FEDERAL

COOPERATIVE

(A-46031)

FUNDS-AGRICULTURAL

EXTENSION

AND EXPERIMENT STATIONS-STATE TAX ON PURCHASESREIMBURSEMENT TO VENDORS OF TAX

A State tax paid by vendor prior to the sale of articles or supplies to agricultural or mechanical colleges, such tax being included in the price of the article or supply, becomes a part of the purchase price and is chargeable to funds made available from the Federal Treasury to the State, Territory, or subdivision thereof, in furtherance of agricultural extension and experiment stations.

Federal cooperative funds made available to various States may not be used to reimburse vendors with amounts due from them to their respective States as taxes on articles or supplies sold to agricultural extension or experiment stations and not included and paid as a part of the purchase price.

Comptroller General McCarl to the Secretary of Agriculture, April 9, 1935: I have your letter of March 4, 1935, as follows:

Your office in decision A-46031, of January 16, 1933, to this Department, in passing upon interest which accrued on certain Federal funds granted to the States for agricultural extension and agricultural experiment stations, advised that "The United States in paying the funds to the States for the purposes for which made available, does not relinquish control of the funds but merely advances the funds to a designated custodian of the State to be expended for certain given purposes. Under such circumstances, what is said in decision 24 Comp. Dec. 403, and subsequent decisions with respect to other cooperative funds paid to the several States and Territories, is equally applicable in connection with the funds now under consideration. In these cases, as in the case herein cited, the gifts to the various States are not absolute but are gifts conditioned on the disbursements being made therefrom for the specific purposes for which the sums are allotted to the States."

Members of the Department who are making the annual examination of work and expenditures under these funds now advise that in some States expenditures for supplies include an added item for State sales tax, running ordinarily from one cent to a few cents, but occasionally in greater amount. The purchases involving such sales tax items are approved by the Department as necessary in carrying out the specific purposes of the respective acts.

A further question now arises, therefore, as to whether these funds granted to the various States are Federal funds beyond approval of the specific purposes for which purchases are to be made. In other words, the Department representatives might not only approve, but might find it necessary to insist that a certain piece of equipment or specific articles of supplies be purchased in order to carry out a proposed activity in accordance with the requirements of the acts. The specific question then is whether the small sales tax may be included as a charge against the Federal funds.

In practice, the question is an important one. The amount involved is small compared with the fiscal difficulties and the added time for examination and checking to arrange for payment of the small tax from other than Federal funds.

Your advice on this question is requested.

The funds in question made available from the Federal Treasury in furtherance of cooperative work of the agricultural and mechanical colleges in their extension and experimental work are not absolute gifts to the States; but the funds are charged with a trust that they be used solely for the purposes for which appropriated and none other. Obviously, a diversion of a part of the funds into the treasuries of the respective States in the form of taxes for the general

support of the State governments is not a use of the funds for the cooperative work of the agricultural and mechanical colleges and such diversion finds no sanction in the law. However, such tax must be direct as considered in the Panhandle and Graysburg Oil cases, 277 U. S. 229, and 278 U. S. 582, respectively. See also Standard Oil Company v. California, 291 U. S. 242, and Trinityfarm Construction Company v. Louisiana, 291 U. S. 466. If the tax was paid by the wholesaler or some other person prior to the articles or supplies coming into possession of the person from whom purchased with the use of such funds, the addition, if any, to the normal price of the articles or supplies may not be considered a tax but it is a part of the price. See 13 Comp. Gen. 87, and Lash's Products Company v. United States, 278 U. S. 175.

Accordingly, you are advised that trust funds made available by the United States to the various States for use of their agricultural and mechanical colleges may not be used to reimburse the vendors with amounts which such vendors of the agricultural and mechanical colleges may have paid to their respective States as taxes but the question of State taxes does not arise where the wholesaler or other vendor of the vendor to the agricultural and mechanical colleges paid the taxes to the States as the taxes when paid cease to be a tax and become a part of the price of the articles or supplies as the case may be.

