Mr. ROLAND. We can compute the tax in a given situation without any difficulty at all. We might have a tremendous argument with you and a big battle as to whether you are obligated to pay the tax that has been computed, because of the commerce clause or the due process clause, but the computation of the tax is certain.

The CHAIRMAN. I understand that, but there are certain people exempted and certain people taxed. Anyway, that is your business in Louisiana.

Mr. ROLAND. I think certainly on this business of cost of compliance, and I think we have it in the Federal Congress itself; certainly it costs us a tremendous amount of money to collect a $10 tax return from a resident individual who owes it, but we try to collect it, as far as humanly possible, to keep everybody on an equal basis; and I think in the case of some of these interstate firms, even though the amount of money involved is small, if we feel they legitimately and honestly owe us a Louisiana income tax liability, we are going to try to collect it.

The CHAIRMAN. We want to thank you very much.

Mr. ROLAND. Mr. Chairman, I do have one or two other points I would like to make, if you have time. I do not want to bore you, but I am greatly concerned with this. You have had tremendous amounts of testimony from business people and very few from the other side of the picture. If you would prefer, I will submit it in writing, but I would like to say it if I could.

Senator LONG. Proceed.

Mr. ROLAND. You have heard the remarks that more than 100 percent of income could be taxed because of taxation by various States with different formulas for allocating income and different tests for determining net income.

And, of course, you have the Harvard Business Review example which was cited by Mr. Dane this morning where he said in a sample of 23, 15 percent of them would owe a tax in excess of a hundred percent.

I can say this: that in the State of Louisiana, in the last 10 years, despite the literally thousands of tax returns which have been filed, thousands of corporate tax returns, I have yet to have had such a case brought before me in any capacity, as attorney or later in my capacity as a collector, in either case.

In fact, in the International Shoe case which I mentioned, the taxpayer stipulated that only one-fourth of its total income was taxed by the many States in which the company operated, and that included States in which it was set up with warehouses or was qualified to do business.

Parenthetically, I might point out that the total State tax bill in all of the States, during this year, in which the International Shoe Co. operated, ranged from $114,000 to $146,000, while the Federal income tax liability ranged from $8 million to $114 million for the same period.

I think it certainly is true as a legal matter that the Court in the Northwestern and in the Stockham cases very carefully and deliberately left the door open for a taxpayer in a given situation to come in and say, "The way these formulas are applied to me, you have a real and actual burden placed on interstate commerce."

I will admit that it is uncertain, but I really think that that affords - a better method of relief than an arbitrary, though certain, legislative test.

Then the question you asked a while ago, Senator Byrd, about the fact that maybe Virginia gets to tax some income in one situation which maybe should be Louisiana's, and Louisiana would get to tax some that belonged to Virginia. That might very well be true.

In the Senate Small Business Committee report, the point is made that a great deal of economic waste is involved, and that the total tax bill is going to be the same; it should not matter too much whether State A or State B or State C gets it. And I think that is wrong.

I think that every State has got a very definite obligation to try to collect the tax on income that is attributable to the State, and I think if you have problems it is not because of the income tax, but it is because of our system of State governments with the Federal Govern

ment.

And I hope we never get to the point where we decide that the easiest thing to do is to let the Federal Government sit up here and parcel it all back, and that it is too much trouble for people to comply with each one of the 48 State laws that are involved.

You have had a considerable amount of testimony about the amount of recordkeeping, and I think the gentleman who testified for one of the transportation concerns pointed up the problem very clearly.

Most of these companies already have a tremendous number of tax returns to file. For instance, in the field of unemployment compensation, the Federal Congress has specifically provided that the fact you are engaged in interstate commerce is no bar to the imposition of unemployment compensation taxes. So most of the States have unemployment compensation taxes.

What I am trying to say is that the addition of an income tax return, while it might very well be the straw that breaks the camel's back, is no real increased expense to most of the concerns, because they already are required to keep records of wages because of the unemployment compensation; they are required to keep a record of personal property, and things like that.

The CHAIRMAN. In other words, because they are overburdened and we are simply adding another one, we should not argue about it. Is that your argument? I would like to see them cut down.

Mr. ROLAND. I would, too, Senator, but it disturbs me that you start in a field which has peculiarly been in the province of the States. There is one last point, and I will be very brief.

I will take the pending proposal-I will give you two examples, of what we tax in Louisiana and what we could tax under the proposal.

Let's take the actual facts surrounding the International Shoe Co. It regularly and systematically solicits Louisiana business with those 15 salesmen I mentioned. Sometimes those salesmen are accidentally Louisiana citizens, sometimes they are citizens of Alabama or Georgia who happen to be working in Louisiana along with ont or two other States.

They annually get orders ranging from $5 million to $6 million. They maintain no office, warehouse or place of business in the State. Under the proposal, in fact, under all of the proposals, they would owe no tax although in the past they had been paying the tax.

