A-49009, JULY 1, 1939, 19 COMP. GEN. 1

A-49009, JULY 1, 1939, 19 COMP. GEN. 1

TAXES - STATE - SALES - FEDERAL LIABILITY, SPECIFICATION PROVISIONS, ETC. THE CONTINUED USE OF A PROVISION IN INVITATIONS FOR BIDS TO THE EFFECT THAT BID PRICES DO NOT INCLUDE ANY CALIFORNIA STATE TAX FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AND THAT IF THE BIDDER LEGALLY SHOULD BE COMPELLED TO PAY ANY SUCH TAX FOR THE PRIVILEGE OF SELLING SUCH PROPERTY TO THE UNITED STATES, AN AMOUNT EQUAL TO THE TAX SO PAID SHALL BE PAID BY THE UNITED STATES ON DEMAND OF THE BIDDER IN ADDITION TO THE BID PRICES STATED, IS UNDESIRABLE, AND SINCE THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN PANHANDLE OIL COMPANY V. MISSISSIPPI EX REL. KNOX, 277 U.S. 218, WOULD APPEAR TO BE CONTROLLING AS TO THE NONAPPLICABILITY OF THE TAXES IMPOSED BY THE CALIFORNIA STATE BOARD OF EQUALIZATION MAY NOT BE REGARDED AS THE LEGAL COMPULSION CONTEMPLATED BY THE SAID PROVISION, AND ANY AMOUNT INCLUDED IN A VOUCHER WHICH CONSTITUTES A CLAIM FOR THE TAX BASED UPON SUCH PROVISION, AS WELL AS IN ANY OTHER CASE, EXCEPT WHERE NECESSITY REQUIRES THE PAYMENT TO BE MADE REGARDLESS OF THE FEDERAL GOVERNMENT'S TAX EXEMPTION, WILL BE FOR DISALLOWANCE. 18 COMP. GEN. 832, AMPLIFIED. THE USE OF A PROPOSED PROVISION IN INVITATIONS FOR BIDS IMPLYING THAT THE TAXES IMPOSED BY THE CALIFORNIA RETAIL SALES TAX ACT OF 1933 MAY BE APPLICABLE TO SALES TO THE UNITED STATES IS OBJECTIONABLE AS THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN PANHANDLE OIL COMPANY V. MISSISSIPPI EX REL. KNOX, 277 U.S. 218, REQUIRES THE OPPOSITE CONCLUSION, AND AS THE TERMS OF THE PROPOSED PROVISION MIGHT MISLEAD A BIDDER INTO PRESUMING THAT THE UNITED STATES MAY PAY THE AMOUNT OF THE TAX WHICH IS INCLUDED IN HIS BID PRICE WHEREAS 18 COMP. GEN. 832, SPECIFICALLY NEGATIVES SUCH PAYMENT. SUBSTITUTE PROVISION SUGGESTED AS FOLLOWS: "TO FACILITATE EVALUATION OF BIDS NO STATE OR LOCAL TAXES CHARGED DIRECTLY ON THE SALE OF GOODS SHOULD BE INCLUDED IN THE BID PRICES, BUT WHETHER OR NOT INCLUDED, THE AMOUNT OF SUCH TAXES SHOULD BE SHOWN IN DETAIL SO THAT APPROPRIATE COMPUTATION MAY BE MADE TO DETERMINE THE LOW BID AND WHETHER EXEMPTION CERTIFICATES SHOULD BE ISSUED, ETC. THE EVALUATION OF BIDS WILL BE ON A TAX-EXCLUSIVE BASIS SINCE SUCH STATE OR LOCAL SALES TAX IS NOT CHARGEABLE TO THE FEDERAL GOVERNMENT, AND IF THE BID AS SUBMITTED DOES NOT CLEARLY SHOW THAT ANY SUCH TAX IS EXCLUDED OR THAT THE BIDDER CONSENTS TO THE DEDUCTION THEREOF IN A STATED AMOUNT OR AMOUNTS, IT WILL BE PRESUMED THAT THE AMOUNT OF THE TAX IS INCLUDED IN THE BID PRICE, THE BID WILL BE EVALUATED ACCORDINGLY, AND IF THE BID BE ACCEPTED NO EXEMPTION CERTIFICATE WILL BE ISSUED.'

COMPTROLLER GENERAL BROWN TO THE SECRETARY OF THE TREASURY, JULY 1, 1939:

THERE HAS BEEN CONSIDERED YOUR LETTER OF MAY 17, 1939, AS FOLLOWS:

REFERENCE IS MADE TO THE ACTING COMPTROLLER GENERAL'S LETTER OF OCTOBER 15, 1938, A-49009, REQUESTING THE RECOMMENDATIONS OF THIS DEPARTMENT WITH REGARD TO CERTAIN PROPOSALS SUBMITTED BY THE CALIFORNIA OIL AND GAS ASSOCIATION TO MEET THE SITUATION CREATED BY EFFORTS OF THE CALIFORNIA STATE BOARD OF EQUALIZATION TO APPLY THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED, TO RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES.

SINCE THE DATE OF THAT LETTER REPRESENTATIVES OF THE DEPARTMENT HAVE CONFERRED WITH REPRESENTATIVES OF YOUR OFFICE, AND TEMPORARY EXPEDIENTS HAVE BEEN ADOPTED TO PERMIT CONTINUED PURCHASING BY THE PROCUREMENT DIVISION OF THIS DEPARTMENT TO PERMIT CONTINUED PURCHASING BY THE PROCUREMENT DIVISION OF THIS DEPARTMENT OF SUPPLIES AND COMMODITIES FOR DELIVERY IN CALIFORNIA. THE PROBLEM PRESENTS MANY UNCERTAINTIES WHICH NECESSARILY AFFECT BOTH BIDDING AND THE PAYMENT OF INVOICES, AND SATISFACTORY BIDDING COULD NOT HAVE BEEN EXPECTED HAD THE PROCUREMENT DIVISION DECLINED TO TAKE EVEN A TENTATIVE POSITION WITH REGARD TO THE TAX UNTIL ALL OF THE COMPLEX ELEMENTS OF THE SITUATION HAD RECEIVED THOROUGH STUDY. IT IS HOPED THAT THE CONSIDERATION WHICH IT HAS RECEIVED IN THE INTERIM WILL FACILITATE AN EARLY SOLUTION OF THE MATTER AS A WHOLE.

THE PROBLEM HAS BECOME A MUCH BROADER ONE THAN THAT PRESENTED BY THE LETTER OF OCTOBER 15, 1938. IT INVOLVES FUNDAMENTAL QUESTIONS AS TO THE POSITION THAT THE GOVERNMENT WILL TAKE, NOT ONLY WITH RESPECT TO THE CALIFORNIA TAX, BUT WITH RESPECT TO OTHERS WHICH MAY BE EXPECTED IN THE NEAR FUTURE. THE DISCUSSION HEREIN WILL THUS BE UNDER FOUR MAIN HEADS, AS FOLLOWS:

1. CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED--- RECOMMENDATIONS AND QUESTIONS CONCERNING CONDITIONS OF BIDDING.

2. CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED--- QUESTIONS CONCERNING CERTIFICATION AND PAYMENT OF INVOICES.

3. ILLINOIS RETAILER'S OCCUPATIONAL TAX--- QUESTION CONCERNING PAYMENT OF INVOICES.

4. OTHER STATE PRIVILEGE AND OCCUPATION TAXES AS APPLIED TO SALES TO THE UNITED STATES.

THE RECOMMENDATIONS AND QUESTIONS PERTAINING TO THESE SUBJECTS ARE ALL RELATED, BUT EACH APPEARS TO REQUIRE A SEPARATE ANSWER.

1. CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED--- RECOMMENDATION AND QUESTIONS CONCERNING CONDITIONS OF BIDDING.--- THE CALIFORNIA RETAIL SALES TAX ACT OF 1933 ( CAL. STATS. 1933, CH. 1020, AS AMENDED; CAL. STATS. 1935, CHS. 351, 355, AND 357; CAL. STATS. 1937, CHS. 400 AND 778) IN SECTION 3 IMPOSES A TAX UPON RETAILERS,"FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY AT RETAIL," AT THE RATE OF THREE PERCENT OF THEIR GROSS RECEIPTS FROM THE SALE OF ALL SUCH PROPERTY WITHIN THE STATE. THE TERM "GROSS RECEIPTS" IS DEFINED IN SECTION 2 (F), IN PERTINENT PART, AS THE TOTAL AMOUNT OF THE SALE PRICE, EXCLUSIVE OF THE TAX, AND SECTION 8 1/2 PROVIDES THAT THE TAX "SHALL BE COLLECTED BY THE RETAILER FROM THE CONSUMER INSOFAR AS THE SAME CAN BE DONE.' UNDER SECTION 8 IT IS A MISDEMEANOR FOR A RETAILER TO HOLD OUT TO ANY NSUMER,"DIRECTLY OR INDIRECTLY, THAT THE TAX OR ANY PART THEREOF IMPOSED BY THIS ACT WILL BE ASSUMED OR ABSORBED BY THE RETAILER OR THAT IT WILL NOT BE ADDED TO THE SELLING PRICE OF THE PROPERTY SOLD, OR IF ADDED THAT IT OR ANY PART THEREOF WILL BE REFUNDED.' SECTION 5 (A) EXEMPTS FROM THE COMPUTATION OF THE TAX THE "GROSS RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY WHICH THIS STATE IS PROHIBITED FROM TAXING UNDER THE CONSTITUTION OR LAWS OF THE UNITED STATES OF AMERICA * * *.'

FROM 1933 TO 1938 NO ATTEMPT WAS MADE TO REQUIRE RETAILERS TO RETURN AS TAXABLE GROSS RECEIPTS THE PROCEEDS OF SALES TO THE UNITED STATES, PRESUMABLY IN VIEW OF PANHANDLE OIL CO. V. KNOX, (1928) 277 U.S. 218, 221; INDIAN MOTOCYCLE CO. V. UNITED STATES, (1931) 283 U.S. 570, 578; AND GRAVES V. TEXAS COMPANY, (1936) 298 U.S. 393, 400. THE DEPARTMENT HAS BEEN INFORMED, HOWEVER, THAT ON JANUARY 24, 1939, THE STATE BOARD OF EQUALIZATION ISSUED RULING NO. 74, SUPERSEDING ALL PREVIOUS RULINGS ON THE SUBJECT, AS FOLLOWS:

SALES TO UNITED STATES GOVERNMENT

"THE TAX APPLIES TO RECEIPTS FROM SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT. SALES TO SUCH DEPARTMENTS AS THE TREASURY, INTERIOR, AGRICULTURE, WAR, NAVY, POST OFFICE, ARE SALES TO THE UNITED STATES GOVERNMENT.

"EFFECTIVE APRIL 1, 1939.

"THIS RULING IS NOT RETROACTIVE.'

ON THE SAME DATE THE BOARD IS UNDERSTOOD TO HAVE ISSUED THE FOLLOWING:

" INTERPRETATION OF RULING NO. 73

" REIMBURSEMENT FOR TAX

"RULING 73 IS DESIGNED TO PREVENT UNFAIR TRADE PRACTICES IN THE QUOTATION OF PRICES TO THE PUBLIC BY COMPETING RETAILERS. THE BOARD FINDS THAT THERE IS NO NECESSITY FOR A SEPARATE STATEMENT OF THE AMOUNT OF SALES TAX REIMBURSEMENT TO PREVENT SUCH PRACTICES IN TRANSACTIONS WITH GOVERNMENTAL AGENCIES. ACCORDINGLY, WHEN THE PROCEDURE OF ANY GOVERNMENTAL AGENCY DOES NOT ADMIT OF THE SEPARATE STATEMENT OF THE AMOUNT OF SALES TAX REIMBURSEMENT INCLUDED IN THE PRICE OF TANGIBLE PERSONAL PROPERTY SOLD TO SUCH AGENCY, THE RETAILER MAY STATE SUCH PRICE IN ACCORDANCE WITH THE REQUIREMENTS OF THE AGENCY, NOTWITHSTANDING ANY OF THE PROVISIONS OF RULING 73.'

RULING NO. 74 IS UNDERSTOOD TO HAVE BEEN BASED UPON THE DECISION OF THE SUPREME COURT OF CALIFORNIA IN WESTERN LITHOGRAPH CO. V. STATE BOARD OF EQUALIZATION, (1938) 11 CAL. (2D) 156, 78 P./2D) 731, WHICH IN TURN WAS RESTED UPON JAMES V. DRAVO CONTRACTING CO., (1937) 302 U.S. 134. SINCE THE DRAVO CASE DID NOT EXPRESSLY OVERRULE THE PANHANDLE, INDIAN MOTOCYCLE, AND GRAVES CASES, AND IN VIEW OF THE PREVIOUSLY MENTIONED DISCUSSIONS WITH YOUR OFFICE, THE DEPARTMENT ON MARCH 16, 1939, SUBMITTED TO THE ATTORNEY GENERAL THE QUESTION WHETHER A BILL FOR INJUNCTION SHOULD BE FILED TO RESTRAIN THE ENFORCEMENT OF THE TAX UPON RETAILERS WITH RESPECT TO GOVERNMENT PURCHASES. COPIES OF THIS LETTER AND THE ATTORNEY GENERAL'S REPLY DATED APRIL 17, 1939, ARE ENCLOSED.

YOU WILL NOTE THAT THE ATTORNEY GENERAL HAS DETERMINED THAT NO SUIT SHOULD BE INSTITUTED TO RESTRAIN THE ENFORCEMENT OF THE ACT WITH RESPECT TO GOVERNMENT PURCHASES, STATING THAT " RESISTANCE TO THE TAX COMING FROM THE FEDERAL GOVERNMENT WOULD BE INCONSISTENT WITH THE POSITION OF THE GOVERNMENT GENERALLY IN CASES INVOLVING CONSTITUTIONAL IMMUNITY FROM TAXATION.' HIS LETTER INDICATES A BELIEF THAT THE PANHANDLE, INDIAN MOTOCYCLE, AND GRAVES CASES WERE "EACH NARROWLY LIMITED AND PROBABLY OVERRULED" BY THE DRAVO CASE, A CONCLUSION SUPPORTED NOT ONLY BY THE PRINCIPLES THERE APPLIED BUT BY THE STATEMENT OF THE COURT (302 U.S., AT PAGE 151) THAT: ,THESE CASES HAVE BEEN DISTINGUISHED AND MUST BE DEEMED TO BE LIMITED TO THEIR PARTICULAR FACTS.'