(A-61152)

PURCHASE OF ARTICLES MANUFACTURED BY FEDERAL PRISONSDISTRICT OF COLUMBIA

Shoes authorized to be furnished to released prisoners by the District of Columbia under authority of the act of July 3, 1926, 44 Stat. 901, are required to be purchased from the Federal Prisons Industry by the act of February 11, 1924, 43 Stat. 6, and the act of May 27, 1930, 46 Stat. 391. The General Superintendent of Penal Institutions of the District of Columbia has no authority without supervision to enter into a contract for the purchase of shoes or other supplies, but all such purchases are required to be supervised by the purchasing officer of the District of Columbia. Comptroller General McCarl to the President, Board of Commissioners, District of Columbia, April 9, 1935:

There has been received your letter of March 29, 1935, as follows: Attached is a voucher in the amount of $200.90 in favor of Harry Kaufman, Inc., covering 82 pairs of shoes furnished to released inmates at $2.45 a pair, on orders placed by the general superintendent of penal institutions, for which no competition was solicited. The general superintendent, however, contends that the situation confronting the District of Columbia penal institutions made it impracticable to obtain competition. His explanation submitted to the auditor March 20, 1935, is as follows:

"We are inclosing a voucher and a list which is attached from Harry Kaufmann, Inc., 1316 Seventh Street, NW., Washington, D. C., in the amount of $200.90, showing the delivery by this concern of 82 pairs of shoes to

inmates upon their release from the D. C. Reformatory during the period from August 1 to October 23, 1934.

"Per the order of the D. C. Commissioners dated January 8, 1929, no. 299158, prisoners who have served their required sentence are each supplied with a complete outfit, including a suit, hat, shirt, shoes, etc., not exceeding a cost of $18.00. We therefore thought it necessary to supply each prisoner with a pair of shoes when they were discharged at various times.

"The furnishing of said shoes to the outgoing prisoners by Harry Kaufman, Inc., was due to the fact that we had completely run out of discharge shoes due to the depleted condition of our appropriation for the fiscal year 1934, which prevented us from stocking a supply during the latter part of the fiscal year. We therefore had to wait for the receipt of the general supply schedule before an order could be placed, and when this schedule was received it was found that the Bureau of Prisons, Department of Justice, was listed as the department from which shoes were to be purchased during the fiscal year 1935. An order was placed on July 23, no. 651, for 300 pairs of discharge shoes, and after several telephone calls and communications by letter requesting delivery of the shoes they were finally received on September 27. After the receipt of the shoes from the Department of Justice, two pairs of shoes were bought from Harry Kaufman, Inc., because a man who had served his time at the District jail was supplied with a pair upon his discharge, and another pair was fitted from their stock because the shoes we had received from the Department of Justice would not fit him.

"Had we known that there was to be a long delay in the delivery of the shoes ordered from the Department of Justice we would have immediately asked the purchasing officer, District of Columbia, to have made some arrangements to purchase these shoes for us by competitive bids. However, as we expected the shoes daily the matter was allowed to run on until the bill totalled the amount stated above. We do not feel that the Government lost anything by purchasing these shoes from Harry Kaufman, Inc., in view of the fact that we paid the Department of Justice $2.3991 per pair, including freight, for their shoes, while the shoes purchased from Harry Kaufman, Inc., are listed at $2.45 per pair. While there is a difference of approximately five cents per pair, the shoes received from Harry Kaufman, Inc., are of a dressier appearance and are generally preferred by our discharged inmates to the shoes purchased from the Department of Justice.

"We do not know how we could have otherwise handled this matter, for, as stated above, it was necessary to supply each prisoner a pair of shoes upon his release, and as we did not have any shoes on hand but had them ordered from the Department of Justice and could not secure delivery, we therefore respectfully request that you give the matter your most serious consideration, and if you can approve payment of the voucher as submitted, please do so."

While the Commissioners are convinced in this instance that the general superintendent, penal institutions, acted in the exercise of his best judgment in safeguarding the interests of the District of Columbia, and, in view of the attending circumstances, that his failure to obtain competition is not in violation of section 3709, Revised Statutes, nevertheless they request that you consider the merits of this claim and advise whether or not your office will raise any objection to its settlement.

It is informally understood that it is the procedure of the District of Columbia to furnish under the terms of the act of July 3, 1926, 44 Stat. 901, and regulations issued by the Attorney General, certain articles of clothing not exceeding $18 in amount to released prisoners who have served a term of imprisonment of not less than 6 months under conviction for violating the laws of the United States, but it is to be observed, as pointed out in my decisions of August 15 and October 15, 1934, A-56854, that the act of March 2, 1911, 36 Stat. 975, amended section 3709, Revised Statutes, so as to except therefrom purchases by the District of Columbia where the aggregate amount involved does not exceed the sum of $25. Of course, the amount of $200.90 in this case largely exceeds the exception con

tained in said act of March 2, 1911, to the terms of section 3709, Revised Statutes. See Schneider v. United States, 19 Ct. Cls. 547.

