this free movement of goods from one part of the United States to another, enabling all of our citizens to enjoy the benefits of industrial and agricultural progress. We look upon the imposition of State taxes on income produced from the sale of goods in interstate commerce as a serious roadblock of this traditional free movement of goods and services throughout our Nation. 3. We recognize the problem faced by the States in obtaining sufficient income to pay for the many services now provided by the States and formerly provided by the citizens themselves. However, we feel confident that if the citizens of the States had to choose between taxing themselves or imposing the tax on business in a way that might deprive them of the products and services they need, the choice surely would be to encourage business rather than to drive business away. We understand that several measures to alleviate this problem of the State taxation of incomes on interstate business have been proposed for consideration by the Senate and also that several proposals have been introduced in the House of Representatives. We believe that your committee, the Senate Committee on Finance, is well qualified to appraise the problem and to find its solution. We suggest two areas for consideration. 1. An immediate declaration by Congress in the nature of the bill H.R. 7757 introduced by Congressman McCulloch of Ohio modified as follows: TEXT OF THE BILL To implement the Constitution by amending title 4 of the United States Code. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That chapter 4 of title 4, is amended by inserting following section 106a new section: SEC. 106а TAXATION OF INCOME DERIVED EXCLUSIVELY IN INTERSTATE COMMERCE. After July 1, 1959, a person, as defined in section 1 of title 1, shall not be liable to taxation by a State or political subdivision thereof on income derived exclusively from interstate commerce which is premised solely upon sales solicitations within said State or political subdivision thereof. It should be made amply clear that maintenance of an office, warehouse, stock of goods, or other property within such State cannot be construed as a basis for taxation beyond the scope of its own operations. The reason for this provision is that many companies may own, lease, or operate such physical facilities within a particular State having no relation whatsoever to the interstate commerce being transacted within that State or within another geographical area of the State. Orders solicited by salesmen within a State may be, and in many cases are, transactions completely unrelated to the ownership or operation of such physical facilities within the State. We urge caution in adopting legislation which might set new precedents resulting in discrimination between businesses which own or operate facilities and those which do not. 2. An effort to resolve the long-term problem of different tax treatment and varying rates throughout the 50 States imposed on business conducted from offices within the several States by out-of-State corporations. We suggest that the various States be encouraged to formulate cooperative agreements whereby there might be developed uniform rates and treatment of all such business so that the accounting and the recordkeeping may be simplified to reduce costs and so that there may continue to be the traditional free movement of products and services of all of America's manufacturers throughout the length and breadth of our great country. The Farm Equipment Institute has received copies of letters from many of our members to Congressmen and Senators expressing the concern of the members regarding the consequences of the Supreme Court decision in the Stockham Valves and Fittings case. We do not wish to burden the committee with copies of these letters, but we do wish to inform the committee that many Members of the House of Representatives and of the Senate are cognizant of the problem faced by businesses since the Supreme Court decision opened the door for the State taxation of interstate commerce. In behalf of the farm equipment industry I wish to offer the support of this vital industry to your committee in its efforts to resolve the problem of the taxation of income derived from interstate commerce. We commend the committee for its evident desire to study the problem and find a solution. July 17, 1959. STATEMENT OF TYRE TAYLOR, GENERAL COUNSEL, SOUTHERN STATES INDUSTRIAL COUNCIL IN SUPPORT OF CONGRESSIONAL REGULATION OF STATE TAXATION OF INTERSTATE COMMERCE My name is Tyre Taylor. I appear here on behalf of the Southern States Industrial Council, the headquarters of which are in the Stahlman Building in Nashville, Tenn. The council is a regional organization representing industry in 16 Southern States from Maryland to Texas, inclusive. We appear here in support of the principle of the pending bills and the joint resolution which would prevent the States from taxing income derived exclusively from interstate commerce when no office, warehouse, or stock of goods is maintained within the State. I should like to take just a few minutes to outline the principal reasons