A-88689, JANUARY 31, 1942, 21 COMP. GEN. 733

A-88689: Jan 31, 1942

Additional Materials:

Contact:

Shirley Jones
(202) 512-8156
jonessa@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

STATE SALES TAXES - INCLUSION IN FEDERAL AID UNEMPLOYMENT COMPENSATION ADMINISTRATION GRANTS THE SOCIAL SECURITY BOARD IS AUTHORIZED TO INCLUDE IN ITS GRANTS UNDER SECTION 302 (A) OF THE SOCIAL SECURITY ACT TO THE STATE OF CALIFORNIA FOR UNEMPLOYMENT COMPENSATION ADMINISTRATION AN AMOUNT REPRESENTING THE CALIFORNIA RETAIL SALES TAX. - THE LEGAL INCIDENCE OF WHICH IS UPON THE VENDOR. - WHICH THE DEPARTMENT OF EMPLOYMENT OR OTHER AGENCY OF THE STATE IS REQUIRED TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE UNEMPLOYMENT COMPENSATION LAWS OF THAT STATE. 17 COMP. WHEREIN IT WAS 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 REQUIRED 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.

A-88689, JANUARY 31, 1942, 21 COMP. GEN. 733

STATE SALES TAXES - INCLUSION IN FEDERAL AID UNEMPLOYMENT COMPENSATION ADMINISTRATION GRANTS THE SOCIAL SECURITY BOARD IS AUTHORIZED TO INCLUDE IN ITS GRANTS UNDER SECTION 302 (A) OF THE SOCIAL SECURITY ACT TO THE STATE OF CALIFORNIA FOR UNEMPLOYMENT COMPENSATION ADMINISTRATION AN AMOUNT REPRESENTING THE CALIFORNIA RETAIL SALES TAX--- THE LEGAL INCIDENCE OF WHICH IS UPON THE VENDOR--- WHICH THE DEPARTMENT OF EMPLOYMENT OR OTHER AGENCY OF THE STATE IS REQUIRED TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE UNEMPLOYMENT COMPENSATION LAWS OF THAT STATE. 17 COMP. GEN. 223, MODIFIED.

COMPTROLLER GENERAL WARREN TO THE FEDERAL SECURITY ADMINISTRATOR, JANUARY 31, 1942:

WITH REFERENCE TO THE DECISION OF SEPTEMBER 8, 1937, OF THIS OFFICE TO THE CHAIRMAN, SOCIAL SECURITY BOARD, 17 COMP. GEN. 223, WHEREIN IT WAS 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 REQUIRED 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, THERE HAS BEEN RECEIVED FROM FRED E. STEWART, A MEMBER OF THE STATE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA, A LETTER DATED DECEMBER 9, 1941, READING AS FOLLOWS:

THE DEPARTMENT OF EMPLOYMENT OF THE STATE OF CALIFORNIA INFORMED US THAT THE ACTING COMPTROLLER GENERAL OF THE UNITED STATES ON SEPTEMBER 8, 1937, ADVISED THE SOCIAL SECURITY BOARD THAT IT WAS NOT AUTHORIZED TO INCLUDE IN ITS GRANTS TO THIS STATE UNDER THE PROVISIONS OF SECTION 302 (A) OF THE SOCIAL SECURITY ACT "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 THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE STATE UNEMPLOYMENT COMPENSATION LAWS.' THE REASON GIVEN IN THE OPINION IS THAT "THE APPROPRIATION OF FEDERAL FUNDS" IS NOT "AVAILABLE FOR THAT PURPOSE.'

ONE OF THE ITEMS IN THE BUDGET WHICH WAS PRESENTED TO THE SOCIAL SECURITY BOARD BY THE UNEMPLOYMENT RESERVES COMMISSION OF THIS STATE WAS "THE AMOUNT OF STATE SALES TAX PAID IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT NECESSARY FOR THE ADMINISTRATION OF THE STATE UNEMPLOYMENT COMPENSATION LAWS," AND THE SOCIAL SECURITY BOARD REQUESTED YOUR ADVICE AS TO WHETHER IT WAS AUTHORIZED TO INCLUDE IN ITS GRANTS TO THIS STATE THE AMOUNTS SO ITEMIZED AND DESCRIBED IN THE BUDGET. THE REQUEST, IN OUR OPINION, DID NOT DISCLOSE THE TRUE NATURE AND LEGAL INCIDENCE OF THE CALIFORNIA RETAIL SALES TAX ACT.

