B-31073, JANUARY 8, 1943, 22 COMP. GEN. 623

B-31073, JANUARY 8, 1943, 22 COMP. GEN. 623

FEDERAL TRANSPORTATION OF PROPERTY TAX - STATUS AS "FREIGHT RATE" INCREASE; CONTRACT PRICE ADJUSTMENT; ETC. THE PROVISIONS OF SECTION 620 OF THE REVENUE ACT OF 1942, EXEMPTING AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY FROM THE PROPERTY TRANSPORTATION TAX IMPOSED THEREBY, FURNISH NO BASIS FOR THE ISSUANCE OF A TAX EXEMPTION CERTIFICATE TO A GOVERNMENT CONTRACTOR TO COVER THE AMOUNT OF THE TAX APPLICABLE TO TRANSPORTATION CHARGES ON THE CONTRACT MATERIAL WHICH THE CONTRACTOR IS REQUIRED TO PAY PURSUANT TO ITS CONTRACT OBLIGATION. THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY--- THE LEGAL INCIDENCE OF WHICH IS ON THE SHIPPER RATHER THAN THE CARRIER, THE LATTER BEING MERELY A COLLECTING AGENT FOR THE TAX--- IS NOT A PART OF THE COMPENSATION TO WHICH THE CARRIER IS ENTITLED FOR ITS SERVICES, AND, THEREFORE, DOES NOT REPRESENT AN "INCREASE" IN THE "FREIGHT RATE" WITHIN THE MEANING OF A PROVISION IN A VETERANS' ADMINISTRATION COAL CONTRACT REQUIRING AN ADJUSTMENT IN PRICE IN THE EVENT OF AN INCREASE OR DECREASE IN THE ,FREIGHT RATE IN EFFECT ON DATE OF OPENING OF BIDS.' THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942 ON THE AMOUNT PAID FOR THE TRANSPORTATION OF PROPERTY IS NOT REIMBURSABLE TO A CONTRACTOR UNDER THE "FEDERAL TAXES" CLAUSE IN A VETERANS' ADMINISTRATION COAL CONTRACT PROVIDING FOR REIMBURSEMENT TO THE CONTRACTOR OF ANY ,SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES" IMPOSED "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 * * * PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR.'

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, JANUARY 8, 1943:

I HAVE YOUR LETTER OF DECEMBER 12, 1942, AS FOLLOWS:

UNDER DATE OF JANUARY 30, 1942, THE VETERANS ADMINISTRATION AWARDED CONTRACT VAM-17090 TO THE LOGAN AND KANAWHA COAL COMPANY, 824 ROYSTER BUILDING, NORFOLK, VIRGINIA, FOR FURNISHING AMONG OTHER ITEMS AN ESTIMATED QUANTITY OF 13,000 TONS OF BITUMINOUS COAL TO THE VETERANS ADMINISTRATION, KECOUGHTAN, VIRGINIA, DURING THE PERIOD JULY 1, 1942 TO JUNE 30, 1943. THE CONTRACT IS ON FILE IN THE GENERAL ACCOUNTING OFFICE.

THE ABOVE CONTRACT WAS ACCEPTED AT $5.76 PER TON FOR DELIVERY F.A.S. HOME WHARF, WHICH PRICE BROKEN DOWN, IS:

$2.34 PER TON, F.O.B. MINES

2.72 PER TON, FREIGHT RATE TO NEWPORT NEWS PIERS INCLUDING

DUMPING CHARGE

.70 PER TON, BARGE RATE, PIERS TO HOME WHARF, HAMPTON, VIRGINIA.

CONDITION 6 ON THE REVERSE OF STANDARD FORM 33 ON WHICH THE BIDS WERE SOLICITED PROVIDES:

"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.'

PARAGRAPH 4 OF STANDARD FORM NO. 43, STANDARD GOVERNMENT PURCHASE CONDITIONS PROVIDES:

" FREIGHT CHARGES. THE PURCHASE PRICE OF COAL, IF INCLUSIVE OF FREIGHT CHARGES FROM POINT OF SHIPMENT NAMED HEREIN, IS BASED UPON THE FREIGHT RATE IN EFFECT ON DATE OF OPENING OF BIDS, AND ANY INCREASE OR DECREASE IN SAID FREIGHT RATE SHALL CORRESPONDINGLY INCREASE OR DECREASE THE PURCHASE PRICE OF THE COAL ON ANY TONNAGE SHIPPED THEREAFTER.'

