Merchants Ladies' Garment Association, Joseph L. Dubow. National Association of Blouse Manufacturers, Leonard Hammer. National Association of House & Daytime Dress Manufacturers, Erwin Feldman. National Authority for the Ladies' Handbag Industry, Max Berkowitz. National Outerwear & Sportswear Association, Jules Goldstein. National Skirt & Sportswear Manufacturers Association, David Eichen. New York Clothing Manufacturers Exchange, Aaron D. Endler. Southern Garment Manufacturers Association, W. Gordon McKelvey. Tubular Piping Association, Sam Scholnick. Underwear Institute, Robert D. McCabe. United Infants' & Children's Wear Association, Max H. Zuckerman. DISTILLED SPIRITS INSTITUTE, INC., Hon. HARRY F. BYRD, Chairman, Committee on Finance, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: On behalf of the Distilled Spirits Institute and the Kentucky Distillers Association we desire to submit additional information for consideration in connection with hearings on Senate Joint Resolution 113, S. 2213, and S. 2281. Witnesses before the committee have forcefully pointed up the problems raised by recent Supreme Court decisions involving the power of the States to tax income derived exclusively from interstate commerce, and particularly the almost insurmountable problems thus raised for small business concerns. In no other type of small business is the problem as great as in the case of small distilleries. Because of the necessity of storing their product, for the purpose of aging, for at least 4 years before marketing, and because of the necessity of advance financing of abnormally high Federal and State taxes on their product, small distilleries are hard put to stay in business. The added burden of complying with every State income tax law into which their product is shipped may well be the "straw that breaks the camel's back" for many of these small concerns. In connection with the matter which the committee has under consideration, the alcoholic beverage industry is faced with a peculiar problem not faced by other industries. Although varying in minor detail, the bills before the committee would prohibit State taxation of income derived exclusively from interstate commerce solely by reason of solicitation of orders in the State, where no stock of goods, plant, office, warehouse, or other place of business is maintained in the State. The enactment of any one of such bills would undoubtedly rectify the problems faced by other interstate businesses, but would not extend the necessary relief to interstate vendors of alcoholic beverages. By virtue of powers possessed under the 21st amendment, many States require out-of-State shippers to conform to certain requirements which would constitute "domestication" for income tax purposes under the bills as now drafted. The States of Georgia and South Carolina, as a condition precedent to the shipment of distilled spirits into the State, require an out-of-State seller to register with the State as a "registered producer," to appoint a resident representative who must receive and process all orders and release the spirits when received into the State, as well as requiring the out-of-State seller to obtain a permit for each shipment coming into the State. He must also ship the goods to a State warehouse to his own order. The State of Idaho requires persons selling liquor to the State monopoly system to appoint a resident State representative. The States of New York, New Jersey, and Colorado require out-of-State vendors to obtain a local wholesaler's license in order to solicit orders within the State or do any promotional work of any kind. Some of the monopoly States (States in which the sale of distilled spirits is carried on as a State function) in the past have required out-of-State vendors to conform to what is commonly called the bailment system; i.e., maintain a stock of goods in a warehouse within the State where sales or deliveries are made to the monopoly system. Other States such as Connecticut, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Oklahoma, and Texas, require an out-of-State vendor to procure a permit or license in order to ship to a State licensed wholesaler and prohibit such wholesaler from purchasing or receiving liquor from a person not holding such permit or license. While raising no objection to such requirements by a State to the extent that such requirements are necessary for liquor law enforcement, we do protest the collateral effect of State income tax liabilities flowing from such requirements. We believe the committee must agree that the alcoholic beverage industry is entitled to equal consideration with all other industries in the matter of income taxation. We therefore earnestly request that the committee modify the bills under consideration so as to extend the exemption to instances where a stock of goods, plant, office, warehouse, or other place of business is maintained within a State solely for the purpose of complying with State law or regulations. Respectfully submitted. DISTILLED SPIRITS INSTITUTE, INC., THE MEAD CORP., Dayton, Ohio, July 22, 1959. Hon. HARRY FLOOD BYRD, Chairman, Senate Finance Committee, DEAR SENATOR BYRD: I understand that the Senate is currently concerned with three measures, Senate Joint Resolution 113, S. 2213, and S. 2281, which seek to regulate State taxation of interstate commerce and that the Senate Finance Committee is now conducting a hearing on these measures. Through our legal counsel, I attempted to secure an appointment for an officer of the Mead Corp. to testify at the hearing, but found that all time was reserved. Therefore, I am writing this letter to record the support of the Mead Corp. and its subsidiary corporations for the orderly limitation of taxation of individuals and companies doing business across State lines. The Mead Corp. is a large paper company with plants and offices in many States. Its subsidiaries have sales solicitors and sales offices in many more States. We currently expend substantial sums, in addition to the various State taxes, to keep necessary tax records and prepare tax returns. We believe that unless there is restrictive legislation by the