B-47151, FEBRUARY 21, 1945, 24 COMP. GEN. 619

B-47151, FEBRUARY 21, 1945, 24 COMP. GEN. 619

CONTRACTS - COST-PLUS - STATE UNEMPLOYMENT TAXES - GOVERNMENT'S PROPORTIONAL COST LIABILITY EVEN THOUGH, UNDER THE MINNESOTA TAXING STATUTE PROVIDING FOR THE PAYMENT OF WAR RISK CONTRIBUTIONS TO THE STATE UNEMPLOYMENT COMPENSATION FUND BY EMPLOYERS WHOSE "TOTAL CURRENT AYROLL" EXCEEDS THE PRESCRIBED EXEMPTION, A COST-PLUS-A-FIXED-FEE CONTRACTOR WOULD BE EXEMPT FROM PAYMENT OF THE TAX ON PAY ROLLS APPLICABLE TO ITS COMMERCIAL ACTIVITIES BUT FOR ITS GOVERNMENT CONTRACT, THE GOVERNMENT'S REIMBURSEMENT LIABILITY IS LIMITED TO THE PROPORTION OF THE TAX WHICH THE TAXABLE PAY ROLL UNDER THE COST- PLUS-A-FIXED-FEE CONTRACT BEARS TO THE CONTRACTOR'S TOTAL TAXABLE PAY ROLLS.

COMPTROLLER GENERAL WARREN TO LT. COL. MELVIN G. CALL, U.S. ARMY, FEBRUARY 21, 1945:

BY SEVENTH INDORSEMENT OF JANUARY 17, 1945, FROM THE FISCAL DIRECTOR, HEADQUARTERS, ARMY SERVICE FORCES, THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF NOVEMBER 20, 1944, FOR DECISION AS TO WHETHER PAYMENT IS AUTHORIZED ON AUDIT VOUCHER NO. 1031 IN THE AMOUNT OF $17,307.92, STATED IN FAVOR OF THE NORTHWEST AIRLINES, INC., WHICH SUM IS CLAIMED TO BE DUE UNDER COST-PLUS-A-FIXED-FEE CONTRACT NO. W-535 AC-35714, DATED JANUARY 26, 1943, AS REIMBURSEMENT FOR WAR RISK INSURANCE CONTRIBUTIONS PAID BY THE CONTRACTOR UNDER THE MINNESOTA EMPLOYMENT AND SECURITY ACT FOR THE PERIOD JANUARY 1, TO MARCH 31, 1943.

IT APPEARS FROM THE PAPERS TRANSMITTED WITH THE AFORESAID VOUCHER THAT THE FULL AMOUNT REQUIRED TO BE PAID BY THE CONTRACTOR AS A WAR RISK CONTRIBUTION UNDER SECTION 4337-24, SUBDIVISION E (1) OF THE MINNESOTA EMPLOYMENT AND SECURITY ACT, AS AMENDED, IS CLAIMED AS BEING REIMBURSABLE TO IT AS AN ITEM OF COST DIRECTLY ATTRIBUTABLE TO THE PERFORMANCE OF THE INSTANT CONTRACT. HOWEVER, PAYMENT OF 25 PERCENT OF THE AMOUNT SO CLAIMED WAS WITHHELD AND IS COVERED BY THE INSTANT VOUCHER PENDING A DECISION AS TO WHETHER THE ENTIRE AMOUNT OF THE CONTRIBUTION IS REIMBURSABLE TO THE CONTRACTOR OR WHETHER THE ENTIRE AMOUNT OF THE CONTRIBUTION IS REIMBURSABLE TO THE CONTRACTOR OR WHETHER SUCH AMOUNT SHOULD BE ALLOCATED TO THE TOTAL TAXABLE PAY ROLLS OF THE CONTRACTOR--- INCLUDING ITS PAY ROLLS FOR WORK UNDER THE INSTANT CONTRACT AND FOR WORK NOT CONNECTED THEREWITH--- AND THE CONTRACTOR REIMBURSED ONLY IN THE PROPORTION WHICH THE TAXABLE PAY ROLLS, IN ACCORDANCE WITH THE PRINCIPLE SET FORTH IN DECISION OF APRIL 21, 1944, B-41043.