SPECIAL CONDITION B-9 OF SCHEDULE NO. 1 PROVIDES AS FOLLOWS:

" EXCISE TAX. IN ACCORDANCE WITH THE PROVISIONS OF SUBSECTION (E) OF SECTION 3 OF THE BITUMINOUS COAL ACT OF 1937, THE BIDDER CERTIFIES THAT THE BID PRICE DOES NOT AND IN EVENT OF AWARD THAT THE CONTRACT PRICE SHALL NOT INCLUDE THE EXCISE TAX OF ONE CENT PER TON OF TWO THOUSAND POUNDS IMPOSED BY SUBSECTION (A) OF SAID SECTION. A TAX EXEMPTION CERTIFICATE WILL BE RNISHED.'

THE TAX EXEMPTION CERTIFICATE REFERRED TO ABOVE IN REGARD TO THE EXCISE TAX OF ONE CENT PER TON ON THE COST OF COAL HAS BEEN ISSUED TO THE CONTRACTOR.

UNDER DATE OF DECEMBER 2, 1942, THE LOGAN AND KANAWHA COAL COMPANY ADVISED THE VETERANS ADMINISTRATION BY TELEGRAM AS FOLLOWS:

" KINDLY REFER CONTRACT VAM 17090 EFFECTIVE DECEMBER FIRST FEDERAL GOVERNMENT ASSESSED TAX FOUR CENTS PER TON ON COAL TRANSPORTATION THIS HAS EFFECT OF INCREASING DELIVERED COSTS OF YOUR BITUMINOUS NUT AND SLACK COAL CONTRACT FOR KECOUGHTAN FROM $5.76 PER NET TON TO $5.80 PER NET TON FAS KECOUGHTAN WHARF KINDLY SEND ORDER CHANGE ENABLING US TO INVOICE AT FOUR CENTS PER NET TON INCREASED PRICE KECOUGHTAN HAS ORDERED 1500 TONS FOR DECEMBER DELIVERY THIS IS URGENT KINDLY AUTHORIZE INCREASE QUICKLY.'

A DECISION IS REQUESTED AS TO WHETHER THE VETERANS ADMINISTRATION MAY ISSUE TAX EXEMPTION CERTIFICATES TO COVER THE ABOVE-MENTIONED TRANSPORTATION TAX OF FOUR CENTS PER TON.

IF YOUR ANSWER TO THE ABOVE IS IN THE NEGATIVE MAY THE CONTRACTOR BE REIMBURSED FOR THE AMOUNT OF THE TAX ON TRANSPORTATION AS AN INCREASE IN FREIGHT RATES AS PROVIDED IN PARAGRAPH 4 OF STANDARD FORM NO. 43 QUOTED ABOVE OR AS A FEDERAL TAX IMPOSED BY CONGRESS AFTER THE DATE SET FOR THE OPENING OF THE BID IN ACCORDANCE WITH PROVISIONS OF CONDITION 6 ON THE REVERSE OF STANDARD FORM 33 WHICH ALSO IS QUOTED ABOVE.

TELEGRAM DATED DECEMBER 2, 1942, FROM THE LOGAN AND KANAWHA COAL COMPANY IS FORWARDED WITH THE REQUEST THAT IT BE RETURNED WITH YOUR REPLY.

THE TAXING STATUTE HERE INVOLVED--- SECTION 3475 OF THE INTERNAL REVENUE CODE, ENTITLED " TRANSPORTATION OF PROPERTY," AS ENACTED BY SECTION 620 OF THE REVENUE ACT OF 1942, APPROVED OCTOBER 21, 1942, PUBLIC LAW 753, 56 STAT. 979--- PROVIDES, IN PERTINENT PART:

(A) TAX.--- THERE SHALL BE IMPOSED UPON THE AMOUNT PAID WITHIN THE UNITED STATES AFTER THE EFFECTIVE DATE OF THIS SECTION ( DECEMBER 1, 1942) FOR THE TRANSPORTATION, ON AND AFTER SUCH EFFECTIVE DATE, OF PROPERTY BY RAIL, MOTOR VEHICLE, WATER, OR AIR FROM ONE POINT IN THE UNITED STATES TO ANOTHER, A TAX EQUAL TO 3 PERCENTUM OF THE AMOUNT SO PAID, EXCEPT THAT, IN THE CASE OF COAL, THE RATE OF TAX SHALL BE 4 CENTS PER SHORT TON. * * *

(B) EXEMPTION OF GOVERNMENT TRANSPORTATION.--- THE TAX IMPOSED UNDER THIS SECTION SHALL NOT APPLY TO AMOUNTS PAID BY OR TO THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY.

