New York Law Review

Tag: Gross Receipts Tax

  • Varsity Transit, Inc. v. City of New York, 73 N.Y.2d 114 (1989): Competitive Bidding and Post-Bid Modifications

    Varsity Transit, Inc. v. City of New York, 73 N.Y.2d 114 (1989)

    In the context of public contracts awarded through competitive bidding, a bidder cannot unilaterally modify its bid after submission to include additional costs not reflected in the original bid price unless the bid is withdrawn before acceptance.

    Summary

    Varsity Transit submitted a bid to supply fuel oil to New York City. After bid submission but before formal contract award, a new tax law subjected Varsity to a gross receipts tax. Varsity notified the City of its intent to charge the City for the tax as a separate line item. The City awarded the contract based on the original bid price. The Court of Appeals held that Varsity was bound by its original bid. Public policy favors honest competition in public contracts, and allowing post-bid modifications that affect the competitive character of the bidding is prohibited. Varsity should have withdrawn its bid if it could not honor the original price.

    Facts

    In April 1983, New York City solicited bids for fuel oil supply contracts. Bidders were required to keep their bids open for 45 days after the May 12 bid opening. After the firm offer period, bids could be withdrawn in writing. Varsity Transit submitted a bid that did not include a charge for gross receipts tax because it was initially exempt from the tax. On July 1, 1983, after the firm offer period, but before the notice of award, Varsity informed the city that it would be charging the city a separate line item for the new gross receipts tax due to a change in the tax law effective July 1, 1983. The City issued a formal notice of award on July 6 based on the original bid price.

    Procedural History

    Varsity Transit sued the City to recover the gross receipts tax. The City counterclaimed for the difference between Varsity’s bid and the higher price the City paid other suppliers after Varsity suspended deliveries. The lower courts ruled in favor of the City. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Varsity Transit’s July 1st letter effectively modified its original bid to include the right to bill the City for gross receipts tax, despite the original bid not including this charge and the City’s awarding the contract based on the original bid price.

    Holding

    No, because in the competitive bidding context, Varsity Transit could not unilaterally modify its bid after submission to include the gross receipts tax without withdrawing its bid; therefore, Varsity is bound by the terms of its original bid.

    Court’s Reasoning

    The Court reasoned that competitive bidding statutes promote honest competition to secure the best supplies at the lowest price and guard against favoritism. Allowing post-bid modifications would undermine this process by giving a bidder an unfair advantage. Unlike traditional contract negotiations, competitive bidding requires bidders to submit their best offer and stand by it or withdraw. Varsity’s letter was an attempt to construe the contract in its favor, not a formal withdrawal or a permissible modification. The court cited Le Cesse Bros. Contr. v Town Bd., stating that a municipality cannot allow a bidder to modify its bid in a way that would “affect the competitive character of the bidding and give [the bidder] a substantial advantage or benefit not enjoyed by the other bidders”. The Court noted other fuel suppliers made similar arguments for tax reimbursement, which had been rejected by the courts. As stated by the court, “Competitive bidding, by its nature, does not contemplate the continuous bargaining that is the hallmark of negotiated contracts. Instead, a bidder is expected to submit its best offer and either stand by it or, after the firm offer period has expired, withdraw the bid and withdraw itself from competition.”

  • Maple Fuel Oil Co., Inc. v. Village of Mamroneck, 73 N.Y.2d 825 (1988): Contractual Obligation to Reimburse for Newly Enacted Taxes

    Maple Fuel Oil Co., Inc. v. Village of Mamaroneck, 73 N.Y.2d 825 (1988)

    A party obligated to pay a gross receipts tax cannot compel the other party to a contract to reimburse it for the tax, absent a contractual provision or a claim of impossibility or impracticability of performance.

    Summary

    Maple Fuel Oil Co. sought reimbursement from the Village of Mamaroneck for gross receipts taxes imposed after the contract was signed. The contract was silent on the issue of taxes. The New York Court of Appeals held that the Village was not obligated to reimburse Maple Fuel. While a supplier could lawfully pass such a tax through to a municipal purchaser, Maple Fuel did not do so in the contract. The court emphasized that Maple Fuel did not claim that performance of the contract was impossible or impractical, only that its costs had increased. Therefore, Maple Fuel, as the party legally obligated to pay the tax, had to bear the increased cost.

    Facts

    Maple Fuel Oil Co. contracted with the Village of Mamaroneck to sell oil. At the time the contract was executed, no gross receipts tax applied to the transaction. Approximately one month into the contract term, the New York Legislature amended the Tax Law to subject Maple Fuel to a gross receipts tax on the oil sales to the Village. The contract between Maple Fuel and the Village was silent regarding the payment of any such tax.

    Procedural History

    Maple Fuel Oil Co. brought an action against the Village of Mamaroneck, seeking reimbursement for the gross receipts taxes it paid. The lower court’s decision was appealed to the Appellate Division, which ruled against Maple Fuel. Maple Fuel then appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Village of Mamaroneck was contractually obligated to reimburse Maple Fuel Oil Co. for gross receipt taxes that Maple Fuel paid to the Tax Commission pursuant to Tax Law §§ 300(c) and 301(a), when the tax was imposed after the contract was executed and the contract was silent regarding such taxes.

    Holding

    No, because Maple Fuel, as the party legally obligated to pay the gross receipts tax, must bear the burden of its increased cost in the performance of the contract, absent a contractual agreement to the contrary or a claim of impossibility or impracticability.

    Court’s Reasoning

    The court based its reasoning on the principle that parties are generally bound by the terms of their contracts. The court noted that while Maple Fuel *could* have lawfully passed the gross receipts tax burden to the Village, it did not do so in the contract. The court distinguished this case from situations where performance becomes impossible or impractical due to unforeseen circumstances. Maple Fuel only claimed that its costs of performance had increased due to the change in the tax law, which is insufficient to shift the tax burden to the Village. The court stated, “Plaintiff, being the party legally obligated to pay the gross receipts tax, must bear the burden of its increased cost in the performance of the contract.” The ruling highlights the importance of including tax clauses in contracts to allocate the risk of future tax changes. The court implicitly acknowledged the principle of freedom of contract, emphasizing that the parties could have allocated the risk of new taxes in their agreement but failed to do so. Since the contract was silent on the issue, the default rule applied: the party legally responsible for the tax bears the cost.