Senator BUSH. He is a salesman for the company; in that sense he is an agent. He speaks for the company.

Senator GORE. You say, "by an agent or employee."

Senator BUSH. If he maintains a place of business.

Senator GORE. Can you think of other examples? The pecan grower and the Fuller Brush Co., you have said both have agents and salesmen who go to places and make sales. Can you think of another? Senator WILLIAMS. Would the Senator yield?

Senator BUSH. Well, let us take a shoe salesman who represents a shoe manufacturer who goes into the State to sell shoes to the retail trade. Those shoes are shipped from without the State, Massachusetts or wherever they may be made. He would be what we would normally call a traveling salesman.

Senator GORE. I gave that example myself a few moments ago, as one for which I thought the bill would provide no relief. It simply came to mind because recently I was in the Andrew Jackson Hotel in Nashville, and a shoe salesman had a suite of rooms rented. The salesman had a large stock on display and he was

Senator BUSH. Was it stock or was it samples?

Senator GORE. That I would not be sure of, but it seems to me the same thing he would be caught because he had quite an establishment rented there. This was a place of business, and he took orders. He solicited orders, he accepted orders, he had the telephone ringing, he had a secretary helping him to take the orders, and I say under the terms of your bill and Senator Sparkman's bill, he would be an agent employee who maintained an "office" or "other place of business."

Senator BUSH. Well, I certainly if it would lend the Senator any comfort-would be delighted to take those words out about other place of business, because the example which the Senator cites is a good example, because it is an example of how a traveling salesman works if he is selling shoes.

He will go to a hotel, he will take a showroom-they have special rooms in most hotels for traveling salesmen, and he displays his samples there, and he takes orders, and he sends those orders back to his factory, and then those shoes are delivered. That is a traveling salesman, and that company should be exempt, in my judgment, and I think our bill would exempt it.

Senator GORE. Thank you, Mr. Chairman.

Senator KERR. If it is not, you would like to have it fixed so it would?

Senator BUSH. Sir?

Senator KERR. If it does not, you would like to have it fixed so it would?

Senator BUSH. Yes. If it does not, I would like the committee to amend it so it feels that it would; taking out the words the Senator from Tennessee mentioned would help.

Senator WILLIAMS. Senator Bush, I want to say that I am in complete agreement with your objective, but I am also wondering in connection with the definition where you say, "maintains no stock of goods," now to get back to Senator Talmadge's example of the pecans suppose this farmer or dealer, whatever he might be, arranges with a commission house in Chicago to ship these nuts by the carload, and which would be sold on commission, and

Senator BUSH. Upon consignment, you mean?

Senator WILLIAMS. On consignment. They are his property, they are his goods until such time as they are sold, and he maintains a stock there.

Now would that come under the definition of "maintaining a stock of goods"?

Senator BUSH. Well, that is a very difficult question and I was afraid somebody would raise that. You take the business of consigning stocks of goods, that is a very common one. It used to be when I sold goods, and I imagine it is still done very generally, and it is a question of whether consignment, like if you were selling Bufferin or something in the drug trade, if you consigned a case or two to a druggist and he pays you as he uses it up, from month to month, whether that constitutes maintaining a stock of goods. Whether it does is doubtful. He does not maintain it. The druggist maintains it for their mutual convenience.

But it is a cloudy, very cloudy question, I agree, and I would say that if we had-if the bill had to stand or fall on that question, I would rather have the consigned goods classified as "a stock of goods" rather than lose the bill, so to speak.

Senator WILLIAMS. I raised that question because a large percentage of your farm produce is shipped in that manner; maybe not a large percentage, but a substantial amount.

Senator BUSH. On consignment.

Senator WILLIAMS. On consignment. It is a standard practice. I wondered if those shipping

Senator KERR. A canner would ship that way to a commission house. Senator WILLIAMS. Yes; and I just wondered whether that would need further clarification in the bill in order to eliminate it. I was sure you did not intend to include it.

