does business, it would mean keeping books for 50 States on seven products or 350 sets of accounts-also apportioning the advertising, home office travel, and sales promotion going into those States. According to the request already received from California, we would have to go back and do this accounting for all the years they could prove applied under the Supreme Court decision. The next step would be that if a man living in Kansas City, Kans., saw an ad in the Kansas City, Mo., Star and went over and purchased that item in Kansas City, Mo., the State of Kansas could make the advertiser in the Kansas City Star make him present him with his annual statement and pay a tax on the profit of a can of beans. We might call your attention to the fact that in 1776 there was a war fought on the basis of taxation without representation. Personally, we do not see where we could afford to receive representation in 50 States if it was offered. F. LLOYD WASSELL, Chairman of the Board. THE SAVOGRAN CO., Norwood, Mass., July 21, 1959. Senator HARRY F. BYRD, Chairman, Senate Finance Committee, DEAR SIR: Senator Saltonstall personally filed a bill which would prohibit a State or political subdivision thereof from imposing any income tax on an outof-State business firm unless such firm maintained an office, warehouse, or other place of business in the taxing State. The bill also would bar any State from assessing or collecting any tax prohibited by the bill once the bill was enacted. This would take care of taxes which have been assessed in the past but have not been collected. We are in favor of Saltonstall bill, S. 2281 and similar bills filed by others which will limit the power of the States to impose income taxes on out-of-State corporations on income derived exclusively from the conduct of interstate commerce within those States. Please help stymie the problem confronting manufacturers of not only paying 50 separate State taxes, but of keeping books, making returns, storing records, and engaging legal counsel, all to meet the diverse and variegated tax laws of 50 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 would involve large increases in accounting and legal costs. The cost of such a scheme for complying with the taxing requirements of the different States might well exceed the burden of the taxes themselves, especially our small business doing a small volume in several States. We wish to recommend to Congress that it pass legislation stating that State taxation upon income received by a foreign corporation engaged exclusively in interstate commerce is a burden upon interstate commerce and illegal. If, however, Congress feels that it is reasonable for a State to impose a tax upon a foreign corporation based upon sales in that State in interstate commerce, we suggest that a clear-cut line be drawn defining who is taxed and who is not, such as, having a local office in a State might give sufficient basis for a tax, but orders solicited through advertising, direct mail, or a salesman would not be sufficient to justify a tax upon the income so derived. Such a system as now exists will divide our country into 50 autonomous governments, thereby slowing up the freedom of economic action. Sincerely, ROBERT E. LENK, Treasurer. THE SHELBY SALESBOOK Co., Shelby, Ohio, July 20, 1959. Re S. 2213, H.R. 7757, House Joint Resolution 431, H.R. 7715. Senator HARRY F. BYRD, Chairman, Senate Finance Committee, Senate Office Building, Washington, D.C. DEAR SENATOR BYRD: We respectfully ask you and your committee to favorably support the above bills which would amend title 4 of the United States Code. With all do respect to the highest Court in our land, we do feel their decision in the Stockham Valves and Fittings, Inc. and the Northwestern States Portland Cement Company cases was a mistake of the highest magnitude. We are a manufacturer of business forms, employing approximately 475 people in our plant at Shelby, Ohio. Our products are marketed in approximately 37 States by some 200 commission salesmen. The Supreme Court decision not only opens the door to the current taxation of interstate commerce, but worst of all it is retroactive insofar as the Supreme Court is concerned. We were incorporated in 1904. Some of the States in which we solicit orders have indicated their intention to collect an income tax on such interstate commerce from the beginning of their intrastate law, which dates before our incorporation. It is not difficult to understand what can happen to a company of our size if each State applies a retroactive assessment against us. As to current taxation, it will be difficult for us to pay the several States the yearly tax that will be required, and continue to meet the very competitive prices of the local firms in those States. This tax must come out of profit if we are to stay competitive in our field of endeavor. It is imperative, and our prayer, that the Congress of the United States will amend title 4 of the United States Code at this session. Respectfully yours, R. E. DUDENHAVER, LIMPERT BROS, INC., Senator HARRY F. BYRD, Senate Finance Committee, U.S. Senate, Washington, D.C. DEAR SENATOR BYRD: Enclosed is a photostatic copy of a letter from Robert North, executive secretary of the International Association of Ice Cream Manufacturers and a copy of my letter to him. The recent decisions of the Supreme Court referred to in our letters have given rise to very grave problems which affect not only all the interstate business in the country, but in truth may alter the economic well-being of the United States. What makes us think the issue is the definition of "doing business." This seems to me to be pettifogging and far from the real point. The real point is whether the Founding Fathers and the Constitution as presently amended had the intent to create an economically sound commonwealth of United States under a Federal head and thus to avoid some of the onerous tax situations and trade barriers that existed in Europe. The Court in making this decision does not appear to have even remotely considered the intent of the Constitution and the prodigious economy developed by our people under this intent which up to now gave us a mass market to operate in. That net income from business done in each of 50 States is open to taxation by each State is ludicrous, Senator Byrd. Sir, our entire economic well-being rests on business' access to a free market (mass market) and its effective use of this mass market to lower the price per unit of a product to the consumer. At stake here