B-98728, DEC 28, 1950

B-98728, DEC 28, 1950

PRECIS-UNAVAILABLE

COLONEL J. A. MILTON, USAF:

THERE HAS BEEN RECEIVED BY REFERENCE FROM THE DIRECTOR OF FINANCE, YOUR LETTER OF AUGUST 23, 1950, TRANSMITTING AUDIT VOUCHER NO. FWC-866 IN THE AMOUNT OF $953.09, STATED IN FAVOR OF CHASE NATIONAL BANK AS ASSIGNEE OF CONSOLIDATED VULTEE AIRCRAFT CORPORATION UNDER COST-PLUS-A FIXED-FEE CONTRACT NO. AF 33 (038)-2182, DATED APRIL 5, 1949, WITH THE REQUEST THAT AN ADVANCE DECISION BE RENDERED AS TO WHETHER PAYMENT THEREON IS AUTHORIZED. THE QUESTION PRESENTED IS WHETHER IN COMPUTING THE PRICE OF ALUMINUM PURCHASED BY THE CONTRACTOR FROM THE ALUMINUM COMPANY OF AMERICA THERE SHOULD HAVE BEEN DEDUCTED THE AMOUNT OF THE TRANSPORTATION TAX AS A PART OF THE TRANSPORTATION ALLOWANCE OFFERED BY THE SUPPLIER.

IT APPEARS THAT IN RESPONSE TO AN INQUIRY BY THE CONTRACTOR, THE ALUMINUM COMPANY OF AMERICA, HEREINAFTER REFERRED TO AS ALCOA, BY LETTER DATED JANUARY 16, 1950, OFFERED TO FURNISH 800 PIECES OF ALUMINUM AS DESCRIBED THEREIN WEIGHING 13,825 POUNDS AT A PRICE OF $0.46 PER POUND, LATER REDUCED TO $0.457 PER POUND. AS A PART OF THE QUOTATION ALCOA OFFERED A TRANSPORTATION ALLOWANCE AS FOLLOWS:

"TRANSPORTATION ALLOWANCES: A DEDUCTION EQUIVALENT TO THE ACTUAL TRANSPORTATION CHARGES, BUT NOT EXCEEDING AN AMOUNT BASED ON THE RAIL FREIGHT RATE APPLICABLE TO SHIPMENTS OF 30,000 POUNDS, WILL BE MADE FROM THE COMPANY'S INVOICES ON ORDERS OF 500 POUNDS OR MORE OF ONE PRODUCT ACCEPTED FOR SHIPMENT AT ONE TIME TO ONE DESTINATION WITHIN THE CONTINENTAL UNITED STATES.

UNDER DATE OF JANUARY 25, 1950, THE CONTRACTOR ISSUED A PURCHASE ORDER ACCEPTING SAID OFFER AND DIRECTED THAT SHIPMENT BE MADE ON COMMERCIAL BILL OF LADING TO BE CONVERTED TO GOVERNMENT BILL OF LADING AT DESTINATION. THE SHIPMENT HERE INVOLVED IS COVERED BY ALCOA'S INVOICE IN THE GROSS AMOUNT OF $995.54 LESS $42.45, REPRESENTING TRANSPORTATION ALLOWANCE ON THE GROSS WEIGHT OF 2,573 POUNDS AT THE RATE OF $1.65 PER CWT., OR A NET AMOUNT OF $953.09. SHIPMENT OF THE LOT WAS MADE FROM ALCOA, TENNESSEE, TO BENBROOK, TEXAS, ON COMMERCIAL BILL OF LADING, LATER CONVERTED TO GOVERNMENT BILL OF LADING.

WITH RESPECT TO THE APPLICABILITY OF THE TRANSPORTATION TAX ON PAYMENT FOR THE TRANSPORTATION OF THE SHIPMENT, IT APPEARS THAT PURSUANT TO SECTION 307(C) OF THE REVENUE ACT OF 1943, 58 STAT. 65, THE SECRETARY OF THE TREASURY ON APRIL 29, 1944, AUTHORIZED AN EXEMPTION FROM THE TAX IMPOSED BY SECTION 620 OF THE REVENUE ACT OF 1942, 56 STAT. 979, IN CONNECTION WITH PAYMENT FOR TRANSPORTATION ON GOVERNMENT BILLS OF LADING OF PROPERTY FOR THE EXCLUSIVE USE OF THE UNITED STATES. APPARENTLY, ON THE BASIS OF SUCH EXEMPTION THE TRANSPORTATION TAX OF 3 PERCENT WAS NOT INCLUDED IN THE TRANSPORTATION CHARGES PAID ON THE INSTANT SHIPMENT.