Senator BUSH. I think the Senator has raised a very important point, and it should have clarification in the report or in the bill itself. Senator WILLIAMS. One further question. Inotice, in reading from the committee report of the Small Business Committee, on page 5, and I am reading this:

There is the danger of retroactive assessments of taxes covering many years past. In the Supreme Court's Northwestern Portland Cement case, the Iowa firm was held liable for taxes dating back to 1933, when the Minnesota income tax law was passed.

I appreciate the fact that you are trying to get away from retroactivity, but if we act on a projected date would it mean that companies in these various States that had been doing business could all be subject to all these back taxes under this court decision? I might add that in the absence of any legislation would it mean that any company today would have a potential tax liability back for these several years as the question arose in different States?

Senator BUSH. Well, I would think the decision of Congress on this might have a determining effect on any cases that were pending. When the will of the Congress was stated, if it were stated, in terms of our bill, it would certainly be an indication of what the Congress intent was on that thing.

But I would personally prefer to see the bill stay away from the question of retroactivity and let any mention of that or any question

of that be dealt with in the report if the committee wants to make clear its views on that subject.

Senator WILLIAMS. Certainly, in the absence of any legislation in this field, it would mean that all of the companies today have this potential retroactive liability hanging over their heads.

Senator BUSH. Yes; but I think once this bill was passed, it would eliminate that right away.

Senator WILLIAMS. I think I would agree with you.
Senator BUSH. Yes.

The CHAIRMAN. Thank you very much, Senator Bush.
Senator BUSH. I thank the committee for its courtesy.

The CHAIRMAN. Senator Keating from New York is a copatron of the bill.

Senator KEATING. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Keating, you may proceed, sir. We are very happy to have you here.

STATEMENT OF HON. KENNETH B. KEATING, U.S. SENATOR FROM THE STATE OF NEW YORK

Senator KEATING. Thank you, Mr. Chairman, and members of the committee.

I am a cosponsor with Senators Bush and Butler of the bill which has just been under discussion.

The Supreme Court's decision in the Portland Cement and Stockham Valves Company cases in February of this year has stimulated great interest in the problem of State taxation of multistate business activities. The inconsistent and unsatisfactory manner in which such taxes are being assessed has now been strikingly revealed. The result has been widespread consternation in the business community and a new determination to promote greater uniformity and equity in the enforcement of such taxes.

I have received dozens of letters from small business firms in my State urging action to remedy the present situation. These letters have emphasized the tremendous administrative and economic burdens which will be imposed upon such concerns if the States take advantage of the full authority in this field sanctioned by the Court's ruling. I am certain that every member of this committee has received similar letters from firms in your States.

Senator KERR. Would the Senator yield for a question?
Senator KEATING. Yes, I would be glad to yield.

Senator KERR. How do you interpret the decision of the Supreme Court with reference to the scope and effect of it? Do you cover that in your statement?

Senator KEATING. I do not fully and I will be glad to answer your question directly.

I think that, as so frequently happens, the general language of the opinion is much broader than the specific situation with which the Court was confronted, since in both cases these concerns did have places of business in the State.

But the fear in the business community which arises from the "nexus" sentence to which the Senator has referred, seems to me to be justified, because we cannot tell what the Supreme Court might

do and how far they might extend this doctrine in the next case that would be presented to them.

Senator KERR. Is the Senator a lawyer?

Senator KEATING. Yes.

Senator KERR. As a lawyer, do you not feel that if a State passed a law imposing an income tax on the profits of any goods that were sold in that State from an interstate source, that under this Supreme Court decision the probabilities are that the Supreme Court will sustain that law?

Senator KEATING. I would not sustain it as a member of the Supreme Court.

Senator KERR. Well, you would not have participated in its decision as a member of the Court?

Senator KEATING. I would have joined in the dissent of Mr. Justice Frankfurter.

Senator KERR. I understand.

