B-15065, MARCH 5, 1941, 20 COMP. GEN. 499

B-15065, MARCH 5, 1941, 20 COMP. GEN. 499

CONTRACTS - COST-PLUS - STATE UNEMPLOYMENT INSURANCE TAX AS REIMBURSABLE ITEM OF COST THE AMOUNT PAID BY A CONTRACTOR, UNDER APPROPRIATE CONTRACT CONDITIONS, TO THE VIRGINIA UNEMPLOYMENT COMPENSATION COMMISSION AS AN UNEMPLOYMENT COMPENSATION INSURANCE TAX LEVIED ON ITS PAY ROLLS FOR WORK PERFORMED UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WITH THE GOVERNMENT IS A PROPER ITEM FOR REIMBURSEMENT BY THE GOVERNMENT, PROVIDED THE EXPENDITURE BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER OR HIS REPRESENTATIVE, IN ACCORDANCE WITH THE TERMS OF THE CONTRACT.

COMPTROLLER GENERAL WARREN TO MAJ. H. A. GARDYNE, UNITED STATES ARMY, MARCH 5, 1941:

THERE HAS BEEN RECEIVED, BY INDORSEMENT OF FEBRUARY 19 FROM THE CHIEF OF FINANCE, YOUR LETTER OF FEBRUARY 4, 1941, REQUESTING DECISION WHETHER YOU ARE AUTHORIZED TO MAKE PAYMENT ON A VOUCHER TRANSMITTED THEREWITH IN FAVOR OF THE CHARLES H. TOMPKINS CO., AND POTTS AND CALLAHAN CONTRACTING CO., INC., IN THE AMOUNT OF $11,120.98, REPRESENTING AN AMOUNT PAID BY SUCH CONTRACTOR TO THE UNEMPLOYMENT COMPENSATION COMMISSION OF THE STATE OF VIRGINIA AS AN UNEMPLOYMENT COMPENSATION INSURANCE TAX LEVIED ON THE CONTRACTOR'S PAY ROLLS FOR WORK PERFORMED UNDER CONTRACT NO. W-6141-QM- 199, IN ACCORDANCE WITH THE VIRGINIA UNEMPLOYMENT COMPENSATION ACT, CHAPTER 76D, 1938 SUPPLEMENT TO THE VIRGINIA CODE OF 1936.

THE VIEWS OF THE OFFICE OF THE QUARTERMASTER GENERAL, WAR DEPARTMENT, ARE STATED IN SECOND INDORSEMENT ACCOMPANYING THE VOUCHER, AS FOLLOWS:

1. REFERENCE IS MADE TO THE ST IND. AND INCLOSURES, REQUESTING RECOMMENDATION OF THIS OFFICE RELATIVE TO THE SUBMISSION TO THE COMPTROLLER GENERAL OF THE UNITED STATES FOR AN ADVANCE DECISION, THE QUESTION WHETHER REIMBURSEMENT SHOULD BE MADE ON A VOUCHER IN FAVOR OF THE CHARLES H. TOMPKINS CO. AND POTTS AND CALLAHAN CO., INC., IN THE AMOUNT OF $11,120.98, REPRESENTING AN AMOUNT PAID BY THE CONTRACTORS TO THE UNEMPLOYMENT COMPENSATION COMMISSION OF THE STATE OF VIRGINIA.

2. THIS OFFICE HAS CONSISTENTLY HELD THAT STATE AND LOCAL TAXES ARE INAPPLICABLE TO TRANSACTIONS OF COST-PLUS-FIXED-FEE CONTRACTORS. THERE WOULD APPEAR TO BE NO LEGAL BASIS UPON WHICH TO DRAW A DISTINCTION BETWEEN UNEMPLOYMENT COMPENSATION TAXES AND ANY TYPE OF STATE OR LOCAL TAXES FOR THE PURPOSE OF DETERMINING TAX LIABILITY OF COST-PLUS-FIXED-FEE CONTRACTORS. THERE MAY EXIST, HOWEVER, A DEFINITE POLICY FAVORING PAYMENT OF UNEMPLOYMENT COMPENSATION TAXES IN VIEW OF THE SOCIAL GAINS TO BE ATTAINED FROM THAT TYPE OF SOCIAL LEGISLATION.