for our position. The first one was very well stated by Mr. Justice Frankfurter in his dissent from the majority decision in the Northwestern States Portland Cement Company v. Minnesota and Williams v. Stockham Valves cases (79 S. Ct. 357). The Justice said: “It will not, I believe, be gainsaid that there are thousands of relatively small or moderate size corporations doing exclusively interstate business spread over several States. To subject these corporations to a separate income tax in each of these States means that they will have to keep books, make returns, store records, and engage legal counsel, all to meet the divers and variegated tax laws of 49 States, with their different times for filing returns, different tax structures, different modes for determining net income, and, different, often conflicting, formulas of apportionment. This will involve large increases in bookkeeping, accounting, and legal paraphernalia to meet these new demands. The cost of such a farflung scheme for complying with the taxing requirements of the different States may well exceed the burden of the taxes themselves, especially in the case of small companies doing a small volume of business in several States." The great majority of the council's members fall into the small business category and are engaged in interstate commerce and hence are affected by the Court's decision. And when it is considered that some 40 States and localities have laws providing for the taxation of business income, including earnings derived from interstate commerce, and that all of these laws are different in important respects, some idea of the sheer magnitude and complexity of the task of compliance may be gained. As the Senate Small Business Committee suggests, it would be necessary for a company engaged in interstate commerce to retain the services of a lawyer and an accountant in each State where it does business. We are, of course, aware of the financial difficulties in which some of the States find themselves and their need-and in some instances it is a dire needfor more revenues. Moreover, the council is a States rights organization. But these bills and the joint resolution introduced by Senator Sparkman are in the nature of a compromise. They would not deny the States the right to tax business income when the business maintained an office, a warehouse, or a stock of goods within the State. Senator Sparkman's resolution also recognizes the extreme complexity of the situation here involved and provides for a commission to study it and report. Does Congress have the power to regulate State taxation of interstate commerce? We submit that on this question the law is so clear as to require no argument. As Mr. Justice Clark stated for the majority in the Northwestern States Portland Cement and Stockham Valves cases: “*** It has long been established doctrine that the commerce clause gives exclusive power to the Congress to regulate interstate commerce * * *" (Citing Gibbons v. Ogden, 1824, 9 Wheat. 1, 6 L ed. 23). And Mr. Justice Whittaker stated in his dissent in the same case that: "The commerce clause denies State power to regulate interstate commerce. It vests that power exclusively in Congress * * * " The foundation for this is, of course, the commerce clause of the Constitution itself. It says that "the Congress shall have power *** to regulate commerce with foreign nations, and among the several States, and with the Indian tribes." U.S. Constitution, article 1, sec. 8, cl. 3. However, there is no need to belabor that point further. The fact is, Mr. Chairman and gentlemen of the committee, that business— and especially small business-is confronted with a costly and all but impossible problem of compliance unless this Congress at this session enacts remedial legislation. Thank you. STATEMENT OF THE NATIONAL COUNCIL OF SALESMEN'S ORGANIZATIONS, INC., ON S. 2213, S. 2281, AND SENATE JOINT RESOLUTION 113 My name is Myron B. Wolf and I am the president of the National Council of Salesmen's Organizations, Inc. National Council is a nonprofit parent body of 25 groups of wholesale salesmen who sell to retailers and distributors the products of our Nation's factories such as paint, furniture, shoes, candy, apparel, etc. A list of our affiliated organizations is herewith attached for the record. This committee will receive, during the course of these hearings, the viewpoints of business men who were adversely affected and deeply disturbed by the recent Supreme Court decisions upholding the right of States to tax foreign corporations on a nondiscriminatory basis. We believe that the thoughts and position of salesmen who are the employees of small business should be received in rounding out the picture. The problem, as we see it, resolves itself in its simplest form to this conclusion: Small business will have to find a way to minimize the burden which has been imposed upon it, or it will have to risk insolvency in an attempt to comply with the demands of the great many States which are reaching out beyond their borders in a hungry search for survival. In turn, the wholesale salesmen of our country face their most