the burden of preparing and filing the many forms currently required by the Federal and State Governments.

It does not appear fair or just to require a firm, whether corporate or individual, who has paid an income tax to its home State on its entire net profits to pay a similar tax to another State from which it obtains no benefits of consequence.

In his dissenting opinion to the Supreme Court's ruling validating State income taxes on interstate commerce, Justice Frankfurter said—

"The solution to these problems ought not to rest on the self-serving determination of the States of what they are entitled to out of the Nation's resources. Congress alone can formulate policies founded upon economic realities, perhaps to be applied to the myriad situations involved by a properly constituted and duly informed administrative agency."

Therefore, in view of the emergency of the situation we urge the approval and adoption of Senate Joint Resolution 113 that will provide at least temporary relief for thousands of small business firms until such time as the Congress can determine a solution of the difficulties they are faced with as a result of the Supreme Court's decision that only the Congress can resolve.

Senator SPARKMAN. Mr. Chairman, may I say in connection with the hearings of the Small Business Committee, the first day of hearings were here in Washington and we had quite a number of witnesses appear before us; following that, we had hearings in Boston, Mass. We had planned two other hearings, one in New Jersey, one in New York, but unfortunately, those hearings were scheduled at a time. that the Senate was quite busy, and they had to be canceled.

However, written statements from the witnesses that were scheduled to testify there were received.

We feel that with the two completed hearings and the two incomplete hearings, we got a pretty fair cross section of the thinking of businessmen, not only small business, but some of the largest businesses in this country, who testified on these measures, and the report is based on that and we believe it will be helpful to the committee.

If I may just add this one thing, Mr. Chairman, that one of the complaints made by most business, and this included big business as well as small business, was the multiplicity of records that had to be kept, not only records, not uniform records, because the different States have different forms, different methods, different definitions, different standards, so it was necessary to set up a separate set of records for each State in which the business happened to be doing business. We had testimony from some small businesses that the cost of keeping the records, complying with the requirements was more than the tax, and in some instances, it would certainly be so great as to discourage the doing of business.

The CHAIRMAN. Thank you very much, Senator Sparkman. It is always a great pleasure, sir, to have you before this committee. Are there any questions?

Senator KERR. Yes, I have questions.

The CHAIRMAN. Senator Kerr.

Senator SPARKMAN. By the way, Mr. Chairman, one other note that Mr. Stults has reminded me of here with reference to the cost of compliance, I suppose it is not necessary to call your attention to the fact that the Federal Government pays from 30 to 52 percent of all of the expenses of firms trying to comply with multi-State taxation. The CHAIRMAN. Šenator Kerr.

Senator KERR. There is a statement in here I am looking for, Senator Sparkman, stating what the Supreme Court did not rule, on page 3:

First, I have already pointed out that the Supreme Court has never ruled that the States have the right to tax businesses which have no place of business within the State.

Where is the statement you made in connection with that to which this refers?

Senator SPARKMAN. I will find it for you in just a moment.
Senator Kerr, I say:

First, it provides a temporary maintenance of the status quo in the right of the States to tax income derived from interstate commerce **

Senator KERR. That is Senate Joint Resolution 113?

Senator SPARKMAN. Yes, Senate Joint Resolution 113. I say it maintains the status quo. I do not say there definitely that the Supreme Court held to that effect. But as it was there were two cases. Senator KERR. Let me ask you this-is that your counsel there with you?

Senator SPARK MAN. No, he is the staff director.

Senator KERR. Is he an expert on these matters?
Senator SPARKMAN. I believe he is.

Senator KERR. Well, now, you know, I find myself very often in need of at least one expert and sometimes two. Do you suppose he could tell us just what the Supreme Court did rule?

Senator SPARKMAN. Yes, he can. In fact, we have the decisions here. Have you read the decisions?

Senator KERR. I have got them here. You know, we have a rule here on this committee that a witness who really wants to get along with us speaks in terms that a sixth grader can understand. Do you suppose he could do that in connection with what this Supreme Court did?

Senator SPARKMAN. Yes, I think he can tell you right off, and may I say that in our hearings-and I shall be very glad to make the hearings likewise a part of the committee files

Senator KERR. All I want to find out is what the Supreme Court held.

