B-26543, JULY 13, 1942, 22 COMP. GEN. 26

B-26543, JULY 13, 1942, 22 COMP. GEN. 26

FEDERAL EXCISE TAXES - CONTRACT PRICE ADJUSTMENT AND EXEMPTION CERTIFICATE ISSUANCE WHERE A CONTRACTOR FURNISHING SUPPLIES TO THE GOVERNMENT IS A "DEALER" AND NOT A "MANUFACTURER, PRODUCER, OR IMPORTER" DIRECTLY LIABLE FOR THE EXCISE TAX IMPOSED BY SECTION 551 OF THE REVENUE ACT OF 1940, NO INCREASE IN THE CONTRACT PRICE IS AUTHORIZED UNDER THE STANDARD " FEDERAL TAXES" CLAUSE BY REASON OF THE FACT THAT THE TAX WAS IMPOSED SUBSEQUENT TO THE OPENING OF BIDS AND THAT THE PRICE CHARGED THE DEALER BY THE MANUFACTURER HAS BEEN INCREASED BY THE AMOUNT OF THE TAX. EVEN THOUGH THERE BE NO CONTRACTUAL OBLIGATION ON THE GOVERNMENT EITHER TO ISSUE ITS DEALER-VENDORS TAX EXEMPTION CERTIFICATES COVERING THE MANUFACTURERS' EXCISE TAX IMPOSED BY CHAPTER 29 OF THE INTERNAL REVENUE CODE OR TO PAY THE AMOUNT OF THE TAX, WHERE IT IS CONCLUSIVELY SHOWN OR PRESUMED THAT PRICES PAID DO NOT INCLUDE AMOUNTS REPRESENTING THE TAX, EXEMPTION CERTIFICATES MAY BE ISSUED TO THE VENDORS FOR USE IN OBTAINING TAX CREDIT FROM THEIR MANUFACTURER-SUPPLIERS WHO, UNDER THE CODE AND INTERNAL REVENUE REGULATIONS, ARE ENTITLED UPON PRESENTATION OF ORIGINAL CERTIFICATES TO REFUND OF OR CREDIT FOR THE TAX ON ARTICLES RESOLD FOR THE GOVERNMENT'S EXCLUSIVE USE.

1 COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, JULY 13, 1942:

I HAVE YOUR LETTER OF JUNE 6, 1942, AS FOLLOWS:

REFERENCE IS MADE TO THE ATTACHED PREAUDIT DIFFERENCE STATEMENT, COVERING VOUCHER NO. 7786, SCHEDULE NO. 846, IN FAVOR OF M. S. GINN AND CO. IN THE AMOUNT OF $25.10, RETURNED WITHOUT CERTIFICATION THAT, "INASMUCH AS THE CONTRACTOR IS A DEALER AND NOT A "MANUFACTURER, PRODUCER, OR IMPORTER" OF THE BRIEF CASES, AND SINCE THE FEDERAL EXCISE TAX IMPOSED BY THE TERMS OF SECTION 551 OF THE REVENUE ACT OF 1941 IS NOT PAYABLE DIRECTLY BY THE CONTRACTOR TO THE GOVERNMENT, THERE IS NO BASIS FOR A CLAIM BY THE CONTRACTOR FOR PAYMENT OF THE AMOUNT DUE, PROVIDED THE EXEMPTION CERTIFICATE NO. 16339 BE CANCELLED AND ALL REFERENCE TO SUCH CERTIFICATE BE ELIMINATED FROM THE VOUCHER.'

THIS OFFICE HAS BEEN ORALLY ADVISED BY THE BUREAU OF INTERNAL REVENUE THAT IT IS PROPER TO ISSUE TAX EXEMPTION CERTIFICATES COVERING EXCISE TAX TO A DEALER WHO SPECIFICALLY CLAIMS THE TAX AND, FURTHER STATES, THAT IT IS NOT INCLUDED IN THE PURCHASE PRICE OR WHEN THE TAX IS INCLUDED SEPARATELY IN A VOUCHER, THE AMOUNT THEREOF MAY BE DEDUCTED AND A CERTIFICATE ISSUED; IT BEING UNDERSTOOD THAT THE DEALER SURRENDER THE CERTIFICATE TO HIS SUPPLIER FOR THE PURPOSE OF GIVING CREDIT TO THE DEALER FOR THE AMOUNT OF THE TAX.