critical moment in an era of recurring crises. The average American business firm, whether it be an individual proprietorship, partnership, or corporation, is desirous of meeting its just tax obligations. There is, however, at the present time, a mass of confusion as to what these obligations, as contained in many State laws, actually consist of. Undoubtedly, many firms are currently violating State income tax laws without being at all aware of the same. As a result, they are potentially liable for assessments going back over a period of years which could, in many instances, either seriously impair their financial means to continue in business, or actually bankrupt them. At its best, because of the varying requirements of the tax statutes of the various States, together with the very definite possibility that many new States will join the parade, the employment of skilled accountants and legal advisors will become a necessity for companies engaged in interstate commerce. This will create a financial burden which will, of necessity, increase the cost of goods sold. Indeed, inflation, our No. 1 economic enemy, will receive aid and comfort from the tax chaos which will result from the recent Supreme Court decisions unless some realistic limitation is imposed by Congress on the powers of the several States to tax income derived from interstate commerce. We believe that the minimum standard of activity embodied in S. 2213, S. 2281, and Senate Joint Resolution 113 does offer the practical limitation which is so desperately needed in the situation. There are over a million persons directly engaged in the wholesale selling profession. To illustrate what may happen to them, we should like to quote from the record of April 8, 1959, hearing of the Senate Committee on Small Business. On page 45 thereof, a representative of a manufacturer's association states as follows: "We are asking the Department of Justice if it is all right for us to get together and agree not to send any salesmen in any States * * * in order to save ourselves." Again this manufacturer spokesman warned, "So if that they (the States) want us to cut out the traveling salesman which has been part of the American life in the manufacturing and small business operations, fine. We will try to do it ***." This is more than an idle threat because if it becomes uneconomical for a manufacturer to send a representative into a particular State or group of States, he naturally will stop doing so. Let us now see just who and what are salesmen : He is the man who gets to another State by buying a plane or train ticket, or who drives his car for miles and miles, bringing revenue to the gasoline stations and to subsidiary business along the way. He adds to the revenues of every place he visits. He buys gasoline, tires, and automobiles. He stops at hotels and motels. He travels by air, rail, automobile, and boat. Furthermore, it is the salesmen who bring their experience and knowledge to the merchants of the communities which they service. His advice and counsel make it possible for these merchants to do a more effective job of meeting the needs of the American consumer. It will be remembered, that during the recent recession, high Government officials, including the President, maintained that salesmanship was the key to prosperity. It remains the function of the salesman to stimulate demand and to facilitate the flow of goods from factory to consumer. A nation without salesmen would be an impoverished one. We need only look at those countries where planned economy and allocations of goods through Government stores replaces competitive salesmanship to realize the great debt a free Nation, such as ours, owes to its salesmen and to the system of government which nurtures their growth and development. To sum up the position of my organization in this matter, we honestly and sincerely feel that, unless immediate congressional action is taken to set up such limitation as is proposed by the instant bills, there is a real and present danger that both small business and the American salesman will suffer a blow from which it will be most difficult, if not impossible, to recover. Small and mediumsize business concerns will inevitably look to eliminate the salesmen and sales representatives as a means of reducing the hazards of complying with the tax statutes of the 49, and soon to be 50, States of the Union. As the voice of the wholesale salesmen of America, our organization is critically concerned with this possibility. We must be frank in stating to you that we look to this committee to report out favorably a bill which will provide necessary remedy. Congress does have the legal authority, under the commerce clause, to enact legislation along the lines of the proposed bills. The Supreme Court decision on Northwestern Cement and Stockham Valves indicated clearly that there must be a sufficient amount of activity on the part of the out-of-State business operations within the taxing State before an income tax can be assessed on income derived from that State. Congressional enactment of legislation which would enunciate what does constitute