It is my privilege to appear before you as the spokesman of the American Warehousemen's Association, the only national trade association that functions for the public refrigerated and public merchandise warehousing industries of the Nation.

There are 882 members of the American Warehousemen's Association, practically all being small businessmen, vitally interested in and affected by the proposed legislation being considered by this committee. The association is aware of the necessity of remedial action by the Congress to relieve business concerns, and particularly small business, from the dangers inherent in the decisions of the Supreme Court in the Stockham Valves and Northwestern Cement cases affirming the right of the States to tax the income of foreign corporations and companies notwithstanding the strictly interstate character of the business transacted by such concerns within the taxing States.

The Association does not question the right of any State to impose or not to impose an income tax on any company doing business within the confines of such State, but it is the sincere belief of the association that the Congress should, through the enactment of legislation clearly designed for the purpose, protect the flow of interstate business by prohibiting the taxing of income resulting from the transaction of interstate business as such, by any company not doing business within the State.

Under current practice, manufacturers store merchandise in public warehouses in many States for the ready availability and convenience of their customers. Sales are actually made by independent agents, such as brokers, manufacturers' representatives, or a salesman from a home or regional office in some other State.

Should the phrase "stock of goods" be included in any remedial measure, many firms would be subject to income taxation by any State simply by virtue of having an inventory which has temporarily come to rest in a public warehouse in that State.

Further, a small businessman, seling competitively in another State, must either ship directly to his customers in small quantities, at premium transportation costs, or have their orders filled from a stock maintained in a public warehouse near the customer, which stock has been shipped in by economical carload or truckload transportation. Many have found the latter course to be their most efficient means of distribution.

It is self-evident, therefore, that many small businesses in particular would be deeply and possibly fatally penalized if the phrase "stock of goods" remains in the final version of this proposed legislation. This includes, of course, many members of the American Warehousemen's Association as well as many of its customers.

For example, in the case of frozen foods, which require expensive transportation, the net result would be higher prices to the housewives and gross inconvenience to retail or wholesale organizations doing business in any given State.

While the association believes that Senate bill 2213, Senate Joint Resolution 113, and Senate bill 2281, are clearly intended to achieve the purpose of invalidating the imposition of an income tax derived from a trade or business by a person engaged in interstate commerce unless such person is doing business within the taxing State, Senate

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bill 2281 containing no reference to a "stock of goods" most accurately expresses the evident intent of all three of the proposed acts.

It is apparent that a stock of goods may temporarily rest within a State in its movement in interstate commerce, yet if maintaining a stock of such goods is to be a decisive factor in determining whether business is being done within the State, the evil sought to be eliminated would, nevertheless, remain and various States would seize upon such circumstance as warranting the imposition of the tax Thus, the very purpose involved in the proposed legislation would be defeated.

Owing to the very nature of warehousing generally, involving constant movement of goods and commodities in interstate commerce, particularly foodstuffs and consumer items by a large number of business concerns throughout the country, such business should not be subjected to the additional hardship, cost, and expense following the imposition of a State income tax unless, in truth and in fact, such business concerns are maintaining an office, warehouse, or other place of business in the State or have an officer, agent, or representative in such State.

In other words, the mere presence of a stock of goods in interstate movement absent such additional conditions should not be allowed to serve as an invitation to State legislatures to impose an unwarranted tax on such a large group of business concerns.

We respectfully suggest, therefore, that either Senate bill 2213 or Senate Joint Resolution 113 be so amended as to delete the phrase "stock of goods" therefrom, and as so amended, either of such bills, or Senate bill 2281 be favorably reported for prompt enactment by the Congress.

Mr. Chairman, there was some apparent interest yesterday expressed in specific examples, and I would like to cite one specific case to make my point more clearly.

The Jesse Jewell Co. is located in the State of Georgia. It packs frozen poultry for sales in many States.

In Wisconsin, for example, the Jesse Jewell Co., of Georgia, sells through an independent broker, and consequently it has no place of business within the State of Wisconsin.

