B-104018, B-104945, AUGUST 14, 1953, 33 COMP. GEN. 74

B-104018, B-104945, AUGUST 14, 1953, 33 COMP. GEN. 74

TAXES - STATE - TAX EXEMPTION CERTIFICATES WHILE THE INDIANA DEPARTMENT OF STATE REVENUE OFFICE MEMORANDUM OF DECEMBER 7, 1950, WHICH IMPOSED THE INDIANA GROSS INCOME TAX ON RECEIPTS FROM SALES TO THE UNITED STATES, WAS ISSUED WITHOUT AFFORDING THE INTERESTED PARTY ( UNITED STATES) AN OPPORTUNITY TO BE HEARD PRIOR TO ITS ISSUANCE, IN VIOLATION OF INDIANA STATUTORY PROCEDURES, A SUPERSEDING MEMORANDUM WHICH IMPOSED SUCH TAX RETROACTIVE TO DATE TAX WAS LEVIED IN ORIGINAL MEMORANDUM WAS ISSUED AFTER REPRESENTATIVES OF THE GOVERNMENT HAD AN OPPORTUNITY TO BE HEARD AND, THEREFORE, IT CANNOT BE MAINTAINED THAT THE INDIANA AUTHORITIES FAILED TO FOLLOW THE REQUIRED PROCEDURE IN THE ISSUANCE OF THE LATEST MEMORANDUM SO AS TO INVALIDATE SUCH RULING. UNDER THE STANDARD TAX CLAUSE OF A SUPPLY CONTRACT TAX EXEMPTION EVIDENCE, REQUIRED TO BE FURNISHED BY THE GOVERNMENT UPON THE CONTRACTOR'S REQUEST, MAY INCLUDE ANY EVIDENCE OF EXEMPTION BASED UPON ANY DOCTRINE OF IMMUNITY FROM TAXATION AND NEED NOT BE LIMITED TO EVIDENCE BASED ON INTERGOVERNMENTAL IMMUNITY. CONTRACTORS WHO WERE COMPELLED TO PAY THE INDIANA GROSS INCOME TAX ON RECEIPTS FROM THE MANUFACTURE AND SALE OF SUPPLIES TO THE UNITED STATES AS A RESULT OF THE STATE'S NON-RECOGNITION OF THE EVIDENCE OF TAX EXEMPTION FURNISHED BY THE GOVERNMENT MAY BE REIMBURSED THE AMOUNTS PAID UNDER THE STANDARD TAX CLAUSE CONTAINED IN SUCH SUPPLY CONTRACTS PROVIDED THE CONTRACTORS HAVE TAKEN STEPS AS DIRECTED BY THE CONTRACTING OFFICER TO PRESERVE ALL RIGHTS TO REFUND OF SUCH TAX IN ACCORDANCE WITH THE PROVISIONS OF THE STANDARD TAX CLAUSE.

ACTING COMPTROLLER GENERAL WEITZEL TO THE SECRETARY OF THE ARMY, AUGUST 14, 1953,*

REFERENCE IS MADE TO YOUR PREDECESSOR'S LETTER OF JUNE 5, 1951, REQUESTING A DECISION AS TO WHETHER A CONTRACTOR WITH THE ORDNANCE CORPS MAY BE REIMBURSED UNDER THE STANDARD TAX AND PRICE REDETERMINATION ARTICLES OF ITS CONTRACTS FOR THE PAYMENT OF THE INDIANA GROSS INCOME TAX FOR THE CALENDAR YEAR 1950 ON RECEIPTS FROM THE MANUFACTURE AND SALE OF SUPPLIES TO THE UNITED STATES. ALSO, REFERENCE IS MADE TO YOUR PREDECESSOR'S LETTER OF JULY 31, 1951, REQUESTING A DECISION RELATIVE TO THE REIMBURSEMENT OF CONTRACTORS WITH THE ORDNANCE CORPS FOR THE AMOUNTS PAID AS SUCH TAX FOR THE FIRST QUARTER OF THE CALENDAR YEAR 1951.

IN A LETTER DATED JANUARY 30, 1952, THIS OFFICE ADVISED YOUR PREDECESSOR THAT SINCE IT HAD BEEN INFORMALLY ASCERTAINED FROM A REPRESENTATIVE OF YOUR DEPARTMENT THAT ACTION HAD BEEN TAKEN TO INITIATE LITIGATION TO DETERMINE THE LIABILITY OF GOVERNMENT CONTRACTORS FOR PAYMENT OF SAID TAX, THE ENTIRE MATTER WOULD BE HELD IN ABEYANCE UNTIL A JUDICIAL DETERMINATION AS TO SUCH LIABILITY HAD BEEN MADE. THEREAFTER BY LETTER DATED AUGUST 11, 1952, YOUR DEPARTMENT INFORMED THIS OFFICE THAT THE INDIANA DEPARTMENT OF STATE REVENUE PUBLISHED OFFICE MEMORANDUM OF MARCH 30, 1952, AMENDING AND SUPPLEMENTING ITS OFFICE MEMORANDUM OF DECEMBER 27, 1950, AND THAT THE LEGAL EFFECT OF THE LATEST MEMORANDUM WAS TO IMPOSE THE INDIANA GROSS INCOME TAX ON RECEIPTS FROM SALES TO THE UNITED STATES ON AND AFTER JANUARY 1, 1951, AND TO REINSTATE AS BEING IN EFFECT UNTIL JANUARY 1, 1951, THE BULLETIN OF THE GROSS INCOME TAX DIVISION DATED DECEMBER 1, 1942, UNDER WHICH RECEIPTS FROM SALES TO THE UNITED STATES WERE NOT SUBJECT TO THE INDIANA GROSS INCOME TAX. IN VIEW WHEREOF AND SINCE IT IS UNDERSTOOD THAT THERE ARE NOT NOW PENDING IN YOUR DEPARTMENT ANY CLAIMS OF CONTRACTORS FOR REIMBURSEMENT OF AMOUNTS PAID AS GROSS INCOME TAX FOR 1950, IT DOES NOT APPEAR THAT AN ANSWER TO THE QUESTION RAISED IN THE LETTER OF JUNE 5, 1951, IS NECESSARY.