the required minimum activity will eliminate much of the uncertainty and confusion which presently exists and will also obviate extensive litigation which must ensue unless a uniform standard such as has been suggested is set up for all the States to follow. Most important of all, the vast majority of small and medium-size business operations which receive their orders entirely from the sales solicitation of their representatives, would obtain needed immediate relief. In conclusion, may I take this opportunity of thanking the Senate Finance Committee for the prompt action which it has taken with reference to the vexing and critical problem. We are hopeful that the needed legislation will be enacted at this session of Congress. MEMBER ORGANIZATIONS OF NATIONAL COUNCIL OF SALESMEN'S Boot & Shoe Travelers' Association of New York, Inc. Connecticut Paint Salesmen's Club, Inc. Costume Jeweler Salesmen's Association, Inc. Empire State Furniture Manufacturers' Representatives, Inc. Far Western Travelers Association, Inc. Furniture Manufacturers' Representatives of New Jersey, Inc. Infants' & Childran's Wear Salesmen's Guild, Inc. Infants' Furniture Representatives Association of Greater New York. Maryland Wholesale Furniture Salesmen's Association. Men's Apparel Guild of Wholesale Salesmen, Inc. Middle Atlantic Shoe Travelers' Association, Inc. National Handbag and Accessories Salesmen's Association, Inc. New Jersey Paint Travelers' Association, Inc. New York Candy Club, Inc. New York Corset Club, Inc. New York Paint Travelers, Inc. Philadelphia Manufacturers Representative Association. Piece Goods Salesmen's Association, Inc. Sales Representatives Association, Inc. Toy Knights of America. Underwear-Negligee Associates, Inc. AMERICAN LADDER INSTITUTE, Chicago, Ill., July 16, 1959. STATEMENT BY THE AMERICAN LADDER INSTITUTE FILED WITH THE The American Ladder Institute is a trade association of approximately 35 small manufacturers of ladders which are located in the East, the Middle West, the South and the Far West. They do a limited amount of business-perhaps all told, $15 million annually. This industry cannot be concentrated because ladders are light and bulky and freight rates are high. Therefore, each manufacturer covers a limited area, working in perhaps four or five States on the average. The proposals now up before the Senate committee clarifying the recent Supreme Court action in the Stockham Valves and Northern States cases meet with our full approval because, if we are handicapped by being required to pay additional taxes in the various States where we operate, many of us cannot afford to continue our present operations, but will have to realign ourselves and accept less sales and increased costs. We wish to go on record with your committee as favoring the legislation which is now contemplated and which is before you for consideration. Respectfully submitted. Hon. HARRY F. BYRD, Chairman, Senate Finance Committee, O. N. MOFFETT, President. UNDERWEAR INSTITUTE, New York, N.Y., July 16, 1959. DEAR SENATOR BYRD: In connection with the public hearings scheduled by the Senate Finance Committee starting July 21, I am taking this opportunity of presenting to you and the committee material for insertion in the record which I trust will be interesting and helpful with reference to the matter of taxation of income derived from interstate commerce. The Underwear Institute is a national trade association which was founded in 1866 and represents manufacturers of underwear and allied products such as sleepwear, polo shirts, T-shirts, sweatshirts, and so forth. Our members operate 156 mills in 24 States and the total manufacturers' value of net shipments of their products in 1958 was $395,704,000. The commerce clause which has been called second in importance to no other provision of our Constitution supposedly put an end for all time to the taxes, duties and other burdens which the States had previously imposed on one another's trade and activities. However, the recent decisions by the U.S. Supreme Court upholding as constitutional taxation by the several States of income derived from interstate commerce pose serious problems not only of actual tax liability but of reporting as well in view of the large number of States in which our members sell their goods. In fact it could well be that in many instances the cost of reporting would be greater than the tax to be paid. The information which I am presenting is based on a survey as yet incomplete but to which 32 of our members have thus far contributed. These 32 reported total sales of $154,927,864 with 5 of the 32 accounting for $115,094,898 of the total. It should be noted that while the average annual sales for the entire group totals $4,841,495 if the 5 members mentioned above are excluded, the average bceomes $1,475,295. Returns from our survey also indicate that the 32 members replying sell $140,349,515 or 90.5 percent of their goods outside their home State. The number of States in which they sell their goods range from 10 to 50 with the average being 42. As a matter of fact, 19 of the 32 reported sales in every State of the Union. |