(C) RETURNS AND PAYMENT.--- THE TAX IMPOSED BY THIS SECTION SHALL BE PAID BY THE PERSON MAKING THE PAYMENT SUBJECT TO THE TAX. EACH PERSON RECEIVING ANY PAYMENT SPECIFIED IN SUBSECTION (A) SHALL COLLECT THE AMOUNT OF THE TAX IMPOSED FROM THE PERSON MAKING SUCH PAYMENT, AND SHALL * * * MAKE A RETURN * * * AND PAY THE TAXES * * *.

THE FOREGOING STATUTORY PROVISIONS LEAVE NO ROOM FOR DOUBT THAT--- AS BETWEEN A GOVERNMENT CONTRACTOR AND A COMMON CARRIER OR OTHER PERSON FURNISHING COMPENSABLE PROPERTY TRANSPORTATION SERVICE TO THE CONTRACTOR IN CONNECTION WITH THE PERFORMANCE OF SUCH CONTRACT--- THE LEGAL INCIDENCE OF THE TAX IMPOSED THEREBY MUST BE REGARDED AS UPON THE SHIPPER, I.E., THE GOVERNMENT CONTRACTOR. BUT THAT FACT DOES NOT ENTITLE THE CONTRACTOR TO AVAIL HIMSELF OF THE BENEFIT OF THE TERMS OF THE STATUTE PROVIDING THAT THE TAX SHOULD NOT BE APPLICABLE TO AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION. CF. WHEELER LUMBER COMPANY V. UNITED STATES, 281 U.S. 572. ALSO, SEE THE STATEMENT DATED DECEMBER 7, 1942, OF THE COMMISSIONER OF INTERNAL REVENUE (MT: M), ADDRESSED TO COLLECTORS OF INTERNAL REVENUE AND OTHERS CONCERNED, WHEREIN IT IS SAID THAT THE AMOUNTS PAID BY THE UNITED STATES FOR THE TRANSPORTATION OF PROPERTY "ARE EXEMPT FROM TAX ONLY WHEN THE PAYMENT IS MADE DIRECTLY TO THE CARRIER BY THE GOVERNMENTAL AGENCY.' THE SAID STATEMENT CONTINUES AS FOLLOWS:

* * * TRANSPORTATION CHARGES NOT PAID DIRECTLY TO THE CARRIER (FOR EXAMPLE, CHARGES PAID BY GOVERNMENT CONTRACTORS OPERATING ON A COST PLUS- FIXED-FEE OR OTHER BASIS) ARE SUBJECT TO THE TAX. THE FACT THAT IN SUCH A CASE THE CONTRACTOR MAY BE REIMBURSED FOR THE TRANSPORTATION CHARGES PAID WILL NOT AFFECT THE TAX LIABILITY. NO PROOF OF EXEMPTION WILL BE REQUIRED IN ANY CASE WHERE A SHIPMENT IS MADE UNDER A GOVERNMENT BILL OF LADING, STANDARD FORM 1058A, OR WHERE THE TRANSPORTATION CHARGE IS PAID DIRECTLY BY THE GOVERNMENTAL AGENCY ENTITLED TO EXEMPTION.

ACCORDINGLY, YOU ARE ADVISED THAT THERE IS NO PROPER BASIS FOR THE ISSUANCE TO THE CONTRACTOR OF A TAX EXEMPTION CERTIFICATE TO COVER THE AMOUNT OF THE PROPERTY TRANSPORTATION TAX HERE INVOLVED.