The General Superintendent of Penal Institutions had no authority to contract for these shoes or any other supplies for the reason section 79, title 20, of the District of Columbia Code, provides that:

The purchasing officer shall, under the direction of the Commissioner, supervise the purchase of all supplies, stores, and construction materials for the use of the government of the District of Columbia and shall give bond in such amount as the Commissioners may determine.

Consequently, any arrangement between Harry Kaufman, Inc., and the General Superintendent of the Penal Institutions of the District of Columbia for the delivery of shoes to released prisoners imposed no legal obligation on appropriations made for the support of the government of the District of Columbia.

Moreover, the acts of February 11, 1924, 43 Stat. 6, and May 27, 1930, 46 Stat. 388 and 391, providing for the establishment of industries in the Federal penitentiaries expressly provided for the establishment of a shoe factory in the penitentiary at Leavenworth, Kans., and section 9 of the act of February 11, 1924, provided that:

It is hereby made obligatory upon the various departments of the Government to purchase the products of the business herein authorized to be carried on in the penitentiary at Leavenworth, Kansas, until the supply therein produced is exhausted before purchasing elsewhere.

Attention is invited to the case of Consolidated Supply Co. v. United States, 59 Ct. Cls. 197, 198, where it was held that there was no legal obligation to make payment for printing obtained in violation of the laws requiring certain public printing to be performed at the Government Printing Office and which rule was applied in decision of October 16, 1933, A-51394, to the Attorney General negativing payment for shoes obtained by the United States Marshal for the District of Massachusetts from private dealers for discharged Federal prisoners. See also decision of March 20, 1933, A-47631, to the Administrator of Veterans' Affairs.

There has been noted the suggestion that the price paid by the District of Columbia to the Department of Justice for shoes was approximately the price paid to Harry Kaufman, Inc., for the shoes in question and that there had been no loss to the District of Columbia by reason of the purchase of the shoes from Harry Kaufman, Inc., instead of the Department of Justice. However, the difference in cost is not the controlling factor in this matter for the reason that the industries in the prisons were established in order to provide work for prisoners, and attention is invited to decision of January 28, 1932, A-40321, wherein the Department of Labor protested against what it claimed to be excess charges of the District of Columbia for the laundering at the Lorton prison of towels for the departments and establishments of the Government-the charge

according to the schedule of June 13, 1931, being 75 cents per 100 towels as compared with an offer of a private laundry to do the work for 6212 cents per 100. Also, decision of June 27, 1932, A-42776, to the Register of Wills, District of Columbia, wherein he claimed that he could secure the laundry work for his office privately at a lesser expense than would be involved in securing the laundry done at the Lorton prison, as required in circular letter no. 28, Office of the Chief Coordinator. Since the United States is required to secure its laundry work for the departments and establishments of the Government in Washington from the Lorton prison, even though the cost thereof may be somewhat in excess of the amount for which such work could be obtained in private laundries, there is ample justification from an equitable standpoint for the terms of the law which require that the District of Columbia purchase such shoes as may be required from the Federal penitentiaries.

Also, there has been noted the statement that it was necessary to supply each prisoner with a pair of shoes upon his release, and as there were no shoes on hand, though ordered from the Department of Justice, the purchases were made as emergency ones. The record shows that these shoes were purchased from August 1 to October 23, inclusive, and as the cited act of July 3, 1926, required a prisoner to serve a term of at least six months before becoming entitled to receive certain gratuitous issues of clothing, there appears no justification for the general superintendent of penal institutions, or whoever is responsible therefor, permitting the stock of shoes to run so low as to have none available for issue to discharged prisoners. The "emergency "bears all the earmarks of a self-created emergency. No such self-created emergency may be considered as justifying disregard of the terms of section 3709, Revised Statutes, in securing competitive bids, or the imposition of a legal charge against appropriated moneys by one not having authority to contract. See Floyd's Acceptances, 7 Wallace 666.

However, in view of the administrative misunderstanding as to the right of the General Superintendent of Penal Institutions, District of Columbia, to make purchases and of the requirement that purchases of shoes be made from the Federal penitentiaries, as well as the fact that Harry Kaufman, Inc., has actually delivered the shoes, you are advised that this office will not in this instance object to charging appropriated moneys with the items aggregating $200.90 for the shoes in event the Commissioners of the District of Columbia personally approve the voucher on which such payment is proposed to be made. It is to be understood that no future similar charges will be approved by this office.

You are advised accordingly.