Portland Cement Company and Stockham Valves & Fitting Company cases. For many years business entities engaged in interstate commerce have relied upon Supreme Court cases such as Cheney Brothers Company v. Massachusetts, 246 U.S. 147 (1918) and Alpha Portland Cement Company v. Massachusetts, 268 U.S. 189 (1925) as establishing the law to be that where the business entity maintain in the taxing State only a local sales office but did not accept orders in such State, and did not fill orders from a stock of goods kept in such State, the activities constituted interstate commerce and were insufficient to support the imposition of a net income tax by the States in which such offices were located. Even the case most favorable to the position of the States prior to the Northwestern States and Stockham decisions, that of West Publishing Company v. McGolgan, 328 U.S. 823 (1946), involved a sales activity in a State where the salesmen were authorized to receive payments, collect delinquent accounts, and make adjustments. I therefore respectfully recommend that the proposed legislation should be specifically exempt activities such as those specified in the Cheney and Alpha Portland Cement Company cases from the burden of taxation by States in which such offices are located and submit for your consideration a draft of a revised subparagraph (b) to S. 2281 designed to accomplish this purpose. The draft is marked to show changes in existing wording. Although I attended the hearings at the request of a client of this firm and although this firm represents several clients who will be affected by any action in this field, this letter is not submitted at the request of or on behalf of any client but is only submitted in the interests of good legislation. Respectfully yours, WARREN I. TITUS, Jr. DRAFT OF REVISED SUBPARAGRAPH (B) To S. 2281 (b) For purposes of subsection (a), a person is not carrying on a trade or business in a State solely by reason of making [one or more] sales of tangible personal property in the State (whether title to such property passes in or outside of the State), if (i) such person does not have or maintain a [an office, warehouse or other] place of business in the State, and (ii) does not have an officer, agent, or representative in the State who has a [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; and the term "place of business" does not include an office maintained solely for use of sales, promotional or clerical employees and their supervisors provided that (1) orders are neither accepted nor payments received at such office and (2) a stock of goods for filling such orders is not maintained in the State. Mrs. ELIZABETH SPRINGER, Clerk, Senate Committee on Finance, HEMMETER CORP., Mountain View, Calif., July 22, 1959. New Senate Office Building, Washington, D.C. DEAR MRS. SPRINGER: This corporation requests permission to file the following statement for inclusion in the record of hearings of the Finance Committee. We are a small business engaged in the manufacture of wheel balancers. I have spent years in the invention and development of the balancer and in organizing the business on a nationwide basis. We are in competition against older and much larger firms, some of which are divisions of big business. However, we are growing steadily. But now we are faced with a tax burden which certainly can weaken our standing. The Supreme Court ruling permitting States other than California to tax us for sales within their States will cause us definite financial hardship. The tax itself could of course be collected from the purchaser, but the additional bookkeeping, clerical, auditing, and perhaps legal advice charges would be prohibitive in a small business. We appreciate the interest in the problems evidenced by the three bills before the committee and urge passage of legislation to correct this obvious inequity. Very truly yours, GEORGE T. HEMMETER, President. NATIONAL TOOL & DIE MANUFACTURERS ASSOCIATION, Subject: Hearings on Senate Joint Resolution 113, S. 2213 and S. 2281 Chairman, Senate Finance Committee, DEAR SENATOR BYRD: On behalf of the members of the National Tool & Die Manufacturers Association and other manufacturers of special tools and dies, I wish to file this statement for inclusion in the record of the above hearings. Our association has more than 1,000 members, scattered over the country from coast to coast, and from Texas to the Twin Cities. Taxation of interstate business by States would be little short of disastrous for the several thousand small businesses that comprise the special tooling industry. These small companies have very limited office staffs-often only one girl-and since they frequently receive orders from out-of-State customers, it would be most burdensome to keep the additional records required by such State taxation, to assign income to sales made in each State, and to file voluminous tax returns. Furthermore, they are already so heavily taxed that it is very difficult for them to operate at a profit, to say nothing of accumulating sufficient funds after taxes to make it possible to buy the expensive machine tools they must have to meet the constantly increasing demands for greater precision in the special tools which they supply and which make possible the production of metal and plastic products. Financing of these small companies, for the most part, must come from the investments of those who own and operate the business, and from reinvestment of profits. Outside sources of funds are almost entirely closed to tool and die manufacturers, except temporary bank loans. The Small Business Administration so far has not been much of a factor in meeting the need for additional capital, and it is problematical as to what the small business investment companies (a few of which are now being established) will mean. The products of the special tool and die industry are all specially designed and manufactured to produce a particular metal or plastic part. They include stamping, forging, extrusion and die-casting dies; molds for plastics, rubber, glass; jigs and fixtures; special gages; special cutting tools and special purpose machines. The Although made up of small businesses, the special tooling industry is a large one in value of shipments, highly important in the stream of commerce. annual value of its products in normal years is in excess of $1 billion-more than that of the machine tool industry. Special tooling is manufactured by skilled craftsmen, who often must work to one ten-thousandth of an inch, that is, one-thirtieth of the thickness of a human hair. In fact, tolerances on guided missile parts and other electronic devices may be no more than a few millionths of