income tax laws which are independently imposed by the various States in which such businesses operate or do business and which not only are not uniform either in substance or application but which are often inconsistent in theory and administration.

POWERS OF COMMISSION

SEC. 205. (a) In carrying out it duties under this title, the Commission, or any duly authorized committee thereof, is authorized to hold such hearings, sit and act at such times and places, take such testimony, and make such expenditures as the Commission or such committee may deem advisable. The Chairman of the Commission or any member authorized by him may administer oaths or affirmations to witnesses appearing before the Commission or before any committee thereof. The Commission shall have such power of subpena and compulsion of attendance of witnesses and production of documents as are conferred upon the Securities and Exchange Commission by subsection (c) of section 18 of the Act of August 26, 1935, and the provisions of subsection (d) of such section shall be applicable to all persons summoned by subpena or otherwise to attend and testify or produce such documents as are described therein before the Commission, except that no subpena shall be issued except under the signature of the Chairman, and application to any court for aid in enforcing such subpena may be made only by the Chairman. Subpenas shall be served by any person designated by the Chairman.

(b) The Commission is authorized to secure from any department, agency, or independent instrumentality of the Government such information or assistance as the Commission may deem necessary or desirable to enable it to carry out its duties under this title.

COOPERATION WITH STATE AND PRIVATE PERSONS

SEC. 206. In carrying out its duties, the Commission shall cooperate with States and with private persons or private organizations who are able to assist the Commission in carrying out the purposes of this title. The Commission is further authorized to utilize the uncompensated services of private individuals or of State or local employees in carrying out its duties.

EXPENSES OF THE COMMISSION

SEC. 207. There is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, such amount, not in excess of as may be necessary to carry out the provisions of this title.

$

REPORT BY AND EXPIRATION OF COMMISSION

SEC. 208. (a) The Commission shall report to the Congress the results of its study and investigation along with its proposals for legislation on or before February 1, 1961.

(b) On July 31, 1961, all authority under this title shall terminate and the Commission shall cease to exist.

[S. 2213, 86th Cong., 1st sess.]

A BILL To limit the power of the States to impose income taxes on income derived exclusively from the conduct of interstate commerce

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That, after the date of the enactment of this Act, no State, or political subdivision thereof, shall have the power to impose a net income tax on income derived by a person exclusively from the conduct of interstate commerce, solely by reason of the solicitation of orders in the State by such person, or by an agent or employee of such person, if such person maintains no stock of goods, plant, office, warehouse, or other place of business within the State.

[S. 2281, 86th Cong., 1st sess.]

A BILL To prescribe limitations on the power of the States to impose income taxes on business entities engaged in interstate commerce

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) no State or political subdivision

thereof shall impose an income tax on income derived from a trade or business by a person engaged in interstate commerce unless such person is carrying on such trade or business in such State.

(b) For purposes of subsection (a), a person is not carrying on a trade or business in a State solely by reason of one or more sales of tangible personal property in the State (whether title to such property passes in or outside of the State), if such person does not have or maintain an office, warehouse, or other place of business in the State, and does not have an officer, agent, or representative in the State who has 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.

SEC. 2. No State or political subdivision thereof shall, on or after the date of the enactment of this Act, assess or collect any income tax, or make any levy with respect thereto, which was imposed by such State or political subdivision thereof on the income of any person before the date of the enactment of this Act, if the imposition of such tax, on or after the date of the enactment of this Act, is prohibited by the first section of this Act.

SEC. 3. For purposes of this Act, the term "income tax" means any tax imposed on, or measured by, net income.

The CHAIRMAN. We are honored this morning by having with us the distinguished Senator from Alabama, Senator Sparkman, who is a patron of Senate Joint Resolution 113.

STATEMENT OF HON. JOHN SPARKMAN, U.S. SENATOR FROM THE STATE OF ALABAMA; ACCOMPANIED BY WALTER B. STULTS, STAFF DIRECTOR, SENATE SELECT COMMITTEE ON SMALL BUSINESS

Senator SPARKMAN. Mr. Chairman, I want Mr. Stults who is the staff director of the Small Business Committee to sit at the table with me. Mr. Walter B. Stults.

Mr. Chairman, I have a prepared statement. I presume a copy is before you.