Congress these costs and, of course, the taxes themselves will rise sharply because of the recent U.S. Supreme Court cases and action by the various States relying on them. We also believe that the greatest proportionate burden will fall on the small individual or corporate business and on all individuals and businesses which conscientiously attempt to comply with the myriad of confusing State tax laws. In addition to giving S. 2213 our complete support, we would like to recommend that the words "solely by reason of the solicitation of orders in the State by such person, or by an agent or employee of such person, if" be deleted from lines six through eight of the bill; that the word "unless" be substituted therefor, and that the word "no" in line nine be changed to "a." This would carry the exclusionary intent of the bill to situations in which there is some minor contact with a State other than by solicitation of orders, such as when a company has no contact except to deliver its goods into a State by a public carrier which is technically its agent. We also recommend that the words "or any other tax" be added after the words "net income tax" in line five to stress the fact that no tax shall be levied on net income in the situations covered by the bill. Unless the term "person," as used in lines five and nine of the bill, is to be further defined by an applicable and related section of the United States Code, it would be best to insert a definition in this bill which would specify that the word "person" includes individuals, corporations, partnerships, and other business forms. We also suggest that the terms "stock of goods," "office" and "place of business" as used in lines 9 and 10 be further defined so it cannot be contended, as some States have done, that mere solicitation of sales by a resident agent who carries samples and has a desk in his home is within the scope of those terms. We have read the statement which the American Paper and Pulp Association filed with the Senate Finance Committee in support of Senate Joint Resolution 113 and strongly urge favorable consideration of that statement along with Senate Joint Resolution 113 and S. 2281. Very truly yours, D. F. MORRIS, President. NATIONAL CANDY WHOLESALERS ASSOCIATION, INC., Re State taxation of income from interstate commerce. Chairman, Senate Finance Committee, DEAR MR. CHAIRMAN: We would like to add our voice to the widespread appeal that your committee take favorable action on legislation which will prevent the imposition of an unfair burden on small, interstate businesses through State taxation of income from interstate commerce. We represent 850 wholesalers of candy, tobacco, and related products throughout the United States, many of whom sell and deliver their goods across State lines even though they have their place of business in only one State. We are also authorized to speak on behalf of a large number of supplier firms, such as candy manufacturers and brokerage firms who are our associate members. We understand that it has been proposed that Congress enact legislation restricting State income tax jurisdiction to situations where the corporation has a fixed establishment in the form of a plant, warehouse, stock of goods, or office in the taxing State. We feel that firms who do no more than operate sales and delivery services across State lines should not be taxed in any State except where their plant or warehouse is located. To do otherwise would place a very great hardship on the wholesalers located in markets bordering State boundaries. Many of them are already burdened with the problem of segregating and stamping cigarette stocks which are sold in more than one State. Most of them are small operators, averaging about five salesmen, and they do not have the facilities for computing income by States. Many of them are one-man operators without an accounting department. Of course, if the levying of State taxes on interstate business resulted in a duplicate tax having to be paid, it would be disastrous to wholesaler and broker alike. The margin of operation on confectionery and tobacco is extremely low. In some cases, the margin on cigarettes amount to only the 2 percent cash discount. Already some of our members are realizing the potential extent of such a tax burden by attempts of some municipalities to set up tax systems which would levy taxes on firms not located in their city but are selling and delivering there. Where this has been successful, the wholesalers have had to withdraw service to those cities. The same thing might be necessary where States levied taxes on out-of-State firms; however, we believe that it would be impractical for wholesalers located near State lines to curtail their operations across State lines and still stay in business. We believe that such a limitation of a wholesaler's activities from across State lines would result in many retail communities not receiving adequate service, if at all, because in many cases it would not be economical for a wholesaler located within the State to serve some of the outlying regions far from the central market in which he is located. From the standpoint of the brokers, most of them have to serve more than one State in order to have sufficient territory in which to operate. Also, as oneman operations, it would be very difficult for them to maintain the records which would be necessary if they are to avoid paying duplicate taxes on all of their income. We hope, therefore, that your committee will not only recommend proper legislation for action in this Congress, but that you will do everything you can to expedite the passage of such legislation in the Senate this session. Sincerely yours, C. M. MCMILLAN, Executive Secretary. STATEMENT OF CONGRESSMAN FRANK KOWALSKI (DEMOCRAT OF CONNECTICUT) ON STATE TAXATION OF INTERSTATE COMMERCE TO SENATE FINANCE COMMITTEE Mr. Chairman and members of the committee, I cannot emphasize too strongly the need for early action on legislation to prevent individual States from taxing the incomes of out-of-State corporations which legally sell within the taxing States although their sole activities there are in the nature of