THE DEPARTMENT BELIEVES THAT THE DECISION IN THE WESTERN LITHOGRAPH CASE WAS NOT ONLY CONSISTENT WITH THE PRINCIPLES ANNOUNCED IN THE DRAVO CASE, BUT WAS REQUIRED BY THE RESTRICTIONS THERE PLACED UPON THE DOCTRINE OF IMMUNITY WITH RESPECT TO TAXES LAID UPON GOVERNMENT CONTRACTORS. FOR THIS REASON, AND IN VIEW OF THE POSITION OF THE ATTORNEY GENERAL, IT IS THE OPINION OF THE DEPARTMENT THAT THE TAXABILITY OF RECEIPTS FROM SALES TO THE UNITED STATES SHOULD BE RECOGNIZED IN FUTURE GOVERNMENT PURCHASING. CF., (1938) 17 COMP. GEN. 863, INFRA, RELATIVE TO THE ILLINOIS RETAILER'S OCCUPATIONAL TAX.

THUS, ANSWERING SPECIFICALLY THE REQUEST CONTAINED IN THE ABOVE MENTIONED LETTER OF OCTOBER 15, 1938, YOU ARE ADVISED THAT THE TREASURY DEPARTMENT RECOMMENDS THAT AUTHORITY BE GRANTED FOR THE ADOPTION OF SUCH MODIFICATIONS OF EXISTING PURCHASE PROCEDURE AS MAY BE NECESSARY TO PERMIT THE SOLICITATION EXCLUSIVELY OF BIDS INCLUDING ALL APPLICABLE TAXES UNDER THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED. EXCLUSION OF THIS TAX FROM THE OPERATION OF GENERAL REGULATIONS NO. 86--- REVISED, DATED JUNE 11, 1937, SO THAT TAX EXEMPTION CERTIFICATES WOULD NOT BE UTILIZED EITHER TO SUPPORT THE CLAIMS OF VENDORS TO EXEMPTION OR AS A BASIS FOR BILLING THE TAXING AUTHORITY FOR REFUNDS, WOULD APPEAR SUFFICIENT FOR THIS PURPOSE.

IN THE EVENT THAT THIS RECOMMENDATION DOES NOT MEET WITH YOUR APPROVAL, THE DEPARTMENT WILL NEED ADVICE AS TO THE BIDDING CONDITIONS THAT MAY BE UTILIZED WITH RESPECT TO THE TAX. HERE THE CHIEF SOURCE OF DIFFICULTY LIES IN THE FACT THAT THE GOVERNMENT IS NOT THE TAXPAYER BUT OCCUPIES ONLY THE STATUS OF A CONSUMER FROM WHOM RETAILERS MUST "COLLECT" THE TAX,"INSOFAR AS THE SAME CAN BE DONE," UNDER SECTION 8 1/2 OF THE ACT. SINCE IT IS NOT THE TAXPAYER, IT WOULD SEEM THAT THE GOVERNMENT HAS NO STANDING TO FILE CLAIMS FOR REFUND UNDER SECTION 23 OF THE ACT, OR TO PAY THE TAX AS SUCH UNDER PROTEST AND TO SUE FOR THE RECOVERY THEREOF UNDER SECTION 31. HENCE TAX EXEMPTION CERTIFICATES, PREPARED UNDER REVISED REGULATIONS NO. 86 IN CASES WHERE VENDORS REFUSE TO SELL AT PRICES EXCLUSIVE OF THE TAX, WOULD APPEAR TO BE WORTHLESS QUITE APART FROM ANY QUESTION AS TO THE VALIDITY OF THE TAX WHEN APPLIED TO GOVERNMENT PURCHASES.

IT WOULD NEITHER BE POSSIBLE FROM A PRACTICAL STANDPOINT NOR VALID FROM A LEGAL STANDPOINT, UNDER (1938) 17 COMP. GEN. 615, 617; ID. 992, 997, TO REQUIRE BIDDERS TO SUBMIT TAX-FREE PRICES AS A REMEDY FOR THIS SITUATION. AT LEAST THERE COULD BE NO DEGREE OF ASSURANCE THAT THEY WOULD COMPLY WITH THE REQUIREMENT; FOR, IN THE PRESENT STATE OF THE LAW, THERE SEEMS LITTLE CHANGE THAT VENDORS WOULD BE ADVISED BY COUNSEL THAT THEY MIGHT SAFELY SUBMIT TAX-FREE BIDS ON THE FAITH OF TAX EXEMPTION CERTIFICATES. TO THE EXTENT THAT SUCH A PROVISION WOULD BE OBSERVED IT WOLD ALSO CAST THE ENTIRE BURDEN OF LITIGATING THE QUESTION UPON THE VENDORS, AND ONLY THE LARGER CONCERNS WOULD BE IN A POSITION TO ASSUME THE EXPENSE, EVEN GRANTED THAT THEY MIGHT BE WILLING TO DO SO. THE RESULT WOULD BE TO RESTRICT, IF NOT TO PREVENT, COMPETITION FOR THE SALE OF SUPPLIES TO THE GOVERNMENT, OR TO CAUSE BIDDERS TO DISREGARD THE PROVISION ENTIRELY AND TO SUBMIT TAX INCLUSIVE BIDS, WHATEVER THEIR CHARACTER MIGHT SUPERFICIALLY APPEAR TO BE.

