B-32770, APRIL 29, 1943, 22 COMP. GEN. 1000

B-32770, APRIL 29, 1943, 22 COMP. GEN. 1000

CONTRACTS - COST-PLUS - REIMBURSEMENT OF STATE LICENSE FEE FOR MAINTENANCE OF PLANT HOSPITAL CONTRACTORS FURNISHING SUPPLIES OR RENDERING SERVICES TO THE UNITED STATES ARE NOT, IN THE ABSENCE OF CONGRESSIONAL ENACTMENT PROVIDING THEREFOR, ENTITLED TO IMMUNITY FROM STATE TAXATION OR REGULATION, AND, THEREFORE, A COST-PLUS-A-FIXED-FEE CONTRACTOR WHO IS REQUIRED UNDER STATE STATUTE TO PAY A FEE INCIDENT TO SECURING A LICENSE TO MAINTAIN A GOVERNMENT-OWNED PLANT HOSPITAL OPERATED BY THE CONTRACTOR IN CONNECTION WITH THE CONTRACT WORK MAY BE REIMBURSED THE AMOUNT OF THE FEE, IF OTHERWISE PROPERLY REIMBURSABLE, PROVIDED THE TERRITORIAL JURISDICTION OF THE UNITED STATES OVER THE HOSPITAL SITE IS NOT SUCH AS TO PRECLUDE THE STATE FROM TAXING OR REGULATING THE ACTIVITIES OF INDIVIDUALS OR CORPORATIONS ENGAGED THEREON.

COMPTROLLER GENERAL WARREN TO LT. COL. R. W. STIKA, U.S. ARMY, APRIL 29, 1943:

THERE WAS REFERRED TO THIS OFFICE, BY INDORSEMENT OF FEBRUARY 20, 1943, FROM HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION, WAR DEPARTMENT, YOUR LETTER OF DECEMBER 2, 1942, AS FOLLOWS:

TRANSMITTED HEREWITH FOR ADVANCE DECISION IS VOUCHER IN FAVOR OF E. I. DU PONT DE NEMOURS AND CO. IN THE AMOUNT OF $10.00, COVERING CLAIM FOR REIMBURSEMENT UNDER CONTRACT NO. W-ORD-642.

THERE IS DOUBT AS TO THE PROPRIETY FOR PAYMENT OF THE ENCLOSED VOUCHER IN VIEW OF THE FACT THAT IT COVERS CLAIM FOR REIMBURSEMENT OF A STATE LICENSE FEE FOR OPERATION OF A GOVERNMENT OWNED HOSPITAL AT THE SITE OF THE PROJECT.

IN VIEW OF DECISION OF THE COMPTROLLER GENERAL NO. B-23214, DATED FEBRUARY 14, 1942, WHICH STATES IN PART THAT,"IT IS A WELL ESTABLISHED PRINCIPLE OF LAW THAT THE PROPERTY OF THE UNITED STATES AND THE INSTRUMENTALITIES WHEREBY IT PERFORMS ITS PROPER GOVERNMENTAL FUNCTIONS CANNOT BE TAXED BY A STATE OR POLITICAL SUBDIVISION THEREOF," IT IS DESIRED THAT AN ADVANCE DECISION BE GRANTED.

THE UNDERSIGNED IS A DISBURSING OFFICER AND THE ATTACHED VOUCHER HAS BEEN PRESENTED TO HIM FOR PAYMENT.

ALSO, IN RESPONSE TO THE REQUEST DATED MARCH 6, 1943, OF THIS OFFICE FOR SUCH INFORMATION CONCERNING THE OWNERSHIP AND OPERATION OF THE HOSPITAL AS MIGHT BE AVAILABLE, THERE HAS BEEN RECEIVED FROM HEADQUARTERS, SERVICES OF SUPPLY, FISCAL DIVISION, A COPY OF INTRA OFFICE MEMORANDUM OF THE CHIEF, FIELD FISCAL SUPERVISION SECTION, DATED MARCH 24, 1943, READING AS FOLLOWS:

1. IN REPLY TO PAR. 2 OF MEMORANDUM DATED MARCH 17, 1943, ATTENTION IS INVITED TO TITLE VI-C OF CONTRACT W-ORD-642 FROM WHICH WILL BE NOTED THAT TITLE TO WHICH ALL MATERIAL ETC. FOR WHICH THE CONTRACTOR HAS BEEN REIMBURSED VEST IN THE GOVERNMENT. IT WILL BE NOTED, THEREFORE, THAT THE HOSPITALS ARE GOVERNMENT OWNED AND CONTRACTOR OPERATED.