To the larger buyers in the State it can ship frozen poultry in its own trucks directly from the production plant in Georgia to the facilities of the larger buyer, clearly an interstate movement and, therefore, subject to no tax by the State.

But to the smaller buyers, however, Mr. Jewell likes to carry consignment stocks in a public warehouse in the State of Wisconsin, for the availability and convenience of his smaller customers. Consequently, if the phrase "stock of goods" were to remain in this legislation there would be discrimination between the larger and smaller buyer, and that is why we feel so strongly that the "stock of goods" phrase should be deleted.

I might add that we also feel very strongly that because of the brokerage feature of the Saltonstall bill, as well as having no reference to the stock of goods, that the Saltonstall bill is, by all odds, the best

measure.

Senator TALMADGE. Mr. Chairman, if the witness will yield, is the State of Wisconsin now levying or attempting to levy a tax on Mr.

Jewell by virtue of the fact that he is attempting to store the frozen

poultry in warehouses?

Mr. KUEHN. No.

The CHAIRMAN. Are there any further questions?

Senator Gore.

Senator GORE. Well, they are not prohibited from doing so.

Mr. KUEHN. The State of Wisconsin

Senator GORE. By State law.

Mr. KUEHN. The State of Wisconsin has some criteria upon which it bases taxes on foreign corporations. But in the instance cited the State of Wisconsin does not levy a tax on income earned by Mr. Jewell because he has poultry stored in the State of Wisconsin.

Senator TALMADGE. Is there a provision in the law that provides that merchandise must come to a final resting point before it is taxable?

Mr. KUEHN. Yes. If it is delivered directly to, let us say, the A. & P. Tea Co. warehouse, then it is taxable, of course, to the A. & P. Tea Co. in the State of Wisconsin, but not Mr. Jewell.

Senator TALMADGE. Does the taxing authority consider commodities in warehouses to be in transit?

Mr. KUEHN. Yes; because it originates from a movement outside the State into storage inside the State for shipment inside the State, and it is to be presumed in transit, and consequently, except

Senator TALMADGE. Do all of the State laws have the same provisions?

Mr. KUEHN. No, sir; they vary from State to State.

Senator TALMADGE. Do some States now tax frozen foods, we will say, while they are in warehouses, in transit?

Mr. KUEHN. I am no tax expert nor am I a lawyer, Senator Talmadge, but I think in some States they do.

Senator TALMADGE. Thank you.

Senator GORE. Do you think the State of Wisconsin should be limited by the enactment of one of these bills?

Mr. KUEHN. The State of Wisconsin has indicated, fortunately, that despite those two cases, they do not intend to alter their present criteria for taxing out-of-State corporations.

Senator GORE. That is an indication that would not apply to my question.

Mr. KUEHN. I am sorry, Senator. Would you ask your question again?

Senator GORE. Do you think Congress should pass a bill to limit the right of the State of Wisconsin to levy a tax which is within the constitutional powers of the State now?

Mr. KUEHN. No.

Senator GORE. You see no necessity for passing a bill at all?

Mr. KUEHN. On the contrary. I thought I made my point quite clear, Senator Gore. If the phrase "stock of goods" is left in there it is an open invitation to the States to tax shippers simply by virtue of having an inventory in a public warehouse.

Senator GORE. You do not understand, do you, that this bill confers upon the State a right which it does not now have? You say by inference it would be an invitation.

Mr. KUEHN. Yes; I do.

Senator GORE. Is that the full import of the bill?
Mr. KUEHN. Certainly.

Senator GORE. That is all, Mr. Chairman.

Mr. KUEHN. Thank you.

Senator TALMADGE. Mr. Chairman, I notice that all of these witnesses are somewhat repetitious in their statements.

We have not yet, in 2 days of hearings, heard from a State.

The Senate will convene in 50 minutes, and a lot of us will have to leave at that time to go to the Senate. I ask unanimous consent, Mr. Chairman, that the agenda be changed to permit Mr. Fred L. Cox of the Georgia Revenue Department, to appear as a witness at this time. I would like to hear his testimony before I have to leave, and I feel sure that members of this committee would like to hear the attitude of the taxing authorities of the States at this point.

