the increased costs. At a recent meeting in Buffalo, N.Y., the National Association of Tax Collectors, composed mostly of State tax collectors, adopted a resolution which proposes no action by Congress on this problem. Their objection speaks for itself. Enclosed is a reprint of an article, "New Threat in State Business Taxation," written by Dr. Paul Studenski and Dr. Gerald J. Glasser and published in the November-December 1958 Harvard Business review.1 This article appeared prior to the Supreme Court decision in the Stockham Valve & Fittings, Inc. and the Northwestern States Portland Cement Company cases. It is an exhaustive objective study of the State tax problem and should be of assistance to the committee in its deliberation. Respectfully submitted, HAROLD R. GIBLIN. STATE OF CALIFORNIA OFFICE OF FRANCHISE TAX BOARD, Date: September 26, 1958 Years ended: October 31, 1937 through October 31, 1954 REQUEST FOR SUPPLEMENTARY DATA Sacramento. You are requested to furnish the information indicated below to supplement that shown on your return(s) for the year(s) indicated above. The information is required to be submitted within the time shown above. Failure to substantiate any deduction taken on the return may result in the disallowance thereof. FRANCHISE TAX BOARD, Executive Officer. By S. H. BRASH, Supervisor. Available information indicates that this corporation was actively conducting business operations in California since 1937. To that extent, a return is required to be filed for each year commencing with income year ended October 31, 1937, to October 31, 1954. The payment of arbitrary levies or tax does not terminate the corporation's liability from filing proper returns. Two forms for each year are being mailed to you under separate cover. You are requested to furnish the information indicated below to supplement that shown on your return (s) for the year(s) indicated above. The information is required to be submitted within the time shown above. Failure to substantiate any deduction taken on the return may result in the disallowance thereof. FRANCHISE TAX Board, By S. H. BRASH, Supervisor. Please advise whether an examination has been made of your Federal return (s) for the year (s) indicated above. If an examination has been made, please submit the examiner's report or copy thereof. If the original report was revised, submit both that report and 1 Made a part of committee files but not reprinted in record of hearings. the revision. Any original documents submitted will be returned to you promptly after being examined. If a change was made by the Federal Government and no report was received, please indicate in detail the basis of any additional assessment. Please furnish the data requested on the enclosed form OD805U. Allocation Formula, Schedule R-1. Information regarding item 3, Sales Factor: 1. Please explain method of consummating sales both as a general practice and in California, i.e., whether the customer is contacted by your own employees, through brokers or independent contractors, by mail or other means. 2. If sales are ordinarily made by other than employee salesman, please state whether you have representatives who contact your customers, retailers or consumers on so-called missionary work and whether such representatives call on California customers. 3. Inform this office of the total amount of sales made to California customers, regardless of whether made from inventories located in California or elsewhere, the total sales resulting from employee activity while performing services in California, and an explanation as to how the remaining sales were made. Allocation of income-unitary business group. Did this corporation have any transactions with any corporation (s) either within or without California : 1. Which it owned or controlled? 2. Which owned or controlled this corporation? 3. Which was owned or controlled by common parent corporation? 4. Which was owned or controlled by the same interests? If so, file information to disclose: 1. Name and address of other corporation or corporations. 2. To what extent operations are unitary as evidenced by centralized purchasing, advertising, accounting or management. 3. Extent of unitary use of centralized executive force and general system of operations. 4. Total sales or business done and amount of sales or business done with affiliated corporations. 5. Federal net income of each corporation. 6. The nature of the business of each such corporation everywhere and the extent of activities in California, if any. Direct or indirect ownership or control of more than 50 percent of the voting stock constitutes ownership or control for the purposes of this paragraph. FRANCHISE TAX BOARD OPERATIONS DIVISION October 31, 1955 and 1956 Applicable to year(s) DEDUCTION FOR DEPRECIATION Please submit the following information for the above-indicated year(s) to permit proper adjustment of depreciation claimed: 1. A description of the assets. 2. Method used in computing depreciation. 3. Depreciation under each method. 4. Depreciation allowable on the straight-line method. 5. Depreciation allowable on the 150 percent-declining-balance method if you wish to adopt that method for State purposes. The sum-of-the-years-digits method and 200-percent-declining-balance method of computing depreciation are not allowable for State purposes. If you elected to use those methods in your return for this year, that will be considered an election to use the 150-percent-declining-balance method, if you wish to adopt that method for State purposes. However, if such an election is made, it does not carry the right or privilege of later changing to the straight-line method as is permitted under the Internal Revenue Code of 1954. Such a later change will require the specific approval of the Board. Permission for such change will be based on existing conditions rather than on the tax advantage which automatically accrues under such a change. STATEMENT of MarshalL J. MANTLER ON BEHALF OF THE BUREAU OF SALESMEN'S NATIONAL ASSOCIATIONS Mr. Chairman, members of the committee, my name is Marshall J. Mantler. I appear before you today