I also like the Saltonstall bill because it does provide for a definition of "manufacturers' agent." I do not think it is particularly important that an agent should represent more than one seller, because perhaps at any one time he might have only one client. His function would still be that of a factor.

The Saltonstall bill also protects us from any retroactive claims for taxes, interest, and penalties, of which industry is fearful.

This morning, several requests were made for case histories of how this thing would actually affect an industry or a company in interstate commerce. I have three examples which I picked from many replies. One is from a small company in Ohio employing 175 people which sells gas ranges in 28 States. The treasurer of the company tells me that under present laws he is already getting some taste of the problems arising from doing business as a foreign corporation. They are required to qualify in 10 States which have various applicable taxes, including income tax. He says in part:

Most of the income tax returns are considerably more complicated than the Federal income tax returns and, in addition, it is necessary to maintain throughout the year, special records of sales from within and without the State as well as monthly inventory balances for each location.

I do not believe that has been mentioned earlier today, but for a small company to maintain inventory records in all these various locations is a big job.

He says it takes a man on his staff at least 1 day to compile a State tax return, and often the tax is only $10 or $25.

In the first 6 months of this year, this company, with 175 employees, filed 63 special tax returns in only 8 of the 10 States in which it is qualified. He says that the cost of the returns was several times the cost of the taxes, although the tax itself was fairly burdensome.

I took another larger company, also in the State of Ohio. This one employs, I should say, 1,200 to 1,500 persons, and they tell me that they file quarterly reports on unemployment taxes in 32 States. That is 128 a year. They withhold taxes on incomes of employees in three States.

They file 40 personal property tax returns, 7 franchise taxes, 7 corporate income tax forms, 3 corporate franchises based on income, 7 sales tax forms, 4 intangible property taxes, 3 business licenses, and 5 information returns. That is more than 200 returns for a single company. He says he has a full-time employee paid $7,500 doing nothing else, and that does not include his keeping of the records or his overhead for that employee. He pays $5,000 for special tax and accounting services. Commerce Clearing House service and others cost several hundred dollars a year. Stacks and stacks of pages of tax information have to be analyzed.

As I said, we reconize the rights of the States to impose taxes, but we do not think that the mere solicitation of sales through salesmen, manufacturers' agents, telephone, or correspondence, is anything but interstate commerce and, therefore, subject to the regulatory powers: of Congress, and Congress alone.

Another problem which seems to me important and has not been mentioned today is this: If you were running a business in the neighborhood of Washington, D.C., and you wanted a salesman to cover

Delaware, Maryland, Virginia, West Virginia, you would have to analyze all the State laws to decide where it would be most advantageous for him to live and have an office.

I am not sure that just the establishment of a sales office, if you do not maintain an inventory of goods, is a good test of "business presence." That was the principal problem in the Georgia case, because the salesman who was involved covered three States, as I remember, perhaps five States. He merely happened to have his office in Georgia.

That is one problem which must be worked out. How are you going to define interstate commerce so you can have a clear line of demarcation for tax purposes between the States and the Federal Government's jurisdiction?

The second problem is probably much more complicated, and I doubt that it can be handled at this session, but I hope the stopgap measure can be enacted that is to develop appropriate formulas under which States may tax out-of-State companies.

Many lawyers feel that Congress can develop some such formula and not override the States' legal jurisdictions regarding taxes.

Some States, as you know, use a percentage of sales as the measuring stick for tax allocation. Others compare property held within the State to national property holdings. Some use payrolls. Some use a combination of two or more of these factors.

It is because of this variety of formulas that it is possible that more than a company's total income will be taxed.

At this point I should like to use my last reference to a member of the industry. This is a small company in Tennessee with less than 500 employees, which makes about 8 or 10 different kinds of appliances. The president of this company says:

In attempting to expand our markets into new States, we frequently spend more over a period of time than the gross profits from sales. How can we fairly apportion this development cost when the same representative may cover two or three States? What about voluntary mail orders?

He mentioned a customer in Illinois who buys by phone or by letter, picks up the goods in his own truck, strictly an interstate transaction. Yet he says that Illinois may try to impose a corporate income tax of some form or franchise tax on his business.

He goes on to ask:

What are taxable profits? This can vary from State to State. It takes a lawyer to tell the difference. Are they net before or after Federal income taxes? If after, then all these State taxes are deductible before computing Federal tax.