THE ONLY ALTERNATIVE WHICH APPEARS TO THE DEPARTMENT TO OFFER A PRACTICABLE SOLUTION IS TO CONTINUE ADVERTISEMENT ON THE USUAL BASIS--- THAT IS, UNDER WHICH EITHER TAX-INCLUSIVE OR TAX-EXCLUSIVE BIDS ARE SUBMITTED, AT THE OPTION OF THE BIDDER, AND TAX EXEMPTION CERTIFICATES ARE ISSUED OR RETAINED FOR REFUND PURPOSES--- SUBJECT ONLY TO AN EXCEPTION ELIMINATING ANY EVALUATION OF BIDS BY REASON OF THE INCLUSION OR EXCLUSION OF THE TAX. IN OTHER WORDS, A TAX-EXCLUSIVE BID OF $99 WOULD BE ACCEPTED IN PREFERENCE TO A TAX-INCLUSIVE BID OF $100 EVEN THOUGH IF IT WERE POSSIBLE TO OBTAIN A REFUND FROM THE TAXING AUTHORITIES, THE $100 BID WOULD OFFER THE LOWER NET COST TO THE GOVERNMENT. THIS PROPOSAL IN EFFECT VIEWS TAX EXEMPTION CERTIFICATES AS WORTHLESS FROM THE STANDPOINT OF THE GOVERNMENT. ULTIMATELY THEY MIGHT NOT PROVE TO BE WORTHLESS, AND REFUNDS MIGHT CONCEIVABLY BE SECURED IN THE UNLIKELY EVENT THAT THE TAX SHOULD BE HELD CONSTITUTIONALLY INAPPLICABLE TO RECEIPTS FROM SALES TO THE GOVERNMENT, AS ABOVE INDICATED, HOWEVER, THE GOVERNMENT WOULD NOT BE ENTITLED TO REFUNDS AS A MATTER OF RIGHT UNDER THE PRESENT LAW OF CALIFORNIA, AND TO GRANT THEM WOULD BE AN ACT OF GRACE OF WHICH THERE SEEMS SO LITTLE LIKELIHOOD THAT, EITHER ON THIS OR ON THE CONSTITUTIONAL GROUND, VALUE COULD NOT PRUDENTLY BE PLACED UPON ANY "CLAIMS" FOR REFUND. BIDDERS, ON THE OTHER HAND, WOULD BE FREE UNDER THIS SCHEME, IF THEY SHOULD SEE FIT, TO SUBMIT TAX-EXCLUSIVE PRICES AND TO RESIST THE APPLICATION OF THE TAX TO RECEIPTS DERIVED FROM TRANSACTIONS WITH GOVERNMENT AGENCIES, FOR WHICH PURPOSE TAX EXEMPTION CERTIFICATES WOULD BE ISSUED IN THE USUAL MANNER. IT IS POSSIBLE THAT IN SOME INSTANCES BIDDERS MIGHT BE WILLING TO ASSUME THE RISK OF ABSORPTION OF THE TAX, ESPECIALLY WHERE IT MIGHT BE NECESSARY FOR THEM TO DO SO IN ORDER TO COMPETE WITH VENDORS LOCATED IN OTHER STATES; FOR IT IS DOUBTFUL THAT THE CALIFORNIA USE TAX ACT OF 1935 ( CAL. STATS. 1935, CH. 361), A TAX IMPOSED DIRECTLY FROM THE CONSUMER AND SUPPLEMENTING THE RETAIL SALES TAX ACT (SEE FELT AND TARRANT MFG. CO. V. GALLAGHER, (1939/--- U.S.--- 59 S.CT. 376; SOUTHERN PAC. CO. V. GALLAGHER, (1939/--- U.S.--- 59 S.CT. 389), IS APPLICABLE BY ITS TERMS TO USE OR OTHER CONSUMPTION BY THE UNITED STATES (SEE SECS. 2 (E) AND 3), OR THAT IT COULD CONSTITUTIONALLY BE SO APPLIED--- A QUESTION QUITE DIFFERENT FROM THAT INVOLVED IN THE DRAVO CASE. THE DEPARTMENT HAS NOT BEEN INFORMED AS TO ANY ATTEMPT SO TO APPLY IT.

THE PROCEDURE LAST SUGGESTED IS RECOMMENDED FOR ADOPTION IN THE EVENT THAT YOU DO NOT AGREE THAT THE TAXABILITY OF RECEIPTS FROM SALES TO THE UNITED STATES SHOULD BE RECOGNIZED IN FUTURE GOVERNMENT PURCHASING. WOULD BE THE SIMPLEST PROCEDURE FROM THE STANDPOINT OF THE GOVERNMENT AND IN THE OPINION OF THE DEPARTMENT WOULD ALSO PERMIT PURCHASING AT THE LOWEST COST, WITHOUT SURRENDERING WHATEVER RIGHTS THE GOVERNMENT MAY HAVE AS A RESULT OF THE INCLUSION OF THE TAX IN BID PRICES. AN ELEMENT AFFECTING COSTS AT THE PRESENT TIME IS THE UNCERTAINTY WHICH THE OPEN QUESTION HAS BROUGHT ABOUT, AND TO THIS END IT IS PROPOSED THAT A PROVISION ALONG THE FOLLOWING LINES BE INCLUDED IN FUTURE INVITATIONS FOR BIDS AFFECTED BY THE TAX:

"BID PRICES MAY EITHER INCLUDE OR EXCLUDE THE AMOUNT OF ANY APPLICABLE TAXES UNDER THE CALIFORNIA RETAIL SALES TAX ACT OF 1933, AS AMENDED, AND TAX EXEMPTION CERTIFICATES WILL BE ISSUED TO THE CONTRACTOR WITH RESPECT TO ANY ITEM OR ITEMS ON WHICH THE BID AS ACCEPTED IS TAX-EXCLUSIVE. INCLUSION OR EXCLUSION OF THE TAX UNDER SAID ACT WILL NOT, HOWEVER, BE TAKEN INTO ACCOUNT IN EVALUATING THE BIDS--- I.E., THE AMOUNT OF THE TAX WILL NOT BE DEDUCTED FROM TAX INCLUSIVE, OR ADDED TO TAX-EXCLUSIVE, PRICES FOR EVALUATION PURPOSES, IF THE BID AS SUBMITTED DOES NOT CLEARLY SHOW THAT THE TAX IS EXCLUDED OR THAT THE BIDDER CONSENTS TO THE DEDUCTION OF THE TAX IN A STATED AMOUNT OR AMOUNTS, IT WILL BE PRESUMED THAT THE AMOUNT OF THE TAX IS INCLUDED IN THE BID PRICE, AND, IF THE BID BE ACCEPTED, NO EXEMPTION CERTIFICATE WILL BE ISSUED.'

IF YOU AGREE THAT THE PROCEDURE LAST RECOMMENDED SHOULD BE ADOPTED, KINDLY ADVISE WHETHER THERE IS ANY OBJECTION TO THE USE OF SUCH A PROVISION. IT IS PARTIALLY AN ADAPTATION OF THE PROVISIONS APPROVED IN (1938) 17 COMP. GEN. 615, SUPRA.

THE DEPARTMENT DOES NOT RECOMMEND THE ONLY OTHER COURSE WHICH IT SEEMS POSSIBLE TO FOLLOW, THAT IS, THE CONTINUED USE OF A PROVISION UTILIZED AS A TEMPORARY EXPEDIENT AS BEFORE POINTED OUT. THIS PROVISION, WHICH HAS VARIED SOMEWHAT IN MINOR RESPECTS, READS SUBSTANTIALLY AS FOLLOWS:

"THE BID PRICES HEREIN DO NOT INCLUDE ANY CALIFORNIA STATE TAX FOR THE PRIVILEGE OF SELLING TANGIBLE PERSONAL PROPERTY. IF THE BIDDER LEGALLY SHOULD BE COMPELLED OR REQUIRED TO PAY ANY SUCH PRIVILEGE TAX TO THE STATE OF CALIFORNIA FOR THE PRIVILEGE OF SELLING ANY SUCH TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES AS THE RESULT OF THE ACCEPTANCE OF THIS BID, AN AMOUNT EQUAL TO THE TAX SO PAID AT THE CALIFORNIA STATUTORY RATE SHALL BE PAID BY THE UNITED STATES ON DEMAND OF THE BIDDER IN ADDITION TO THE BID PRICES HEREIN STATED.'

