Mr. JOHNSON. Well, I think it is essentially a matter of regulation of interstate commerce. If I may be permitted to make this statement, I think America was built on two fundamental propositions: One is the mass production of goods at a given point and the free movement of those goods within the States without undue hindrance. And I am interested to note that our friends across the seas in Europe now are beginning to realize just what made this country great; and with the European Economic Union, which has a projected program over 15 years, they are undertaking to bring about the identical situation in Western Europe among the nations parties to that pact as we have in the United States; that is, the free movement of commerce between the several States.

Senator CARLSON. If I may make this statement before you do. The chairman and I have both served as Governors of a State, and we are a little zealous about protecting the rights of States because, after all, they are an entity of our Government, and a very important entity.

Mr. JOHNSON. I would like to make just one little observation of my personal opinion: That looking this thing through, the proposition of States levying a tax on a portion of the activities of interstate business, I just wonder how, in the end, anyone can hope to gain.

I mean by that, for example, in Georgia, where our business is in part located, and where one of these decisions originated, to the extent that Georgia may pick up revenue from out-of-State concerns, that in the normal course of events the Georgia concerns will also find themselves responsible for contribution to revenues in the other States, which will detract from revenues due the State of Georgia.

This whole problem and the burden of keeping all of the records in compliance with the State laws does not add up to anything of economic value. Not one cent is added in value to the goods or services which are being dispensed. It is only an added expense of doing business, and it analyzes into the ultimate question of how the net revenue is going to be apportioned between the States.

So I would say that the net cost is going to be increased, the net revenue allocable and divisible between the States is probably going to be decreased, no State is going to be the permanent gainer at the expense of the other, and in the end two things are going to happen: The added expense is going to be a burden on the Federal revenues, which will be paid for in major part here; and to the extent that the company may pass the cost on, the remainder of it is going to be an added expense to the consumer.

It is going to increase the economic cost of the goods and services involved, and nobody is going to be any better off. The States are not going to gain, and the consumer and the Federal Government are going to be the losers.

The CHAIRMAN. Thank you very much, Mr. Johnson.

Senator CARLSON. Mr. Chairman, I just wish to state I am most sympathetic to the problem confronting us. I just raise that question because that is one thought we will have to keep in mind when we consider this.

Mr. JOHNSON. If I may be permitted one parting word, as we look at the situation, time is of the greatest essence. The situation is urgent, to prevent further deterioration before other States enter the field.

And that is our request: that a holding type of legislation be enacted to hold the status quo, give the study commission time to permit all the States to have full participation in how this problem should be handled, because certainly the States do have a tremendous and direct interest; but, under Federal guidance here. A program should be set up within an adequate but reasonably short period of time, to bring the States in and reach, once and for all, a uniform and standard measurement of the responsibility of interstate businesses for local taxation in connection with the interstate business.

The CHAIRMAN. Thank you, Mr. Johnson.

The Chair takes great pleasure in introducing the next witness. As you can imagine, he is a Virginian and one of the most notable Virginians. He has just been reelected to the General Assembly of Virginia. He has served there for a long time with splendid contributions to the Commonwealth.

I wish to present my very dear friend, Jim Roberts, who is the next witness, and express my friendship for him and my appreciation for all he has done for the State.

STATEMENT OF JAMES W. ROBERTS, CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE, NATIONAL ASSOCIATION OF WHOLESALERS; ACCOMPANIED BY HAROLD HALFPENNY, GENERAL COUNSEL, NATIONAL ASSOCIATION OF WHOLESALERS

Mr. ROBERTS. Thank you, Mr. Chairman and members of the committee.

My name is James W. Roberts, and I am chairman of the board of directors, Henry B. Gilpin Co., wholesale druggists in Washington, Baltimore and in Norfolk, Va., where I make my home.

I might say, Mr. Chairman, in view of the urgency of the subject, we do appreciate the promptness with which this hearing was arranged. I appear before you today as chairman of the Government Relations Committee of the National Association of Wholesalers, a federation of 18 national wholesale associations representing over 8,000 independent wholesale businesses in the United States.

I have with me Mr. Harold Halfpenny, of the law firm of Halfpenny & Hahn, our general counsel, and also general counsel of one of our member associations, the Automotive Service Industry Association. Mr. Halfpenny, with your permission, will file for the record two separate statements he has prepared in behalf of the two associations. He will also be available to answer any legal questions the committee may have at the conclusion of my testimony.

The CHAIRMAN. Without objection, the insertion will be made. Mr. ROBERTS. In the interest of saving the time of the committee, Mr. Chairman, I would like to submit my prepared statement for the record, and use a very few moments here to summarize.

My primary interest in testifying here today relates to the needs of the business community.

The CHAIRMAN. Where are you reading? Are you going to read your whole statement?

Mr. ROBERTS. I am sumarizing my statement, Mr. Chairman.
The CHAIRMAN. I just wanted to follow you.