IT MAY BE STATED THAT IF THIS PROCEDURE IS NOT FOLLOWED, IT IS ASSUMED DEALERS WILL INCLUDE THE TAX IN THE PURCHASE PRICE AND, IN CONSEQUENCE, THE APPROPRIATION CHARGEABLE WILL BE REDUCED IN THE AMOUNT OF THE TAX, WHICH OBVIOUSLY IS NOT DESIRABLE.

THE COMMISSION, IN FOLLOWING THE INSTRUCTION GIVEN IN THE PREAUDIT DIFFERENCE STATEMENT, HAS REFUSED TO ISSUE CERTIFICATE TO A DEALER WHO COMPLAINED THAT HE WOULD HAVE TO STAND THE LOSS IN THE AMOUNT OF THE TAX.

IN VIEW OF THE DIFFERENCE BETWEEN THE INSTRUCTIONS OF YOUR OFFICE AND THE BUREAU OF INTERNAL REVENUE, IT IS NOW REQUESTED THAT THE PROCEDURE TO FOLLOW BE VERIFIED.

CONTRACT NO. TPS-42402 DATED SEPTEMBER 26, 1941, WITH M. S. GINN AND CO., UNDER WHICH THE PURCHASE HERE IN QUESTION WAS MADE CONTAINS A STANDARD " FEDERAL TAXES" CLAUSE, WHICH READS AS FOLLOWS:

PRICES INCLUSIVE OF TAX.--- PRICES BID HEREIN INCLUDE ANY FEDERAL TAX HERETOFORE IMPOSED BY THE CONGRESS WHICH IS APPLICABLE TO THE MATERIAL ON THIS BID. IF ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES ARE IMPOSED OR CHANGED BY THE CONGRESS AFTER THE DATE SET FOR THE OPENING OF THIS BID, AND MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES COVERED BY THIS BID, AND ARE PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR, THEN THE PRICES NAMED IN THIS BID WILL BE INCREASED OR DECREASED ACCORDINGLY, AND ANY AMOUNT DUE THE CONTRACTOR AS A RESULT OF SUCH CHANGE WILL BE CHARGED TO THE GOVERNMENT AND ENTERED ON VOUCHERS (OR INVOICES) AS SEPARATE ITEMS.

SECTION 551 OF THE REVENUE ACT OF 1941, APPROVED SEPTEMBER 20, 1941, 55 STAT. 716, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

SUBCHAPTER A OF CHAPTER 29 OF THE INTERNAL REVENUE CODE IS AMENDED BY INSERTING AFTER SECTION 3405 THE FOLLOWING NEW SECTION:

"SEC. 3406. EXCISE TAXES IMPOSED BY THE REVENUE ACT OF 1941.

"/A) IMPOSITION.--- THERE SHALL BE IMPOSED ON THE FOLLOWING ARTICLES, SOLD BY THE MANUFACTURER, PRODUCER, OR IMPORTER, A TAX EQUIVALENT TO THE RATE, ON THE PRICE FOR WHICH SOLD, SET FORTH IN THE FOLLOWING PARAGRAPHS *

"/2) LUGGAGE.--- * * * AND LEATHER AND IMITATION LEATHER BRIEF CASES, 10 PERCENTUM.

"/C) EFFECTIVE DATE.--- THIS SECTION SHALL TAKE EFFECT ON OCTOBER 1, 1941.'

