1. A contract for sale to the United States of aircraft and
aircraft material contained a provision that the stipulated prices
included "any federal tax heretofore imposed by the Congress which
is applicable to the material called for" by the contract, and a
provision requiring additional compensation to the seller in the
event of imposition by Congress, subsequent to the date of the
contract, of any taxes which should be "made applicable directly
upon production, manufacture, or sale of the supplies called for
herein and are paid by the contractor on the articles or supplies
herein contracted for. . . ."
Held, that federal Social Security taxes (subsequently
imposed by Congress) were not taxes of such character as required
additional compensation to the seller under the terms of the
contract. P.
308 U. S.
64.
2. It is unnecessary in this case to consider whether a tax paid
under a state unemployment compensation statute is a tax "imposed
by Congress." P.
308 U. S. 66.
100 F.2d 793 reversed.
Certiorari, 307 U.S. 618, to review the reversal of a judgment
in favor of the United States in an action against it on a
contract, 23 F. Supp. 262.
MR. JUSTICE BLACK delivered the opinion of the Court.
We must determine whether a contract to purchase certain
aircraft and aircraft material from respondent required the United
States to increase the stipulated
Page 308 U. S. 63
price by the amount of Social Security taxes paid by
respondent.
June 28, 1934, the War Department and respondent, a Maryland
manufacturer, made the contract, providing:
"It is expressly understood and agreed to by and between the
parties hereto that the prices herein stipulated include any
Federal Tax heretofore imposed by the Congress which is applicable
to the material called for under the terms of this contract. If any
sales tax, processing tax, adjustment charge, or other taxes or
charges are imposed or changed by the Congress subsequent to the
date of this contract and made applicable directly upon production,
manufacture, or sale of the supplies called for herein and are paid
by the Contractor on the articles or supplies herein contracted
for, then the price herein stipulated will be increased or
decreased accordingly and any amount due the Contractor as result
of such change will be charged to the Government and entered on
vouchers as separate items."
With respect to payrolls of employees alleged to have been
engaged in fulfilling this contract during 1936 and 1937,
respondent paid $794.03 in Federal Social Security taxes and
$6,943.29 under the Maryland's Unemployment Compensation Law. Both
the Federal tax and Maryland's tax were levied "subsequent to the
date of this contract." Respondent claims that both the Maryland
Unemployment Compensation taxes [
Footnote 1] and the Federal Social Security taxes
[
Footnote 2] were "imposed . .
. by . . . Congress," and were of the type for which the contract
provided extra compensation.
Rejecting respondent's construction of the contract, the
District Court held that no part of the taxes paid by respondent
served to increase the liability of the Government
Page 308 U. S. 64
on its contract. [
Footnote
3] The Circuit Court of Appeals reversed, [
Footnote 4] and we granted certiorari. [
Footnote 5]
Obviously, the seller fixed its stipulated prices so as to
provide a margin of profit over Federal taxes for which it might at
the time of the contract be responsible on the particular
"material" sold. This clearly appears from the governing
provision's opening declaration that
"the prices herein stipulated include any Federal tax heretofore
imposed by Congress which is applicable to the material called for
under the terms of this contract."
But, without more, future increases in Federal taxes "applicable
to the material" might have substantially affected the margin of
profit which the contract was calculated to insure. Against the
contingency of increase in Federal taxes applicable to the
"material" purchased, the Government undertook to compensate the
seller for payment of future Federal taxes "on the articles or
supplies contracted for" should Congress levy any sales tax,
processing tax, or other tax "applicable directly upon production,
manufacture, or sale of the articles . . . contracted for. . .
."
But the Social Security Act [
Footnote 6] imposes upon every employer "an excise tax,
with respect to having individuals
Page 308 U. S. 65
in his employ." And employment in that Act "means any service,
of whatever nature, performed within the United States by an
employee for his employer . . . ," with exceptions not material
here. This excise has been represented as one levied "upon the
relation of employment" [
Footnote
7] and upon "the right to employ" [
Footnote 8] and as a payroll tax. [
Footnote 9] It is not -- as taxes upon the privilege of
selling, manufacturing, or processing characteristically are --
measured by the value of the privilege taxed, or by either quantity
or price of what is manufactured, processed, or sold. A tax on the
processing or sale of an article, while an excise, commonly would
be denoted a tax "on" the article processed or sold. The contract
itself speaks of such taxes which may, in the future, be "paid by
the contractor
on the articles or supplies contracted
for." (Ital. supp). Thus, this contract was concerned with federal
taxes "on" the goods to be provided under it, whatever the occasion
for the taxes. And a tax "on" the relationship of employer employee
-- characterized as a tax on payrolls -- is not of the type treated
by the contract as a tax "on" the goods or articles sold.
The contract refers only to Federal taxes, existing or future,
on "material," "articles," or "supplies." And additional
compensation is provided to offset only Federal taxes of the type
of sales taxes and processing taxes, "applicable directly upon
production, manufacture, or sale" and actually paid on supplies
delivered to the Government. Since a tax on payrolls, or on the
relationship of employment, is not -- but in fact is distinct from
-- the type of tax "on" articles represented by sales taxes and
processing taxes, respondent is not entitled to the additional
compensation which it seeks.
Page 308 U. S. 66
In view of our determination that the Federal Social Security
tax was not contemplated by the contract, we need not discuss
respondent's contention that the tax paid under the Maryland
Unemployment Compensation Act was a tax "imposed . . . by . . .
Congress."
The judgment of the Circuit Court of Appeals is reversed, and
that of the District Court is affirmed.
Reversed.
MR. JUSTICE BUTLER took no part in the consideration and
decision of this case.
[
Footnote 1]
Laws of Maryland, Second Extraordinary Session, Dec.1936, c.
1.
[
Footnote 2]
49 Stat. 620, 637.
[
Footnote 3]
Glenn L. Martin Co. v. United States, 23 F. Supp.
262.
[
Footnote 4]
Glenn L. Martin Co. v. United States, 100 F.2d 793.
[
Footnote 5]
307 U.S. 618. The government's petition for certiorari set out
that:
"Almost all government contracts since 1933 have contained
provisions either identical with that here involved, or so similar
as to present substantially the same question. . . . The War
Department alone . . . states that approximately 4,000 potential
claims may arise under contracts with language identical with that
in . . . the contract in this case."
The Comptroller General of the United States has interpreted a
contract substantially identical with the one under consideration
as denying reimbursement for Social Security taxes. 16 Comp.Gen.
790 (1937). Certiorari was granted in order to obtain a final
determination of the question.
[
Footnote 6]
Social Security Act, c. 531, 49 Stat. 620, 625, 637, Sec. 804,
210(b).
[
Footnote 7]
Steward Mach. Co. v. Davis, 301 U.
S. 548,
301 U. S.
578.
[
Footnote 8]
See Carmichael v. Southern Coal Co., 301 U.
S. 495,
301 U. S.
508.
[
Footnote 9]
Id., 301 U. S. 506,
301 U. S.
511.