THE UNCERTAINTIES WHICH THIS PROVISION PRESENTS, AS DISCUSSED UNDER THE NEXT SUBHEAD, HAVE BROUGHT ABOUT SOME CONFUSION AND DISSATISFACTION ON THE PART OF BIDDERS. IF YOU SHOULD DECIDE WITH REGARD TO THAT ASPECT OF THE MATTER THAT THE WORDS "LEGALLY * * * COMPELLED OR REQUIRED TO PAY" MAKE IT NECESSARY THAT THE VALIDITY OF THE TAX IS APPLIED TO GOVERNMENT PURCHASES BE DETERMINED BY THE COURTS BEFORE ANY AMOUNTS IN ADDITION TO BID PRICES ARE PAYABLE BY THE GOVERNMENT, THESE UNCERTAINTIES WILL REMAIN AND IT WILL BECOME INCREASINGLY DIFFICULT TO SECURE COMPETITION FOR PURCHASES AFFECTED BY THE TAX. IF, ON THE OTHER HAND, YOU SHOULD DECIDE THAT AMOUNTS EQUIVALENT TO THE TAX MAY BE PAID WITHOUT SUCH ADJUDICATION, THE CONTINUED USE OF SUCH A PROVISION WOULD SERVE NO USEFUL PURPOSE. THE EARLY ADOPTION OF OTHER PROVISIONS THUS SEEMS DESIRABLE.

YOU ARE REQUESTED TO ADVISE AS TO WHICH OF THE RECOMMENDED PROCEDURES, OR WHAT OTHER PROCEDURE, SHOULD BE FOLLOWED BY THE DEPARTMENT IN FUTURE PURCHASING.

2. CALIFORNIA RETAIL-SALES TAX ACT OF 1933 AS AMENDED--- QUESTIONS CONCERNING CERTIFICATION AND PAYMENT OF INVOICES.--- THE ABOVE-QUOTED PROVISION, THAT BID PRICES "DO NOT INCLUDE THE TAX" AND THAT AN ADDITIONAL AMOUNT "EQUAL TO THE TAX" WILL BE PAID BY THE GOVERNMENT WHERE THE BIDDER IS "LEGALLY * * * COMPELLED OR REQUIRED" TO PAY IT, HAS BEEN IN USE SINCE THIS SITUATION BECAME ACUTE. QUITE A NUMBER OF EXISTING CONTRACTS CONTAIN THE PROVISION, AND IT WILL THUS BE NECESSARY TO DECIDE WHAT SHOWING OF LEGAL COMPULSION BIDDERS WILL BE REQUIRED TO MAKE IN ORDER TO BECOME ENTITLED TO ANY AMOUNTS IN ADDITION TO THEIR BID PRICES. IT HAS BEEN CONTENDED THAT THE ISSUANCE OF RULING NO. 74 OF THE STATE BOARD OF EQUALIZATION, QUOTED UNDER THE FIRST SUBHEAD, IS ITSELF SUFFICIENT TO OBVIATE THE NECESSITY FOR ANY FURTHER SHOWING OF COMPULSION. IT WOULD APPEAR THAT THE RULING DOES SUFFICIENTLY COMPEL, BUT WHETHER IT CONSTITUTES "LEGAL" COMPULSION WOULD SEEM TO TURN UPON THE QUESTION WHETHER ITS VALIDITY MAY BE RECOGNIZED AS PREVIOUSLY RECOMMENDED. THE DEPARTMENT HAS THUS FAR REQUIRED THAT ALL VOUCHERS INCLUDING AMOUNTS EQUAL TO THE TAX BE SUBMITTED TO YOUR OFFICE FOR PREAUDIT, WHERE POSSIBLE BY SEPARATE VOUCHERS SO THAT THE BID PRICE MAY BE PAID WITHOUT DELAY; BUT IT WOULD BE DESIRABLE TO SETTLE THE QUESTION IN THE NEAR FUTURE, SO THAT THIS PRACTICE MAY BE DISCONTINUED, IF A DECISION IS NOT POSSIBLE.

THE FOLLOWING CONTRACTS FOR GASOLINE FOR THE PERIOD APRIL 1 TO JUNE 30, 1939, ARE AMONG THOSE WHICH CONTAIN A PROVISION OF THIS NATURE:

TPS-27050 WITH GENERAL PETROLEUM CORPORATION OF CALIFORNIA.

TPS-27051 WITH RICHFIELD OIL CORP.

TPS-27052 WITH SHELL OIL CO.

TPS-27053 WITH SIGNAL OIL CO.

TPS-27054 WITH STANDARD OIL CO. OF CALIFORNIA.

TPS-27055 WITH THE TEXAS CO. OF CALIFORNIA.

TPS-27056 WITH TIDE WATER ASSOCIATED OIL CO. ( ASSOCIATED

DIVISION).

TPS-27057 WITH UNION OIL CO. OF CALIFORNIA.

KINDLY ADVISE WHETHER ANY AMOUNTS IN ADDITION TO BID PRICES ARE PAYABLE UNDER THIS PROVISION WITHOUT SUBMISSION OF THE VOUCHERS FOR PREAUDIT, AND IF SO, AS TO THE DEGREE OF "LEGAL COMPULSION" WHICH MUST BE SHOWN BY CONTRACTORS BEFORE SUCH PAYMENTS MAY BE MADE.

ANOTHER QUESTION THAT HAS ARISEN UNDER THE TEMPORARY PROVISION JUST DISCUSSED--- AND A QUESTION WHICH WOULD ARISE EQUALLY UNDER EITHER OF THE FUTURE PROCEDURES RECOMMENDED UNDER THE FIRST SUBHEAD OF THIS LETTER--- RELATES TO THE VOUCHER OR INVOICE CERTIFICATE BY VENDORS,"THAT STATE OR LOCAL SALES TAXES ARE NOT INCLUDED IN THE AMOUNT BILLED AND THAT TAX- EXEMPTION CERTIFICATES THEREFOR HAVE BEEN RECEIVED," A PROVISION ADDED TO THE CERTIFICATION FORM PURSUANT TO THE ACTING COMPTROLLER GENERAL'S CIRCULAR LETTER OF APRIL 2, 1938, A 51607, A-49009. AS INTERPRETED IN (1938) 17 COMP. GEN. 1085, 1087, THE CIRCULAR DID NOT MODIFY THE RULE THAT BIDDERS MAY NOT BE REQUIRED TO SUBMIT TAX-FREE PRICES AND THE LANGUAGE JUST QUOTED "WOULD BE FOR DELETION BY THE CONTRACTOR IN SUBMITTING INVOICES OR VOUCHERS" IF THE SALES COVERED THEREBY WERE NOT IN FACT TAX- EXCLUSIVE. THIS STATEMENT APPEARS, HOWEVER, TO HAVE RELATED TO CASES WHEN "THERE IS AN EXEMPTION ON SALES TO THE FEDERAL GOVERNMENT," AND ITS APPLICATION IN THE PRESENT SITUATION SHOULD BE CLARIFIED.

