The opinion of the court was delivered by: GODDARD
Motion for summary judgment by plaintiff and cross motion by defendant.
Plaintiff entered into three cost-plus-fixed-fee contracts, (I) NObs 21258, dated June 30, 1945; (2) N5ori 82, dated January 12, 1945; and (3) NOrd 7315, dated October 20, 1944, for the production of certain equipment for the Navy. All three contracts by reference to the 'Explanation of Principles for Determination of Costs under Government Contracts, War Department-Navy Department', (printed by the United States Government Printing Office, April, 1942) include as allowable costs plaintiff's payments to unemployment funds incurred by it in the performance of the contracts and accepted by the Bureau of Supplies and Accounts as chargeable thereto in accordance with the provisions of said 'Explanation of Principles.'
The 'Explanation of Principles' includes in its outline of the items of cost properly chargeable to a cost-type contract :
'Other indirect shop costs
'(e) Employer's payments to unemployment, old age, and social security funds, not elsewhere included. * * * '
During its performance of the contracts, the plaintiff was required to make certain contributions under the New York State Unemployment Insurance Law on account of wages paid during the periods July 1, 1945-June 30, 1946, and July 1, 1946-June 30, 1947.
On September 21, 1945, under the tax credit plan of the New York State Unemployment Insurance Law, Labor Law, McK. Consol. Laws, c. 31, 577, plaintiff received a tax credit in the amount of $ 21,245.89 which was used in the period July 1, 1945-June 30, 1946, and the balance due for that period was paid in cash. On September 9, 1946, the plaintiff received a further tax credit in the amount of $ 25,291.17 which was used in the payment of unemployment taxes for the period July 1, 1946-June 30, 1947. This credit being in excess of the tax liability for the period, no further cash payment was necessary.
Of these credits used to offset the tax liability, $ 9,946.06, the amount in suit, is conceded to be allocable to the three contracts. The Navy Cost Inspector disallowed this amount as a cost on the ground that the credits were not refunds of prior tax contributions but were reductions of the current taxes. This was approved by the Supervisory Cost Inspector, Eastern Area, and on appeal to the Bureau of Supplies and Accounts (Cost Inspection Service) the disallowance was sustained on June 27, 1949. The Armed Services Board of Contract Appeals denied the plaintiff's appeal on November 30, 1950.
Plaintiff then filed this suit for breach of contract under 28 U.S.C.A. 1346(a)(2).
Under the New York State Unemployment Insurance Law an employer was required to pay regular contributions in an amount equal to 2.7% of his payroll, Sec. 570, subd. 1. The tax credits employed by plaintiff became available under Sec. 577 of the Unemployment Insurance Law, there being a 'surplus' in the fund.
Section 577 provided that 'qualified employers' were to be allowed a 'credit' against 'contributions' for the ensuing year whenever a 'surplus' should exist in the fund on June 30th of a particular year. A 'qualified employer' is 'any employer who in each of the thirteen consecutive calendar quarters immediately preceding the computation date was required to file and filed all contribution reports * * *, and had paid contributions due thereon on or before the effective date.'
The amount of such employer's participation in the credit was determined by a complex formula set forth in Section 577, based on the employer's payroll of the calendar year preceding the computation date, and certain experience factors based on its payroll for the three years prior to the establishment of the surplus, the decreases in the payroll within any of these calendar years, and the number of ...