interstate commerce. You have before your committee several bills dealing with this subject. In the House, I initiated legislation in this field, and other bills have also been filed. There is a great danger that unless the Congress provides speedy action, many industries and businesses in my home State of Connecticut and in other States will be presented with a fait accompli which it will be hard to undo by legislation. The Manufacturers Association of Connecticut reports that three StatesTennessee, Idaho, and Utah-have already amended their tax laws to take advantage of the situation resulting from the Supreme Court decisions in the Minnesota, Georgia, and Louisiana cases. It was never intended that the individual States should set tariff and trade barriers against one another. Yet we now face a situation wherein some Statesand there will be more unless immediate action is taken-levy taxes against firms whose only activities in those States are performed by salesmen seeking orders. In facing up to this problem realistically, we must acknowledge that the greater the number of States which pass or enforce tax legislation of this kind, the more difficult it will be to have the Congress enact laws to prevent it. I am particularly concerned over the effects of this State taxation trend on small businesses. If it is allowed to continue, then thousands of firms in my State and other States will not only be forced to pay additional taxes, simply for the privilege of soliciting orders, but will face an impossible burden of coping with paperwork, regulations and redtape that vary from State to State. The Founding Fathers intended this to be one united nation, not a confederation of States with their own tariff walls. STATEMENT OF HON. RICHARD L. NEUBERGER, U.S. SENATOR FROM Recent decisions of the Supreme Court with respect to State taxation of business income derived from interstate commerce have focused new attention on the particular and peculiar problems faced by small commercial firms whose operations cross State lines. One of the results has been the issuance of a special report on the subject by the Senate Select Committee on Small Business reviewing the central issues involved and recommending enactment of a temporary standard for "doing business" plus creation of a Commission on State Taxation of Interstate Commerce to study the facts and propose solutions. This legislative suggestion is embodied in Senate Joint Resolution 113 introduced on June 29, 1959, by Sentaor Sparkman and other members of the Senate Select Committee on Small Business. I believe that passage of Senate Joint Resolution 113 would represent a significant forward step in attempting to solve the very major problems involved in State levies on foreign corporations. I hope that the resolution will be approved by Congress during the current session. A number of Oregon businessmen have written to me within the past few days indicating their concern with the effect of the Stockham Valves and Northwestern States Cement decisions of the Supreme Court, and urging that Congress enact legislation designed to bring clarification and uniformity to State taxation of out-of-State businesses. I request that the communications which I have received be printed in the hearing record, following this statement, for the information of the committee. TEAGUE LUMBER CO., Eugene, Oreg., July 15, 1959. Re Senate bill S. 2213. HARRY F. BYRD, Chairman, Senate Finance Committee, DEAR SIR: We urgently request that you do everything in your power to prevent passage, by means of the above bill, of the recent Supreme Court decision to tax income derived from interstate commerce when the only activity within the State is sales solicitation and where no goods, office, warehouse, or other place of business is maintained within the State. It is our understanding that such a decision can and will involve a person or business whose sole conduct of interstate commerce includes only the solicitation by means of mail, phone, or wire, and in event of sale where the new consignee becomes the new beneficiary owner immediately upon diversion or billing of such goods (i.e., carloads of lumber) such States solicited will have the power to impose income tax. In our opinion such a ruling would not only involve a horrendous task of auditing, but would also limit the individual's right of free enterprise, and we therefore urgently request your support of the above Senate bill S. 2213. Yours very truly, TEAGUE LUMBER CO., EATON-YOUNG LUMBER Co., GENTLEMEN: We urge immediate action to prevent States from assessing a State income tax on businesses engaged solely in interstate commerce when these businesses have no office, warehouse, stocks, or places of business in the taxing State. Senate bill 2213 and similar bills have been introduced to accomplish this. We hope you will give them favorable consideration. Very truly yours, HENRY T. EATON, President. TREEMOUNT FOREST PRODUCTS CO., Senator RICHARD L. NEUBERGER, Washington, D.C. DEAR SIR: There is a matter of particular interest to the small businessmen which we feel we should bring to your attention and that is the matter of a recent Supreme Court ruling permitting State taxation of income derived exclusively from interstate commerce even when the only activity within the State is sales solicitation where no office, warehouse, inventories are maintained in the State. As can readily be seen if such is permitted the small-business individual will be soon forced to close his doors. Therefore, for the benefit of all who are conducting their sales on an interstate basis we respectfully submit that you give your prompt consideration to some means of Federal legislation thereby saving the businessmen from paying income tax to the many States where their merchandise is shipped. Yours very truly, DONALD F. SEEBACH. PACIFIC COAst Garment MANUFACTURERS, July 10, 1959. Hon. RICHARD NEUBERGER, Washington, D.C. DEAR SENATOR NEUBERGER: I am writing you behalf of the members of the Pacific Coast Garment Manufacturers Association. The recent Supreme Court ruling upholding the right of States to levy an income tax on earnings derived |