INSTRUCTIONS HAVE BEEN ISSUED THAT ALL VOUCHERS OR INVOICES WITH RESPECT TO WHICH THE VENDOR WILL NOT EXECUTE THE ABOVE CERTIFICATE ARE ALSO TO BE FORWARDED TO YOUR OFFICE FOR PREAUDIT IN VIEW OF THIS QUESTION. FOR THE MOST PART IT SHOULD BE ANSWERED BY YOUR REPLY TO THE FIRST QUESTION UNDER THIS HEAD, BUT SPECIFIC DIRECTIONS ARE REQUESTED BOTH FOR THE DISPOSITION OF VOUCHERS UNDER THE ABOVE TEMPORARY PROVISION AND IN CONNECTION WITH THE GENERAL PROCEDURE TO BE ADOPTED FOR THE FUTURE.

3. ILLINOIS RETAILER'S OCCUPATIONAL TAX--- QUESTION CONCERNING PAYMENT OF INVOICES.--- UNDER THE ACTING COMPTROLLER GENERAL'S DECISION OF APRIL 22, 1938, 17 COMP. GEN. 863, 864, THE ILLINOIS RETAILER'S OCCUPATIONAL TAX IS TO BE CONSIDERED AS "A PERSONAL TAX ON THE PRIVILEGE OF DOING BUSINESS WITHIN THE STATE," WHICH VENDORS ARE NOT REQUIRED TO PASS ON TO THE CONSUMER; AND AN AMOUNT WHICH A BIDDER ELECTS TO ADD TO HIS BID PRICE BECAUSE OF THE TAX" IS NOT TO BE REGARDED AS THE AMOUNT OF A "TAX IMPOSED UPON THE PURCHASE OR SALE" OF PROPERTY, WITHIN THE MEANING OF A BIDDING CONDITION THERE CONSIDERED. UNDER THIS VIEW, WITH WHICH THE DEPARTMENT IS IN AGREEMENT, THE UNITED STATES IS NOT CONCERNED WITH THE TAX ANY MORE THAN WITH ANY OTHER ELEMENT OF COST THAT MAY ENTER INTO THE COMPUTATION OF BID PRICES.

IN CONNECTION WITH THE CALIFORNIA TAX PREVIOUSLY DISCUSSED, HOWEVER, AN ADMINISTRATIVE OFFICIAL OF THE PROCUREMENT DIVISION IS UNDERSTOOD TO HAVE CONSULTED A REPRESENTATIVE OF YOUR OFFICE WITH REGARD TO THE ILLINOIS SITUATION, AND TO HAVE REACHED AN AGREEMENT THAT A PROVISION SIMILAR TO THE TEMPORARY PROVISION USED FOR CALIFORNIA PURCHASES SHOULD ALSO BE USED FOR ILLINOIS. AS A RESULT A NUMBER OF CONTRACTS FOR GASOLINE FOR DELIVERY IN ILLINOIS, AND POSSIBLY OTHERS, INCLUDE THE FOLLOWING:

"THE BID PRICES HEREIN DO NOT INCLUDE ANY ILLINOIS STATE RETAILER'S OCCUPATIONAL TAX FOR THE PRIVILEGE OF SELLING GASOLINE. IF THE BIDDER LEGALLY SHOULD BE COMPELLED OR REQUIRED TO PAY ANY SUCH PRIVILEGE TAX TO THE STATE OF ILLINOIS FOR THE PRIVILEGE OF SELLING GASOLINE TO THE UNITED STATES AS THE RESULT OF THE ACCEPTANCE OF THIS BID, AN AMOUNT EQUAL TO THE TAX SO PAID AT THE ILLINOIS STATUTORY RATE SHALL BE PAID BY THE UNITED STATES ON DEMAND OF THE SELLER IN ADDITION TO THE BID PRICES HEREIN STATED.'

IN VIEW OF THE DECISION OF APRIL 22, 1938, IT WOULD APPEAR THAT THE USE OF SUCH A PROVISION WAS INADVERTENT AND THAT VOUCHERS INCLUDING AMOUNTS EQUAL TO THE TAX SHOULD BE PAID, TO THE EXTENT THAT THE TAX PROPERLY APPLIES. PENDING YOUR CONFIRMATION OF THE CORRECTNESS OF THIS VIEW, INSTRUCTIONS HAVE BEEN ISSUED THAT ALL VOUCHERS INCLUDING AMOUNTS EQUAL TO THE TAX BE SUBMITTED TO YOUR OFFICE FOR PREAUDIT.

4. OTHER STATE PRIVILEGE AND OCCUPATION TAXES AS APPLIED TO SALES TO THE UNITED STATES.--- IT IS UNDERSTOOD THAT PROPOSED LEGISLATION, DESIGNED TO SUBJECT SALES TO THE UNITED STATES TO THE APPLICATION OF PRIVILEGE OR OCCUPATIONAL TAXES SIMILAR TO THE CALIFORNIA AND ILLINOIS TAXES PREVIOUSLY DISCUSSED, IS OR WAS UNDER CONSIDERATION BY QUITE A NUMBER OF STATE LEGISLATURES DURING THEIR CURRENT OR RECENTLY CONCLUDED SESSIONS. THE DEPARTMENT IS NOT INFORMED AT THIS TIME AS TO THE RESULTS OF SUCH CONSIDERATION, BUT IT SEEMS QUITE LIKELY THAT IN THE IMMEDIATE FUTURE THE SAME PROBLEM WILL BE MET IN OTHER STATES AS THAT PREVIOUSLY DISCUSSED WITH RESPECT TO CALIFORNIA. AS IN CALIFORNIA, MOREOVER, IT IS POSSIBLE THAT THE PROBLEM WILL ARISE IN OTHER STATES MERELY BY VIRTUE OF THE EFFORTS OF THE TAXING AUTHORITIES, AND WITHOUT AMENDMENT OF EXISTING TAX LEGISLATION.

EACH OF THESE NEW PROBLEMS WILL REQUIRE INDIVIDUAL CONSIDERATION AS IT ARISES. THE LIKELIHOOD THAT THERE WILL BE A CONSIDERABLE NUMBER OF SUCH PROBLEMS IN THE NEAR FUTURE SERVES, HOWEVER, TO EMPHASIZE THE IMPORTANCE OF THE QUESTIONS HEREIN RAISED WITH RESPECT TO THE CALIFORNIA TAX. SINCE IT IS LIKELY THAT OTHER TAXES WILL INVOLVE MANY OF THE SAME CONSIDERATIONS, YOUR DECISION WILL PROBABLY HAVE CONSIDERABLE BEARING UPON THE PROBLEMS TO WHICH THEY WILL GIVE RISE.