an inch. Tool and die makers and mold makers in this country are paid from $3 to $3.50 an hour. In European countries that have well-developed and efficient special tooling industries, the pay is only about one-fifth as much; in Japan, perhaps, a tenth. While the U.S. Supreme Court decisions which definitely opened the way for States to tax interstate commerce dealt with corporations and income tax, the principles involved will also apply to individual proprietorships and partnerships and to sales and use taxes. Regulations imposed by the different States inevitably will be at variance, and may well result in taxing more than 100 percent of the sales and income of the taxpayer. Just keeping up with the State regulations will be a tremendous task, especially for these small businessmen who have no tax specialists, accountants, or attorneys on their staffs. The subjection of business to taxation in States where it has no property or permanent establishment should be prohibited, and we urge that appropriate legislation be enacted at this session of Congress. Great confusion and hardship will result if this is not done. Sincerely yours, GEORGE S. EATON, Executive Vice President. NEW YORK CLEARING HOUSE, Re: S. 2213 and S. 2281. Hon. HARRY F. BYRD, Chairman, Senate Finance Committee, DEAR SENATOR BYRD: The recent decisions of the U.S. Supreme Court in Northwestern States Portland Cement Co. v. State of Minnesota and Williams v. Stockholm Valve & Fittings, Inc., which substantially broadened prior concepts as to the rights of the States to tax interstate commerce contain a real threat to the free flow of funds in the United States. It has been the practice for many years for banks in one locality to participate with banks in other parts of the country in loans granted to their customers. The New York Clearing House banks and their correspondent banks throughout the country have been doing this for many years to their mutual benefit. Where a correspondent bank is asked to make a loan to its customer which exceeds the bank's lending limits, or at a time when it is pressed for funds, the correspondent bank may grant to a clearing house bank participations in such loans, thus enabling the correspondent bank to make available larger banking resources to its customer. The recent Supreme Court decisions have raised a considerable doubt as to whether loans of this kind, as well as loans made by banks in one State to customers outside the State would not subject the banks making such interstate loans to local taxation, burdensome not only in amount but even more so in the detailed paperwork required. It is accordingly urged that either of the above bills be amended to make clear that interstate bank loans shall not be subject to taxation and that such bill be enacted. We understand that the American Bankers Association has furnished you with proposed amendments to the bills. The form of these amendments we believe to be satisfactory for the purpose. Yours very truly. HOWARD SHEPPERD, President. STATEMENT BEFORE THE SENATE COMMITTEE ON FINANCE ON SENATE JOINT RESOLUTION 113, S. 2213, AND S. 2281, BY LAWRENCE S. MARTIN, SECRETARY-MANAGER, NATIONAL ASSOCIATION OF FROZEN FOOD PACKERS, THURSDAY, JULY 23, 1959 Mr. Chairman and members of the committee, the undersigned, Lawrence S. Martin, secretary-manager of the National Association of Frozen Food Packers, apreciates the opportunity to make this statement in behalf of the association in connection with the above-captioned proposals now before your committee. The National Association of Frozen Food Packers is a voluntary, nonprofit association organized for the purpose of promoting and protecting the interests of the American frozen-food industry. Its membership represents substantially 80 percent of the frozen-food packers in the United States with headquarters office located at Washington, D.C. Its members' packing plants are located throughout the United States and are engaged in processing, selling, and shipping frozen foods with distribution nationwide. Total frozen food production is now in excess of 5 billion pounds annually, with a retail value of about $2.6 billion. The highly competitive nature of the frozen food industry makes it desirable that most packers distribute their products in as many of the States as commercially possible. Such multistate distribution is accomplished in several ways. Sales may be made through brokers, distributors, a traveling sales force, or by direct negotiations with customers. Whatever the method, products are commonly sold in many States in which the packer maintains no place of business. Shipments to customers are made direct from the freezing plant, from a packer's distribution warehouse, or from a public refrigerated warehouse. Traditionally, frozen food packers felt obligated to pay State income taxes only to States in which they maintained a place of business. However, the recent Supreme Court decision in the Northwestern Cement and Stockham Valve cases affirmed the right of the States to tax the income of out-of-State companies doing solely interstate business in those States. This raises the possibility that freezers may now become liable to pay income taxes in all States in which their products are sold, no matter by what means and without regard to maintenance of a place of business. A freezer's products are rarely distributed exclusively in States where he maintains a place of business. Accordingly, this concept of taxation would be oppressive generally and could result in diminished activity and even business failure for some frozen food packers. The tax itself would be burdensome and costs of additional personnel and overhead incidental to keeping necessary records would be prohibitive. The result would be to reduce the number of States in which a packer could afford to distribute his products. Compliance with the varied provisions of conflicting State income tax laws would for many packers reduce profits in certain States to the point where distribution would be unjustified. For example, a typical moderate-sized company might pack frozen fruits and vegetables in New York State and sell them in all States east of the Mississippi through brokers and traveling sales representatives, making deliveries direct from its plant or through public refrigerated warehouses. In the past its only income tax liability would be to the State of New York. Without prompt remedial legislation the possibility exists that he may now have to pay income taxes in all States in which his products are sold. A large packer might have plants in two or three States and regional offices in a couple of others. But with his products being sold in all States