Speaking for the Senate Small Business Committee, I wish to say first that I am most grateful for this opportunity to appear before you today.

Although the February 24 decisions of the Supreme Court focused attention on multistate taxation of income derived from exclusively interstate commerce, the problem had been present a long time. For well over 20 years, private organizations and groups of public officials have been attempting to bring some order out of the chaos caused by varying State business tax laws, but their efforts have not met with success. I feel strongly that the Congress has a responsibility to assume leadership in this area to work closely with the States to alleviate a serious situation.

At this point, Mr. Chairman, I should like to make the report of the Small Business Committee entitled, "State Taxation on Interstate Commerce," a part of the files of this committee. I am not asking that it be printed, but made a part of the files of this committee. The CHAIRMAN. It will be made a part of the file relating to the bill. (The report referred to will be found in the files of the committee.) Senator SPARKMAN. While it is a short exposition of the subject, I feel that it depicts the seriousness of the problem so clearly that I shall not devote any of my statement to that area. Furthermore, I

am certain that other witnesses will stress their difficulties in complying with State tax laws.

Your committee is studying several legislative proposals designed to remedy this business ill. While they all have merit, I wish to speak in favor of Senate Joint Resolution 113 which I had the honor to introduce for 16 members of the Small Business Committee.

Senate Joint Resolution 113 is a two-pronged attack on the problem you have before you: First, it provides a temporary maintenance of the status quo in the right of the States to tax income derived from interstate commerce; and second, it calls for the establishment of a commission to study all aspects of the multistate business tax problem and to make recommendations to Congress for solving those problems.

I personally feel that this is a sound approach, since it prejudges no questions which are to be studied by the commission, and, at the same time, it provides a temporary answer to the present uncertainty facing so many small and medium-size business firms. This question is whether they are "doing business" in a legal sense and are thus subject to State business taxes.

In order to determine the soundest basis for a temporary definition, our committee studied past congressional action touching this point and found that in the District of Columbia Business Tax Code Congress gave its approval to a definition of "doing business" which is the basis for section 101 of Senate Joint Resolution 113. In essence, this section provides that a State may not impose a tax upon the income of any out-of-State firm engaged in exclusively interstate commerce unless that firm maintains a stock of goods, an office, a warehouse, or other place of business within the taxing State.

The enactment of section 101 will bring a useful answer to a serious question. Before I leave this point, I should emphasize that this definition fixes the liability for taxation at the very line drawn by the Supreme Court, since it ruled on the tax liability of firms which maintained fixed places of business within the taxing State. We are not trying to reverse the Court in any way.

We also recommend establishment of a commission, because we realize that there are many aspects of the State taxation problem which should be studied. The Commission would propose a permanent solution for the "minimum business activity" question if a Federal standard is to be provided. In addition, each of the 35 States now taxing business income use different definitions and different formulas-thus guaranteeing major compliance headaches for all businesses crossing State lines. The Commission would seek to draft a uniform apportionment formula agreeable to all States whether they are primarily industrial or consuming areas. The Commission would recommend uniform definitions for the terms basic to tax legislation.

It has been suggested that this Commission is not necessary and that congressional committees might be able to do the task we have marked out for the Presidentially appointed Commission. I respectfully suggest, however, that this is the sort of job which can be done better by a commission than by a committee. In the first place, the States have a major stake in any solution of this problem and I feel they will be able to work closer with a commission than with a congressional committee. The Commission will have to devote more time-consuming

effort for the next 18 months, at the least, than can be allocated by the busy members of any committee. Thirdly, there is a question which committee of Congress is most appropriate for such a study. While these bills have been referred to you, the Senate Finance Committee, identical measures in the House have been sent to the Judiciary Committee. In addition, the Interstate Commerce Committees of the House and the Senate also have some justification for feeling the bills should go before them.

Finally, I want to say we have designed this to be an acting, not a talking, commission. Its function is to be limited to a study of State taxation of income derived from interstate commerce and it is directed to report by a certain date. In order to make that date more pressing, Senate Joint Resolution 113's temporary minimum standard will expire in 1961 and there will naturally be a great stress to submit final recommendations by that time.

Let me take just a few moments to discuss some points that may arise in connection with the legislation before you.

First, I have already pointed out that the Supreme Court has never ruled that the States have the right to tax businesses which have no place of business within the State. Therefore, we are taking nothing away from the States which is definitely theirs.