THE TERMS OF SECTION 4337-24, SUBDIVISION E (1) OF THE MINNESOTA EMPLOYMENT AND SECURITY TAX ARE QUOTED IN THE REFERRED-TO DECISION AND IT APPEARS THEREFROM THAT, COMMENCING JANUARY 1, 1943, AND THROUGH JUNE 30, 1945, ANY EMPLOYER WHOSE "TOTAL CURRENT PAYROLL" FOR ANY CALENDAR QUARTER WITHIN SUCH PERIOD EXCEEDS $50,000 AND WHICH HAS INCREASED 100 PERCENT OR MORE OVER AND ABOVE HIS NORMAL PAY ROLL FOR THE CORRESPONDING CALENDAR QUARTER IN 1940, IS REQUIRED TO PAY, IN ADDITION TO HIS NORMAL CONTRIBUTION TO THE MINNESOTA UNEMPLOYMENT COMPENSATION FUND, A "WAR RISK CONTRIBUTION ON THAT PART OF HIS CURRENT PAY ROLL OVER AND ABOVE 200 PERCENT OF HIS NORMAL PAY ROLL.' THE ADDITIONAL WAR RISK CONTRIBUTION IS TO BE COMPUTED AT A RATE EQUIVALENT TO 3 PERCENT.

IN A MEMORANDUM DATED AUGUST 18, 1944, ATTACHED TO THE INSTANT VOUCHER, THE CONTRACTOR SETS FORTH VARIOUS REASONS IN SUPPORT OF ITS CONTENTION THAT THE ENTIRE AMOUNT OF THE WAR RISK CONTRIBUTION REQUIRED TO BE PAID BY IT TO THE MINNESOTA UNEMPLOYMENT COMPENSATION FUND CONSTITUTES A DIRECT CHARGE TO THE COST-PLUS-A-FIXED-FEE CONTRACT HERE INVOLVED. THE PRIMARY REASON ADVANCED BY THE CONTRACTOR IN SUPPORT OF ITS CONTENTION IS THAT, IF IT HAD NOT UNDERTAKEN THE PERFORMANCE OF SAID COST-PLUS-A-FIXED-FEE CONTRACT FOR THE GOVERNMENT, IT WOULD NOT HAVE BECOME SUBJECT TO THE 3 PERCENT WAR RISK CONTRIBUTION LEVIED BY THE AFORESAID STATUTE. IN OTHER WORDS, IT IS URGED BY THE CONTRACTOR THAT, BUT FOR THE UNDERTAKING BY IT TO PERFORM THE INSTANT CONTRACT, THE TOTAL OF ITS PAY ROLL FOR THE PERIOD FROM JANUARY 1 TO MARCH 31, 1943, WOULD NOT HAVE EXCEEDED 200 PERCENT OF ITS PAY ROLL FOR THE COMPARABLE QUARTER IN 1940 AND, CONSEQUENTLY, THAT THE WAR RISK CONTRIBUTION LEVY WOULD NOT HAVE BEEN APPLICABLE TO ITS PAY ROLL. ALSO, IT IS STATED THAT THE AMOUNT OF ITS PAY ROLL APPLICABLE TO THE PERFORMANCE OF THE INSTANT CONTRACT FOR THE FIRST QUARTER OF THE CALENDAR YEAR 1943 EXCEEDED THE EXEMPTION PROVIDED FOR IN THE STATUTE SO THAT, IF THE ONLY WORK PERFORMED BY IT WAS THAT COVERED BY THE INSTANT CONTRACT, THE ENTIRE CONTRIBUTION WOULD HAVE BEEN CHARGEABLE AGAINST SAID CONTRACT. IN THIS CONNECTION THE CONTRACTOR CONTENDS THAT ITS POSITION IS MATERIALLY DIFFERENT FROM THAT PRESENT IN THE REFERRED TO DECISION OF APRIL 21, 1944, WHEREIN IT APPEARED THAT NEITHER THE COMMERCIAL NOR THE GOVERNMENT PAY ROLLS OF THE CONTRACTOR THERE INVOLVED, CONSIDERED SEPARATELY, WERE SUFFICIENTLY LARGE TO SUBJECT THE CONTRACTOR TO THE WAR RISK CONTRIBUTION LEVY. HENCE, THE CONTRACTOR ARGUES THAT AS IT WAS REQUIRED TO PAY THE 3 PERCENT WAR RISK CONTRIBUTION HERE IN QUESTION SOLELY BY REASON OF ITS HAVING UNDERTAKEN THE PERFORMANCE OF THE INSTANT CONTRACT, THE ENTIRE AMOUNT OF SUCH CONTRIBUTION IS CHARGEABLE AS AN ITEM OF EXPENSE DIRECTLY ATTRIBUTABLE TO SAID CONTRACT.