THE SOCIAL SECURITY BOARD HAS WITHHELD FROM ITS GRANTS TO THE STATE THE BUDGETED ITEMS DESCRIBED ABOVE. VENDORS SELLING SUPPLIES AND EQUIPMENT TO THE STATE OF CALIFORNIA FOR USE BY THE DEPARTMENT OF EMPLOYMENT, A STATE AGENCY, HAVE, ACCORDINGLY, BEEN UNABLE TO COLLECT THE FULL AMOUNT OF THE SELLING PRICE, WHICH RESULTS IN CONFUSION AND MISUNDERSTANDING.

THE NATURE OF THE CALIFORNIA TAX IS SET FORTH IN SECTION 3 OF THE CALIFORNIA RETAIL SALES TAX ACT, WHICH PROVIDES:

"FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AT RETAIL A TAX IS HEREBY IMPOSED UPON RETAILERS * * * AT THE RATE OF 3 PERCENT OF THE GROSS RECEIPTS OF ANY SUCH RETAILER FROM THE SALE OF ALL TANGIBLE PERSONAL PROPERTY SOLD AT RETAIL IN THIS STATE * * *.'

THE TERM "RETAILER" IS DEFINED BY SECTION 2, SUBDIVISION (E) OF THE ACT AS:

"EVERY PERSON ENGAGED IN THE BUSINESS OF MAKING SALES AT RETAIL * * * OF TANGIBLE PERSONAL PROPERTY * * *.'

THE NATURE OF THE TAX HAS BEEN UNIFORMLY CONSTRUED BY NOT ONLY THE STATE, BUT THE FEDERAL COURTS, AS A TAX UPON VENDORS FOR THE PRIVILEGE OF ENGAGING IN BUSINESS AT RETAIL, AND ITS LEGAL INCIDENCE HAS BEEN DETERMINED TO BE UPON THE SELLER AND NOT UPON THE PURCHASER.

IN WESTERN LITHOGRAPH CO., V. STATE BOARD OF EQUALIZATION, 11 CAL./2D) 156, 164, THE CALIFORNIA SUPREME COURT STATED:

"THE TAX BEING A DIRECT OBLIGATION OF THE RETAILER AND, SO FAR AS THE CONSUMER IS CONCERNED, A PART OF THE PRICE PAID FOR THE GOODS AND NOTHING ELSE, IT IS NEITHER IN FACT NOR IN EFFECT LAID UPON THE CONSUMER. IT DOES NOT BECOME A TAX ON THE SALE NOR BECAUSE OF THE SALE, BUT REMAINS AN EXCISE TAX FOR THE PRIVILEGE OF CONDUCTING A RETAIL BUSINESS MEASURED BY THE GROSS RECEIPTS FROM SALES.'

IN ADDITION TO THE WESTERN LITHOGRAPH CO., CASE, SUPRA, THE FOLLOWING CASES DEFINITELY PLACE THE LEGAL INCIDENCE OF THE TAX UPON THE SELLER: ROTH DRUGS, INC., V. JOHNSON, 13 CAL. APP. (2D) 720. MEYER CONSTRUCTION COMPANY V. CORBETT, 7 FED. SUPP. 616. PEOPLE V. HERBERT'S OF LOS ANGELES, 3 CAL. APP. (2D) 482. GRAHAM BROTHERS, INC., V. CITY OF LOS ANGELES, 6 CAL. APP. (2D)

203. NATIONAL ICE AND COLD STORAGE CO., V. PACIFIC FRUIT EXPRESS

CO., 11 CAL. (2D) 283. DEARYAN V. AKERS, 12 CAL. (2D) 781, CERTIORARI DENIED BY U.S.

SUPREME COURT, OCT. 9, 1939, MEM. 308 U.S. 581.

