B-120594, AUGUST 23, 1954, 34 COMP. GEN. 99

B-120594, AUGUST 23, 1954, 34 COMP. GEN. 99

MARITIME ADMINISTRATION - OPERATING DIFFERENTIAL SUBSIDIES - TERMINATION - ACCOUNTING REQUIREMENT UNDER SECTION 606 (5) OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, WHICH PROVIDES FOR TERMINATION OF OPERATING-DIFFERENTIAL SUBSIDY CONTRACTS AND WHICH CONTAINS AN ACCOUNTING RECAPTURE PROVISION, THE MARITIME ADMINISTRATION IS REQUIRED TO HAVE AN ACCOUNTING UPON THE TERMINATION OF AN EXISTING CONTRACT BEFORE ENTERING INTO A NEW OPERATING-DIFFERENTIAL SUBSIDY CONTRACT.

ACTING COMPTROLLER GENERAL KELLER TO THE ADMINISTRATOR, MARITIME ADMINISTRATION, AUGUST 23, 954:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 30, 1954, REQUESTING MY VIEWS ON THE PROPER INTERPRETATION OF SECTION 606 (5) OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, 46 U.S.C. 1176, AND FORWARDING COPIES OF TWO LETTERS DATED JUNE 21, FROM COUNSEL FOR THE AMERICAN PRESIDENT LINES, LTD., URGING THAT THE SUBJECT SECTION BE CONSTRUED SO AS TO AUTHORIZE YOUR ADMINISTRATION TO ENTER INTO A NEW 13-YEAR OPERATING DIFFERENTIAL SUBSIDY CONTRACT WITH THAT CONCERN WITHOUT BRINGING TO AN END THE RECAPTURE ACCOUNTING PERIOD, WHICH WOULD CONTINUE UNDER ITS CURRENT CONTRACT UNTIL DECEMBER 31, 1957.

THE CONSTRUCTION URGED BY THE APPLICANT IS THAT THE WORD "TERMINATED" IN SECTION 606 (5) 49 STAT. 2004, HAS REFERENCE TO THE TERMINATION OF THE SUBSIDY RELATIONSHIP BETWEEN THE APPLICANT AND THE GOVERNMENT RATHER THAN TO THE TERMINATION OF AN EXISTING OPERATING DIFFERENTIAL CONTRACT. TITLE VI OF THE MERCHANT MARINE ACT OF 1936 PROVIDES, GENERALLY, THAT UPON CERTAIN FINDINGS AND DETERMINATIONS BY THE MARITIME ADMINISTRATION, A CONTRACT PROVIDING FOR AN OPERATING DIFFERENTIAL SUBSIDY MAY BE MADE WITH AN APPLICANT FOR A PERIOD NOT EXCEEDING 20 YEARS. SECTION 606 (5 OF THE ACT PROVIDES:

EVERY CONTRACT FOR AN OPERATING DIFFERENTIAL SUBSIDY UNDER THIS TITLE SHALL PROVIDE * * * (5) THAT WHEN AT THE END OF ANY TEN-YEAR PERIOD DURING WHICH AN OPERATING-DIFFERENTIAL SUBSIDY HAS BEEN PAID, OR WHEN PRIOR TO THE END OF ANY SUCH TEN-YEAR PERIOD THE CONTRACT SHALL BE TERMINATED, * * * (THERE SHALL BE AN ACCOUNTING FOR RECAPTURE PURPOSES). (ITALICS SUPPLIED.)

IT IS, OF COURSE, TO BE CONCEDED THAT--- LITERALLY AT LEAST--- THE WORD "TERMINATED" IS USED WITH REFERENCE TO THE CONTRACT, FOR A PERIOD NOT EXCEEDING 20 YEARS, UNDER WHICH AN OPERATING-DIFFERENTIAL SUBSIDY WAS THEN PAYABLE. AS RECOGNIZED BY THE APPLICANT, THE LEGISLATIVE HISTORY OF THE ACT OFFERS NOTHING CONCLUSIVE; THE COLLOQUY QUOTED IN HIS LETTER MERELY ESTABLISHES THAT SUBSIDIZED OPERATORS CAN TERMINATE THEIR CONTRACTS IN ADVANCE OF THE EXPIRATION DATES THEREOF. EXAMINATION OF TITLE VI OF THE ACT ESTABLISHES THAT THE SUBSIDIARY RELATIONSHIP CONTEMPLATED WAS TO BE A CONTRACTUAL RELATIONSHIP, AND THE PROVISIONS WERE DIRECTED TO SUCH CONTRACTS.