is the economic well-being of the United States. A definition of doing business is not the issue or the pivot upon which the case is to be judged; (whether a State may tax net income of business done in the State by out-ofState corporations). The issue here is to reaffirm to the people that the United States within its boundaries exists as a free trade area, as a mass market to which its citizens have ready access. The people have a right to protection from odious taxation flung without reason at them from 50 States. The people have a right to succor from those who would destroy their economic health, and subvert the Constitution's intent. As our representative on the Senate Finance Committee, I call upon you for comment and action. Very sincerely yours, HAROLD JOHN LIMPERT III, President. INTERNATIONAL ASSOCIATION OF ICE CREAM MANUFACTURERS, Re increased tax liability. Mr. HAROLD JOHN LIMPERT III, Limpert Brothers, Inc., Northwest Boulevard and Plum Street, Vineland, N.J. DEAR MR. LIMPERT: As an associate member you may not have regarded the international as your Washington representative. Aside from general legislation and Government regulations which affect the industry and are of importance to you, there are special problems that may have serious impact on your business. One of the new issues raised by three Supreme Court decisions may subject your company to income tax liability on its interstate business in States other than your State of domicile. The Supreme Court, in the Northwestern Portland Cement Co. and the Stockham Valve and Fitting, Inc., cases held: "We conclude that net income from the interstate operations of a foreign corporation may be subject to State taxation provided the levy is not discriminatory and is properly apportioned to local activities within the taxing State forming sufficient nexus to support the same." There are 35 States, and some cities, which have these laws on the statute books, and 3 more States have similar bills before their legislatures. The international is joining with a group of trade associations to initiate efforts to get legislation to overcome these decisions and to finally bring uniformity among the States in handling these problems. Our first effort is going to be legislation which will define "doing business." This will be predicated on the premise that taxes on interstate activities are a burden on interstate commerce and in violation of the commerce clause of the Federal Constitution. In the Northwestern Portland Cement case as little activity as sales shipments to customers, an office in the State, and salesmen soliciting within the State sustained an income tax. The minimum standards for the imposition of a tax have not yet been decided by the Court. We would try to exempt such activities as sales shipments to customers and salesmen soliciting within the States as "doing business" within the State for income tax purposes. We shall keep you advised of our progress, but it is a serious problem for all suppliers and equippers, as they may be subject to retroactive taxes, with penalties, in the future. Cordially, ROBERT H. NORTH, Executive Secretary. P.S.-If you would like more details of the court cases we shall be happy to give you a complete report and digest of them. LIMPERT BROS., INC., Vineland, N.J., June 25, 1959. INTERNATIONAL ASSOCIATION OF ICE CREAM MANUFACTURERS, 1105 Barr Building, Washington, D.C. (Attention: Robert H. North, Executive Secretary.) DEAR BOB: Thank you for your letter of June 18. The recent Supreme Court decision, concerning the right of States to tax out-of-State corporations, presents not only a problem for us, but a critical problem for other corporations. This problem will rapidly grow into one of business' gravest problems as other States begin to use these Supreme Court decisions as steppingstones or, in fact, launching pads for greatly amplified tax liabilities. Not only will the increased taxes impose a burden, but there are other graver implications as well. Really burdensome bookkeeping, added cost to the consumer is a direct corollary of these decisions. This tax in the end will strike straight at the consumer. Please do not consider me presumptuous in making a suggestion, Bob, concerning this problem. A short review of the economic history of Europe and the United States would instantly reveal that the country-by-country tax and tariff barriers in Europe have held this continent back and made economic and business intercourse between countries an extremely difficult problem. The idea of a true mass consumer market for any European manufacturer still does not exist today. Free-trade areas have begun between countries to attacks just this problem. Our Founding Fathers' concept of a United States had, as one of its intellectual cornerposts, just this in mind-free trade within the States of a United States, not trade tax and tariff barriers between 50 State tax countries and the attendant problems contained in this European philosophy. To a layman it would seem that the present decision of the Supreme Court is not merely a bad decision which, due to its vagueness, has rendered to each State a mandate to conceive in State greed for revenue, tax legislation, which is ignorant and shrived of all thought for the economic welfare and general good of all business and all people of these United States. Its implications are more sinister and far reaching. Pending further clarification, these Supreme Court decisions put in the hands of 50 local State tax offices the right to each define what shall be considered "doing business." More ominous still, each local State office has the right to impose taxes based not on the general good for even the residents of the State, but based on their need for State revenue. Discriminatory and retaliatory taxes are immediate considerations as one State views in anger what another has done. Taxes rendered by one State against goods entering a State are tariff and trade barriers as surely as a border customs office. Political courage is a dim light in a sea of political expediency and cowardice. How far easier to derive State revenue from out-of-State corporations for the politician desiring a return to office, rather than face realities at home and tax soberly for important budget needs! With this decision the Court has made taxation truly political. What a pork barrel this will be for experienced and neophyte politicians to romp in! The Supreme Court has surrendered the people of the United States into the hands of State tax bureaus, which are