on behalf of the Bureau of Salesmen's National Associations, a joint service organization maintained by three nationwide salesmens groups in as many industries-National Association of Men's Apparel Clubs, National Shoe Travelers' Association, and National Association of Women's and Children's Apparel Salesmen, Inc. I am executive director of the last named organization. The combined membership of all the groups exceeds 20,000 individuals. Senate Joint Resolution 113, S. 2213 and S. 2281 all represent legislation which is sorely needed to restablish an economic equilibrium in our Federal system. The well-known and highly publicized Supreme Court decision, Northwestern Portland Cement Co. v. Minnesota,1 irrespective of its correctness on the facts before the Court, did establish a basis upon which each State in the Union can tax interstate commerce. I would like to place before this committee a summary of what this decision will mean to merely one segment of one large and vital American industry-traveling salesmen in the clothing industry. I am sure that other witnesses appearing before this committee will very clearly make known the facts as to possible double, triple, and quadruple taxation of the same income; the facts as to the tremendously increased bookkeeping and accounting burden that may fall upon any multistate industry; and the facts as to the great burden that American industry and eventually the American consuming public will have to bear if multistate taxation runs rampant as it surely can under the Supreme Court decision. I would also direct the committee's attention to the trade, business and law journals of this country for a detailed analysis of the basic economic upheaval which may result as a result of the Northwest Portland Cement opinion. The traveling salesmen's group, while not having the economic publicity attendant upon heavy industries, such as steel and automobiles, is one of the backbones of the distribution system in this country. These men, traveling to the remotest corners of the United States, make it possible for the products and improvements of American industry, to gain an extensive market area. If the legislation pending before this committee today is not enacted into law the burdens imposed upon American manufacturers will make it necessary for them to find a source for the absorption of the extra costs resulting from higher local taxes. In those cases where the major sales method is accomplished through traveling salesmen-and this is the fact with most of the soft goods industries-these selfsame traveling salesmen will be made to shoulder the brunt of the increased taxes. Most commercial travelers are independent contractors employed on a commission basis. It is a simple matter to reduce the rate of commissions by as little as 1 percentage point and effect a major change in the income of these travelers. These men do not have the protection of a strong union structure, nor does their job have the glamour of the management and advertising professions, to name just two, which are attracting most of America's talented young men. A further weakening in the income potential of the traveling salesmens' profession will make it that much more difficult to infuse new blood into the profession and thus will weaken the marketing system in this country. Where in the past it was the job of the traveling salesman to expand the American market in a geographical sense, it is now his job to expand the American market in a quality sense. These are the men who initially bring to our American production and manufacturing ingenuity. consumers the advances in Many able commentators have recognized that the Northwest Portland Cement case may mean that, even though no sales office is maintained in a State, the State can still tax income if salesmen operate within the State. Certainly the broad general language of the opinion can substantiate such an interpretation. The resolution and the bills now before this committee would severely restrict a State in taxing the income of a business if that business merely maintains salesmen in the State without the physical situs of a sales office. The Bureau of Salesmen's National Associations strongly commends this legislation to the approval of the committee. The provisions of Senate Joint Resolution 113, establishing a Commission to study and make recommendations in the interstate commerce area, can only have beneficial results. There are understandably many complexities in accurately defining interstate commerce, and in the promulgation of methods for the allocation among the several States of the jurisdiction to tax. My organization believes that this Commission would be a great stride forward in helping to solve the complexities. In the interests of national economic stability, the Bureau of Salesmen's National Associations earnestly supports the legislation being considered. Thank you for allowing me to appear before you today. Hon. HARRY F. BYRD, THE AMERICAN BANKERS ASSOCIATION, Chairman, Senate Finance Committee, U.S. Senate, Washington, D.C. Washington, D.C., July 20, 1959. DEAR MR. CHAIRMAN: In connection with your hearings on S. 2213, S. 2281, and Senate Joint Resolution 113, all relating to the authority of the States to impose income taxes on income derived from interstate commerce, I wish to bring a problem relative to bank operations to the attention of your committee. A question has been raised in view of the recent Supreme Court decisions as to whether it is possible that a bank might be subject to State income taxation by reason of its acquiring loans or investments in a State in which it had no office or other place of business. We recommend, therefore, that any legislation on this subject should specifically eliminate such a possibility. This may be done by making relatively minor changes in the language of the bills you are considering. I am enclosing suggested redrafts of both S. 2213 and S. 2281 with the omissions and additions indicated in the usual manner which would specifically provide that a business would not be subject to State income taxation solely by reason of making or