WHILE THESE PROBLEMS MUST REMAIN FOR FUTURE DETERMINATION, THERE IS ONE TYPE OF BIDDING CONDITION WHICH WOULD GREATLY FACILITATE THEIR DISPOSITION AND WHICH SEEMS NECESSARY TO PREVENT SERIOUS INTERFERENCE WITH GOVERNMENT PURCHASING. THIS IS ONE WHICH WOULD RESERVE THE RIGHT TO DETERMINE AFTER BIDS ARE RECEIVED WHETHER STATE OR LOCAL PRIVILEGE OR OCCUPATIONAL TAXES DISCLOSED THEREBY SHOULD BE CONSIDERED OR IGNORED FOR EVALUATION PURPOSES. THE SUGGESTED FORM OF THIS PROVISION IS AS FOLLOWS:

"BID PRICES MAY EITHER INCLUDE OR EXCLUDE THE AMOUNT OF ANY APPLICABLE STATE OR LOCAL SALES, PRIVILEGE, OR OCCUPATIONAL TAX, AND TAX EXEMPTION CERTIFICATES WILL BE ISSUED TO THE CONTRACTOR WITH RESPECT TO ANY ITEM OR ITEMS ON WHICH THE BID AS ACCEPTED IS TAX-EXCLUSIVE. THE GOVERNMENT RESERVES THE RIGHT, HOWEVER, AS ITS INTEREST MAY APPEAR, TO DETERMINE WHETHER THE INCLUSION OR EXCLUSION OF ANY SUCH TAX FROM ANY BID PRICE WILL BE TAKEN INTO ACCOUNT IN EVALUATING THE BIDS--- I.E., WHETHER THE AMOUNT OF THE TAX WILL BE DEDUCTED FROM TAX-INCLUSIVE, OR ADDED TO TAX-EXCLUSIVE, PRICES FOR EVALUATION PURPOSES. IF THE BID AS SUBMITTED DOES NOT CLEARLY SHOW THAT ANY SUCH TAX IS EXCLUDED OR THAT THE BIDDER CONSENTS TO THE DEDUCTION THEREOF IN A STATED AMOUNT OR AMOUNTS, IT WILL BE PRESUMED THAT THE AMOUNT OF THE TAX IS INCLUDED IN THE BID PRICE, THE BID WILL BE EVALUATED ACCORDINGLY IF THE TAX IS TAKEN INTO ACCOUNT FOR EVALUATION PURPOSES, AND, IF THE BID BE ACCEPTED, NO EXEMPTION CERTIFICATE WILL BE ISSUED.'

WHILE THE USE OF SUCH A PROVISION MIGHT GIVE RISE TO COMPLAINTS FROM BIDDERS IN SOME INSTANCES, IT IS BELIEVED THAT NO REAL UNFAIRNESS COULD RESULT FROM ITS INDEFINITENESS WITH RESPECT TO EVALUATION. ON THE OTHER HAND, IT WOULD OBVIATE THE NECESSITY FOR THE FREQUENT REJECTION OF BIDS AND READVERTISEMENT UNDER DEFINITE EVALUATION PROVISIONS SUCH AS THAT ABOVE RECOMMENDED WITH REGARD TO THE CALIFORNIA TAX. QUESTIONS AS TO THE BASIS OF EVALUATION TO BE USED IN PARTICULAR INSTANCES WOULD REMAIN AND AT FIRST WOULD PROBABLY INVOLVE MANY DIFFICULTIES. GRADUALLY THEY WOULD BE ANSWERED BY DECISIONS WITH RESPECT TO SIMILAR TAXES, HOWEVER, LEAVING ONLY THOSE INVOLVING NEW PROVISIONS FOR SETTLEMENT WITH YOUR OFFICE. IN CASES WHERE BIDS ARE TO BE INVITED FOR THE REQUIREMENTS OF THE GOVERNMENT IN MORE THAN ONE STATE, SUCH AS UNDER THE GENERAL SCHEDULE OF SUPPLIES, THE BASIS ON WHICH BIDS WOULD BE EVALUATED WITH RESPECT TO PARTICULAR TAXES COULD ALSO BE STATED, TO THE EXTENT THAT SUCH BASES HAVE BEEN ESTABLISHED PRIOR TO THE INVITATION. IN THIS WAY THE INDEFINITENESS OF THE PROVISION WOULD GRADUALLY BE REDUCED UNTIL, IN TIME, ITS USE WOULD NO LONGER BE NECESSARY.

THE DEPARTMENT CONSIDERS THE USE OF SUCH A PROVISION TO BE ESSENTIAL* AND WILL APPRECIATE YOUR EARLY DECISION THEREON. IF IT IS OBJECTIONABLE IN ANY RESPECT, KINDLY INDICATE WHAT MODIFICATIONS OF THE LANGUAGE, OR WHAT OTHER TYPE OF PROVISION, OR OTHER PROCEDURE, WILL BE SATISFACTORY TO YOUR OFFICE. ALL OF THE QUESTIONS PRESENTED HEREIN ARE OF THE UTMOST URGENCY, AND, IF ANY OF THEM WILL REQUIRE EXTENDED CONSIDERATION BY YOUR OFFICE, IT WILL BE APPRECIATED IF THE DEPARTMENT MAY HAVE, AS SOON AS POSSIBLE, YOUR ANSWERS TO ANY OF THE QUESTIONS WHICH DO NOT REQUIRE SUCH CONSIDERATION. IT IS APPRECIATED, OF COURSE, THAT THE QUESTIONS ARE ALL CLOSELY RELATED, AND THE EARLY SETTLEMENT OF ALL OF THEM IN A SINGLE OPINION WOULD BE HIGHLY DESIRABLE.

THE QUESTION OF THE APPLICABILITY OF THE CALIFORNIA RETAIL SALES ACT OF 1933, AS AMENDED, TO SALES TO THE FEDERAL GOVERNMENT, WAS CONSIDERED IN DECISION IN B-2929, MAY 9, 1939, 18 COMP. GEN. 832, TO THE SECRETARY OF AGRICULTURE, COPY INCLOSED, IN WHICH IT WAS HELD THAT PAYMENT TO A RETAILER OF THE AMOUNT OF THE TAX IN ADDITION TO THE PRICE OTHERWISE DETERMINED OF TANGIBLE PERSONAL PROPERTY SOLD TO THE UNITED STATES IF NOT AUTHORIZED. THE MATTER HAS AGAIN BEEN CONSIDERED IN THE LIGHT OF THE VIEWS EXPRESSED IN YOUR LETTER AND ITS INCLOSURES, BUT I AM UNABLE TO AGREE THAT A DIFFERENT CONCLUSION THAN THAT REACHED IN SAID DECISION WOULD BE JUSTIFIED.