Mr. ROBERTS. I am also most sensitive to the problems that will confront the officials of many States in protecting their State revenues in

the wake of the February 24, 1959, Supreme Court decision on taxation of business earnings in interstate commerce. The latter interest stems from my long time service in the Virginia State Legislature, where I am fourth ranking member of the appropriations committee in the house of delegates.

The specific holding of the Supreme Court to which I referred was that a State has jurisdiction to levy income tax on a business organization domiciled in another State even when that business' only activities in the taxing State are soliciting orders and shipping goods to customers therein.

Simply stated, Mr. Chairman and gentlemen of the committee, our problem is one of knowing what constitutes "doing business" from a legal point of view within the framework of our various Federal and State laws.

Even though Virginia has statutory authority to tax earnings derived from interstate commerce, that machinery is not now being used.

I might quote from Judge Morrissett. He is the tax commissioner of the State of Virginia, and he says:

If there is an active business, a corporation that maintains no place of business in Virginia whatsoever, but merely sends into the State salespeople who merely take orders, it is held that that corporation is not doing business within the State.

That, of course, would probably be changed if it developed that other States are permitted to start taxing out-of-State business in interstate commerce.

It is my belief that if no line is drawn at the level of the Supreme Court decision, our tax commissioner and our Governor may be forced to implement the legal machinery for collecting taxes such as these in order to protect our own revenue position.

I would like to take another moment of your time to explain this belief.

Our Virginia law provides, and the recent Supreme Court decision. seems to require, that, in apportioning the shares of business earnings to the various taxing States, no business should be taxed on more than 100 percent of its earnings.

In Virginia, I am sure we would allow credit to our domiciled businesses for that portion of their earnings which are properly taxed by other States. If we grant such a tax credit for taxes paid to other States and do not attempt to levy and collect taxes from nondomiciled firms on earnings in our State, we will suffer serious revenue losses in the State of Virginia. And I think that is true also of our other States.

In my opinion, no State can gain materially by imposing taxes on earnings of out-of-State businesses. The laws of checks and balances would prevent gain. The businessman's costs will be substantially increased by expenses of additional recordkeeping required by an extensive system of interstate taxation. These increased costs would be reflected by serious loss in Federal revenues because of the higher costs of doing business.

In closing, Mr. Chairman, I have with me this stack of letters and telegrams from all over the United States. These letters and telegrams came unsolicited, voluntarily sent upon notice that this hear

ing would be held. They may be left with the committee, if desired, but we do not wish to enlarge the record.

A reading of these letters makes it clear that if remedial legislation is not enacted, drastic changes may have to be made in our distributive system-the largest, most efficient distributive system in the history of the world.

ર

(The letters submitted by Colonel Roberts for the information of the committee were from the following companies:)

Hugh T. Lindsay, president, Lindsay Bros. Co., Minneapolis, Minn.; Mr. Dickson, the Parker Co., Denver, Colo.; H. E. Linney Co., Oakland, Calif.; T. M. Reardon, Dakota Iron Store, Sioux Falls, S. Dak. ; A. D. Byerline, General Implement Distributors, Inc., Boise, Idaho; A. L. Shomenta, the Midwest Co., Inc., Minneapolis, Minn.; W. E. Lamble, Jr., Southern Packing Co., Baltimore, Md.; R. M. Lewis, the H. C. Shaw Co., Stockton, Calif.; A. A. D. Rahn, Jr., Montana Oliver Distributing Co., Billings, Mont.; Robert L. Kummer, Polson Implement Co., Seattle, Wash.; Carl A. Rahn, Midland Implement Co., Inc., Billings, Mont.; G. A. McNees, Implement Sales Co., Memphis, Tenn.; J. Kent Martin, Todd Co., Inc., Norfolk, Va.; H. D. Lindsay, Lindsay Bros., Milwaukee, Wis.; L. T. McGuire, Western Machinery Co., Salt Lake City, Utah; Perry D. Riddick, Universal Farm Sales, Inc., Columbus, Ohio; W. E. Tempel, Implement Sales Co., Decatur, Ga.; R. C. Cropper, R. C. Cropper Co., Macon, Ga.; John P. Overshiner, Farm Machinery Sales Co., St. Louis, Mo.; H. R. McVicar, Farm Equipment Sales Co., Bloomington, Ill.; G. W. Hammons, Price Bros. Equipment Co., Wichita, Kans. ; R. E. Moulton, Moulton & Goodwin, Portsmouth, N.H.; Charles F. Gath, Gath & Herms, Inc., Buffalo, N.Y.; George Clark, Port Huron Machinery Co., Des Moines, Iowa; W. D. Kelley, for H. J. Hunsaker, General Corp., Dallas, Tex.; W. H. Lovett and H. C. Tharpe, Lovett & Tharpe Hardware Co., Dublin, Ga.; Paige Newton, Mitchell, Lewis & Staver, Portland, Oreg.; J. H. Wehrly, Mid-Continent Sales Co., St. Louis, Mo.; Bob Erath, Sporting Goods Association, Chicago, Ill.; Roy J. Schneider, Walder Radio & Appliance Co., Miami, Fla.; and John D. Wallace, Wallace Hardware Co., Morristown, Tenn.