ORDINARILY, IN SUBMITTING FOR DECISION HERE A QUESTION OF THIS KIND, THE RECORD SHOULD CONTAIN A STATEMENT AS TO CONSTRUCTION PLACED UPON THE LAW ADMINISTRATIVELY. SUCH A CONSTRUCTION IS ENTITLED TO, AND IS ACCORDED, GREAT WEIGHT BY THIS OFFICE IN PASSING UPON THE QUESTION PRESENTED. WHILE THE POSITION OF THE ADMINISTRATION IS NOT INDICATED IN THE RECORD ACCOMPANYING IN YOUR LETTER, IT HAS BEEN INFORMALLY ASCERTAINED THAT YOUR GENERAL COUNSEL IS OF THE VIEW THAT THE LAW REQUIRES AN ACCOUNTING UPON THE TERMINATION OF AN EXISTING CONTRACT.

I AM CONSTRAINED TO AGREE WITH THAT CONSTRUCTION. THE LEGISLATIVE HISTORY OF THE AMENDMENT TO THE SUBJECT SECTION BY THE ACT OF JUNE 23, 1938, 52 STAT. 953, 960, CLEARLY INDICATES THAT THE SOLE PURPOSE OF INCREASING THE PERIOD FOR RECAPTURE PURPOSES FROM 5 TO 10 YEARS WAS TO MAKE THE PERIOD MORE NEARLY RELATED TO THE CYCLES OF PROSPERITY AND DEPRESSION EXPERIENCED BY THE SHIPPING INDUSTRY. THE USE OF THE WORD "OR" IN THAT AMENDMENT IN LIEU OF THE WORD "AND" IN THE ORIGINAL PROVISION APPARENTLY HAS NO SIGNIFICANCE.

A TERMINATION OF AN EXISTING OPERATING SUBSIDY CONTRACT HAS A VERY MATERIAL BEARING UPON THE RELATIONSHIP BETWEEN THE GOVERNMENT AND THE OPERATOR. NEW COMMITMENTS AND OBLIGATIONS ARE ASSUMED ON BOTH SIDES FOR AN ENTIRELY NEW PERIOD, WHICH, THOUGH NOT IN EXCESS OF 20 YEARS, WILL EXTEND NEVERTHELESS BEYOND THE DATE OF THE OLD CONTRACT. IT IS CONSISTENT NOT ONLY WITH THE LETTER BUT ALSO WITH THE SPIRIT OF THE STATUTE THAT THE PARTIES SHOULD AT THAT TIME SETTLE THE MATTER OF RECAPTURABLE PROFITS AND THAT THE NEW CONTRACT SHOULD START FROM SCRATCH IN THAT REGARD, AS WELL AS IN THE OTHER ASPECTS OF THE SUBSIDY RELATIONSHIP.

IN HIS SUPPLEMENTAL LETTER OF JUNE 21, 1954, COUNSEL FOR THE COMPANY REFERS TO A CONSTRUCTION OF THE WORD "TERMINATION" BY THE COMMISSIONER OF INTERNAL REVENUE IN ANSWERING CERTAIN QUESTIONS REGARDING THE CLOSING AGREEMENTS WHICH WERE SETTLEMENT OF TAX PROBLEMS ARISING UNDER SECTION 607 OF THE MERCHANTS MARINE ACT, 49 STAT. 2005. INCLUDED IN SUCH CLOSING AGREEMENTS WAS A DEFINITION IN ARTICLE I (F) AS FOLLOWS:

"TERMINATION" REFERRING TO OPERATING-DIFFERENTIAL SUBSIDY CONTRACTS SHALL MEAN THE FINAL TERMINATION OF SUCH CONTRACTS WITHOUT EXTENSION, RENEWAL OR CONTINUATION. (ITALICS SUPPLIED.)

THE COMMISSIONER OF INTERNAL REVENUE STATED THAT UNDER THAT DEFINITION RESERVE FUNDS WOULD NOT CEASE TO BE HELD FOR THE PURPOSE OF THE 1936 ACT SO LONG AS THE TAXPAYER REMAINED IN A SUBSIDIZED STATUS. SUFFICE IT TO SAY THAT THIS RULING HAD REFERENCE ONLY TO TAX LIABILITIES WHERE THE SITUATION IS ENTIRELY DIFFERENT BOTH IN NATURE AND EFFECT.

ACCORDINGLY, IT IS MY CONCLUSION THAT THE MARITIME ADMINISTRATION WOULD NOT BE AUTHORIZED NOW TO ENTER INTO A "NEW" 13-YEAR OPERATING DIFFERENTIAL SUBSIDY CONTRACT WITH AMERICAN PRESIDENT LINES, LTD., WITHOUT REQUIRING A RECAPTURE ACCOUNTING AS OF THE DATE OF THE TERMINATION OF THE CURRENT CONTRACT.