ALSO, THE CONTRACTOR STATES THAT THE INSTANT CONTRACT WAS A MANDATORY TYPE OF CONTRACT INASMUCH AS IT HAD NO CONTROL OVER THE SCOPE AND VOLUME OF THE SERVICES TO BE PROVIDED THEREUNDER--- SUCH BEING SUBJECT TO SERVICE ORDERS ISSUED BY THE GOVERNMENT--- AND, CONSEQUENTLY, THAT IT HAD NO CONTROL OVER THE NUMBER OF PERSONNEL ON ITS PAY ROLL. MOREOVER, IT IS CONTENDED THAT THE INSTANT CONTRACT SHOULD RECEIVE CREDIT FOR ONLY THAT PORTION OF THE TOTAL EXEMPTION WHICH IS NOT REQUIRED TO EXEMPT ITS COMMERCIAL PAY ROLL FROM THE CONTRIBUTION FOR THE REASON THAT THE EXEMPTION DID NOT ARISE FROM CONTRACT ACTIVITIES BUT FROM THE CONTRACTOR'S PREVIOUS COMMERCIAL BUSINESS. THE CONTRACTOR URGES FURTHER THAT AN ALLOCATION WILL RESULT IN AN UNJUSTIFIED CHARGE AGAINST ITS COMMERCIAL ACTIVITIES IN THAT THE LARGER THE CONTRIBUTION WHICH IS REQUIRED TO BE MADE AS A RESULT OF ACTIVITIES UNDER THE COST-PLUS-A-FIXED-FEE CONTRACT THE LARGER WILL BE THE PROPORTIONATE CHARGE TO ITS COMMERCIAL ACTIVITIES. FINALLY, IT IS STATED THAT THERE HAS BEEN A LIMITATION PLACED ON ITS COMMERCIAL ACTIVITIES AS A RESULT OF THE REQUISITIONING BY THE ARMY AIR FORCES OF A LARGE PERCENTAGE OF ITS COMMERCIAL PLANES.