Senator SPARKMAN. Yes, but I am just calling your attention

Senator KERR. If this fellow can tell me, why should I read the hearings to find out?

Senator SPARKMAN. I thought you might perhaps want to follow and ask some questions based on that. If you do, it is found at pages 81 to 163 of the hearings.

Now, if you will-you want him to tell you what the Supreme Court held in those cases.

Senator KERR. If he has had time while you have been talking for him to find out. [Laughter.]

Mr. STULTS. I have a very gracious chairman to give me that breathing spell, Senator Kerr.

Senator KERR. Yes.

Mr. STULTS. Senator Kerr, Mr. Justice Clark in writing for the majority of the Court said that:

The constitutionality of State net income taxes levying taxes on that portion of a foreign corporation's net income earned from and fairly apportioned to business activities within the taxing State when those taxes-when those activities are exclusively in furtherance of interstate commerce

are held to be constitutional.

Senator KERR. Now, the statement you just read, the first sentence in the opinion, and it said that these cases concern the constitutionality of such State income tax laws.

Now, then, does the case hold that such laws are constitutional? Mr. STULTS. Yes, sir. With this fact situation given in the case of Northwestern States

Senator KERR. Wait a minute.

Mr. STULTS. Beg pardon?

Senator KERR. Does the case hold that State laws, "State net income tax laws levying taxes on that portion of the foreign corporation's net income earned from and fairly apportioned to business activities within the taxing State when those activities are exclusively in furtherance of interstate commerce are held to be constitutional," is that what the Court held?

Mr. STULTS. Senator Kerr, the lawyers tell me that the Supreme Court can rule only in the fact situation and in the case before it at that time. It does not give a blanket decision which will cover all fact situations nor all State laws.

However, by combining the case of Northwestern States Portland Cement Co. v. The State of Minnesota, and T. V. Williams, as State Revenue Commissioner of the State of Georgia v. Stockham Valves and Fittings, in those two fact situations, in both of which the taxpayer had maintained places of business within those States, the Supreme Court did hold that the States of Minnesota and Georgia, respectively, could tax firms with those places of business.

Senator KERR. In other words, then, the Court held where an Oklahoma corporation, let us say, making concrete blocks had a branch or a division located in another State engaged in making blocks and selling them there would be subject to taxation on the income earned there by the business it generated out of that branch it operated there? Mr. ŠTULTS. Yes, sir.

I think that a fair extension of the Court's decision would hold that that Oklahoma firm would be taxable in those States where it had a branch office.

Senator KERR. Did the decision hold that the State's right to tax was limited to the profits earned by the branch located in the State? Mr. STULTS. Yes, sir.

The two words, "fairly apportioned," I think hold a limiting factor, saying that only a percentage of the sales, a percentage of the total payroll of the firm, a percentage of the firm's net worth which exists in the taxing State shall be attributed to activities within that State. Senator KERR. Let us take the R. J. Reynolds Tobacco Co., which is located in North Carolina.

It pays taxes there in North Carolina on all cigarettes it sells and sends out of there, I believe, Federal taxes?

The CHAIRMAN. Yes.

Senator KERR. It has a branch in Oklahoma City, a distribution branch.

Under this decision, then, any cigarette that is sold in Oklahoma and a profit made on it would bring about a situation whereby the State of Oklahoma under this decision can pass a law taxing R. J. Reynolds on the net profit it made on that operation selling in Oklahoma.

Mr. STULTS. Yes, sir.

Senator KERR. Well, now, suppose that operation had an area of five States that it served, and it sold half of what it sold out of that branch in Oklahoma and the other half of it it sold in the four States around Oklahoma.

Would Oklahoma then tax the profits made on what it shipped into the other four States from that branch?

Mr. STULTS. Senator, I am afraid I do not know Oklahoma's State tax law or regulations.

Senator KERR. I am just assuming that Oklahoma-what State did have this law?

