B-131390, JUN. 5, 1957

B-131390, JUN. 5, 1957

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED APRIL 2, 1957, JAGT 1957/2617, WITH ENCLOSURES, FROM THE ASSISTANT JUDGE ADVOCATE GENERAL, REQUESTING OUR VIEWS CONCERNING THE REQUIREMENT AND DESIRABILITY OF MAKING A DEMAND UPON THE POWERS PRODUCE COMPANY FOR THE AMOUNT OF A TAX REFUND WHICH IT OBTAINED IN THE CASE OF G. W. POWERS AND IDA POWERS, D/B/A POWERS PRODUCE COMPANY V. UNITED STATES, D.C.MINN. 1956.

A COPY OF THE COURT'S DECISION WAS NOT FURNISHED BUT IT APPEARS FROM THE CORRESPONDENCE SUBMITTED WITH THE LETTER OF APRIL 2, 1957, THAT THE TAX REFUND RELATED TO TRANSPORTATION TAXES PAID ON SHIPMENTS OF ARTICLES UNDER A CONTRACT WITH THE DEPARTMENT OF THE ARMY WHICH REQUIRED THAT THE ARTICLES BE "PACKAGED AND PACKED FOR OVERSEAS SHIPMENT.' THE COURT PRESUMABLY CONSIDERED THAT THE TAXES WERE NOT APPLICABLE TO THE DELIVERIES MADE BY THE GOVERNMENT CONTRACTOR ON THE GROUND THAT THE SHIPMENT CONSTITUTED MERELY A PART OF A SUBSTANTIALLY CONTINUOUS MOVEMENT TO A FOREIGN DESTINATION.

IT IS ARGUED IN A MEMORANDUM SUBMITTED BY YOUR DEPARTMENT TO THE ATTORNEY GENERAL BY LETTER DATED FEBRUARY 1, 1957, THAT THE AMOUNT OF THE TAX REFUND MIGHT BE RECOVERABLE IN A SUBSEQUENT SUIT BROUGHT BY THE GOVERNMENT UNDER THE PROVISIONS OF PARAGRAPH (F) OF THE CONTRACT TAX CLAUSE. HOWEVER, THE MEMORANDUM SETS FORTH CERTAIN FACTORS--- INCLUDING THE POSSIBLE APPLICATION OF THE DOCTRINE OF RES JUDICATA--- WHICH MAY MILITATE AGAINST THE DESIRABILITY OF FURTHER LITIGATION IN THE MATTER.

BY LETTER DATED MARCH 8, 1957, THE ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, ADVISED THE JUDGE ADVOCATE GENERAL THAT:

"OUR EXAMINATION OF THE FILE DOES NOT DISCLOSE ANY CLAIM FOR COLLECTION BY THIS DIVISION, BUT SINCE THE GENERAL ACCOUNTING OFFICE HAS NOT HAD AN OPPORTUNITY TO DETERMINE WHETHER THERE IS A CLAIM FOR ASSERTION, IT IS SUGGESTED THAT THE MATTER BE REFERRED TO THE GENERAL ACCOUNTING ICE.'

IT HAS BEEN INDICATED THAT THE CONTRACT TAX CLAUSE IS IDENTICAL TO THAT SET FORTH IN PARAGRAPH 11-401 OF THE ARMED SERVICES PROCUREMENT REGULATIONS. PARAGRAPH (B) OF THAT APPROVED TAX CLAUSE FOR USE IN FIXED- PRICE CONTRACT PROVIDES: "EXCEPT AS MAY BE OTHERWISE PROVIDED IN THIS CONTRACT, THE CONTRACT PRICE INCLUDES ALL APPLICABLE FEDERAL TAXES IN EFFECT ON THE CONTRACT DATE.' ORDINARILY, A CONTRACT PROVISION OF THAT NATURE WOULD ALLOW THE CONTRACTOR TO RETAIN THE BENEFIT OF A FEDERAL TAX REFUND. UNITED STATES V. STANDARD RICE CO., 323 U.S. 106. PARAGRAPH (F) PROVIDES, HOWEVER, IN PERTINENT PART, THAT "IF ANY TAX OR DUTY HAS BEEN INCLUDED IN THE CONTRACT PRICE * * * AND IF THE CONTRACTOR IS ENTITLED TO A REFUND OR DRAWBACK BY REASON OF THE EXPORT OR RE-EXPORT OF SUPPLIES COVERED BY THIS CONTRACT, * * * THE CONTRACTOR AGREES * * * THAT THE AMOUNT OF ANY SUCH REFUND OR DRAWBACK OBTAINED WILL BE PAID OVER TO THE GOVERNMENT OR CREDITED AGAINST AMOUNTS DUE FROM THE GOVERNMENT UNDER THIS CONTRACT; * * *.'

PARAGRAPH (F) OF THE TAX CLAUSE WOULD SEEM SUFFICIENT TO ESTABLISH THE CONTRACTOR'S LIABILITY TO THE GOVERNMENT FOR THE AMOUNT OF THE TAX REFUND OBTAINED BY REASON OF THE EXPORT OR RE-EXPORT OF THE CONTRACT SUPPLIES, WHERE THE AMOUNT OF THE TAX HAD BEEN INCLUDED IN THE CONTRACT PRICE. HOWEVER, SINCE THE POWERS PRODUCE COMPANY OBTAINED THE TAX REFUND IN A SUIT BROUGHT AGAINST THE UNITED STATES, WHICH NECESSARILY INVOLVED CONSIDERATION OF AT LEAST SOME OF THE ASPECTS OF THE CONTRACTUAL RELATIONSHIP BETWEEN THE PARTIES, WE ARE INCLINED TO THE VIEW THAT THE GOVERNMENT'S RIGHTS UNDER PARAGRAPH (F) AROSE OUT OF THE SAME TRANSACTION AS THE CONTRACTOR'S RIGHT TO THE REFUND AND AMOUNTED TO A COMPULSORY COUNTERCLAIM UNDER THE FEDERAL RULES OF CIVIL PROCEDURE. WE ARE NOT ADVISED AS TO WHETHER OR NOT THE GOVERNMENT'S CLAIM UNDER PARAGRAPH (F) WAS PRESENTED TO THE COURT, BY COUNTERCLAIM OR OTHERWISE, BUT IT IS OUR VIEW THAT A SEPARATE ACTION NOW WOULD QUITE PROBABLY BE DISMISSED AS RES JUDICATA. SEE, GENERALLY, COMMISSIONER V. SUNNEN, 333 U.S. 591, 597, 598.

IN THE CIRCUMSTANCES, AND CONSIDERING THE OTHER FACTORS MENTIONED IN THE ABOVE MEMORANDUM AS MILITATING AGAINST FURTHER LITIGATION IN THE MATTER, YOU ARE ADVISED THAT NO DEMAND NEED BE MADE UPON THE POWERS PRODUCE COMPANY FOR THE RECOVERY OF THE AMOUNT OF THE TAX REFUND INVOLVED.