CAREFUL CONSIDERATION HAS BEEN GIVEN TO THE VARIOUS CONTENTIONS PRESENTED BY THE CONTRACTOR BUT I AM CONSTRAINED TO HOLD THAT THEY DO NOT AFFORD ANY PROPER BASIS FOR THE CONCLUSION THAT THE ENTIRE AMOUNT OF THE WAR RISK CONTRIBUTION REQUIRED TO BE PAID BY THE CONTRACTOR, AS AFORESAID, IS CHARGEABLE AS AN ITEM OF COST TO THE INSTANT COST-PLUS-A FIXED-FEE CONTRACT. IT IS FUNDAMENTAL, OF COURSE, THAT, IN DETERMINING THE PORTION OF THE WAR RISK CONTRIBUTION WHICH IS TO BE CHARGEABLE TO THE GOVERNMENT AS AN ITEM OF EXPENSE UNDER THE INSTANT CONTRACT, THERE MUST BE CONSIDERED THE NATURE OF THE CONTRIBUTION AS SET FORTH IN THE TERMS OF THE STATUTE AND AS APPEARS FROM OTHER ACTUAL PERTINENT FACTS. AN ANALYSIS OF THE PRIMARY CONTENTION OF THE CONTRACTOR REVEALS THAT IT OVERLOOKS THE TRUE NATURE OF THE WAR RISK CONTRIBUTION LEVY AS SET FORTH IN THE APPLICABLE STATUTE AS WELL AS OTHER ACTUAL FACTS HEREIN PRESENT AND THAT, IF SUCH CONTENTION COULD PREVAIL, A DETERMINATION OF THE CONTRACTOR'S OBLIGATION WOULD BE BASED ON OTHER THAN ACTUAL FACTS. IN THIS CONNECTION IT IS TO BE NOTED THAT THE ADDITIONAL CONTRIBUTION REQUIRED TO BE PAID BY THE CONTRACTOR PURSUANT TO THE TERMS OF THE REFERRED-TO STATUTE IS BASED ON THE "TOTAL CURRENT PAY ROLL" OF THE CONTRACTOR AND NOT ON THE PORTION THEREOF APPLICABLE TO ANY PARTICULAR CONTRACTS. MOREOVER, IN FILING ITS RETURNS PURSUANT TO SAID ACT THE CONTRACTOR IS NOT PERMITTED TO MAKE ONE RETURN FOR PAY ROLLS APPLICABLE TO ITS GOVERNMENT CONTRACTS AND A SEPARATE RETURN FOR PAY ROLLS APPLICABLE TO ITS COMMERCIAL ACTIVITIES. FURTHERMORE, THE CONTRACTOR IS NOT PERMITTED UNDER THE ACT TO APPLY THE EXEMPTION GRANTED THEREIN FIRST TO ITS COMMERCIAL ACTIVITIES, WITH CREDIT FOR ANY BALANCE ALLOWED AGAINST THE PAY ROLLS APPLICABLE TO ITS GOVERNMENT CONTRACTS. IN OTHER WORDS, IT IS CLEAR THAT THE WAR RISK CONTRIBUTION AS LEVIED BY THE MINNESOTA STATUTE IS PLACED ON THE TOTAL OVER-ALL CURRENT PAY ROLL OF THE CONTRACTOR AND NOT ON ANY ONE OR MORE SPECIFIC PAY ROLLS TO THE EXCLUSION OF OTHERS. BUT IF, AS IS URGED BY THE CONTRACTOR, IN DETERMINING THE PORTION OF THE LEVY WHICH IS TO BE CHARGED TO THE COST PLUS-A-FIXED-FEE CONTRACT, IT IS TO BE PERMITTED TO APPLY THE EXEMPTION ALLOWED BY THE STATE LAW, FIRST, TO THE PAY ROLL APPLICABLE TO ITS COMMERCIAL BUSINESS--- AND BY SO DOING DETERMINE THAT NONE OF THE CONTRIBUTION IS TO BE ALLOCATED TO SUCH PORTION OF ITS PAY ROLL--- THE RESULT NOT ONLY WILL BE TO PERMIT THE ADOPTION OF A METHOD OF COMPUTING THE LEVY DIFFERENT FROM THAT PROVIDED FOR IN THE APPLICABLE STATUTE BUT, ALSO, IT WILL HAVE THE EFFECT OF CHANGING THE NATURE OF THE LEVY FROM ONE ON THE "TOTAL CURRENT PAY ROLL" OF THE CONTRACTOR TO ONE ON ITS PAY ROLL APPLICABLE TO THE INSTANT CONTRACT. THE EFFECT OF SUCH ACTION, OF COURSE, WOULD BE TO BURDEN THE UNITED STATES WITH THE ENTIRE AMOUNT OF THE ADDITIONAL LEVY DESPITE THE FACT THAT SUCH LEVY IS BASED ON THE CONTRACTOR'S "TOTAL CURRENT PAY ROLL," AND IT IS APPARENT THAT SUCH A METHOD OF DETERMINING THE PORTION OF THE CONTRIBUTION WHICH IS CHARGEABLE TO THE INSTANT CONTRACT IS NOT SOUND EITHER IN LAW OR IN PRINCIPLE.