Take Brown-Forman. They have representatives who are in the State on a very regular basis, and their sales to Louisiana customers obtained by the presence of those people who were in the State amounted to, ranged from $8 million to $11 million annually. That company also maintains no warehouse, no place of business in the State, and under the proposal it would escape what is presently a $10,000 tax liability.

Now, take that one step further, and assume that you pass the legislation which is pending. You take that same operation and you add to it one factor. You add a warehouse in the State or you add a Louisiana salesman who is a branch office manager, perhaps. They contribute not one iota to an increase in volume of business. The State continues to have about $8 million to $11 million worth of liquor sales from the Brown-Forman people.

Under the proposal you have here, the presence of that office or the presence of that salesman would suddenly convert something which would be nontaxable into something which is taxable.

The best examples I know are the Stockham Valve case and the Northwestern case. In the Stockham case the presence of an inconsequential office consisting of one female employee and one salesman who devoted one-third of his time to Georgia business, would make the company liable for the tax; whereas if you had no office maintained in the Northwestern States situation, you would have no tax due, even though 48 percent of the taxpayer's sales were made in Minnesota. I thank you for your time.

The CHAIRMAN. Thank you, Mr. Roland.

(The following supplemental statement was subsequently received for the record:)

SUPPLEMENTAL STATEMENT OF ROBERT L. ROLAND, COLLECTOR OF REVENUE FOR THE STATE OF LOUISIANA, ON LEGISLATION PROPOSED TO LIMIT OR ELIMINATE THE CONSTITUTIONAL RIGHT OF A STATE TO LEVY NET INCOME TAXES ON INCOME DERIVED FROM INTERSTATE COMMERCE

In giving testimony before this honorable committee on July 22, 1959, I was given the right to submit a formal statement at a later date. Upon reading the transcript, it appears that a formal statement would serve no useful purpose since all the major points with which Louisiana was concerned appear in the transcript. However, the following points were not made because of the limited amount of time available, and it is the purpose of this supplementary statement to get them before the committee.

1. State tax administrators in general, and those in Louisiana and Georgia in particular, do not believe that legislation should be passed first and studied later. Although the proposed legislation is by its terms temporary, I think history, both at the State and Federal levels will show that temporary measures tend to become permanent. We urge that a careful and detailed study be made before legislation is adopted. Such a study may very well show that the facts, as opposed to speculation, do not warrant Federal intervention in this field.

2. Although the report also raises the problem of retroactive application of the cases, it offers nothing in the way of a solution, perhaps because of the serious constitutional questons involved in such retroactive Federal legislation. In Louisiana, the problem of retroactive application is not serious since we have been rather active in taxing such activities over the years and since we have a 3-year statute of limitations in tax matters.

3. In connection with the problem of additional cost of compliance on the part of the taxpayers, the point we wished to make was not that we had gone so far we might as well go one step further, but that the facilities for making the report were in many instances already in the hands of the taxpayer, thereby making the additional cost minimal. In other words, far from having to make an additional major investment in accountants, lawyers, etc., the taxpayer can

use the same facilities or records he is presently using for unemployment tax returns and sales tax returns in the various States in which he operates in interstate commerce. To eliminate the right to tax such concerns because of the additional expense involved to some of them seems to be equivalent to cutting off one's leg to remedy an ingrown toenail.

4. I do not believe that the speculative testimony I have thus far heard and read is a sufficient justification for Federal action at this time to restrict a State's constitutional right to tax such companies who actively compete with local concerns for the consumer's dollar. Already, the powers of States in State matters have been curtailed to the point where the States are in practical effect becoming provinces, and the system of government envisioned by our forefathers is rapidly disappearing. Certainly, the proposed legislation, if legislation is at this time needed, falls far short of an equitable solution. If guidelines are necessary, some attention should be devoted to the effect of a regular and systematic solicitation of the market in your home State by out-of-State firms who are actively and vigorously competing with your constituents' businesses.

5. In addition, the present proposals open the door wide for the creation of offices or warehouses or places of business in the few nonincome tax jurisdictions of the Union. In other words, with the artificial tests the proposed legislation creates, the opportunities for manipulation are multiplied and the problems which would arise will probably be more numerous than those solved. The CHAIRMAN. Are the other witnesses who are here prepared to go through the luncheon hour?

The next witness is Mr. Charles H. Schreyer, Manufacturers Association of Connecticut.

STATEMENT OF CHARLES SCHREYER, MANUFACTURERS

ASSOCIATION OF CONNECTICUT, INC.

The CHAIRMAN. I am sorry we are so late, Mr. Schreyer. We will either have your testimony now or wait until tomorrow morning, because there is a very important matter on the Senate floor.

Mr. SCHREYER. Mr. Chairman, I have filed a written statement with the committee, and I would ask leave to have that made a part of the record.