acquiring of loans or investments in the State. I hope these suggestions will be favorably considered by your committee. Sincerely yours, A BILL J. OLNEY BROTT, "Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That, after the date of the enactment of this Act, no State, or political subdivision thereof, shall have the power to impose a [net income] tax on or measured by income derived by a person exclusively from the conduct of interstate commerce, solely by reason of the solicitation of orders, or the making or acquiring from an office outside the State of loans (whether secured or unsecured) or other investments, in the State by such person, or by an agent or employee of such person, if such person maintains no stock of goods, plant, office, warehouse, or other place of business within the State." A BILL Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) no State or political subdivision thereof shall impose [an income] a tax on or measured by income derived from a trade or business by a person engaged in interstate commerce unless such person is carrying on such trade or business in such State. (b) For purposes of subsection (a), a person is not carrying on a trade or business in a State solely by reason of one or more sales of tangible personal property in the State (whether title to such property passes in or outside of the State), or the making or acquiring of loans (whether secured or unsecured) or investment in such State from an office outside such State, if such person does not have or maintain an office, warehouse, or other place of business in the State, and does not have an officer, agent, or representative in the State who has an office or other place of business in the State. For purposes of the preceding sentence, the terms "agent" and "representative" do not include an independent broker or contractor who is engaged independently in soliciting orders in the State for more than one seller, and who holds himself out as such. SEC. 2. No State or political subdivision thereof shall, on or after the date of the enactment of this Act, assess or collect any income tax, or make any levy with respect thereto, which was imposed by such State or political sub division thereof on the income of any person before the date of the enactment of this Act, if the imposition of such tax, on or after the date of the enactment of this Act, is prohibited by the first section of this Act. SEC. 3. For purposes of this Act, the term "income tax" means any tax imposed on, or measured by, net income. Mrs. ELIZABETH SPRINGER, Clerk, Senate Committee on Finance, NEW YORK, N.Y., July 20, 1959. New Senate Office Building, Washington, D.C.: On behalf of the rubber manufacturing industry we urge favorable consideration by Senate Finance Committee of Senate bill 2213. We believe enactment of this bill would prevent State taxation of income derived exclusively from interstate commerce when the only activity of an out-of-State firm within a State is sales solicitation and it maintains no office, warehouse, merchandise, stock, or other place of business within a State. We respectfully suggest such legislation would be eminently fair and would prevent an undue burden on interstate commerce. We ask that this telegram be made a part of the hearings record. Hon. HARRY F. BYRD, Ross R. ORMSBY, President. HIGH POINT, N.C., July 17, 1959. Senate Finance Committee, Washington, D.C. DEAR SENATOR BYRD: This statement is submitted on behalf of the Southern Furniture Manufacturers' Association, a voluntary trade association representing 278 manufacturers of furniture, located in 14 Southeastern and Southwestern States. Members of the association represent approximately 85 percent of total furniture production in these States, and approximately 25 percent of nationwide furniture production. Attached to this statement is a complete list of our members by States (app. I). The southern furniture industry is seriously concerned about the potential impact of the Stockham Valves & Fittings, Inc., and the Northwestern Portland Cement Co. cases on its present business operations, and recommends to the committee that legislation be enacted clarifying and limiting the potential scope of these decisions. The southern furniture industry-as well as the furniture industry as a whole is composed in large part of many small companies. This is clearly shown by appendixes II and III compiled from the 1954 census of manufacturers, the latest year for which complete figures are available. Appendix II gives the distribution of 5,275 furniture manufacturing establishments by States, from which it will be noted that furniture is manufactured in practically all of the States. Appendix III shows that in 1954 the average shipments of the 5,275 establishments were $410,280 with average employment of 40 workers per establishment. Nearly two-thirds (64.3 percent) of the establishments employed less than 20 workers. According to the 1953 census report, the latest year for which a complete breakdown by size, based on gross sales, is available, 48.9 percent, or nearly one-half of the companies had sales of less than $200,000. Only 18.2 percent, or slightly more than one-sixth had sales of $1 million and over. Many of the smaller companies sell their products in interstate commerce. Often, traveling salesmen are employed to cover geographical areas including several States or portions of several States. For example, one salesman may cover the Metropolitan New York area and parts of New Jersey; another will cover upstate New York State and Vermont; another may cover a half dozen or so Midwestern or Western States. Since permanent offices normally are not maintained in each State, these companies, before the Stockham and Northwestern Cement cases, were never considered subject to taxation in the State of the customer, and sales records often were kept on the basis of salesmen's territories. If these decisions are applied by the States to the maximum possible extent, as a number of States have indicated they intend to do, the additional bookkeeping and record requirements may become so burdensome as to force some |