his income tax liability jumps from 4 or 5 States to perhaps 50. The answer is obvious: neither company could possibly afford to continue to distribute its products in many States. And these are not hypothetical situations, they are typical of our entire industry. This association believes that any force tending to restrict the distribution of a freezer's products to fewer States would be contrary to public interest. We firmly believe that broad distribution of the products of individual freezers makes available to the consumer the widest possible variety of frozen foods at reasonable prices established in a competitive market. Accordingly, the National Association of Frozen Food Packers urges the passage of legislation during this session of Congress to accomplish the following: First, until enactment of a permanent solution to the problem, prohibit the States from imposing a tax upon income derived from interstate commerce of a company that does not maintain a place of business in the taxing State. Second, delegate the appropriate congressional committee to undertake a comprehensive study of the problem and issue a report upon which Congress, within the next few years, can establish fair and uniform standards for the imposition of State income taxes upon businesses engaged in interstate commerce. Because of the immediate seriousness of the matter and in recognition of the fact that its complexity renders a fast solution impossible, we recommend the above course of action-temporary relief from the situation and provision for a permanent solution when one can be worked out on a sound basis. However, we respectfully request that any such legislation embody certain safeguards and spell out clearly the following: First, a frozen food packer who sells through independent food brokers in a given State is not doing business in that State.. Second, the temporary storage of stocks of goods in a public refrigerated warehouse should not of itself subject a packer to State income taxation. Such storage is often a necessary step in delivering products from the packer's plant to his customer and involves the seller in no additional activities in the State which can be construed as "doing business." Third, the legislation should apply to taxes imposed upon or measured by in come. In view of the facts set out above, speaking in behalf of our industry and its trade association, I earnestly solicit the intercession of your great committee for the enactment of legislation along the lines herein advocated. Respectfully submitted. LAWRENCE S. MARTIN, Secretary-Manager. STATEMENT OF LOUIS M. WEBER, COUNSEL, FOR WHOLESALERS ASSOCIATION OF AMERICA, INC. This statement is respectfully submitted on behalf of the Fur Wholesalers Association of America, Inc., in support of a pending bill to limit the power of the States to impose income taxes on income derived exclusively from the conduct of interstate commerce (S. 2213). The members of our association sell fur garments to retail fur establishments throughout the country. Most of the business conducted by our members is procured by traveling salesmen who solicit and procure orders while traveling on the road. The members of our organization are very concerned about recent decisions of the U.S. Supreme Court which upheld the right of a State to impose a tax on purely interstate business which was procured by solicitation of traveling salesmen representing concerns who did not maintain any plant, office, warehouse, or other place of business within the State which imposed the tax. A large percentage of our members are small firms whose future would be jeopardized if they were required to pay taxes to all States through which their salesmen travel. The requirement to file tax returns in these States would also be very burdensome. Some of our members do not have bookkeepers, but all their bookkeeping is performed by accountants whose representatives come to their places of business weekly or monthly. The members of our association do not manufacture the products that they sell, but they purchase the completed products from fur manufacturers and sell them to fur retailers. They are so-called middlemen between the manufacturer and the retailer, and their margin of profit is small, and for that reason it would be most difficult to absorb the additional tax and accounting costs required by the filing of these various returns and payment of these additional State taxes. The difficulty which confronts our members was stated with great clarity by Mr. Justice Frankfurter in his dissenting opinion in the case of Northwestern States Portland Cement Co. v. Minnesota and Williams v. Stockham Valves and Fittings, Inc. (27 L.S. 4141). Mr. Justice Frankfurter pointed out that interstate commerce will be actively burdened, first, because thousands of small and moderate size corporations will be subject to a separate income tax in each State and, as a result, "will have to keep books, make returns, store records, and engage legal counsel, all to meet the diverse 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." Retail fur stores throughout the country have several methods of purchasing fur garments. One of these is to send their fur buyers to New York City where more than 80 percent of fur garments sold in the entire country are manufactured. Other retailers who handle furs are represented by so-called resident fur buyers in New York City. However, many small retailers throughout the country cannot afford to send their buyers to New York and are too small to procure representation by New York City resident buying firms. The only source through which they can make purchases of fur garments is through traveling salesmen. The continuation of the right of the various States to impose these local taxes may make it impossible for fur wholesalers to send their traveling salesmen to these retail stores, with the result that many thousands of these small retailers throughout the country will be deprived of their fur business. We have been informed that many States have been reluctant to impose taxes on purely interstate business procured by traveling salesmen because of their uncertainty as to whether the imposition of such a tax was in violation of our Constitution. The recent decisions of the U.S. Supreme Court upholding this right of taxation will undoubtedly motivate many other States to impose these taxes. The fur business is a seasonal business and this is the height of the 1959 season. Many fur wholesalers are uncertain as to whether they shall send their salesmen on the road because of the possibility of the imposition of taxes by the States through which these salesmen travel. It is most important that |