3. A SITUATION COMPARABLE TO THAT INVOLVED HERE MAY BE FOUND IN THE STATEMENT OF LABOR POLICY ADOPTED BY THE NATIONAL DEFENSE ADVISORY COMMISSION IN CONNECTION WITH THE DEFENSE EFFORT WHEREIN ALL WORK CARRIEDON AS PART OF THE DEFENSE PROGRAM MUST COMPLY WITH FEDERAL STATUTORY PROVISIONS AFFECTING LABOR. THIS APPLIES TO THE WALSH HEALEY ACT, FAIR LABOR STANDARDS ACT AND THE NATIONAL LABOR RELATIONS ACT. COMPLIANCE IS ALSO REQUIRED WITH STATE AND LOCAL STATUTES AFFECTING LABOR RELATIONS, HOURS OF WORK, WAGES, WORKMEN'S COMPENSATION, SAFETY, SANITATION, ETC. THE REASON WHICH LED TO THE ADOPTION OF THIS POLICY, NAMELY, THE DESIRE TO CONSERVE AND MAINTAIN LABOR EFFICIENCY IN ORDER TO INSURE INCREASED PRODUCTION IN TIMES OF EMERGENCY, MAY BE APPLICABLE EQUALLY IN THE CASE OF UNEMPLOYMENT COMPENSATION WHICH ALSO PARTAKES OF THE NATURE OF SOCIAL LEGISLATION INTENDED TO ACCOMPLISH THE SAME PURPOSE AS THE OTHER LEGISLATION REFERRED TO. THEREFORE, THIS OFFICE IS OF THE OPINION THAT THE COMPTROLLER GENERAL OF THE UNITED STATES SHOULD BE REQUESTED TO RENDER A DECISION WITH RESPECT TO THE QUESTION OF PAYMENT OF STATE UNEMPLOYMENT COMPENSATION TAXES AND WHETHER, IF PAID, THE CONTRACTORS ARE ENTITLED TO REIMBURSEMENT THEREFOR. IF THE DECISION SHOULD BE THAT SUCH TAXES MUST BE PAID, THE CONTRACTOR WOULD BE ENTITLED TO REIMBURSEMENT AS A MATTER OF RIGHT. ON THE OTHER HAND, IF THE RULING IS THAT THE TAXES SHOULD NOT BE PAID, THE QUESTION RELATING TO REIMBURSEMENT IN CASES WHERE PAYMENT HAS ACTUALLY BEEN MADE SHOULD BE DETERMINED.

4. IN VIEW OF THE FOREGOING THIS OFFICE RECOMMENDS THAT THE PAYMENT VOUCHER, WHICH IS RETURNED HEREWITH, BE SUBMITTED TO THE COMPTROLLER GENERAL OF THE UNITED STATES FOR AN ADVANCE DECISION.

CONTRACT NO. W-6141-QM-199 PROVIDES FOR THE CONSTRUCTION AT FORT BELVOIR, VA., OF A CANTONMENT CAMP AND REPLACEMENT CENTER INCLUDING NECESSARY BUILDINGS, TEMPORARY STRUCTURES, UTILITIES AND APPURTENANCES THERETO, WITH REIMBURSEMENT TO THE CONTRACTOR OF THE COST OF THE WORK, AS DEFINED IN THE CONTRACT, PLUS A STIPULATED FIXED FEE. IT APPEARS THAT THE CONTRACT WAS NEGOTIATED ON THAT BASIS PURSUANT TO STATUTORY AUTHORITY CONTAINED IN THE ACT OF JULY 2, 1940, 54 STAT. 712. IT IS PROVIDED, IN ARTICLE II OF THE CONTRACT, WITH RESPECT TO "REIMBURSEMENT FOR CONTRACTOR'S EXPENDITURES" THAT---

1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF HIS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER AND AS ARE INCLUDED IN THE FOLLOWING ITEMS:

(M) PAYMENTS FROM HIS OWN FUNDS MADE BY THE CONTRACTOR UNDER THE SOCIAL SECURITY ACT, AND ANY APPLICABLE STATE OR LOCAL TAXES, FEES, OR CHARGES WHICH THE CONTRACTOR MAY BE REQUIRED ON ACCOUNT OF THIS CONTRACT TO PAY ON OR FOR ANY PLANT, EQUIPMENT, PROCESS, ORGANIZATION, MATERIALS, SUPPLIES, OR PERSONNEL; AND, IF APPROVED IN WRITING BY THE CONTRACTING OFFICER IN ADVANCE, PERMIT AND LICENSE FEES, AND ROYALTIES ON PATENTS USED INCLUDING THOSE OWNED BY THE CONTRACTOR.

IN ARTICLE V, PARAGRAPH 1 (B) OF THE CONTRACT, THE CONTRACTOR AGREES THAT HE WILL---

PROCURE ALL NECESSARY PERMITS AND LICENSES; OBEY AND ABIDE BY ALL APPLICABLE LAWS, REGULATIONS, ORDINANCES, AND OTHER RULES OF THE UNITED STATES OF AMERICA, OF THE STATE, TERRITORY, OR SUBDIVISION THEREOF WHEREIN THE WORK IS DONE, OR OF ANY OTHER DULY CONSTITUTED PUBLIC AUTHORITY.