Mr. STULTS. Georgia and Minnesota, the two cases; Oklahoma, incidentally, does have such a law, but I don't know

Senator KERR. Let us go to Georgia. Let us just take Georgia. The local branch is located in Georgia and it served Georgia and Alabama, and it sold half of what it distributed in Georgia, and the other half in Alabama where it had no branch and made as much money on what it shipped into Alabama as what it sold in Georgia.

Could Georgia tax what it made on the business it had by reason of what it sold out of the Georgia branch and shipped into Alabama? Mr. STULTS. I would say, Senator, that under present interpretation Georgia could probably apportion the entire amount of sales attributed to that division office in Atlanta, and at the same time it is possible that the revenue commissioner of Alabama could try to get the Reynolds Tobacco Co. to pay on the percentage of sales going into Alabama.

Senator KERR. Well, now, North Carolina sure gets its income tax if they have one on everything he sells everywhere, does it not?

Mr. STULTS. Yes, sir. But there is, I am sure, in North Carolina an offsetting credit, so that those sales that are made outside of North Carolina, and the taxes which are paid outside of North Carolina, could be given as a credit to the State of North Carolina.

This is possible-I assume that it is done-although here again I do not know the North Carolina State law.

I am afraid that there is not a person in all of Washington who knows all of the State tax laws, and all the State regulations; they are so diverse.

Senator KERR. But if a company is going to do business in all the States, it is going to have to know them, is it not?

Mr. STULTS. Yes, sir. That is the point that, I think, the Senate Small Business Committee was trying to make: the tremendous difficulty in knowing all of the State tax laws and the difficulty and expense in complying with those tax laws.

Senator KERR. Senator Sparkman, let me ask you this question: Could not the development of the thesis as handed down by the Supreme Court in its decision and the expansion of the principle, result in what would, in effect, be a tariff on interstate commerce? Senator SPARKMAN. I think that it would not be too farfetched to describe it as such.

Senator KERR. A tariff is just a tax.

Senator SPARKMAN. And yet let me say this, it is not a problem that is easy of solution.

We certainly recognize the right of States to tax properly activities in their States, and we certainly do not want to be in the position of taking away from them any right that they have.

But under this decision of the Supreme Court, particularly if it should apply to those cases other than is true under the statement of facts in these two particular cases; that is, where they were maintaining a place of business in each State, it could really become complicated. Some businesses have pointed out to us it could result in more than 100 percent of their income being taxed.

Senator KERR. You mean their tax would equal more than 100 percent of their profit?

Senator SPARKMAN. More than 100 percent of their profit could be taxed by a combination of States. That is brought about by the great diversity of formulas, used by the States.

We had a witness from Westinghouse, for instance, who pointed out a situation where in one State the tax was based on point of origin, and in an adjoining State it was based on destination; in another it was based on negotiation. The result is that there is a mixup

Senator KERR. The sale could be negotiated in one State, originated in another, terminated in another, and be taxed in all three.

Senator SPARKMAN. Yes, and as this tax expert from Westinghouse pointed out, in a certain arrangement a company was able to avoid such taxes completely by originating in a State which provided for terminal sales and transacting the business over in another State where point of origin was taxed

Senator KERR. Terminating in another State and taxed only at point of origin.

Senator SPARKMAN. That is right.

It seems to me a great deal of confusion is bound to result from these decisions.

Senator KERR. Wouldn't a law saying that the business could be taxed only in the State where it is legally domiciled clarify the situation considerably?

Senator SPARKMAN. If it should be decided that Congress ought to take hold of the thing and invoke a principle of law-my own feeling, if I may express it, and I think one that a great many State representatives would agree with, is that the best solution to this thing would be for a uniform act or a uniform program agreed upon by the several States.

Senator KERR. What about a Federal law that said that only those States that did agree to the uniform law would have the right to do this taxing?

Senator SPARKMAN. Well, certainly a compact could be agreed upon by such number of States as wanted to come into it, and Congress could ratify that pact.

Senator KERR. Thank you very much.

Senator SPARKMAN. There are many suggested solutions.

We feel that it is complex, and that there are many tax problems interwoven with it, and that a commission should perform a very helpful service.

Senator KERR. I want to say that I congratulate both you and your staff members on the extent of your knowledge in this matter, and you have contributed a great deal to mine.