Comments on United States Liability for Payment of State Sales Tax

B-177215: Nov 30, 1972

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GAO commented on the propriety of levying state sales taxes on construction materials purchased by government contractors. GAO held that purchases made by government contractors were not exempt from state sales taxes.

B-177215 November 30, 1972

Dear Senator Proxmire:

Reference is made to your letter dated October 3, 1972, requesting our comments on a letter received by you from Mr. [REDACTED] concerning the levy of State sales tax on materials used in construction of federally funded tax exempt institutional buildings.

Concerning the payment of State sales taxes generally by the United State, our Office has held that the question of whether the United States is required to pay for an item procurred in the State at a price inclusive of the sales tax imposed by that State rests upon a determination of whether the incidence of the tax is on the vendor or on the vendes. Where the incidence of the tax is on the vendor, the United States has no right-- apart from State law or State statutory regulations promulgated thereunder by State authorities--to purchase (or lease) items within the territorial jurisdiction of the State on a tax free basis. See Alabama v. King and Boozer, 314 U.S. 1 (1941); 24 Comp. Gen. 150 (1944); 32 Comp. Gen 423 (1953); id. 577 (1953); 33 Comp. Gen. 453 (1954); and 41 Comp. Gen. 719 (1962). On the other hand where the incidence of the tax is on the vendee, the United States in purchasing or leasing items for official use is entitled under its constitutional prerogative to make purchases or to lease free from State taxes and to recover any amount of such taxes which may have been paid by it.

Further it has been held that a State sales tax, the legal incidence which falls onthe vendee (buyer), does not infringe the constitutional immunity of the Government where it is determined that the Government is not in fact the "purchaser" within the meaning of the tax statute. See Alabama v. King and Boozer, supra; and United States v. Boyd, 378 U.S. 39 (1964). Cf. Kern-Lumerick, Inc. v. Scurlock, 347 U.S. 110 (1954).

Under Wisconsin law (section 77.54(9a) Wisconsin Statues, 1969), sales to entities organized and operated exculusively for religious, charitable, scientific or educational purposes would apprently be exempt from the State sales tax. Also, under the same law (section 77.55) sales to the United States or any of its agencies or instrumentalities would be exempt from the State sales tax. However, the exemption would not apply to sales made to Government contractors or apprently to sales made to contractors performing work in Wisconsin for tax-exempt intitations, because neither the Government nor the tax-exempt institution would be the "purchaser" in such circumstances, unless the contractor involved was acting only as purchasing agent for the Government or the tax-exempt institutions. See Alabama v. King and Boozer, supra; and United States v. Boyd, supra; cf. Kern-Lumerick, Inc. v. Scurlock; supra.

Insofar as Federal grant funds are concerned, we have held that grant funds paid over to a grantee become funds of the grantee (to be used for purpose of the grants) aand are not subject to the various restrictions or limitations imposed by our decisions or Federal statutes on the expenditure by Federal agencies of appropriations, in the absence of a condition in the grant specifically prescribing to the contrary. See 28 Comp. Gen. 85 (1957) we held--quoting from the syllabus--

"federal funds which are granted to the States for cooperative agricultural experiment work become State funds subject only to State restrictions and the States in disbursing the grants may not be considered agents of the United States; therefore, no objection is made to the payment from such Federal grant funds of nondiscriminatory State sales taxes on services and supplies procured by the States, as purchasers, to carry out the purposes of the grant. 14 Comp. Gen. 747, overruled.

"Payment of State sales taxes on purchases made by the States for agricultural extersion and experiment work for which the State receives Federal grants is not to be regarded as a diversion of funds for a purpose not authorized in the grant but rather is to be regarded as incident to the purpose of the grant. 14 Comp. Gen. 747, overruled."

In light of the foregoing we would have no basis to question the levying of a State sales tax on purchases made by a contractor under contract a contract financed by a grantee from Federal grant funds.

We trust that the foregoing will be of assistance to you in replying to your constituent.

Sincerely yours,

R. F. KELLER Deputy Comptroller General of the United States



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