2. ARTICLE 1-C OF CONTRACT W-ORD-642 PROVIDES FOR THE PAYMENT OF LICENSE FEES ETC.

THE CONTRACT HERE INVOLVED--- NO. W-ORD-642, DATED JUNE 4, 1942--- ENTERED INTO ON A COST-PLUS-A-FIXED-FEE BASIS, PROVIDES GENERALLY FOR THE DESIGN, CONSTRUCTION, PROCUREMENT OF PRODUCTION EQUIPMENT, TRAINING OF KEY PERSONNEL AND OPTIONAL OPERATION OF AN ORDNANCE MANUFACTURING PLANT BY THE CONTRACTOR, AT A SITE NEAR ST. PAUL, MINNESOTA, TO BE MADE AVAILABLE BY THE GOVERNMENT, IN CONSIDERATION OF THE REIMBURSEMENT BY THE GOVERNMENT OF THE CONTRACTOR'S EXPENDITURES, AS STIPULATED IN THE CONTRACT, PLUS PAYMENTS FOR THE RENTAL OF THE CONTRACTOR'S EQUIPMENT, AS SPECIFIED THEREIN, AND THE AGREED FIXED FEES.

IT IS NOT ENTIRELY CLEAR AS TO THE SPECIFIC PROVISION STIPULATING FOR THE PAYMENT OF LICENSE FEES AND OTHER THINGS WHICH IS REFERRED TO IN THE ABOVE -QUOTED MEMORANDUM AS " ARTICLE 1-C" OF THE SUBJECT CONTRACT. HOWEVER, IT APPEARS THAT ARTICLE VI-C OF THE CONTRACT, TO WHICH REFERENCE IS MADE IN SAID MEMORANDUM AS " TITLE VI-C" , AND OTHER PROVISIONS OF THE CONTRACT, STIPULATE, SO FAR AS HERE MATERIAL, AS FOLLOWS:

TITLE 1. DESIGN, ENGINEERING, CONSTRUCTION

AND PROCUREMENT OF PRODUCTION EQUIPMENT

ARTICLE I-B - STATEMENT OF WORK

11. THE CONTRACTOR SHALL, SUBJECT TO THE APPROVAL OF THE CONTRACTING OFFICER, EQUIP AND STAFF THE PLANT HOSPITAL, ESTABLISH AND EQUIP ADEQUATE GUARD AND FIRE FIGHTING FORCES, AND MAINTAIN SUCH GUARD AND FIRE FIGHTING FORCES THROUGHOUT THE CONSTRUCTION AND OPERATION OF THE PLANT.

ARTICLE I-E - CHARACTER AND EXTENT OF ARCHITECTURAL AND ENGINEERING

SERVICES

1. THE CONTRACTOR SHALL FURNISH ON A NON-REIMBURSABLE BASIS A RESIDENT PROJECT MANAGER DURING THE CONSTRUCTION.

D. OBTAIN NECESSARY PERMITS AND APPROVALS FROM ALL LOCAL, STATE AND FEDERAL AUTHORITIES. * *

TITLE IV.COST OF THE WORK AND PAYMENT THEREFOR

ARTICLE IV-A - REIMBURSEMENT FOR CONTRACTOR'S EXPENDITURES

1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR ITS ACTUAL EXPENDITURES IN CONNECTION WITH THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT, WHEN APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, AND AS ARE INCLUDED IN BUT NOT LIMITED TO THE FOLLOWING ITEMS:

K. PAYMENTS MADE BY THE CONTRACTOR UNDER THE SOCIAL SECURITY ACT (EMPLOYER'S CONTRIBUTION) AND ANY DISBURSEMENTS REQUIRED BY LAW WHICH THE CONTRACTOR MAY BE REQUIRED TO PAY ON ACCOUNT OF THIS CONTRACT ON OR FOR ANY PLANT, EQUIPMENT, PROCESS, ORGANIZATION, MATERIALS, SUPPLIES, OR PERSONNEL OR ON MONEYS RECEIVED AS REIMBURSEMENT THEREFOR; 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.

GENERAL

8. ALL REVENUE FROM THE OPERATIONS OF THE HOSPITAL OR OTHER FACILITIES, EXCEPT COMMISSARIES AND CAFETERIAS, OR FROM REBATES, DISCOUNTS, REFUNDS, SALVAGE, BY-PRODUCTS, SCRAP, ETC., SHALL BE ACCOUNTED FOR BY THE CONTRACTOR AND APPLIED IN REDUCTION OF THE COST OF THE WORK. * * *