ignorant of the dangerous power they possess to destroy the economic fundamentals which built this country's prodigious economy. In fact, the Court has rendered here not merely a tax decision, but has invaded and attacked the concepts of the Founding Fathers and the intent of the Constitution of the United States in establishing an economically healthy Republic. "The power to tax is the power to destroy." Where are the Boston men who dumped English tea in the New England sea? The prime issue here does not seem to be legislation which defines doing business. The issues here are more fundamental. They are the answers to these questions: Does the Constitution of the United States sanction the economic nullification of the unity of these States under a Federal head and their reduction into 50 State tax countries each with a tax tariff and trade barriers? "The power to tax is the power to destroy." Does the Constitution of the United States surrender this power and the economic welfare of all the people into the hands of 50 State tax bureaus each ignorant of the harm they do to the economic weal or whole? Does the Constitution or Congress of the United States surrender the economic welfare of the country into the hands of 50 State tax offices? These, it would seem, are the issues that need defining. In a country that has led the world into economic light and well-being; in a country whose world banks, Marshall plans, and NATO contributions have kept alive its smaller global brothers; in a country which has made the largest economic contributions to helping nearly one-fifth of the globe from falling into the black void of communism and whose armies and navies sustained the world against tyranny, have we reached this pathetic estate that we must define what doing business means for 50 State tax bureaus? It was business and all our people, who invested the money so heavily but well spent all over the world. It was business that led, armed, moved, and gave up its citizen workers to win the war. It was business whose taxes sustain this Government. Every citizen is in business every day. To what low estate have we fallen that we are now put to define ourselves and indulge in miserable half evasions to justify the work every citizen does of being a productive member and purchasing member of this United States regardless of where his State lies? The issue is not to define what doing business is. The issue is: This is the case of all the people of the United States against the Supreme Court which has surrendered their economic well-being into the hands of 50 State tax offices who may demand tax passports tomorrow from the people. Very truly yours, 43695-59- -12 HAROLD JOHN LIMPERT III, Senator HARRY F. BYRD, ASSOCIATED INDUSTRIES OF RHODE ISLAND, INC., Chairman, Senate Finance Committee, DEAR SENATOR BYRD: Associated Industries of Rhode Island, Inc., is in favor of the passage of legislation by the Congress prohibiting a State, or political subdivision thereof, from imposing a tax on net income of a corporation derived from the conduct of interstate commerce when the only activity within the State is sales solicitation and where no office, warehouse, stock of goods, or other place of business is maintained in the State. The decisions of the Supreme Court in the Northwestern States Portland Cement and Stockham Valves and Fittings cases have created a serious handicap, especially for small corporations which attempt to do an interstate business by sending salesmen and shipping goods into a State without maintaining an office or warehouse there. If the States are empowered to tax a corporation on its receipts from such interstate commerce, a tremendous burden will be imposed upon such corporation. Even though the tax levied may not be large, the work of complying with the tax laws of many States will be very costly, since the corporation must engage local counsel, prepare, and file reports, keep separate records of sales in particular States, etc. The allocation formulas of the several States differ widely and it is possible that a corporation might be taxed on more than 100 percent of its income. This will probably result in some businesses refraining from doing business in certain States, which will be a severe burden on interstate commerce to the detriment of the persons living in those States. The Select Committee on Small Business of the U.S. Senate has given very careful consideration to the problem and in its report dated June 29, 1959, has stated that the solution is the passage of legislation such as that to which reference is made above. Among the bills which would accomplish this purpose are S. 2213 introduced by Senators Bush, Butler, and Keating, S. 2281 introduced by Senator Saltonstall and Senate Joint Resolution 113 introduced by Senator Sparkman and others. We urge this committee most strongly to give favorable consideration to the passage of such legislation. Very truly yours, EDWIN T. SCALLON, Secretary and General Manager. LAW OFFICES OF WINTHROP, STIMSON, PUTMAN & ROBERTS, New York, N.Y., July 24, 1959. Re State power to tax net income derived from interstate commerce The CHAIRMAN, Senate Finance Committee, U.S. Senate, Washington, D.C. DEAR SIR: I attended the July 21 and 22 committee hearings considering possible legislation along the lines suggested by proposed bills Senate Joint Resolution 113, S. 2213, and S. 2281 and was greatly impressed by the understanding shown by Members of the Senate of the need for legislation in this session of Congress to prevent the immediate imposition by many State legislatures of taxes on net income deemed by such legislatures to have been derived from sources within the imposing States without regard to the locations of the manufacturing activities, offices, or employees of the businesses concerned. In view of your concern about specific wording of possible legislation, I would like to make the following suggestions: First, I believe that the underlying theory of S. 2281 is better than that of sections 101 and 102 of Senate Joint Resolution 113 since S. 2281 is phrased in terms which require the conduct of a trade or business in the State in order to support the imposition of tax rather than in terms which merely exclude solicitation alone as being sufficient to support the imposition of a tax. Second, I am concerned by the failure of any of the three bills to include language designed to restore as the basis for taxation the concept generally understood to have been the basis for taxation prior to the Northwestern States |