FURTHERMORE, IT WILL BE NOTED THAT THE PRIMARY AND OTHER ARGUMENTS ADVANCED BY THE CONTRACTOR IN SUPPORT OF ITS CONTENTION ARE BASED ON A HYPOTHETICAL SITUATION RATHER THAN ON THE ACTUAL FACTUAL SITUATION HEREIN PRESENT. WHILE IT MAY BE THAT, UNDER THE AFORESAID PROVISION OF THE MINNESOTA EMPLOYMENT AND SECURITY ACT, THE CONTRACTOR WOULD NOT HAVE BEEN SUBJECT TO THE ADDITIONAL WAR RISK CONTRIBUTION IF IT HAD NOT ENTERED INTO THE INSTANT COST-PLUS-A-FIXED-FEE CONTRACT, THE FACT NEVERTHELESS REMAINS THAT IT DID ENTER INTO SUCH CONTRACT AND THE QUESTION HEREIN PRESENTED MUST BE DETERMINED IN THE LIGHT OF SUCH FACT RATHER THAN ON THE BASIS OF WHAT THE SITUATION MIGHT HAVE BEEN BUT FOR THE EXECUTION OF SAID CONTRACT. MOREOVER, IN EXECUTING AND UNDERTAKING TO PERFORM THE INSTANT CONTRACT, THE CONTRACTOR SUBJECTED ITSELF TO CERTAIN RISKS AND RESPONSIBILITIES INCIDENT TO AND ARISING OUT OF SUCH CONTRACT, AMONG WHICH WAS ANY ACCIDENTAL OR INCIDENTAL EFFECT THAT THE PERFORMANCE OF SAID CONTRACT MIGHT HAVE ON ITS COMMERCIAL ACTIVITIES INSOFAR AS THEY WERE SUBJECT TO THE OPERATION OF STATE LAWS. THE FEES WHICH THE CONTRACTOR BECAME ENTITLED TO RECEIVE UNDER THE COST-PLUS-A FIXED-FEE CONTRACT CONSTITUTED AMPLE CONSIDERATION FOR ANY RISKS OR RESPONSIBILITIES THUS ASSURED BY THE CONTRACTOR; AND THE FACT THAT IT BECAME ENTITLED TO RECEIVE AND HAS RECEIVED THE PAYMENT OF SUCH FEES BY REASON OF HAVING ENTERED INTO THE INSTANT CONTRACT IS THE SIMPLE AND LOGICAL ANSWER TO THE CONTRACTOR'S CONTENTION THAT, BUT FOR ITS UNDERTAKING TO PERFORM THE INSTANT CONTRACT, IT WOULD NOT HAVE BEEN LIABLE TO PAY ANY PART OF THE WAR RISK CONTRIBUTION IMPOSED BY THE REFERRED-TO STATUTE ON PAY ROLLS APPLICABLE TO ITS COMMERCIAL ACTIVITIES.

FOR THE FOREGOING REASONS IT MUST BE HELD THAT THERE IS NO LEGAL BASIS FOR REIMBURSING THE CONTRACTOR FOR ANY PART OF THE WAR RISK CONTRIBUTION PAID BY IT IN EXCESS OF THE PROPORTION WHICH THE TAXABLE PAY ROLL UNDER THE INSTANT CONTRACT BEARS TO THE CONTRACTOR'S TOTAL TAXABLE PAY ROLLS FOR THE QUARTER HERE INVOLVED. ACCORDINGLY, SINCE PAYMENT OF THE AMOUNT PROPOSED ON THE INSTANT VOUCHER WOULD CONSTITUTE A REIMBURSEMENT TO THE CONTRACTOR IN EXCESS OF THE AMOUNT WHICH WOULD BE REIMBURSABLE IF COMPUTED AS AFORESAID, YOU ARE ADVISED THAT PAYMENT ON SUCH VOUCHER IS NOT AUTHORIZED.