TITLE VI. GENERAL

ARTICLE VI-C - TITLE

TITLE TO ALL MATERIALS, TOOLS, MACHINERY, EQUIPMENT AND SUPPLIES FOR WHICH THE CONTRACTOR SHALL BE ENTITLED TO REIMBURSEMENT UNDER THIS CONTRACT SHALL VEST IN THE GOVERNMENT AT SUCH POINT OR POINTS AS THE CONTRACTING OFFICER MAY DESIGNATE IN WRITING, PROVIDED THAT THE RIGHT OF FINAL INSPECTION AND ACCEPTANCE OR REJECTION OF SUCH MATERIALS, TOOLS, MACHINERY, EQUIPMENT AND SUPPLIES AT SUCH PLACE OR PLACES AS HE MAY DESIGNATE IN WRITING IS RESERVED TO THE CONTRACTING OFFICER; PROVIDED FURTHER THAT, UPON SUCH FINAL INSPECTION, THE CONTRACTOR SHALL BE GIVEN WRITTEN NOTICE OF ACCEPTANCE OR REJECTION AS THE CASE MAY BE. * * *

ARTICLE VI-F - SPECIAL REQUIREMENTS

THE CONTRACTOR HEREBY AGREES THAT IT WILL:

2. PROCURE ALL NECESSARY PERMITS AND LICENSES OBEY AND ABIDE BY ALL APPLICABLE LAWS, REGULATIONS AND 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.

IT IS APPARENT FROM THE FOREGOING THAT THE SUBJECT CONTRACT CONTEMPLATES THE OPERATION OF A HOSPITAL IN CONNECTION WITH THE PERFORMANCE OF SUCH CONTRACT AND, WHILE IT APPEARS THAT THE UNITED STATES IS VESTED WITH TITLE TO THE MATERIALS AND EQUIPMENT USED IN THE CONSTRUCTION AND MAINTENANCE OF THE HOSPITAL HERE INVOLVED, AND, THEREFORE, IS THE OWNER OF THE HOSPITAL ITSELF, IT IS UNDERSTOOD THAT THE HOSPITAL IS OPERATED BY THE CONTRACTOR AND NOT BY THE GOVERNMENT. MOREOVER, IT IS CLEAR THAT THE ITEMS OF COST WHICH THE CONTRACTOR IS REQUIRED TO INCUR IN CONNECTION WITH THE OPERATION OF THE HOSPITAL ARE TO BE VIEWED IN THE SAME LIGHT AS ALL OTHER ITEMS OF COST DIRECTLY CONNECTED WITH THE WORK COVERED BY THE CONTRACT, SO FAR AS THE REIMBURSEMENT PROVISIONS OF THE CONTRACT ARE CONCERNED.

CHAPTER 549, SESSION LAWS OF THE STATE OF MINNESOTA FOR 1941, ENTITLED:

AN ACT DEFINING AND REGULATING HOSPITALS, SANITORIUMS, REST HOMES, NURSING HOMES, BOARDING HOMES AND RELATED INSTITUTIONS; TO PROVIDE FOR THE GRANTING, SUSPENDING AND REVOKING OF LICENSES THEREFOR; TO PROVIDE FOR PENALTIES FOR A VIOLATION THEREOF, STIPULATES, INSOFAR AS HERE MATERIAL, THAT " NO PERSON, PARTNERSHIP, ASSOCIATION, OR CORPORATION SHALL ESTABLISH, CONDUCT, OR MAINTAIN IN THE STATE OF MINNESOTA ANY HOSPITAL * * * WITHOUT FIRST OBTAINING A LICENSE THEREFOR IN THE MANNER" AND UPON THE PAYMENT OF THE FEES PRESCRIBED BY SAID LAW. ALSO, IT IS TO BE OBSERVED FROM THE PAPERS SUBMITTED IN SUPPORT OF THE INSTANT VOUCHER THAT THE PAYMENT OF THE LICENSE FEE FOR THE HOSPITAL HERE INVOLVED WAS MADE AS THE RESULT OF THE DETERMINATION BY A REPRESENTATIVE OF THE MINNESOTA STATE BOARD OF HEALTH, WHICH ADMINISTERS THE LAW, THAT THE HOSPITAL COMES WITHIN THE SCOPE OF ITS PROVISIONS AND THAT A LICENSE IS REQUIRED FOR THE OPERATION OF SUCH HOSPITAL.