Mr. ROBERTS. Unless there are questions, Mr. Chairman, we do appreciate the opportunity of being permitted to appear before you and your committee.

The CHAIRMAN. Thank you very much. Your full statement will be put into the record.

(Mr. Roberts' statement follows:)

SUMMARY OF STATEMENT BY JAMES W. ROBERTS, CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE, NATIONAL ASSOCIATION OF WHOLESALERS

My name is James W. Roberts, and I am chairman of the board of directors, the Henry B. Gilpin Co., wholesale druggists in Washington, Baltimore, and in Norfolk, Va., where I make my home. I appear before you as chairman of the Government Relations Committee of the National Association of Wholesalers, a federation of 18 national associations representing over 8,000 independent wholesale businesses in the United States. I have with me Mr. Harold Halfpenny, of the law firm of Halfpenny & Hahn, our general counsel, and also general counsel of one of our member associations, the Automotive Service Industry of Chicago. Mr. Halfpenny, with your permission, will file for the record two separate statements he has prepared in behalf of the two associations. He will also be available to answer any legal questions the committee may have at the conclusion of my testimony.

In the interest of saving the time of the committee, Mr. Chairman, I should like to submit my prepared statement for the record and use a very few moments here to summarize.

My primary interest in testifying here today relates to the needs of the business community. However, I am also most sensitive to the problems that will confront the officials of many States in protecting their State revenues in the wake of the February 24, 1959, Supreme Court decision on taxation of business earnings in interstate commerce. The latter interest stems from my longtime -service in the Virginia State Legislature, where I am fourth ranking member of the appropriations committee in the house of delegates.

The specific holding of the Supreme Court to which I referred was that a State has jurisdiction to levy income tax on a business organization domiciled in another State even when that business's only activities in the taxing State is soliciting orders and shipping goods to customers therein. Simply stated, Mr. Chairman and gentlemen of the committee, our problem is one of knowing what constitutes "doing business" from a legal point of view within the framework of our various Federal and State laws.

At the time of the Supreme Court decision, 35 States, the District of Columbia, and at least 8 cities taxed, or had statutes under which they could tax earnings of business in interstate commerce where there were varying degrees of local activity. Of these States, I understand only about 10 have tried to collect these taxes and only 4 of them have actually taxed out-of-State businesses. Since the Court action liberalized the basis for applying tax on interstate earnings, at least three more States have enacted similar laws. It is reasonable to expect that the remaining States and perhaps as many as 150 major cities will make necessary statutory arrangements under which they can levy such a tax. I venture the guess that many of these localities will not seriously desire to take these steps but will be forced into this field of taxation to protect their own

revenues.

This is the case of our own State of Virginia. Even though Virginia has statutory authority to tax earnings derived from interstate commerce, that machinery is not now being used. However, it is my belief that if no line is drawn at the level of the Supreme Court decision, our tax commissioner and our Governor may be forced to implement the legal machinery for collecting taxes such as these in order to protect our own revenue position.

I would like to take another moment of your time to explain this belief. Our Virginia law provides, and the recent Supreme Court decision seems to require that, in apportioning the shares of business earnings to the various taxing States, no business should be taxed on more than 100 percent of its earnings. In Virginia, I am sure we would allow credit to our domiciled businesses for that portion of their earnings which are properly taxed by other States. If we grant such a tax credit for taxes paid to other States and do not attempt to levy and collect taxes from nondomiciled firms on earnings in our Sate, we will suffer serious revenue losses in the State of Virginia.

In my opinion, no State can gain materially by imposing taxes on earnings of out-of-state businesses. The laws of checks and balances would prevent gain. The businessman's costs will be substantially increased by expenses of additional recordkeeping required by an extensive system of interstate taxation. It would be reflected by serious loss in Federal revenues because of the higher costs of doing business.

Congress dealt with this problem on a local basis when the District of Columbia business earnings tax law was passed. That law restricts District of Columbia business earnings tax application to only those businesses having permanent establishments in the District, such as plants, warehouses, stocks of goods or offices. Such a minimum activities definition applied on a National scale at this time would largely alleviate the difficulties I have described with respect to doing business across State lines. The wholesaling industry urges this committee and the Congress to favorably act during the present session of Congress on one of the measures now pending to bring order out of the chaos wrought by the Supreme Court decision in regard to interstate taxation. In closing, Mr. Chairman, I have with me this stack of letters from wholesalers throughout the country pleading for relief from the tax situation I have described. A reading of these letters makes it clear that, if remedial legislation is not enacted, drastic changes may have to be made in our distributive system: The largest, most efficient distributive system in the history of the world.

OPINION FROM JUSTICE MORRISSETT, VIRGINIA TAX COMMISSIONER,
RICHMOND, Va.

If there is an active business, a corporation that maintains no place of business in Virginia whatsoever, but merely sends into the State salespeople who merely take orders, it is held corporation is not doing business within the State. Letter from Virginia State Tax Commissioner to Commerce Clearing House, Inc., June 3, 1959, Chicago, Ill.