IN ROTH DRUGS, INC., V. JOHNSON, SUPRA, THE COURT STATED AT PAGE 736:

"THIS ACT DOES NOT IMPOSE THE TAX ON THE CONSUMER. THE LAST MENTIONED SECTION (SEC. 8 1/2) MERELY AUTHORIZES THE RETAIL MERCHANT TO REIMBURSE HIMSELF FROM THE CONSUMER INSOFAR AS IT MAY BE CONSISTENTLY DONE. HE IS NOT REQUIRED TO DO SO. HE MAY WAIVE THAT RIGHT. SECTION 8 OF THE ACT MERELY DECLARES THAT IT SHALL BE UNLAWFUL FOR THE RETAILER TO ADVERTISE THAT HE WILL ASSUME AND PAY THE TAX OR THAT HE WILL NOT ADD IT TO THE PRICE OF HIS MERCHANDISE UPON SALE THEREOF. IN CONSIDERING THE ENTIRE ACT WE ARE IMPELLED TO HOLD IT IS MERELY OPTIONAL WITH THE RETAIL MERCHANT AS TO WHETHER HE WILL REIMBURSE HIMSELF FROM HIS CUSTOMERS FOR THE TAX HEIS COMPELLED TO PAY. THE ACT SPECIFICALLY DECLARES THAT THE TAX IS IMPOSED ON RETAIL MERCHANTS, AND NOT ON THE CONSUMERS. SECTION 3 PROVIDES IN THAT REGARD, FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AT RETAIL A TAX IS HEREBY IMPOSED UPON RETAILERS.' SECTION 9 OF THE ACT FURTHER PROVIDES THAT "THE TAX LEVIED HEREUNDER SHALL BE A DIRECT OBLIGATION OF THE RETAILER.' SECTION 12 OF THE ACT PROHIBITS ANY RETAIL MERCHANT FROM MAINTAINING HIS BUSINESS WITHOUT FIRST PROCURING A PERMIT THEREFOR AS PROVIDED BY THAT MEASURE.'

THE AMOUNT OF THE PURCHASE PRICE IS A MATTER OF CONTRACT BETWEEN THE SELLER AND THE PURCHASER, EACH BEING FREE TO REFRAIN FROM SELLING OR BUYING, AS THE CASE MAY BE, EXCEPT ON SUCH TERMS AS TO HIM MAY SEEM PROPER. THE SELLER IN ORDER TO DETERMINE THE SELLING PRICE OF THE MERCHANDISE MUST AS A MATTER OF COURSE CONSIDER THE AMOUNT OF PROPERTY, INCOME, FRANCHISE, EXCISE, AND SIMILAR TAXES, WHICH HE IS CALLED UPON TO PAY BY LOCAL, STATE, OR FEDERAL GOVERNMENT. ANY TAX, THE LEGAL INCIDENCE OF WHICH IS UPON THE SELLER, CANNOT BE DISREGARDED BY HIM IN DETERMINING THE SELLING PRICE.

ON NOVEMBER 10, 1941, THE SUPREME COURT OF THE UNITED STATES IN TWO CASES, THE STATE OF ALABAMA V. KING AND BOOZER, 62 SUP. CT. 43, 86 L.ED. ( ADV. OP.) 1, AND JOHN C. CURRY V. UNITED STATES, 62 SUP. CT. 48, 86 L.ED. ( ADV. OP.) 6, CONSIDERED THE APPLICATION OF THE ALABAMA SALES AND USE TAXES IN CONNECTION WITH PURCHASES MADE BY "COST-PLUS-A FIXED-FEE" CONTRACTORS WITH THE FEDERAL GOVERNMENT.

THE COURT IN THE KING AND BOOZER CASE STATED:

"THE GOVERNMENT, RIGHTLY WE THINK, DISCLAIMS ANY CONTENTION THAT THE CONSTITUTION, UNAIDED BY CONGRESSIONAL LEGISLATION, PROHIBITS A TAX EXACTED FROM THE CONTRACTORS MERELY BECAUSE IT IS PASSED ON ECONOMICALLY, BY THE TERMS OF THE CONTRACT OR OTHERWISE, AS A PART OF THE CONSTRUCTION COST TO THE GOVERNMENT. SO FAR AS SUCH A NONDISCRIMINATORY STATE TAX UPON THE CONTRACTOR ENTERS INTO THE COST OF THE MATERIALS TO THE GOVERNMENT, THAT IS BUT A NORMAL INCIDENT OF THE ORGANIZATION WITHIN THE SAME TERRITORY OF TWO INDEPENDENT TAXING SOVEREIGNTIES. THE ASSERTED RIGHT OF THE ONE TO BE FREE OF TAXATION BY THE OTHER DOES NOT SPELL IMMUNITY FROM PAYING THE ADDED COSTS, ATTRIBUTABLE TO THE TAXATION OF THOSE WHO FURNISH SUPPLIES TO THE GOVERNMENT AND WHO HAVE BEEN GRANTED NO TAX IMMUNITY. FAR AS A DIFFERENT VIEW HAS PREVAILED, SEE PANHANDLE OIL CO. V. KNOX, SUPRA; GRAVES V. TEXAS CO., SUPRA, WE THINK IT NO LONGER TENABLE.'

THE COURT IN THE CURRY CASE IN CONSIDERING THE ECONOMIC EFFECT UPON THE GOVERNMENT MAKES THE FOLLOWING STATEMENT:

"FOR THE REASONS STATED AT LENGTH IN OUR OPINION IN THE KING AND BOOZER CASE WE THINK THAT THE CONTRACTORS, IN PURCHASING AND BRINGING THE BUILDING MATERIAL INTO THE STATE AND IN APPROPRIATING IT TO THEIR CONTRACT WITH THE GOVERNMENT, WERE NOT AGENTS OR INSTRUMENTALITIES OF THE GOVERNMENT; AND THEY ARE NOT RELIEVED OF THE TAX, TO WHICH THEY WOULD OTHERWISE BE SUBJECT, BY REASON OF THE FACT THAT THEY ARE GOVERNMENT CONTRACTORS. IF THE STATE LAW LAYS THE TAX UPON THEM RATHER THAN THE INDIVIDUAL WITH WHOM THEY ENTER INTO A COST-PLUS CONTRACT LIKE THE PRESENT ONE, THEN IT AFFECTS THE GOVERNMENT, LIKE THE INDIVIDUAL, ONLY AS THE ECONOMIC BURDEN IS SHIFTED TO IT THROUGH OPERATION OF THE CONTRACT. POINTED OUT IN THE OPINION IN THE KING AND BOOZER CASE, BY CONCESSION OF THE GOVERNMENT AND ON AUTHORITY, THE CONSTITUTION, WITHOUT IMPLEMENTATION BY CONGRESSIONAL LEGISLATION, DOES NOT PROHIBIT A TAX UPON GOVERNMENT CONTRACTORS BECAUSE ITS BURDEN IS PASSED ON ECONOMICALLY BY THE TERMS OF THE CONTRACT OR OTHERWISE AS A PART OF THE CONSTRUCTION COST TO THE GOVERNMENT.'

IN VIEW OF THESE RECENT DECISIONS, WE RESPECTFULLY REQUEST THAT YOU GIVE FURTHER CONSIDERATION TO THIS PROBLEM, AND THAT YOU ADVISE THE SOCIAL SECURITY BOARD THAT IT MAY INCLUDE IN ITS GRANTS TO THE STATE OF CALIFORNIA THE ENTIRE AMOUNT WHICH THE DEPARTMENT OF EMPLOYMENT IS REQUIRED TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT FOR THE ADMINISTRATION OF THE CALIFORNIA UNEMPLOYMENT RESERVES ACT WITHOUT THE DEDUCTION OF ANY AMOUNT WHICH MAY IMPROPERLY BE DESIGNATED AS A TAX, BUT WHICH ACTUALLY CONSTITUTES A PART OF THE PURCHASE PRICE OF SUPPLIES AND EQUIPMENT.