IT IS, OF COURSE, WELL ESTABLISHED, AS WAS STATED IN MY DECISION OF FEBRUARY 14, 1942, 21 COMP. GEN. 769, TO WHICH YOU REFER, THAT THE PROPERTY OF THE UNITED STATES AND THE INSTRUMENTALITIES WHEREBY IT PERFORMS ITS PROPER GOVERNMENTAL FUNCTIONS CANNOT BE TAXED BY A STATE; AND THE CONSTITUTIONAL PRINCIPLE WHICH DENIES VALIDITY TO SUCH TAXATION PRECLUDES THE REGULATION BY A STATE OF THE PERFORMANCE BY FEDERAL OFFICERS OR AGENTS OF GOVERNMENTAL FUNCTIONS. OHIO V. THOMAS, 173 U.S. 276; JOHNSON V. MARYLAND, 254 U.S. 51. BUT THE PRESENT HOLDING OF THE SUPREME COURT OF THE UNITED STATES IS THAT PERSONS CONTRACTING TO FURNISH SUPPLIES OR RENDER SERVICES TO THE GOVERNMENT ARE NOT, IN THE ABSENCE OF A CONGRESSIONAL ENACTMENT PROVIDING THEREFOR, ENTITLED TO IMMUNITY FROM STATE TAXATION OR REGULATION. ALABAMA V. KING AND BOOZER, 314 U.S. 1; PENN DAIRIES V. MILK CONTROL COMMISSION, 87 L.1ED. ( ADV. OPS.) 549. ALSO, SEE JAMES STEWARD AND CO. V. SADRAKULA, 309 U.S. 94, WHERE IT WAS HELD THAT CERTAIN LOCAL BUILDING REGULATIONS WERE APPLICABLE TO A CONTRACTOR ENGAGED IN CONSTRUCTING A POST OFFICE BUILDING FOR THE UNITED STATES; AND BALTIMORE AND A.R. CO. V. LICHTENBERG, 176 MD. 383, UPHOLDING THE STATE REGULATION OF THE OPERATIONS OF A TRUCKING COMPANY IN PERFORMING ITS CONTRACT WITH THE GOVERNMENT TO TRANSPORT WORKERS EMPLOYED ON A PUBLIC WORKS ADMINISTRATION PROJECT.

MOREOVER, IN THE ABSENCE OF ANY REPRESENTATION TO THE CONTRARY, IT IS ASSUMED THAT THE TERRITORIAL JURISDICTION, IF ANY, POSSESSED BY THE UNITED STATES OVER THE SITE WHERE THE HOSPITAL HERE INVOLVED IS LOCATED IS NOT OF SUCH A NATURE AS TO PRECLUDE THE STATE OF MINNESOTA FROM TAXING OR REGULATING THE ACTIVITIES OF INDIVIDUALS AND CORPORATIONS AT SAID SITE. SEE, IN THIS CONNECTION, JAMES V. DRAVO CONTRACTING CO., 302 U.S. 134; PENN DAIRIES V. MILK CONTROL COMMISSION, SUPRA. COMPARE COLLINS V. YOSEMITE PARK AND CURRY CO., 304 U.S. 518; JAMES STEWART AND CO. V. SADRAKULA, SUPRA; PACIFIC COAST DAIRY V. DEPARTMENT OF AGRICULTURE OF CALIFORNIA, 87 L.1ED. ( ADV. OPS.) 560.

THE MINNESOTA LAW INVOLVED IN THE INSTANT CASE CONCERNS THE ESTABLISHMENT AND MAINTENANCE OF A HOSPITAL, NOT THE OWNERSHIP OF PROPERTY USED FOR SUCH PURPOSE; AND WHILE IT IS TRUE THAT THE SUBJECT CONTRACT PROVIDES THAT "ALL REVENUE FROM THE OPERATIONS OF THE HOSPITAL * * * SHALL BE ACCOUNTED FOR BY THE CONTRACTOR AND APPLIED IN REDUCTION OF THE COST OF THE WORK," THAT CIRCUMSTANCE DOES NOT TRANSFORM THE CONTRACTOR INTO AN INSTRUMENTALITY OF THE UNITED STATES OR OVERCOME THE CONTROLLING FACT THAT THE HOSPITAL IS OPERATED BY THE CONTRACTOR AND NOT BY THE FEDERAL GOVERNMENT.

CONSEQUENTLY, IN VIEW OF THE ABOVE-MENTIONED MATTERS--- AND SINCE I FIND NO FEDERAL STATUTE IMMUNIZING GOVERNMENT CONTRACTORS FROM THE PROVISIONS OF A STATE LAW OF THE TYPE HERE INVOLVED OR ANY EVIDENCE OF A FEDERAL POLICY TO THAT EFFECT--- THERE APPEARS TO BE A SUBSTANTIAL BASIS FOR THE VIEW THAT THE TERMS OF THE MINNESOTA LAW ARE APPLICABLE TO THE HOSPITAL OPERATED BY THE CONTRACTOR IN CONNECTION WITH THE PERFORMANCE OF THE INSTANT CONTRACT. HENCE, REIMBURSEMENT OF THE EXPENDITURE HERE INVOLVED APPEARS TO BE CLEARLY PROVIDED FOR UNDER ARTICLE IV-A 1 K, SUPRA.

ACCORDINGLY, PAYMENT ON THE VOUCHER, WHICH IS RETURNED HEREWITH, IS AUTHORIZED, IF CORRECT IN OTHER RESPECTS.