A-51133, SEPTEMBER 27, 1933, 13 COMP. GEN. 87

A-51133, SEPTEMBER 27, 1933, 13 COMP. GEN. 87

TAXES - PROCESSING - CONTRACTS A CONTRACTOR WITH THE UNITED STATES WHO WAS NOT THE PROCESSOR AND WHO DID NOT PAY TO THE UNITED STATES A PROCESSING TAX IS NOT ENTITLED TO PAYMENT IN EXCESS OF THE CONTRACT PRICE OF AN AMOUNT EQUAL TO THE PROCESSING TAX PAID BY THE CONTRACTOR'S VENDOR WHO, IN TURN, HAD PASSED THE CHARGE ON TO THE CONTRACTOR.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, SEPTEMBER 27, 1933:

THERE HAS BEEN RECEIVED IN THIS OFFICE FROM THE VETERANS' ADMINISTRATION VOUCHER STATED IN FAVOR OF DURAND-MCNEIL-HORNER CO; 251 EAST GRAND AVENUE, CHICAGO, ILL., FOR $40.41 AS RECLAIM OF AMOUNT SUSPENDED BY THIS OFFICE IN THE PREAUDIT APPROVAL OF VOUCHER 17637 PAID AUGUST 25, 1933, IN THE AMOUNT OF $362.83 AS THE CONTRACT PRICE FOR THE DELIVERY OF 283 BOXES OF NONE SUCH EGG NOODLES. THE ITEM OF $40.41 REPRESENTS PROCESSING TAX ALLEGED TO HAVE BEEN PAID BY THE DURAND-MCNEIL-HORNER CO. IN CHECK OF AUGUST 4, 1933, TO THE MANUFACTURER.

IT APPEARS FROM THE LETTERHEAD OF DURAND-MCNEIL-HORNER CO. THAT THE COMPANY IS IN THE IMPORTING, MANUFACTURING, AND WHOLESALE GROCERY BUSINESS, AND APPARENTLY IT PURCHASED THE EGG NOODLES, OR THE CONSTITUENTS THEREOF, FROM MANUFACTURERS AND DELIVERED THE NOODLES UNDER ITS PROPOSAL ACCEPTED JULY 8, 1933, TO THE UNITED STATES. THE PROCESSING FOLLOWS:

IT IS UNDERSTOOD THAT THE PRICES SET FORTH IN THIS BID INCLUDE AS A PART OF THE PURCHASE PRICE TO BE PAID FOR THE SUPPLIES ALL SALES-TAX DUTIES, IMPOSTS, REVENUES, EXCISE OR OTHER TAXES, APPLICABLE TO THE SUPPLIES COVERED BY THIS BID UNDER ANY LAW IN FORCE UPON THE DATE THIS BID IS OPENED. IF ANY CHANGE IN THE AMOUNT OF SUCH TAXES IS MADE BY CONGRESS, OR IF ANY NEW TAXES ARE MADE APPLICABLE TO SUCH SUPPLIES BY CONGRESS, AFTER THE DATE OF OPENING OF THIS BID, THE PRICES NAMED IN THIS BILL WILL BE INCREASED OR DECREASED ACCORDINGLY.

APPARENTLY, THE PROCESSING TAX OF $40.41 WAS PAID BY THE PROCESSOR OF THE FLOUR ENTERING INTO THE MANUFACTURE OF THE NOODLES, AS IT IS NOT UNDERSTOOD THAT ANY PROCESSING TAX WAS LAID ON ANY OF THE OTHER CONSTITUENT ELEMENTS OF NOODLES. THE TAX WAS NOT PAID TO THE UNITED STATES BY THE DURAND-MCNEIL-HORNER CO. BUT WAS APPARENTLY PAID BY THE PROCESSOR OF THE FLOUR; AND THE PROCESSOR, IN TURN, PASSED THE CHARGE ON TO THE DURAND-MCNEIL-HORNER CO; WHICH HAS CLAIMED REIMBURSEMENT FROM THE UNITED STATES.

THE ACT OF MAY 12, 1933, 48 STAT. 35, PROVIDED IN SECTION 9 THEREOF THAT IN THE CASE OF WHEAT, RICE, AND CORN THE TERM "PROCESSING" MEANS THE MILLING OR OTHER PROCESSING (EXCEPT CLEANING AND DRYING) OF WHEAT, RICE, OR CORN FOR MARKET, INCLUDING CUSTOM MILLING FOR TOLL AS WELL AS COMMERCIAL MILLING. THE PROCESSING TAX WAS TO BE PAID BY THE PROCESSOR, AND IT APPEARS THAT THE TAX WAS IN THIS CASE SO PAID.

IF THE PROCESSOR DID IN FACT ADD THE AMOUNT OF THE PROCESSING TAX TO THE CHARGE TO THE CONTRACTOR FOR THE MATERIAL DELIVERED FOR THE MANUFACTURE OF THE NOODLES, THEN SUCH CHARGE REPRESENTED A PART OF THE CONTRACT OR IN THE ACT OF MAY 12, 1933, FOR THE UNITED STATES TO REIMBURSE A CONTRACTOR FOR AN AMOUNT EQUIVALENT TO THE PROCESSING TAX ON THE COMMODITY DELIVERED UNDER A CONTRACT WHEN THE CONTRACTOR DID NOT, IN COST TO THIS CONTRACTOR OF THE NOODLES. THERE IS NO BASIS IN EITHER THE FACT, PAY TO THE UNITED STATES THE AMOUNT OF THE PROCESSING TAX. THIS CONTRACTOR, NOT HAVING PAID THE TAX TO THE UNITED STATES, WOULD NOT BE ENTITLED TO REFUND OF THE TAX IN EVENT THE PAYMENT WAS IMPROPERLY MADE, AND A TAX MAY NOT BE CONSIDERED AS SUCH AD INFINITUM. THE GOVERNMENT COULD NOT TRACE THROUGH VARIOUS TRANSACTIONS FROM THE PROCESSOR TO THE CONTRACTOR MAKING DELIVERIES TO THE UNITED STATES TO SEE THAT EACH MATERIAL OR CONSTITUENT PARTS THEREOF ENTERING INTO THE FINISHED PRODUCT THE AMOUNT OF THE PROCESSING TAX. SUCH ACTION WOULD IMPOSE AN UNDUE BURDEN ON THE OFFICERS OF THE GOVERNMENT AND MIGHT LEAD TO PYRAMIDING LAW.

THE CONCLUSION MUST BE REACHED THAT UNLESS A CONTRACTOR HAS ACTUALLY PAID TO THE UNITED STATES THE AMOUNT OF ANY PROCESSING TAX IN QUESTION SUCH CONTRACTOR MAY NOT RECEIVE REIMBURSEMENT OF AN AMOUNT EQUIVALENT THERETO FROM THE UNITED STATES. IT RESULTS THAT THIS CLAIM MUST BE, AND IS, DISALLOWED.