THERE APPARENTLY IS NO QUESTION BUT THAT M. S. GINN AND CO. IS A "DEALER" AND NOT A ,MANUFACTURER, PRODUCER, OR IMPORTER" OF BRIEF CASES, AND, THEREFORE, THE TAX IMPOSED BY SECTION 551 ABOVE QUOTED, IS NOT PAYABLE DIRECTLY BY THAT COMPANY. UNDER SUCH CIRCUMSTANCES, IT IS WELL SETTLED THAT THERE IS NO AUTHORITY FOR THE PAYMENT OF ANY AMOUNT IN EXCESS OF THE PRICE STATED IN THE CONTRACT EVEN THOUGH, AS IN THE INSTANT CASE, THE TAX HAS BEEN IMPOSED SUBSEQUENT TO THE DATE ON WHICH THE BIDS WERE OPENED. THE TAX AS SUCH IS NOT PAID BY THE DEALER ALTHOUGH THE PRICE CHARGED THE DEALER BY THE MANUFACTURER MAY HAVE BEEN INCREASED IN THE EXACT AMOUNT OF THE TAX. 13 COMP. GEN. 87; 14 ID. 338; ID. 464; 15 ID. 516; 17 ID. 584; B -23413, FEBRUARY 19, 1942; LASH'S PRODUCTS CO. V. UNITED STATES, 278 U.S. 175; UNITED STATES V. COWDEN MANUFACTURING COMPANY, 312 U.S. 34.

AT FIRST BLUSH IT WOULD SEEM TO FOLLOW THAT THE GOVERNMENT SHOULD NOT BY THE ISSUANCE OF A TAX EXEMPTION CERTIFICATE RELIEVE A DEALER FROM THE BURDEN OF A TAX WHICH THE GOVERNMENT IS NOT REQUIRED UNDER THE TERMS OF ITS CONTRACT TO BEAR. HOWEVER, SECTION 551 OF THE REVENUE ACT OF 1941, AS WILL BE NOTED FROM ITS ENACTING CLAUSE, BECAME PART OF CHAPTER 29 OF THE INTERNAL REVENUE CODE. SECTION 3443 OF SAID CHAPTER, 53 STAT. 417, ENTITLED " CREDITS AND REFUNDS," PROVIDES:

(A) A CREDIT AGAINST TAX UNDER THIS CHAPTER, OR A REFUND, MAY BE ALLOWED OR MADE---

(3) TO A MANUFACTURER, PRODUCER, OR IMPORTER IN THE AMOUNT OF TAX PAID BY HIM UNDER THIS CHAPTER WITH RESPECT TO THE SALE OF ANY ARTICLE TO ANY VENDEE, IF THE MANUFACTURER, PRODUCER, OR IMPORTER HAS IN HIS POSSESSION SUCH EVIDENCE AS THE REGULATIONS MAY PRESCRIBE THAT---

(A) SUCH ARTICLE WAS, BY ANY PERSON---

(I) RESOLD FOR THE EXCLUSIVE USE OF THE UNITED STATES, ANY STATE, TERRITORY OF THE UNITED STATES, OR ANY POLITICAL SUBDIVISION OF THE FOREGOING, OR THE DISTRICT OF COLUMBIA.

THIS SECTION HAS BEEN IMPLEMENTED BY REGULATIONS ISSUED BY THE COMMISSIONER OF INTERNAL REVENUE. SECTION 316.94 OF REGULATIONS 46 (1940 EDITION), 5 FED. REG. 156, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

