Department of Energy--Disposition of Interest Earned on State Tax Refund Obtained by Contractor, B-302366, July 12, 2004

B-302366 Jul 12, 2004 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights The federal government is legally entitled to a refund of state taxes plus interest that the state of Washington gave to Fluor Hanford, Inc. (FHI) for taxes that FHI paid under a contract with the Department of Energy. Because the department previously reimbursed FHI for those taxes, the department is entitled to retain and to credit to its appropriations the principal portion of the state tax refund. However, the department may not retain or credit to its appropriations interest amounts paid by the state along with the refunded taxes. The interest amounts must be credited to the general fund of the Treasury as miscellaneous receipts, pursuant to 31 U.S.C. 3302(b). View Decision B-302366, Department of Energy--Disposition of Interest Earned on State Tax Refund Obtained by Contractor, July 12, 2004 Decision Matter of: Department of Energy--Disposition of Interest Earned on State Tax Refund Obtained by Contractor File: B-302366 Date: July 12, 2004 DIGEST The federal government is legally entitled to a refund of state taxes plus interest that the state of Washington gave to Fluor Hanford, Inc. (FHI) for taxes that FHI paid under a contract with the Department of Energy. Because the department previously reimbursed FHI for those taxes, the department is entitled to retain and to credit to its appropriations the principal portion of the state tax refund. However, the department may not retain or credit to its appropriations interest amounts paid by the state along with the refunded taxes. The interest amounts must be credited to the general fund of the Treasury as miscellaneous receipts, pursuant to 31 U.S.C. 3302(b). DECISION This responds to a request from Keith A. Klein, Manager of the Richland Operations Office of the Department of Energy, for an advance decision under 31 U.S.C. 3529 regarding amounts refunded to the department by a department contractor. Fluor Hanford, Inc. (FHI), a contractor performing work for the department at the Hanford Nuclear Reservation, transmitted to the department a refund it obtained from the State of Washington for business and occupation taxes that FHI had previously paid and passed on to the department for reimbursement under its contract. The state tax refund also included interest accrued and paid under state law. Mr. Klein asks whether the interest may be credited to the department's appropriations or must it be deposited into the Treasury as miscellaneous receipts. As explained below, we conclude that the amount of the interest should be deposited into the general fund of the Treasury as miscellaneous receipts, pursuant to 31 U.S.C. 3302. BACKGROUND According to the Department of Energy, it has a management contract with FHI for cleanup activity at the Hanford Nuclear Reservation. Letter from Keith A. Klein to Thomas H. Armstrong, Feb. 9, 2004. Under that contract, the department reimburses FHI the allowable costs of the work performed, including Washington State "business and occupation (B&O) taxes." Id. The contract is a multiyear arrangement that the department obligated against no-year funds appropriated in fiscal years 1997 through 2001. [3] Id. In 2001, FHI concluded that it might be eligible for a Washington State tax credit and refund for B&O taxes that it paid to Washington State during calendar years 1997 through 2001. After researching the matter, FHI asked the department for permission to apply for the credit and refund. The department agreed and FHI applied. Eventually, the state allowed the credit and, in May 2003, refunded13,760,504 to FHI. Of this amount, $11,271,317 repaid the excess B&O taxes, and $2,489,187 was paid as interest earned under state law while the excess taxes were held by the state. FHI notified the department when it received the refund and credited the full amount of the refund to the department. [4] The department credited the principal portion of the refund, representing the excess B&O taxes paid, to the appropriation from which the department originally reimbursed FHI for the B&O taxes. Letter from Keith A. Klein to Thomas H. Armstrong, Feb 9, 2004. The department is holding the balance of the refund, the interest earnings, in a "suspense account" pending this decision. Id. FHI and the department agree that the federal government is entitled to receive the proceeds of the entire Washington State tax refund, both principal and interest. FHI's contract requires the department to reimburse FHI for costs incurred in the performance of its work at the Hanford Reservation, including FHI's B&O tax payments to the state. Letter from Keith A. Klein to Thomas H. Armstrong, Feb 9, 2004. However, only actual and legitimate expenses may be reimbursed. Id.