Secondly, State tax officials will affirm that there is a serious problem in trying to assess and collect taxes from out-of-State firms having no local office. Few States are now attempting to levy such taxes and relatively little income is derived from that source.

I have had some State tax administrators tell me that they had no intention of taxing small businesses which did only a small amount of business in their State without a place of business. While that may be comforting to the small firm, I submit that it is an unfair method of taxation when evasion is countenanced so long as the amount of money involved is small. In addition, such evaders have always hanging over their heads the Damoclean sword of retroactive assessment, penalties, and interest.

Thirdly, by virtue of its temporary nature, the minimum standard proposed in Senate Joint Resolution 113 is subject to revision within 2 years and may be modified or allowed to lapse at that time. Experience gained under this standard should be extremely valuable.

Finally, I am strongly convinced that no State will lose by the enactment of Senate Joint Resolution 113. On the contrary, I think each State will gain revenue-at a time when the financing of State governments is a major problem.

Although the Small Business Committee did not touch upon it, I would suggest that the Finance Committee might wish to study whether Congress should make a policy statement that all business firms should allocate and apportion 100 percent of their income for State taxation. Since most State revenue officials feel that most interstate businesses are currently taxed on far less than 100 percent of their income, this requirement should bring additional tax receipts to every State. Incidentally, no witness appearing before our committee indicated any opposition to such complete apportionment; their only complaints touched upon the uncertainty of liability, the costs of compliance, and the possibility of assessments of taxes on more than 100 percent of their income.

It is the recommendation of the Senate Small Business Committee that Senate Joint Resolution 113 be enacted as soon as possible during this session of Congress.

In closing, I should like to deal briefly with several relatively technical changes which might well be incorporated in the draft of Senate Joint Resolution 113 as it was introduced.

1. An additional clause should be added to section 101 which would give a State power to tax a business which "is created, organized, incorporated, or otherwise domiciled in such State."

2. The temporary minimum standard should be extended to taxable years beginning before January 1, 1962, rather than January 1, 1961, as provided in section 102. Since the Commission will not report until February 1961, it is expected that congressional action will not be completed until the middle of 1961; therefore, the standard should run through that year.

3. A new section 103 should be added stating that "For the purpose of this title, the term 'State' shall include the several States and the Commonwealth of Puerto Rico."

4. Section 201 should be rewritten to read, in part, as follows:

It is the purpose of Congress to provide for the formulation of a concrete proposal or proposals for the relief of interstate commerce and an equitable solution to the problems experienced. ***

In the same section in line 10, following the word "they," insert "are found by the various States to"; and in line 12, following the word "businesses," insert "are found to." The same phrase, "are found to," should be inserted following the world "businesses" in line 6, page 6.

Mr. Chairman, I should like to offer for the record a statement of Mr. Robert F. Darrah, executive vice president of Southern Wholesale Lumber Association, of Livingston, Ala. He discusses this quite well from the standpoint of typical small businesses, and I should like that to be included as part of my remarks.

The CHAIRMAN. Without objection, inclusion will be made. (The statement referred to is as follows:)

STATEMENT OF ROBERT F. DARRAH, EXECUTIVE VICE PRESIDENT, SOUTHERN WHOLESALE LUMBER ASSOCIATION, LIVINGSTON, ALA.

This association represents wholesale distributors of lumber domiciled in 16 States, all being typical small business organizations, most of them are largely engaged in interstate commerce, selling and delivering lumber to retail dealers and industries beyond the borders of the States wherein they are located that with few exceptions levy an income tax on corporations and individuals as well.

A recent survey based on 1958 figures revealed that sales by these firms in interstate commerce was from 35 to 85 percent of their total volume. Very few have offices or warehouses, or carry inventories, in other States. A minimum employ traveling salesmen, the great majority of sales being made by wire service or mail from one office where all business is transacted. The volume of sales in any State is not large and the profit relatively small; however, were income taxes levied in all States the aggregate would be burdensome double taxation on the greater part of net profits earned by a majority of wholesale lumber dealers domiciled throughout the Nation engaged in interstate com

merce.

In addition to the liability for income taxes in practically all of the States wherein sales in interstate commerce are made, the question of filing multiple tax returns is a serious and expensive problem, in many cases probably double