The CHAIRMAN. Without objection, that will be done. (The statement referred to follows:)

STATEMENT OF CHARLES H. SCHREYER, ON BEHALF OF THE MANUFACTURERS ASSOCIATION OF CONNECTICUT, INC., IN SUPPORT OF S. 2213, S. 2281, AND SENATE JOINT RESOLUTION 113

My name is Charles Schreyer. I am a member of the bars of Connecticut and Pennsylvania, and for the last 10 years I have worked on the staff of the Manufacturers Association of Connecticut, 928 Farmington Avenue, West Hartford, Conn., for whom I am appearing today. I wish to thank this committee for the opportunity and privilege of appearing before you in support of the common objectives of the bills introduced by Senator Bush (S. 2213), Senator Saltonstall (S. 2281), and Senator Sparkman (S. J. Res. 113).

Our association represents approximately 1,850 manufacturing concerns comprising approximately 95 percent of the industrial payroll of Connecticut. The great majority of our members are small business concerns; 75 percent of them employ less than 100 workers, while 65 percent of them employ less than 50. I speak today particularly in behalf of these small companies, since a large majority of our bigger companies generally maintain sales offices in other States, which means that their tax liabilities would remain unaffected by any of the bills before you.

A large portion of my work for the association lies in the field of State and local taxation. Since our larger members either maintain their own tax departments or retain tax counsel, my contacts have been mainly with the smaller companies. Over the past 10 years, I have thus been requested by our smaller members on countless occasions to supply them with information concerning

the tax laws of other States and cities with which they were having difficulties. In this way I have come to know the extent and nature of their problems quite intimately.

Judging from my experience, the most frequent and also the most difficult of these problems involves the situation where a Connecticut manufacturer makes interstate sales to customers in another State which result entirely from the solicitation of salesmen or manufacturers' representatives calling upon such customers. As I understand it, this is the central factual situation at which each of the bills before you is aimed.

Up until the days this year that the Supreme Court handed down the Northwestern and Stockham decisions, the most difficult problem in this area involved the retail sales and use taxes of the various States. As you know, many of the States have laws which require an out-of-State seller who solicits business in the taxing State by salesmen to register as a seller, to collect the tax on all taxable sales, and to pay it over to the State at the time the periodic tax returns are due.

Since the U.S. Supreme Court in 1944 officially sanctioned, in General Trading and companion cases, the right of a State to impose its requirements on out-ofState sellers in these circumstances, we have been obliged to advise any member who is confronted by a demand from the sales and use tax authorities of another State that such State has the right to make such demand if the seller has a salesman operating there. The almost universal reaction to this information among our smaller members has been consternation and dismay. Many of them simply do not have the resources or the ability to act as tax collectors and to file tax returns in every State where they make retail sales. The result in many cases, I am afraid, is that the tax return blanks land in the waste basket and the demands of the taxing State are ignored, at least until it takes such drastic action as to impose, or threaten to impose, an arbitrary tax assessment. This is an entirely unsatisfactory situation from the point of view of everyone concerned, and its resemblance to the situation created by the Prohibition Act is striking. This troubled area should certainly not be enlarged.

Up until the time the Stockham and Northwestern decisions were handed down, the situation was entirely different when, instead of a sales and use tax, the tax involved was a net income or gross income tax, the two other principal types of taxes on business which reach across State lines. Although for a long time the matter was not entirely free from doubt, arising in part from the ambiguous per curiam decision of the U.S. Supreme Court in the West Publishing Co. v. McColgan case (1946), it was generally assumed by tax experts and the business community that a net or gross income tax could not be constitutionally applied by a State to an out-of-State concern whose only activities in the taxing State were entirely in interstate commerce, even if a sales office was maintained there.

This opinion received growing judicial support over the years in such cases as Eastman Kodak (1957) in which the Pennsylvania Supreme Court held that the Pennsylvania corporation income tax could not be constitutionally applied to an out-of-State corporation making interstate sales in Pennsylvania; and United Piece Dye Works (1954) in which the New York Court of Appeals struck down the New York City gross receipts tax for similar reasons and in similar circumstances. In both these cases the U.S. Supreme Court refused to grant certiorari. The U.S. Supreme Court itself gave support to the view that a State could not tax income from interstate commerce when it held in the Spector case (1951) that Connecticut could not constitutionally impose its corporation francise tax, measured in the main by income fairly apportioned to the State, on an interstate trucking concern which maintained extensive facilities in Connecticut for its interstate business. Thus, in recent years companies, large and small, have been generally successful in resisting attempts to impose upon them net or gross income taxes by States in which their sole business was in interstate commerce.

All this was dramatically changed in March of this year when the Stockham and Northwestern decisions were handed down. In both cases the taxpayers maintained an office in the taxing States. It is assumed that most companies large enough to maintain such establishments are now reconciled to the necessity of paying net income taxes even though their business there is entirely interstate. At any rate, none of the three bills before the committee is broad enough to affect this particular situation. Each of them would extend tax immunity only to those concerns whose activities in the taxing State are exclusively in inter