WHILE A JUDICIAL DETERMINATION OF THE LIABILITY OF GOVERNMENT CONTRACTORS TO PAY THE TAX HAS NOT AS YET BEEN MADE, IT HAS BEEN INFORMALLY ASCERTAINED FROM A REPRESENTATIVE OF YOUR DEPARTMENT THAT CONSIDERATION OF THE MATTER REFERRED TO IN YOUR LETTER OF JULY 31, 1951, SHOULD NO LONGER BE HELD IN ABEYANCE.

THE FIRST QUESTION RAISED IN YOUR PREDECESSOR'S LETTER OF JULY 31, 1951, WITH RESPECT TO THE REIMBURSABILITY OF CONTRACTORS FOR PAYMENTS OF THE INDIANA GROSS INCOME TAX FOR THE FIRST QUARTER OF THE CALENDAR YEAR 1951 DEALS WITH THE ALLEGEDLY IMPROPER STATUTORY PROCEDURE IN "RULE-MAKING" FOLLOWED BY THE STATE OF INDIANA IN PUBLISHING THE MEMORANDUM OF DECEMBER 27, 1950. THE INDIANA DEPARTMENT OF STATE REVENUE HAS STATED THAT THE MEMORANDUM WAS MERELY A DIRECTION OF INTERNAL POLICY AND PROCEDURE SINCE THE TAX IN QUESTION WAS IMPOSED BY STATUTE. THE DEPARTMENT'S LATEST OFFICE MEMORANDUM OF MARCH 30, 1952, MAKING THE TAX APPLICABLE TO RECEIPTS FROM SALES TO THE UNITED STATES BEGINNING WITH JANUARY 1, 1951, IS BASED ON THE POSITION STATED THEREIN "THAT WHEN ANY FORMER RULINGS OR REGULATIONS HAVE BEEN MODIFIED BY OFFICIAL OPINIONS OF THE ATTORNEY GENERAL SUCH OFFICIAL OPINIONS SUPERSEDE THE RULINGS OR REGULATIONS AFFECTED AND ARE STATEMENTS OF THE LAW FROM ITS EFFECTIVE DATE.' THE IMPOSITION OF THE TAX ON GOVERNMENT CONTRACTORS BY THE MEMORANDUM OF DECEMBER 27, 1950, WAS IN ACCORDANCE WITH AN APPROVING OPINION BY THE ATTORNEY GENERAL OF INDIANA, DATED SEPTEMBER 28, 1950. HOWEVER, IT APPEARS THAT THE MAIN REASON FOR OBJECTING TO THE PROCEDURE FOLLOWED IN PUBLISHING THE MEMORANDUM OF DECEMBER 27, 1950, WAS THAT THE PARTY INTERESTED THEREIN--- IN THIS CASE THE UNITED STATES--- WAS NOT AFFORDED AN OPPORTUNITY TO BE HEARD PRIOR TO THE ISSUANCE THEREOF. SINCE THE SUPERSEDING MEMORANDUM OF MARCH 30, 1952, WAS ISSUED AFTER REPRESENTATIVES OF YOUR DEPARTMENT HAD TAKEN UP THE MATTER WITH THE INDIANA DEPARTMENT OF STATE REVENUE, IT WOULD NOT APPEAR THAT IT COULD BE SUCCESSFULLY MAINTAINED THAT THE STATE OF INDIANA AUTHORITIES FAILED TO FOLLOW THE REQUIRED STATUTORY PROCEDURE IN THE ISSUANCE OF THE LATEST MEMORANDUM.

