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mittee on Small Business extensively explored this issue during the recent hearings. Section II of the committee report of June 30, 1959, states:

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"Therefore, your committee concludes that there is no serious question about the ability of Congress to act in the area of State taxation of income derived from interstate commerce and that a constitutional amendment is not required, as some observers have suggested."

Moreover, this question has been recently reviewed by the American Law Division of the Library of Congress which concluded that "there can be no denying that the proposed legislation would be a permissible exercise by Congress of its power to regulate interstate commerce." 8

The law department of the NAM has also studied this issue and, based upon the legal precedents and statements by Justices of the Supreme Court over the years, has concluded that there is adequate constitutional authority for congressional action in defining an exclusion from State taxation.

CONCLUSION

In this brief review of the problems and multiple burdens confronting taxpayers operating in interstate commerce, we have placed great emphasis on the need for a positive guideline by which both business and State and local governments could assimilate with reasonable certainly their compliance and collective responsibilities, respectively. The enactment of the "minimum activity" or exclusion principle, without limitation as to time of duration, would serve this purpose, leaving to appropriate legislative committees of the Congress further study of other problems raised by the Supreme Court decisions. This study could include such matters as the concept and definition of income and the possible utilization of a Federal uniform allocation and apportionment of income.

The legislative determination of "minimum activity" as proposed in the bills before you would not prejudice further study but, to the contrary, would establish the basis for objective consideration of these collateral problems. In the absence of action now, during the taxpaying year in which the Supreme Court decision has been rendered, there inevitably would be a compounding of chaos and confusion in regard to the tax liabilities attaching to interstate business, which would mean greater difficulty in framing legislation subsequently. We therefore respectfully urge that action be taken during the present session of Congress.

Thank you for the opportunity to present our views on this important matter. The CHAIRMAN. The committee will recess until 2:30.

(Whereupon, at 12:35 p.m., the committee recessed, to reconvene at 2:30 p.m., this same day.)

AFTERNOON SESSION

The CHAIRMAN. The committee will come to order.

The first witness is Mr. Benjamin O. Johnson, of the American Cotton Manufacturers Institute and the National Fisheries Institute, Inc.

You may proceed, sir.

STATEMENT OF BENJAMIN O. JOHNSON, CHAIRMAN, TAX COMMITTEE, AMERICAN COTTON MANUFACTURERS INSTITUTE, AND CHAIRMAN, LEGISLATIVE COMMITTEE, NATIONAL FISHERIES INSTITUTE, INC.

Mr. JOHNSON. Thank you very much.

Mr. Chairman and gentlemen of the committee, my name is Benjamin O. Johnson of Spartanburg, S.C. I am general counsel of Spar

Hearing before the Select Committee on Small Business, Apr. 8, 1959, pt. 1.

8 "Competence of Congress to Nullify Two Recent Supreme Court Decisions Sustaining State Income and Property Taxes Affecting Interstate and Foreign Commerce," by Norman J. Small, legislative attorney, American Law Division, the Library of Congress, Apr. 22, 1959.

tan Mills, and also serve as chairman of the tax committee of the American Cotton Manufacturers Institute which has its Washington office at 1145 19th Street NW., in whose behalf I appear today.

The American Cotton Manufacturers Institute is the central trade association for the cotton, manmade fiber and silk textile mill products manufacturing industries and serves as spokesman in matters of national affairs. The industry, employer of approximately 1 million workers with a production output valued in the primary markets at more than $13 billion a year, is therefore a major factor in the economy of our country.

The textile mill products manufacturing industry is also a vital factor in the Nation's program for preparedness. As an industry, its essentiality is probably exceeded only by iron and steel. In serving the demands of the civilian population, and from the standpoint of its impact on the typical family budgets, its importance is exceeded only by food and shelter.

It is basically an industry of small intensely competitive plants despite its aggregate magnitude. The industry operates over 8,000 plants, no one company representing more than 4 percent of the total. Thus, the textile mill products manufacturing industry has always been distinctive as the most competitive and individualistic of the Nation's major manufacturing industries, and represents, to the maximum degree, the spirit of free business enterprise. The mills and plants constituting the membership of the American Cotton Manufacturers Institute, Inc., are distributed throughout the industry's entire area, and operate about 85 percent of the industry's total spindles.