IN THE CASE OF A SALE OF A TAXABLE ARTICLE BY A MANUFACTURER TO A DEALER, WHERE TITLE PASSES THROUGH ONE OR MORE PERSONS IN A CHAIN OF SALES FROM THE MANUFACTURER TO A CONSUMER, AND SUCH ARTICLE IS USED, OR RESOLD FOR A PURPOSE OR USE SPECIFIED IN SECTION 3443 (A) (3) (A/--- THE MANUFACTURER WHO PAID THE TAX TO THE UNITED STATES MAY BE ALLOWED A REFUND OR MAY TAKE CREDIT AGAINST THE TAX SHOWN TO BE DUE UPON ANY SUBSEQUENT MONTHLY RETURN, IN THE AMOUNT OF TAX PAID BY HIM WITH RESPECT TO THE SALE OF SUCH ARTICLE, PROVIDED HE CAN ESTABLISH BY SATISFACTORY EVIDENCE (1) THAT SUCH ARTICLE HAS BEEN USED, OR RESOLD, FOR ONE OF THE USES SPECIFIED IN SUCH SECTION, (2) THE NAME AND ADDRESS OF THE ULTIMATE VENDOR, (3) THE NAME AND ADDRESS OF THE CONSUMER, AND THE USE MADE OR TO BE MADE OF SUCH ARTICLE, (4) THE DATE THE TAX ON HIS SALE OF SUCH ARTICLE WAS PAID TO THE UNITED STATES, AND (5) THAT HE HAS REPAID OR AGREED TO REPAY THE AMOUNT OF SUCH TAX TO THE ULTIMATE VENDOR, OR HAS OBTAINED THE CONSENT OF THE ULTIMATE VENDOR TO THE ALLOWANCE OF THE CREDIT OR REFUND.

THE EVIDENCE REQUIRED IN (1), (2), AND (3) OF THE PRECEDING PARAGRAPH MAY BE ESTABLISHED BY THE MANUFACTURER SECURING FROM THE ULTIMATE VENDOR (A) THE ORIGINAL EXEMPTION CERTIFICATE OBTAINED BY SUCH ULTIMATE VENDOR FROM THE CONSUMER, OR (B) A SWORN STATEMENT BY THE ULTIMATE VENDOR THAT HE HAS OBTAINED FROM THE CONSUMER AND HAS IN HIS POSSESSION SUCH AN EXEMPTION CERTIFICATE. * * *

WHERE A SWORN STATEMENT IS FURNISHED BY THE ULTIMATE VENDOR IN LIEU OF THE ORIGINAL EXEMPTION CERTIFICATE, THE ULTIMATE VENDOR MUST INCORPORATE THEREIN A STATEMENT TO THE EFFECT THAT THE CERTIFICATE AND SUPPORTING DATA (1) ARE RETAINED BY HIM, (2) WILL BE PRESERVED FOR A PERIOD OF FOUR YEARS, AND (3) WILL, UPON REQUEST, BE FORWARDED TO THE MANUFACTURER AT ANY TIME WITHIN THE PERIOD FOR USE IN ESTABLISHING TO THE SATISFACTION OF INTERNAL- REVENUE OFFICERS THAT A REFUND OR CREDIT JUSTLY DUE.

SECTION 3442, INTERNAL REVENUE CODE, 53 STAT. 416, PROVIDES THAT UPON COMPLIANCE WITH REGULATIONS APPLICABLE THERETO NO TAX SHALL BE IMPOSED ON SALES OF ARTICLES DIRECT FROM MANUFACTURER TO THE GOVERNMENT.

THUS, CONGRESS HAS PROVIDED BY VIRTUE OF THESE STATUTORY PROVISIONS THAT SALES OF GOODS FOR THE EXCLUSIVE USE OF THE UNITED STATES SHALL BE EXEMPT, EITHER BY WAY OF A TAX-FREE SALE OR BY SUBSEQUENT REFUND, FROM THE MANUFACTURER'S EXCISE TAX CONTAINED IN CHAPTER 29 OF THE CODE, OF WHICH, AS ABOVE STATED, SECTION 551 OF THE REVENUE ACT OF 1941 IS A PART. AUTHORITY TO PRESCRIBE THE NECESSARY STEPS TO BE TAKEN AND EVIDENCE TO BE PRESENTED IN ORDER THAT SUCH EXEMPTION MAY BE OBTAINED IS VESTED IN THE COMMISSIONER OF INTERNAL REVENUE WHO HAS DESIGNATED "THE ORIGINAL EXEMPTION CERTIFICATE OBTAINED BY SUCH ULTIMATE VENDOR FROM THE CONSUMER" AS SUFFICIENT FOR SUCH PURPOSES. NEEDLESS TO SAY, THE REGULATIONS CONTEMPLATE THAT AN "ORIGINAL EXEMPTION CERTIFICATE" WILL BE ISSUED.