WITH RESPECT TO THE QUESTION WHETHER THE TERMS OF THE "FREIGHT CHARGES" CLAUSE QUOTED BY YOU AUTHORIZE THE REIMBURSEMENT OF THE CONTRACTOR OF AN AMOUNT REPRESENTING SAID TAX IT WOULD SEEM TO BE CLEAR THAT THE MENTION THEREIN OF THE "FREIGHT RATE IN EFFECT ON DATE OF OPENING OF BIDS" IS INTENDED TO REFER TO THE AMOUNT FIXED BY CONTRACT OR LAW AT THE TIME OF THE OPENING OF THE BIDS ON WHICH THE INSTANT CONTRACT IS BASED AS THE COMPENSATION TO WHICH A CARRIER WOULD BE ENTITLED FOR TRANSPORTATION SERVICE FURNISHED TO THE CONTRACTOR. AND SINCE IT IS APPARENT THAT THE BURDEN OF THE TAX UPON THE AMOUNT PAID FOR THE TRANSPORTATION OF THE COAL HERE INVOLVED RESTS UPON THE CONTRACTOR--- THE CARRIER MERELY ACTING IN THE CAPACITY OF AN AGENT OR TRUSTEE IN BILLING AND COLLECTING THE TAX--- IT FOLLOWS THAT THE AMOUNT OF THE TAX, COLLECTED AS IT IS FOR THE BENEFIT OF THE UNITED STATES, IS, IN FACT, A PAYMENT BY THE CONTRACTOR TO THE UNITED STATES AND THAT SUCH AMOUNT CANNOT PROPERLY BE CONSIDERED AS A PART OF THE COMPENSATION TO WHICH THE CARRIER IS ENTITLED FOR ITS SERVICES. HENCE THE CONCLUSION IS REQUIRED THAT THE AMOUNT OF THE TAX DOES NOT REPRESENT AN "INCREASE" IN THE "FREIGHT RATE" WITHIN THE MEANING OF THOSE TERMS AS USED IN SAID CLAUSE.

THE FURTHER QUESTION INVOLVED IS AS TO WHETHER THE PROPERTY TRANSPORTATION TAX HERE INVOLVED COMES WITHIN THE SCOPE OF THE TERMS OF THE "FEDERAL TAXES" CLAUSE, QUOTED BY YOU, PROVIDING FOR REIMBURSEMENT TO THE CONTRACTOR OF "ANY SALES TAX, PROCESSING TAX, ADJUSTMENT CHARGE, OR OTHER TAXES OR CHARGES" IMPOSED "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 * * * PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES HEREIN CONTRACTED FOR.' THIS CONNECTION IT IS TO BE OBSERVED THAT "FEDERAL TAXES" CLAUSES CONTAINING PROVISIONS SUBSTANTIALLY THE SAME AS THOSE APPEARING IN THE INSTANT CLAUSE WERE JUDICIALLY INTERPRETED BY THE SUPREME COURT OF THE UNITED STATES IN THE CASES OF UNITED STATES V. COWDEN MANUFACTURING CO., 312 U.S. 34, AND UNITED STATES V. GLENN L. MARTIN CO., 308 U.S. 62.

THE QUESTION IN THE COWDEN CASE WAS WHETHER THE GOVERNMENT WAS REQUIRED TO COMPENSATE A CONTRACTOR FOR THE AMOUNTS PAID BY IT TO ITS SUB- CONTRACTORS IN REIMBURSEMENT OF CERTAIN PROCESSING TAXES IMPOSED BY THE CONGRESS SUBSEQUENT TO THE DATE OF THE GOVERNMENT CONTRACT AND PAID BY THE SUB-CONTRACTORS ON MATERIALS FORMING A PART OF THE SUPPLIES FURNISHED TO THE GOVERNMENT, AND THE COURT, IN SUSTAINING THE GOVERNMENT'S POSITION THAT IT WAS NOT OBLIGATED TO REIMBURSE THE CONTRACTOR FOR THE AMOUNT OF SUCH TAXES, SAID, IN PART:

THE LANGUAGE OF THE CLAUSE IS PRECISE. IT PROVIDES ONLY FOR REIMBURSEMENT OF THOSE TAXES WHICH ARE "MADE APPLICABLE DIRECTLY UPON THE PRODUCTION, MANUFACTURE, OR SALE OF THE SUPPLIES COVERED BY THIS CONTRACT.' THE SUPPLIES "COVERED BY THIS CONTRACT" ARE THE MECHANICS' SUITS, THE COMPLETED ARTICLES FURNISHED TO THE UNITED STATES. SINCE THE CLAUSE FURTHER PROVIDES IN EXACT LANGUAGE THAT THE TAX MUST BE "DIRECTLY" APPLICABLE, WE CANNOT AGREE THAT A TAX ON THE CLOTH, THREAD, AND LABELS IS A TAX ON THE "SUPPLIES COVERED BY THIS CONTRACT" * * *.