THE CONTRACTING OFFICER IN A LETTER OF JULY 21, 1950, TO THE FINANCE OFFICER, WRIGHT-PATTERSON AIR FORCE BASE, INDICATES THAT THE ABOVE QUOTED PROVISION OF THE SUBJECT PURCHASE ORDER IS ALCOA'S STANDARD CLAUSE AND IT IS SO ADMITTED BY ALCOA IN ITS LETTER OF OCTOBER 4, 1949, TO THE CONTRACTOR. IT IS FURTHER INDICATED THAT ALCOA PERMITS ITS CUSTOMERS USING COMMERCIAL BILLS OF LADING TO INCLUDE THE 3 PERCENT TRANSPORTATION TAX IN THE AMOUNT DEDUCTED AS TRANSPORTATION ALLOWANCE UNDER SUCH CLAUSE AND IN THIS CONNECTION IT IS REPORTED THAT UP TO OCTOBER 31, 1948, ALCOA HAS APPLIED THE TRANSPORTATION TAX ON INVOICES REFLECTING A TRANSPORTATION CREDIT EVEN WHERE THE SHIPMENT OF MATERIAL MOVED ON A GOVERNMENT BILL OF LADING. ALCOA CONTENDS THAT ITS OTHER CUSTOMERS WOULD HAVE REASON FOR COMPLAINT IF IT ALLOWED THE CONTRACTOR TO DEDUCT THE TRANSPORTATION TAX AS A PART OF THE TRANSPORTATION ALLOWANCE.

IT IS NOT UNDERSTOOD THAT SAID ALLOWANCE IS INTENDED TO REPRESENT THE ACTUAL TRANSPORTATION EXPENSE INCURRED BY THE PURCHASER. RATHER, IT APPEARS TO REPRESENT THE TRANSPORTATION EXPENSE WHICH ALCOA OTHERWISE WOULD BE REQUIRED TO INCUR. THAT SUCH IS THE PURPORT OF THE ALLOWANCE CLAUSE IS EVIDENT FROM THE FACT THAT THE ALLOWANCE IS BASED UPON THE FREIGHT RATE APPLICABLE TO SHIPMENTS OF 30,000 POUNDS (CARLOAD RATE), SINCE IN THOSE CASES WHERE A SINGLE SHIPMENT OF ALUMINUM IS LESS THAN THAT WEIGHT A HIGHER TARIFF WOULD BE APPLICABLE AND THE PURCHASER WOULD THEREFORE PAY ACTUAL FREIGHT IN EXCESS OF THE AMOUNT OF THE ALLOWANCE AS WELL AS A TAX ON THE HIGHER RATE. THUS, SINCE THE AMOUNT OF THE TRANSPORTATION ALLOWANCE OBVIOUSLY IS NOT INTENDED TO BE DETERMINED BY THE AMOUNT PAID BY THE PURCHASER FOR TRANSPORTATION, AND SINCE, AS A MATTER OF FACT, THE TRANSPORTATION TAX ON SHIPMENTS SUCH AS HERE INVOLVED REPRESENTS AN ACTUAL LOSS TO THE GOVERNMENT, CONSIDERING THAT EXCEPT FOR THE ARRANGEMENT AS MADE THE GOVERNMENT WOULD RECEIVE THE BENEFIT OF THE TAX, THERE APPEARS NO JUSTIFICATION FOR CONSTRUING THE ALLOWANCE CLAUSE OFFERED BY ALCOA AS DEPRIVING THE GOVERNMENT OF AN ALLOWANCE FOR TRANSPORTATION TAX SUCH AS MADE TO OTHER CUSTOMERS.

ACCORDINGLY, ON THE PRESENT RECORD, THERE SHOULD BE DEDUCTION FROM THE AMOUNT OTHERWISE DUE THE APPLICABLE TRANSPORTATION TAX OF 3 PERCENT AND PAYMENT OF THE VOUCHER, WHICH IS RETURNED HEREWITH, MAY BE MADE ON THAT BASIS.