I appear before your committee today in support of legislation to limit the power of the States to impose income taxes on income derived exclusively from the conduct of interstate commerce. The recent decision of the United States Supreme Court in the cases of T. V. Williams v. Stockham Valves and Fittings, Inc., and the Northwestern States Portland Cement Co. v. Minnesota, has brought considerable confusion to the textile industry.

We are apprehensive that we may be forced to file returns and to pay income taxes in every State in which we sell goods. The problems this decision poses for the textile industry we feel was well stated by Mr. Justice Frankfurter in his dissenting opinion, in which he pointed out interstate commerce will not merely be argumentatively but actively burdened.

In the textile industry there are literally thousands of relatively small- or moderate-size corporations or companies doing exclusively interstate business spread over several States. To subject these corporations or companies to separate income tax in each of these States means that they will have to keep books, make returns, store records, and engage legal counsel, all to meet the diverse tax laws in 50 States, with their different times for filing returns, different tax structures, different modes of determining net income, and different, often conflicting, formulas of apportionment.

They 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 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 a number of States.

There can be little doubt, however, as to the serious implications which the decision holds for firms engaged in interstate commerce who now, in each State to which they ship goods, find themselves open to possible liability for income tax levied by that State on profits derived from income attributable in some fashion to that State.

In the past, companies in our industry had come to expect that such profits were not taxable by a State unless the firm was engaged in intrastate business. It is our interpretation of the Supreme Court decisions that, if a company does no more than send a salesman into a particular State for the solicitation of interstate business, then he may subject the company to income tax liability to that State. We sincerely believe that prompt definitive legislation by Congress is imperative to relieve the growing confusion and uncertain tax status of all concerns engaged in interstate commerce. With this in mind, we respectfully urge the immediate enactment of legislation that will remedy the grave situation created by these recent decisions of the Supreme Court.

Therefore, we recommend that the committee bill be designed to exclude from the taxing power of a State earnings derived from interstate commerce sales where the taxpayer maintains no business establishment within the State.

I sincerely appreciate the opportunity of appearing before your committee to present the position of the American Cotton Manufacturers Institute, and want to thank you for the courtesies which you have extended to me.

I am here today, as you note on the schedule, in a dual capacity. I am representing both fiber and fish on this occasion, and I hope that I may consistently do so.

The CHAIRMAN. Which is the fish and which is the fiber?

Mr. JOHNSON. Well, it is a little hard to distinguish at times, sir. I have a short statement here with respect to the fisheries industry, and then I would like to offer some very brief comments about our viewpoints and position.

I appreciate this opportunity to discuss with you the position of the fisheries on this proposed legislation to define and regulate State taxation of interstate commerce.

I am president of SeaPak Corp. located at St. Simons Island, Ga. I am chairman of the legislative committee of the National Fisheries Institute, Inc., and I am here representing the institute.

The National Fisheries Institute, Inc., is the principal trade association of the commercial fisheries industries, and has its principal office here in Washington, D.C. The membership of the institute includes some 500 employers engaged in the producing, processing, distributing, and canning of fishery products in the United States and its Territories. The purpose of the institute is to promote the welfare of the commercial fisheries of the United States and its Territories.

Specifically, I wish to support in principle the well-reasoned report and recommendations of the Select Committee on Small Business of the U.S. Senate on this subject, filed June 30, 1959.

In this connection, if it is in order, I should like to request that the report of the select committee, and the hearings in which so many

able statements of competent witnesses appear, be made a part of the record here, at least by reference.

The CHAIRMAN. We could not make it a part of the record. It will be filed with the committee.

Mr. JOHNSON. Well, I do not want to suggest any uneconomic duplication of printing costs.

The CHAIRMAN. This committee stands for economy, you know.

Mr. JOHNSON. But as background for the action of this committee. The CHAIRMAN. It will be filed with the committee, but it will not be printed as part of the hearings.

Mr. JOHNSON. We urge this committee then, therefore, first, to recommend the immediate enactment of a minimum standard for testing the authority of a State to tax outside business; and, second, to establish a commission on State taxation of interstate commerce, whose purpose would be to study and recommend permanent uniform standards which the States will be required to observe in imposing tax upon businesses engaged in interstate commerce.