IN THE GLENN L. MARTIN CASE THE QUESTION PRESENTED FOR JUDICIAL DETERMINATION WAS WHETHER CERTAIN SOCIAL SECURITY TAXES IMPOSED SUBSEQUENT TO THE DATE OF THE CONTRACT AND PAID BY THE CONTRACTOR CAME WITHIN THE SCOPE OF THE REIMBURSEMENT PROVISIONS OF THE TAX CLAUSE INVOLVED AND THE SUPREME COURT, IN HOLDING THAT SUCH TAXES WERE NOT PAID BY THE CONTRACTOR ON THE ARTICLES OR SUPPLIES CONTRACTED FOR, STATED:

THE CONTRACT REFERS ONLY TO FEDERAL TAXES, EXISTING OR FUTURE, ON "MATERIAL," "ARTICLES" OR ,SUPPLIES.' AND ADDITIONAL COMPENSATION IS PROVIDED TO OFFSET ONLY FEDERAL TAXES OF THE TYPE OF SALES TAXES AND PROCESSING TAXES,"APPLICABLE DIRECTLY UPON PRODUCTION, MANUFACTURE, OR SALE" AND ACTUALLY PAID ON SUPPLIES DELIVERED TO THE GOVERNMENT. SINCE A TAX ON PAYROLLS, OR ON THE RELATIONSHIP OF EMPLOYMENT, IS NOT- - BUT IN FACT IS DISTINCT FROM--- THE TYPE OF TAX "ON" ARTICLES REPRESENTED BY SALES TAXES AND PROCESSING TAXES, RESPONDENT IS NOT ENTITLED TO THE ADDITIONAL COMPENSATION WHICH IT SEEKS.

THE TAX HERE INVOLVED IS NOT LAID ON THE PROPERTY TRANSPORTED--- OR, FOR THAT MATTER, ON THE ACT OF TRANSPORTATION ITSELF--- BUT ON "THE AMOUNT * * * PAID * * * FOR THE TRANSPORTATION * * * OF PROPERTY * * * BY RAIL, MOTOR VEHICLE, WATER, OR AIR; " AND IT BECOMES PAYABLE IRRESPECTIVE OF THE NATURE OR VALUE OF THE COMMODITY TRANSPORTED AND REGARDLESS OF WHETHER THE TRANSPORTATION SERVICE IS FURNISHED IN CONNECTION WITH THE CONSUMMATION OF A SALE OF THE PROPERTY TRANSPORTED. SUCH BEING THE CASE IT IS OBVIOUS THAT THE TAX, LIKE THE TAXES CONSIDERED BY THE SUPREME COURT OF THE UNITED STATES IN THE COWDEN AND GLENN L. MARTIN CASES IS NOT A TAX "OF THE TYPE OF SALES TAXES AND PROCESSING TAXES "APPLICABLE DIRECTLY UPON PRODUCTION, MANUFACTURE, OR SALE" " OF THE SUPPLIES COVERED BY THE INSTANT CONTRACT. NOR IS ANY REASONABLE BASIS APPARENT FOR A CONTENTION THAT THE PROPERTY TRANSPORTATION HERE INVOLVED IS PAYABLE "ON THE ARTICLES OR SUPPLIES"--- THAT IS, THE COAL--- SOLD TO THE GOVERNMENT. CONSEQUENTLY, IT MUST BE HELD THAT SAID TAX DOES NOT COME WITHIN THE SCOPE OF THE REIMBURSEMENT PROVISIONS OF THE TAX CLAUSE HERE INVOLVED.

ACCORDINGLY, YOU ARE ADVISED THAT PAYMENT IS NOT AUTHORIZED--- ON THE BASIS OF THE PROVISIONS CONTAINED IN EITHER THE "FREIGHT CHARGES" OR "FEDERAL TAXES" CLAUSE QUOTED BY YOU--- OF ANY CLAIM BY THE CONTRACTOR FOR REIMBURSEMENT OF AN AMOUNT PAID BY HIM ON ACCOUNT OF THE PROPERTY TRANSPORTATION TAX IMPOSED BY SECTION 3475 OF THE INTERNAL REVENUE CODE. AS REQUESTED, THE TELEGRAM DATED DECEMBER 2, 1942, OF THE CONTRACTOR IS RETURNED HEREWITH.