SECTION 302 (A) OF THE SOCIAL SECURITY ACT, 49 STAT. 626, PROVIDES, IN PART---

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. * * *

THE DECISION OF SEPTEMBER 8, 1937, SUPRA, APPARENTLY WAS PREDICATED TO A CONSIDERABLE EXTENT UPON THE RULING OF THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF PANHANDLE OIL CO. V. MISSISSIPPI EX REL. KNOX, 277 U.S. 218, TO THE EFFECT THAT THE VENDOR OF GASOLINE SOLD TO THE UNITED STATES WAS EXEMPT FROM THE PAYMENT OF AN EXCISE TAX MEASURED BY THE QUANTITY OF GASOLINE SOLD UPON THE THEORY THAT THE TAX FELL UPON THE GOVERNMENT. HOWEVER, A CAREFUL EXAMINATION OF THE RECENT DECISION OF THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF STATE OF ALABAMA V. KING AND BOOZER, 314 U.S. 1, 86 L.1ED. ( ADV. OPS.) 1, LEAVES LITTLE OR NO ROOM FOR DOUBT THAT A VENDOR WHO SELLS SUPPLIES TO THE UNITED STATES IS NOT EXEMPT FROM THE PAYMENT OF A STATE SALES TAX UPON THE TRANSACTION UNLESS THE LEGAL INCIDENCE OF THE TAX IS UPON THE VENDEE. AND THE HOLDING OF THE SUPREME COURT OF CALIFORNIA IS THAT THE LEGAL INCIDENCE OF THE RETAIL SALES TAX OF THAT STATE IS UPON THE VENDOR ( WESTERN LITHOGRAPH CO. V. STATE BOARD OF EQUALIZATION, ET AL., 11 CAL./2D) 156), SO THAT THE TAX IS NOT TO BE REGARDED AS BEING PASSED ON, AS SUCH, TO THE PURCHASER. CF. LASH'S PRODUCTS CO. V. UNITED STATES, 278 U.S. 175.

SUCH BEING THE CASE IT WOULD APPEAR THAT THE PRICE PAID BY THE DEPARTMENT OF EMPLOYMENT OR OTHER AGENCY OF THE STATE OF CALIFORNIA FOR SUCH SUPPLIES OR EQUIPMENT PURCHASED BY IT AS ARE "NECESSARY FOR THE PROPER ADMINISTRATION" OF THE STATE'S UNEMPLOYMENT COMPENSATION LAWS MAY NOT BE VIEWED AS INCLUDING, AS SUCH, THE TAX IMPOSED ON VENDORS BY THE PROVISIONS OF THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED, ALTHOUGH THE SALE PRICE OF THE SUPPLIES OR EQUIPMENT MAY HAVE BEEN INCREASED BY REASON OF THE IMPOSITION OF SUCH TAX ON THE VENDOR; AND AS IT THUS APPEARS THAT THE TAX LOSES ITS IDENTITY AS SUCH AND IS MERGED IN THE PURCHASE PRICE PAID BY THE STATE AGENCY, THE THEORY THAT GRANTS WHICH MAY BE MADE TO THE STATE TO COVER THE ADDITIONAL EXPENSE WOULD BE DIVERTED TO THE PAYMENT OF A STATE TAX SEEMS NO LONGER TENABLE. CF. DECISION OF AUGUST 2, 1940, TO YOU.

ACCORDINGLY, IN VIEW OF THE FOREGOING, I HAVE TO ADVISE THAT THE SOCIAL SECURITY BOARD IS AUTHORIZED TO INCLUDE IN ITS GRANTS TO THE STATE OF CALIFORNIA FOR THE PURPOSE SET FORTH IN SECTION 302 (A) OF THE SOCIAL SECURITY ACT THE ENTIRE AMOUNT WHICH THE DEPARTMENT OF EMPLOYMENT OR OTHER STATE AGENCY IS REQUIRED TO PAY IN CONNECTION WITH THE PURCHASE OF SUPPLIES AND EQUIPMENT THE BOARD FINDS NECESSARY FOR THE PROPER ADMINISTRATION OF THE UNEMPLOYMENT COMPENSATION LAWS OF THAT STATE WITHOUT THE DEDUCTION OF ANY AMOUNT ON ACCOUNT OF THE ADDITIONAL EXPENSE INCURRED BY REASON OF THE TAX IMPOSED BY THE PROVISIONS OF THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED.

Oct 23, 2020

Oct 22, 2020

Oct 20, 2020

Oct 16, 2020

Oct 15, 2020

Oct 14, 2020

Looking for more? Browse all our products here