WITH RESPECT TO THE PROCEDURE OF BID SOLICITATIONS, I CONCUR IN YOUR VIEW THAT IT IS DESIRABLE TO DISCONTINUE THE USE OF THE PROVISION SET FORTH IN YOUR LETTER WHICH YOU STATE HAS BEEN UTILIZED AS A TEMPORARY EXPEDIENT IN CONNECTION WITH THE SOLICITATION OF BIDS FROM AND CONTRACTS WITH CALIFORNIA RETAILERS, AND SINCE THE DECISION OF THE SUPREME COURT OF THE UNITED STATES IN THE CASE OF PANHANDLE OIL COMPANY V. MISSISSIPPI EX REL. KNOX, 277 U.S. 218, WOULD APPEAR TO BE CONTROLLING AS TO THE NONAPPLICABILITY OF THE TAXES IMPOSED BY THE CALIFORNIA LAW TO SALES TO THE UNITED STATES, THE DECISION OF ANY OTHER TRIBUNAL, BE IT FEDERAL OR STATE, OR ANY RULING OF THE CALIFORNIA STATE BOARD OF EQUALIZATION MAY NOT BE REGARDED AS THE LEGAL COMPULSION CONTEMPLATED BY THE PROVISION REFERRED TO. THEREFORE, ANY AMOUNT INCLUDED IN A VOUCHER WHICH CONSTITUTES A CLAIM FOR THE TAX BASED UPON SUCH PROVISION, AS WELL AS IN ANY OTHER CASE, EXCEPT WHERE NECESSITY REQUIRES THE PAYMENT TO BE MADE REGARDLESS OF THE FEDERAL GOVERNMENT'S TAX EXEMPTION, WILL BE FOR DISALLOWANCE REGARDLESS OF WHETHER THE CERTIFICATION "THAT STATE OR LOCAL SALES TAXES ARE NOT INCLUDED IN TH AMOUNTS BILLED" IS OR IS NOT DELETED.

ALSO, THE NEW PROVISION SUGGESTED IN YOUR LETTER FOR USE IN LIEU OF THAT HERETOFORE APPEARING IN THE INSTRUCTIONS TO BIDDERS WOULD APPEAR TO BE OBJECTIONABLE. SUCH PROVISION WOULD IMPLY THAT THE TAXES IMPOSED BY THE CALIFORNIA LAW MAY BE APPLICABLE TO SALES TO THE UNITED STATES WHILE THE DECISION IN THE PANHANDLE CASE REQUIRES THE OPPOSITE CONCLUSION. FURTHERMORE, THE TERMS OF THE PROPOSED PROVISION MIGHT MISLEAD A BIDDER INTO PRESUMING THAT THE UNITED STATES MAY PAY THE AMOUNT OF TAX WHICH IS INCLUDED IN HIS BID PRICE, WHEREAS THE DECISION B-2929 OF MAY 9, 1939, 18 COMP. GEN. 832, SPECIFICALLY NEGATIVES SUCH PAYMENT. IF THE GOVERNMENT IS TO BE PROPERLY PROTECTED WITH RESPECT TO ITS EXEMPTION FROM THE CALIFORNIA TAX IT WOULD SEEM DESIRABLE TO AVOID ANY MISUNDERSTANDING ON THE PART OF BIDDERS OR PURCHASING AGENTS WITH RESPECT TO THE MATTER. THEREFORE, INSTEAD OF SUCH PARAGRAPH IN THE INSTRUCTIONS TO BIDDERS THERE IS SUGGESTED FOR CONSIDERATION IN LIEU THEREOF A PARAGRAPH IN SUBSTANCE AS FOLLOWS:

TO FACILITATE EVALUATION OF BIDS NO STATE OR LOCAL TAXES CHARGED DIRECTLY ON THE SALE OF GOODS SHOULD BE INCLUDED IN THE BID PRICES, BUT WHETHER OR NOT INCLUDED, THE AMOUNT OF SUCH TAXES SHOULD BE SHOWN IN DETAIL SO THAT APPROPRIATE COMPUTATION MAY BE MADE TO DETERMINE THE LOW BID AND WHETHER EXEMPTION CERTIFICATES SHOULD BE ISSUED, ETC. THE EVALUATION OF BIDS WILL BE ON A TAX-EXCLUSIVE BASIS SINCE SUCH STATE OR LOCAL SALES TAX IS NOT CHARGEABLE TO THE FEDERAL GOVERNMENT AND IF THE BID AS SUBMITTED DOES NOT CLEARLY SHOW THAT ANY SUCH TAX IS EXCLUDED OR THAT THE BIDDER CONSENTS TO THE DEDUCTION THEREOF IN A STATED AMOUNT OR AMOUNTS, IT WILL BE PRESUMED THAT THE AMOUNT OF THE TAX IS INCLUDED IN THE BID PRICE, THE BID WILL BE EVALUATED ACCORDINGLY, AND IF THE BID BE ACCEPTED NO EXEMPTION CERTIFICATE WILL BE ISSUED.

WHILE CALIFORNIA RETAILERS MAY OBJECT TO THE SUBMISSION OF BIDS EXCLUSIVE OF THE AMOUNT OF THE TAX IMPOSED BY THE CALIFORNIA STATUTE, SINCE THE SOLICITATION FOR BIDS WILL, NO DOUBT, INCLUDE VENDORS LOCATED IN OTHER STATES AS WELL AS THOSE IN CALIFORNIA, ANY HARDSHIP WHICH MAY THEREBY BE SUFFERED BY VENDORS LOCATED IN CALIFORNIA WILL BE THE RESULT OF THE ACTION OF THE BOARD OF EQUALIZATION OF THAT STATE IN RULING THAT THE TAX MAY BE IMPOSED ON SALES TO THE UNITED STATES AND RELIEF THEREFROM MAY BE SOUGHT BY THEM EITHER JUDICIALLY OR LEGISLATIVELY. IN ANY EVENT, HOWEVER, SINCE THERE IS NO AUTHORITY UNDER THE LAW TO EVALUATE BIDS INCLUSIVE OF A TAX NOT CHARGEABLE TO THE GOVERNMENT, THERE WOULD APPEAR TO BE NO GOOD REASON WHY BIDDERS SHOULD BE LED TO BELIEVE THAT SUCH A TAX MAY BE INCLUDED IN THE VALUATION.

THERE APPEARS TO BE NO REASON FOR ANY MISUNDERSTANDING CONCERNING THE APPLICABILITY OF THE PROVISIONS OF THE ILLINOIS RETAILER'S OCCUPATIONAL TAX ACT IN VIEW OF THE DECISION 17 COMP. GEN. 863, AND THE DECISION OF MAY 9, 1939, ABOVE REFERRED TO, AND THERE IS NO OBJECTION TO THE PAYMENT OF VOUCHERS WHICH INCLUDE AMOUNTS EQUAL TO THE TAX PRESCRIBED BY LAW, IF OTHERWISE CORRECT AND INCLUDED IN AND AS A PART OF THE BID PRICE.

AS STATED IN YOUR LETTER THE PROBLEMS WHICH MAY BE PRESENTED IN THE FUTURE IN CONNECTION WITH THE EFFORT WHICH MAY BE MADE BY THE LEGISLATURES OR OFFICIALS OF OTHER STATES TO APPLY THE PROVISIONS OF SALES TAX STATUTES TO SALES TO THE UNITED STATES WILL REQUIRE INDIVIDUAL CONSIDERATION. HOWEVER, IT MAY BE SAID GENERALLY THAT IF THE PRICES IN THE BIDS ARE EXCLUSIVE OF ANY STATE OR LOCAL SALES TAX WITH A DETAILED SHOWING OF THE AMOUNT OF SUCH TAXES AS WOULD BE INCLUDED WERE IT NOT FOR THE FACT THAT SALES TO THE FEDERAL GOVERNMENT ARE EXEMPT THEREFROM, IT SHOULD THEN BE A COMPARATIVELY SIMPLE MATTER TO DETERMINE THE LOW BID.