THE VIRGINIA UNEMPLOYMENT COMPENSATION ACT, SUPRA, WAS DRAWN WITH A VIEW TOWARD ITS APPROVAL BY THE FEDERAL SOCIAL SECURITY BOARD PURSUANT TO TITLE IX OF THE SOCIAL SECURITY ACT, AS AMENDED. THE STATE ACT WAS SO APPROVED ON DECEMBER 19, 1936. SEE TABLE D-1, PAGE 176, SECOND ANNUAL REPORT OF THE SOCIAL SECURITY BOARD, 1937. THE COOPERATIVE NATURE OF THE SYSTEM OF UNEMPLOYMENT COMPENSATION ESTABLISHED BY THE SOCIAL SECURITY ACT IS EXPLAINED, ON PAGE 53 OF SAID ANNUAL REPORT, AS FOLLOWS:

THE SOCIAL SECURITY ACT ESTABLISHES A FEDERAL-STATE SYSTEM OF UNEMPLOYMENT COMPENSATION WHICH LEAVES IT TO THE STATES TO INITIATE LEGISLATION AND PERMITS THEM WIDE LATITUDE WITH REGARD TO THE TYPE OF LAW FOR WHICH THEY MAY OBTAIN FEDERAL COOPERATION. TITLE IX OF THE ACT LEVIES A PAY-ROLL TAX ON CERTAIN EMPLOYERS THROUGHOUT THE UNITED STATES. AGAINST THIS TAX, EMPLOYERS IN STATES WITH UNEMPLOYMENT COMPENSATION LAWS APPROVED BY THE SOCIAL SECURITY BOARD ARE ALLOWED TO CREDIT, AS AN OFFSET, THEIR CONTRIBUTIONS TO STATE UNEMPLOYMENT FUNDS, UP TO A MAXIMUM OF 90 PERCENT OF THE FEDERAL TAX. UNDER TITLE III OF THE ACT, PROVISION IS MADE WHEREBY THE COST OF ADMINISTERING STATE UNEMPLOYMENT COMPENSATION LAWS MAY BE PAID BY THE FEDERAL GOVERNMENT AFTER THESE LAWS HAVE BEEN APPROVED BY THE SOCIAL SECURITY BOARD. * * *

IT IS TO BE NOTED THAT THE CONTRACTOR HERE APPARENTLY IS SUBJECT TO THE SOCIAL SECURITY ACT AND THE EXCISE TAX IMPOSED THEREBY, FOR IT EVIDENTLY DOES NOT FALL WITHIN THE EXCEPTION CONTAINED IN TITLE IV, SECTION 606, OF THE SOCIAL SECURITY ACT AMENDMENTS OF 1939, 53 STAT. 1384, WHEREIN THERE IS EXCEPTED, AMONG OTHER CATEGORIES OF SERVICE---

SERVICE PERFORMED IN THE EMPLOY OF THE UNITED STATES GOVERNMENT, OR OF AN INSTRUMENTALITY OF THE UNITED STATES WHICH IS (A) WHOLLY OWNED BY THE UNITED STATES, OR (B) EXEMPT FROM THE TAX IMPOSED BY SECTION 1410 BY VIRTUE OF ANY OTHER PROVISION OF LAW;

IT MAY BE POINTED OUT THAT THE PROCEEDS OF THE VIRGINIA UNEMPLOYMENT COMPENSATION TAX ARE REQUIRED BY BOTH THE SOCIAL SECURITY ACT AND THE VIRGINIA UNEMPLOYMENT COMPENSATION ACT TO BE COVERED INTO THE TREASURY OF THE UNITED STATES, AND THAT THE AMOUNT THEREOF SERVES AS A CREDIT TO THE EMPLOYER AGAINST THE AMOUNT OF SOCIAL SECURITY TAX WHICH HE WOULD OTHERWISE PAY.