Senator KEATING. But I think there is a real danger of that. I am not prepared to say that the Court would go that far. But frequently we are confronted in Congress with preventing something from happening about which there is a real fear, even though the Court has not as yet gone as far as the situation which we are seeking to avoid.

My study of this subject convinces me that these complaints are justified. I believe that legislation must be promptly enacted in order to halt potentially confiscatory burdens on the business community of this country.

Authorities in this field have pointed out that it is now possible for some firms to be "lawfully" taxed on more than 100 percent of their interstate business, as has been pointed out here, due to the varying formulas which various States use.

I have read undisputed testimony which indicates that in some industries, such as the dress industry in New York, the cost of compliance with these decisions if fully enforced would be the difference between operations at a profit and bankruptcy. This is an intolerable situation which cries out for relief.

An immediate partial solution to this problem is enactment of Senator Bush's bill, S. 2213, which I have cosponsored. Under the provisions of this bill no State or municipality could impose a net income tax on any income from the conduct of interstate commerce solely by reason of the solicitation of orders in the State unless the company involved maintained a place of business within that State. This would establish as a minimum requirement that a company enjoy at least a "business presence" in any State which sought to tax the company's income from interstate commerce.

I believe that such a concept is equitable for a number of reasons: (1) A corporation which employs capital and labor and operates facilities within a State is an integral part of that State's economy and receives a variety of protective and other services for which the State should be compensated. Since these services directly relate to the income-producting activities of the company, a tax on income allocated to these activities is patently reasonable.

(2) On the other hand, a company which does not have a place of business in a State does not receive any benefits from the State which relate to its income-producing activities. Such a State does not put

out a fire on the company's premises, it does not insure its employees against injury on the job, it does not protect its warehouses, it does not maintain the streets and highways or subways and utilities needed for the company's functioning. The fact that the property of such a foreign corporation is delivered to one of its citizens may justify a sales tax or use tax, but it does not justify a tax on the net income of the company.

(3) Reference to a "business presence" also greatly simplifies the administrative burdens on both the taxing authorities and the taxpayer. It is true that the question of when a company is doing business in a State under such a concept is not always free from doubt.

The discussion here this morning justifies the observation that no matter how this bill is worded, we are not going to put the courts or the lawyers out of business because we are still going to have to litigate some of these questions that appeared here this morning.

But on a comparative basis, this is infinitely simpler than pursuing every sale destined for a State and analyzing it in terms of the particular sales factor in vogue. This would require the taxing authority to check post offices, railway express offices, airfreight and truck deliveries, and to investigate such questions as to where the sale was negotiated, and it will require the taxpayer to classify every invoice. Small firms simply cannot afford the electronic gadgets now used by giant corporations for such purposes. The tax collectors can rarely afford the tremendous cost of catching the little fellow under such allencompassing systems. The result will be widespread tax evasion with all the serious moral and practical consequences which such practices entail.

(4) Finally, I believe that prior to these decisions, it was assumed that due process required a business presence in the taxing state to justify a tax on net income. I do not suppose that anything Congress now does can be made retroactive.

I might have no objection, in light of some of the discussion on retroactivity this morning, if this bill were made retroactive, and I think it would be a great relief to many who might be stuck by some of the States. But this bill does not call for it in the light of the generally recognized principle that tax bills are not retroactive.

Reestablishment of a business presence requirement could deter the imposition of severe penalties on companies who relied in good faith on previously assumed limitations and would halt any continued trend in the other direction.

I recognize that S. 2213 does not solve all the problems in this field. I therefore support proposals for a comprehensive study of all aspects of this subject as a basis for more far-reaching legislation, although I seriously question whether an independent commission is necessary for this purpose.

My very high regard for this particular committee would lead me to think that legislative committees, specifically this one, could deal with this problem perhaps better than any commission.

Ideally, the States should come up with their own solution to this problem either in the form of a uniform law or through enactment of regional compacts. I have already made such a suggestion to the Council of State Governments and have been advised that the matter is now under study by that group. The widespread reaction and far