The CHAIRMAN. Without objection, the committee will hear Mr. Cox.

Senator GORE. Reserving the right to object, I ask that the statement of General Dickinson of the State of Tennessee appear in the record immediately following the estimable gentleman of Georgia. (The statement of Mr. Dickinson appears on p. 222.) The CHAIRMAN. Without objection.

(The prepared statement previously referred to will be found following the statement of Mr. Cox.)

The CHAIRMAN. Mr. Cox will be introduced by Senator Talmadge. Senator TALMADGE. Mr. Chairman, I would like to present Mr. Cox to this committee. He is a long time career official of the Georgia Revenue Department. I had the privilege of knowing him quite well when I served as Governor of my State.

He served under a great many revenue commissioners of Georgia, I believe, since the creation of the Georgia Revenue Department.

He enjoys an outstanding reputation in my State. I believe he is an official of the National Association of Revenue Commissioners— will you state at this point what your title is and whom you represent, Mr. Cox?

STATEMENT OF FRED L. COX, CONFEREE, REVENUE DEPARTMENT, STATE OF GEORGIA

Mr. Cox. I am conferee for the department of revenue, State of Georgia; former director of the department of revenue.

Senator TALMADGE. Don't you serve as chairman of some committee?

Mr. Cox. Chairman of the Interstate Allocation of Business Income Committee of the National Tax Association.

The CHAIRMAN. Would you mind explaining the title of conferee? Does that mean you confer with with them or what is it?

Mr. Cox. If a protest is filed to an assessment by the department it is referred to me for adjudication.

The CHAIRMAN. We do not have that in Virginia, and I just wondered what it was.

Mr. Cox. I would like to say in the beginning

Senator TALMADGE. Do you have copies of your statement, Mr. Cox, on file with the committee?

Mr. Cox. How is that?

Senator TALMADGE. Do you have copies of your statement on file with the committee?

Mr. Cox. No, I did not have an opportunity when I first got the notice to prepare any statement, and what I have to say will have to be extemporaneous.

The CHAIRMAN. You may proceed, sir.

Mr. Cox. I would like to state in the very beginning that I am in favor of the objective of the proposed legislation, but I am fearful that the proposed remedy is worse than the disease.

It seems that the cart is placed before the horse.

I favor the Commission to make the study, but it appears logical that the study should precede any legislation that will so vitally affect the budgets of some of our States.

It is altogether possible and, I believe, probable that an accurate appraisal of the tax impact as the result of the decision will reveal that no legislation is needed at all.

This is not a single-barreled, one-gallus proposition with which we are faced.

The economic welfare of the States must be weighed in the balance with the free flow of commerce, and who can say that it is of less importance to the national welfare?

The suggested definitions of doing business, it appears to me, would create more problems than they would solve.

Senator GORE. You are referring now to section 101?

Mr. Cox. Yes; and that has been evidenced by the many questions that have been asked by your committee as to what those definitions

mean.

Since 1918, when the first decision was made by the U.S. Supreme Court in a State income tax case, and that case was the cornerstone of all net income tax cases, the U.S. Glue Company case, 90 percent or better of the cases, of tax cases, measured by net income have been privileged tax cases, and in those instances it was necessary that the question of doing business be determined.

So the net income tax cases, where the incidence of the tax is on the net income derived from operations within the State, does not have to have any particular type of business done.

The very fact that the income was earned from a source in the State by reason of activities engaged in within the State is sufficient to sustain the imposition of the tax.

Senaor GORE. Would you yield for a question there?

Mr. Cox. Sure.

Senator GORE. Is that not also true in the case of some States that levy a privilege tax measured by net income?

Mr. Cox. No, no. The question there has to be determined as to whether the corporation is actually doing business as required by the act.

Senator GORE. I understood your description of a hypothetical case to meet those requirements.

Mr. Cox. No. If you are required to perform some certain specific duties within the State before you are liable for the tax, such as a tax on the privilege of doing business in the State, an occupational tax or a tax to engage in corporate form in the State, as I believe Tennessee has, then you are required to meet the definition of doing busi