IN BUCKSTAFF BATH HOUSE CO. V. MCKINLEY, 308 U.S. 358, 363, THE COURT RECOGNIZED THAT THE SOCIAL SECURITY ACT CONTEMPLATED AND AUTHORIZED STATE AND FEDERAL COOPERATION WITH REGARD TO UNEMPLOYMENT COMPENSATION INSURANCE, IN THE FOLLOWING LANGUAGE:

* * * THE ACT WAS DESIGNED THEREFORE TO OPERATE IN A DUAL FASHION--- STATE LAWS WERE TO BE INTEGRATED WITH THE FEDERAL ACT; PAYMENTS UNDER STATE LAWS COULD BE CREDITED AGAINST LIABILITIES UNDER THE OTHER. THAT IT WAS DESIGNED SO AS TO BRING THE STATES INTO THE COOPERATIVE VENTURE IS CLEAR. THE FACT THAT IT WOULD OPERATE THOUGH THE STATES DID NOT COME IN DOES NOT ALTER THE FACT THAT THERE WERE GREAT PRACTICAL INDUCEMENTS FOR THE STATES TO BECOME COMPONENTS OF A UNITARY PLAN FOR UNEMPLOYMENT RELIEF. IT IS THIS INVITATION BY THE CONGRESS TO THE STATES WHICH IS OF IMPORTANCE TO THE ISSUE IN THIS CASE. FOR CERTAINLY, UNDER THE COORDINATED SCHEME WHICH THE ACT VISUALIZES, WHEN CONGRESS BROUGHT WITHIN ITS SCOPE VARIOUS CLASSES OF EMPLOYERS IT IN PRACTICAL EFFECT INVITED THE STATES TO TAX THE SAME CLASSES. HENCE, IF THERE WERE ANY DOUBT AS TO THE JURISDICTION OF THE STATES TO TAX ANY OF THOSE CLASSES IT MIGHT WELL BE REMOVED BY THAT INVITATION, FOR IN ABSENCE OF A DECLARATION TO THE CONTRARY, IT WOULD SEEM TO BE A FAIR PRESUMPTION THAT THE PURPOSE OF CONGRESS WAS TO HAVE THE STATE LAW AS CLOSELY COTERMINOUS AS POSSIBLE WITH ITS OWN. TO THE EXTENT THAT IT WAS NOT THE HOPES FOR A COORDINATED AND INTEGRATED DUAL SYSTEM WOULD NOT MATERIALIZE.

HOWEVER, IT IS NOT NECESSARY TO RELY ON AN IMPLIED AUTHORITY FOR THE STATE TO LEVY AN UNEMPLOYMENT COMPENSATION TAX ON THE CONTRACTOR HERE INVOLVED. BY SECTION 613 OF THE SOCIAL SECURITY ACT AMENDMENTS OF 1939, 53 STAT. 1391, SECTION 1606 OF THE INTERNAL REVENUE CODE WAS AMENDED TO PROVIDE THAT THE LEGISLATURE OF ANY STATE MAY REQUIRE ANY INSTRUMENTALITY OF THE UNITED STATES, EXCEPT ONE WHOLLY OWNED BY THE UNITED STATES OR EXEMPT BY OTHER PROVISIONS OF LAW TO MAKE CONTRIBUTION TO AN UNEMPLOYMENT COMPENSATION FUND UNDER A STATE UNEMPLOYMENT COMPENSATION LAW APPROVED BY THE SOCIAL SECURITY BOARD; AND, FURTHER, THAT NO PERSON SHALL BE RELIEVED FROM COMPLIANCE WITH A STATE UNEMPLOYMENT COMPENSATION LAW ON THE GROUND THAT SERVICES WERE PERFORMED ON LAND OR PREMISES OWNED, HELD, OR POSSESSED BY THE UNITED STATES. IT IS THUS APPARENT THAT THE VIRGINIA UNEMPLOYMENT COMPENSATION TAX IS APPLICABLE TO THE PAY ROLLS OF THE CONTRACTOR HERE INVOLVED, IN VIEW OF THE EXPRESS CONSENT GIVEN BY THE CITED STATUTE, WHETHER OR NOT THE CONTRACTOR BE CONSIDERED AN INSTRUMENTALITY OF THE UNITED STATES, FOR THE TAX IS IN EFFECT ONE WHICH IS FOSTERED, ENCOURAGED, AND AUTHORIZED BY FEDERAL ENACTMENTS.

UNDER THE CIRCUMSTANCES, IT MUST BE HELD THAT THE TAX IS ONE WHICH THE CONTRACTOR IS REQUIRED AND HAS AGREED TO PAY WITHIN THE CONTEMPLATION OF ARTICLE II, PARAGRAPH 1 (M) AND ARTICLE V, PARAGRAPH 1 (B) OF THE CONTRACT AND FOR WHICH REIMBURSEMENT IS AUTHORIZED IN THE AMOUNT CLAIMED, IF OTHERWISE CORRECT, PROVIDED THE EXPENDITURE BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER OR HIS DULY AUTHORIZED REPRESENTATIVE, IN ACCORDANCE WITH THE TERMS OF THE CONTRACT.