT AN ANNUAL TOTAL OF $49 MILLION IN STATE TAXES--- NOT INCLUDING LOCAL TAXES--- ARE ASSESSED AGAINST FEDERAL-AID HIGHWAY CONSTRUCTION. OUT OF THIS AMOUNT $10 MILLION REPRESENTS TAXES ON EQUIPMENT AND $33 MILLION TAXES ON MATERIALS. TAXES ON WAGES AND CONSTRUCTION SUPPLIES WERE NOT INCLUDED IN THE BUREAU'S ESTIMATE.

IN CONCLUSION YOU STATE THAT IT IS THE POSITION OF THE BUREAU OF PUBLIC ROADS THAT:

"/1) THE MONTANA FUEL TAXES ARE VALIDLY APPLIED TO THE CONSUMPTION OF FUEL IN ON-SITE CONSTRUCTION OPERATIONS ON NEW HIGHWAYS EVEN THOUGH NO EXISTING ROAD IS USED BY THE CONTRACTOR FOR HIS BENEFIT IN THE CONSUMPTION OF SUCH FUEL;

"/2) THE FACT THAT THE CONTRACTOR ON A NEW HIGHWAY DOES NOT BENEFIT IN A MANNER COMMENSURATE WITH THE PAYMENT OF HIS FUEL TAXES THROUGH USE OF EXISTING HIGHWAYS DOES NOT, IN ANY WAY, IMPAIR THE VALIDITY OF THE COLLECTION OF THE TAX; AND,

"/3) THERE IS NOTHING CONTAINED IN THE FEDERAL HIGHWAY STATUTES TO PRECLUDE INCLUSION OF AMOUNTS PAID AS A RESULT OF THE APPLICATION OF THE MONTANA FUEL TAX TO ON-SITE OPERATIONS IN THE COST OF FEDERAL-AID PROJECTS.'

AFTER CAREFUL REVIEW OF THE MATTER IN LIGHT OF WHAT IS SET FORTH ABOVE, WE WILL TAKE NO FURTHER ACTION THEREIN, ABSENT A COURT DECISION TO THE EFFECT THAT CONTRACTORS UNDER THE CIRCUMSTANCES CONSIDERED, ARE NOT LIABLE FOR THE MONTANA MOTOR FUEL TAX AND ARE ENTITLED TO A REFUND THEREOF, OR ABSENT A MODIFICATION OF THE ATTORNEY GENERAL'S OPINION TO THAT EFFECT.