The CHAIRMAN. Do you care to comment, Mr. Johnson, on the other bills before the committee?

Mr. JOHNSON. Well, I would prefer not to comment particularly on both bills. I would like to state in principle that what I think we need is prompt legislation which will hold the status quo of this problem of State taxation of interstate commerce.

In other words, that the rather broad, generalized principle which was laid down in these recent decisions will not be further extended by application to factual situations which will render these State taxes in fact prohibitive burdens on interstate commerce.

I should like to say this: I think Senate Joint Resolution 113 in principle is good, but I think certainly in terms of specifics it needs more clarification by way of definition of terms that appear in section 101 than is now the case.

I am apprehensive that should this bill be enacted in its present form it could easily lead to the creation of new problems and new decisions extending the rather loose language of the Stockham case to new situations which would create further embarrassment of interstate business.

I can point out two terms which, standing in the abstract, could easily lead to difficulty. One is the reference to "a stock of goods," which does not appear in some of the bills. The mere maintenance of a stock of goods, which would be irrespective of local activities forming a sufficient background to constitute business presence within the State, could be troublesome.

And, second, the rather loose designation of "representative" could be troublesome as applied to countless situations now where out-ofState concerns are, in fact, represented by brokers and other persons in an independent contractual capacity.

The CHAIRMAN. To which bill are you referring now?

Mr. JOHNSON. I am speaking of Concurrent Resolution 113. The CHAIRMAN. Would you care to suggest amendments for the committee's consideration?

Mr. JOHNSON. Well, not in specific language at this time.

The CHAIRMAN. Not today, but you say you are not satisfied.

Mr. JOHNSON. Yes; we would like to present further recommendations.

The CHAIRMAN. I am certain the committee would like to have your suggestion in the form of amendments, and the same applies to S. 2281 and S. 2213.

Mr. JOHNSON. I would like to make just one or two other comments as to why the great confusion and lack of certainty of tax status arises.

We all know there have been countless cases in the past as to what constituted doing business within the State, what local activities were required to give business presence within a State so as to form the subject of proper taxing jurisdiction, and most of these cases in the past really followed two decisions, two basic factors, as I review them.

One is that primarily they were predicated on the benefit doctrine that an out-of-State concern must be carrying on such an extent of local activities as to give business presence within the State.

And the corollary to that was that where there was such a business presence within the State, then, from which the out-of-State concern derived local benefit, then, of course, the out-of-State concern should pay for it.

In other words, the basic question which is referred to in these cases here is: Has the State really given anything for which it can ask a return? Has it given opportunities-Is there sufficient activity there for which the State has furnished opportunities for profit? Has it given protection in any sort of way, and what benefits has the State contributed toward this so-called sufficient nexus or local activity as to furnish a solid foundation for contribution by the out-of-State concern to the revenues of the State?

Now that fundamentally runs through all these cases: business presence within the State. And I think that that is fundamental here; and all of these past cases were, of course, related to the particular factual situations in the cases.

The alarming part about these recent decisions and when I say the "recent decisions," I want to comment about one which gives as much concern as the Stockham case and the Northwestern States Portland Cement case, and that is decision filed 1 week later by the Supreme Court in the E. T. & W. N. C. Transportation Company case. That is a trucking company which serves east Tennessee and western North Carolina. In that case, the Court laid down the rather bold decision or principle that a State could levy an income tax on an interstate operation of that kind where that concern did no intrastate business; all of its business was purely movement of traffic between the States.

Senator CARLSON. Mr. Johnson, right on that point, do you think Congress has a right to limit the power of States to tax?

Mr. JOHNSON. I think Congress has the unquestioned power and the responsibility to so regulate commerce between the States so as not to permit an undue obstruction of that commerce.

I do not think Congress has power beyond the reasonable definition of "interstate commerce," and to prevent a State from levying a tax on local activities which, in fact, are not a burden on interstate com

merce.

Senator CARLSON. If I understand you correctly, then you would tie this legislation to interstate commerce and be sure to keep out of the tax field.

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