WITH REGARD TO THE SECOND QUESTION PRESENTED IN THE LETTER OF JULY 31, 1951, THAT IS, WHETHER THE EVIDENCE OF EXEMPTION REFERRED TO IN PARAGRAPH (D) OF THE STANDARD TAX ARTICLE OF STANDARD FORM 32 ( NOVEMBER 1949 EDITION/--- GENERAL PROVISIONS ( SUPPLY CONTRACT/--- INCLUDES AN EXEMPTION BASED, NOT UPON INTERGOVERNMENTAL TAX IMMUNITIES, BUT UPON INTERSTATE COMMERCE, IT IS DESIRED TO POINT OUT THAT BY PARAGRAPH (C) OF THIS ARTICLE THE CONTRACTOR WAS REQUIRED, IN THE ABSENCE OF OTHER PROVISIONS (THERE APPEARING NO SUCH OTHER PROVISIONS IN THE TWO CONTRACTS INVOLVED) TO EXCLUDE FROM THE CONTRACT PRICE "ANY STATE OR LOCAL DIRECT TAX IN EFFECT ON THE CONTRACT DATE" AND THAT PARAGRAPH (D) PROVIDED THAT, IN LIEU OF THE INCLUSION OF SUCH TAX, THE GOVERNMENT WOULD FURNISH A TAX EXEMPTION CERTIFICATE OR SIMILAR EVIDENCE OF EXEMPTION. IT WAS PROVIDED FURTHER IN THE LATTER SUBPARAGRAPH THAT, IN THE EVENT THE APPLICABLE TAXING AUTHORITY REFUSED TO ACCEPT AN EXEMPTION CERTIFICATE, THE CONTRACTOR (A) SHOULD PROMPTLY NOTIFY THE CONTRACTING OFFICER; (B) CAUSE THE TAX TO BE PAID SO AS TO PRESERVE ALL RIGHTS TO REFUND THEREOF; AND (C) IF SO DIRECTED BY THE CONTRACTING OFFICER TO TAKE ALL NECESSARY ACTION, IN COOPERATION WITH AND FOR THE BENEFIT OF THE GOVERNMENT, TO SECURE A REFUND OF SUCH TAX, IN WHICH EVENT THE GOVERNMENT WOULD REIMBURSE THE CONTRACTOR FOR ALL REASONABLE EXPENSES INCURRED AT ITS DIRECTION. CONSIDERING THE PROCEDURE THUS PROVIDED FOR, THE REFERRED-TO EVIDENCE OF EXEMPTION SHOULD BE REGARDED NOT AS BEING LIMITED TO EVIDENCE BASED ON INTERGOVERNMENTAL IMMUNITY BUT AS INCLUDING ANY EVIDENCE OF EXEMPTION BASED UPON ANY DOCTRINE OF IMMUNITY FROM TAXATION SUCH AS INTERSTATE COMMERCE WHATEVER MAY BE CONSIDERED APPROPRIATE BY THE GOVERNMENT.

WITH REGARD TO THE THIRD QUESTION PRESENTED IN YOUR LETTER OF JULY 31, THAT IS, WHETHER THE NON-RECOGNITION BY THE INDIANA DEPARTMENT OF STATE REVENUE OF TAX EXEMPTION RESULTS IN THE IMPOSITION OF A TAX WITHIN THE MEANING OF PARAGRAPH (E) OF THE STANDARD TAX ARTICLE, IT HAS BEEN HELD BY THIS OFFICE IN A SOMEWHAT SIMILAR CASE, 27 COMP. GEN. 767, THAT, WHERE THE STATE TAXING AUTHORITIES DETERMINE A PARTICULAR TAX IS APPLICABLE TO GOVERNMENT CONTRACTS, THE DATE OF SAID DETERMINATION MAY BE CONSIDERED AS THE DATE THE TAX WAS IMPOSED FOR THE PURPOSE OF DECIDING WHETHER THE CONTRACTOR IS ENTITLED TO REIMBURSEMENT OF THE TAX SO PAID. SINCE THE TWO CONTRACTS REFERRED TO IN YOUR STATEMENT OF FACTS WERE ENTERED INTO PRIOR TO MARCH 30, 1952, THE DATE OF THE MEMORANDUM "IMPOSING" THE TAX FROM JANUARY 1, 1951, THE QUESTION OF REIMBURSABILITY IS ANSWERED BY PARAGRAPH (E) OF THE STANDARD TAX CLAUSE, WHICH PROVIDES THAT THE CONTRACT PRICE SHALL BE INCREASED BY THE AMOUNT OF THE TAX WHERE A STATE GOVERNMENT IMPOSES A TAX APPLICABLE TO THE CONTRACT SUBSEQUENT TO THE CONTRACT DATE AND REFUSES TO ACCEPT EVIDENCE OF EXEMPTION FURNISHED UNDER PARAGRAPH (D), AFTER WHICH THE CONTRACTOR IS OBLIGED TO BEAR THE BURDEN OF THE TAX.

ACCORDINGLY, UNDER THE STATEMENT OF FACTS AS PRESENTED WITH THE LETTER OF JULY 31, 1951, THE FIXED-PRICE CONTRACTORS INVOLVED THEREIN MAY BE REIMBURSED THE AMOUNTS PAID AS INDIANA GROSS INCOME TAX, PROVIDED, OF COURSE, THEY HAVE TAKEN SUCH STEPS AS DIRECTED BY THE CONTRACTING OFFICER TO PRESERVE ALL RIGHTS TO REFUND THEREOF, IN ACCORDANCE WITH PARAGRAPH (D) OF THE STANDARD TAX ARTICLE.