THERE IS NO CONTRACTUAL OBLIGATION ON THE GOVERNMENT TO ISSUE THIS TAX- EXEMPTION CERTIFICATE SINCE THE CONTRACT CONTAINS NO PROVISION FOR THE ISSUANCE OF EXEMPTION CERTIFICATES AND, AS POINTED OUT ABOVE, THE GOVERNMENT AS PURCHASER IS NOT LIABLE FOR THE AMOUNT OF THE TAX. HOWEVER, AS APPEARS FROM THE ABOVE QUOTED STATUTE AND REGULATIONS, A MANUFACTURER MUST PRESENT EVIDENCE OF THE FACT THAT THE GOODS HAVE ULTIMATELY BEEN SOLD TO THE UNITED STATES IN ORDER THAT HE MAY OBTAIN A REFUND--- TO WHICH THE LAW SAYS HE IS ENTITLED--- OF THE EXCISE TAX PREVIOUSLY PAID. CONSEQUENTLY, SINCE THE MANUFACTURER WILL SHIFT THE BURDEN OF THE TAX TO HIS DEALER, TO DENY A DEALER AN EXEMPTION CERTIFICATE IN THESE CASES WILL RESULT IN THE DEALER BEING COMPELLED TO BEAR THE BURDEN OF A TAX WHICH THE LAW CONTEMPLATES SHALL NOT APPLY TO SUCH SALES.

THE TAX EXEMPTION CERTIFICATE DOES NOT EX PROPRIO VIGORE EXEMPT ITS RECIPIENT FROM THE TAX. THE TERMS AND CONDITIONS UNDER WHICH IT SHALL BE HONORED ARE PRESCRIBED BY THE COMMISSIONER OF INTERNAL REVENUE. THE CERTIFICATE ITSELF IS MERELY EVIDENCE OF THE SALE OF CERTAIN GOODS TO THE UNITED STATES. IN OTHER WORDS, IT IS IN THE NATURE OF A RECEIPT WHICH THE LAW CONTEMPLATES SHALL BE GIVEN, UNDER CIRCUMSTANCES SUCH AS THOSE IN THE PRESENT CASE, AND FOR WHICH NO CONTRACTUAL PROVISION IS NECESSARY. SINCE, HOWEVER, IT REPRESENTS THE FURTHER FACT THAT THE PRICE PAID FOR THE GOODS SPECIFIED THEREON DID NOT INCLUDE ANY PART OF THE TAX, THE ADMINISTRATIVE AGENCY IS AUTHORIZED TO ISSUE SUCH CERTIFICATE ONLY WHEN THIS FACT IS CONCLUSIVELY SHOWN OR PRESUMED. THE MANUFACTURER'S EXCISE TAX ON BRIEF CASES WAS IMPOSED SUBSEQUENT TO THE OPENING OF THE CONTRACTOR'S BID IN THE INSTANT CASE AND, THEREFORE, IT REASONABLY MAY BE PRESUMED THAT THE CONTRACT PRICE DID NOT INCLUDE ANY PART OF THIS TAX.

ACCORDINGLY, FOR THE REASONS SET FORTH ABOVE, THE INSTRUCTIONS CONTAINED IN THE PREAUDIT DIFFERENCE STATEMENT MENTIONED IN THE ABOVE QUOTED LETTER MAY BE DISREGARDED AND NO FURTHER OBJECTION WILL BE MADE BY THIS OFFICE TO THE ISSUANCE OF TAX EXEMPTION CERTIFICATES TO DEALER- CONTRACTORS, UNDER SIMILAR CIRCUMSTANCES, ON PURCHASES UNDER CONTRACTS BASED ON BIDS OPENED PRIOR TO OCTOBER 1, 1941, THE EFFECTIVE DATE OF THE REVENUE ACT OF 1941, FOR USE IN OBTAINING CREDIT FROM THE SUPPLIERS IN THE AMOUNT OF THE MANUFACTURER'S EXCISE TAXES IMPOSED BY SAID ACT.