He has a little marginal note. He says:

Tell Senator Byrd if too many of these State taxes are collected, he may have to raise his Federal tax rate, because the imposition of the State taxes could shrink the net profits of the company to an extent, as previously pointed out, where Uncle Sam would be paying half the bill.

We all know how great the pressures are for rising tax revenues in the States, and they are certainly not going to lessen. We also know that it is natural for any legislative body to prefer a tax which will have the least effect on the nearby ballot box.

The CHAIRMAN. I think we will have to suspend to vote.

Mrs. DUNCKEL. I appreciate the chance to testify, and thank you

very much.

(Mrs. Dunckel's prepared statement follows:)

STATEMENT ON BEHALF OF INSTITUTE OF APPLIANCE MANUFACTURERS BY MRS. PAULINE DUNCKEL, EXECUTIVE SECRETARY, RE NEEDED LIMITATIONS ON THE POWER OF THE STATES TO IMPOSE TAXES ON INCOME DERIVED EXCLUSIVELY FROM THE CONDUCT OF INTERSTATE COMMERCE

Mr. Chairman and Members of the Committee; I am Pauline Dunckel, executive secretary of the Institute of Appliance Manufacturers, a trade association made up of producers of many types of major appliances and charcoal grills, also their principal material and component suppliers.

The institute appreciates this opportunity to appear in support of the principles set forth in S. 2281, S. 2213, and S. J. Res. 113. Such legislation is much needed to clear away the confusion resulting from U.S. Supreme Court decisions in the cases of Northwestern States Portland Cement Company and Stockham Valves and Fittings, Inc. which broadened the area where the State may tax interstate commerce.

The industry for which I speak is made up of a relatively few large companies and a great number of medium- and small-sized concerns. These smaller units do not have the benefit of full-time legal counsel on tax matters. Their accounting departments are small and handle the already multitudinous reports required by local, State, and Federal authorities.

One small company in our industry employing 175 to 250 persons reported a few days ago:

"Our sales are made direct in 28 States. Under present laws, we are getting a taste of some of these problems in States where we are qualified for doing business as a foreign corporation. We are now qualified in approximately 10 States that have various applicable taxes including income tax.

"Most of the income tax returns are considerably more complicated than the Federal income tax returns and, in addition, it is necessary to maintain throughout the year, special records of sales from within and without the State as well as monthly inventory balances for each location. The recordkeeping is a tremendous problem.

"Preparation of one of the various tax returns will, in most cases, require the time of an individual for at least a day and then in many instances, the tax obligation will be for the minimum of $10 to $25.

"In the first 6 months of this year, we have prepared and submitted 63 special tax returns to eight of these States. Each of these has required a considerable amount of time for preparation. It is possible that a large company, using punchcard equipment, might be able to accumulate the information and prepare these returns more economically. However, the size of our operations certainly does not justify the added expense for such equipment.

"In addition, there are costs involved in legal and tax services, and I haven't mentioned the actual taxes paid. They are not all as small as $10 to $25.

"If the other States, in which we sell, were to enact income tax or franchise tax laws applicable to us, it is conceivable we would require three additional people maintaining records and preparing returns."

I have another report from one of the larger units in the industry whose treasurer says he is required to file under present regulations a total of 76 tax reports annually to States outside of Ohio where his manufacturing facilities are located. These returns are subdivided as follows:

In addition, this company is required to file quarterly reports on unemployment taxes in 32 States and withhold State income taxes on employees residing in 3 States-a total of more than 200 returns.

This man estimates that the direct cost of preparing these returns is $7,500 per year and to that figure must be added $5,000 in tax services and attorneys' and accountants' fees. Bear in mind this is the cost of filing the returns and does not include the cost of setting up the necessary records and paying the taxes.

He points out that these are in addition to reports required by Ohio and by the Federal Government including Internal Revenue, Securities and Exchange Commission, and Social Security.

There are several excellent State tax services published in this country. One of the better known costs $700 a year and that cost alone would work a hardship on a small business. But the greater burden is in analyzing the various local rules to determine whether or not a company is subject to the tax and, if so, going through the tremendous detail required to calculate the tax, make the return, and finally pay the amount due.

We recognize that the individual States have the right to tax an out-of-State company if that company "does business" and operates an office, plant, warehouse, or other place of business in the taxing State, but we cannot accept the idea that the mere solicitation of sales through salesmen, manufacturers' agents, telephone, or correspondence is anything but interstate commerce and therefore subject to the regulatory powers of Congress and Congress alone.

In this, as in other areas, the decisions of the Supreme Court are continually being molded and gradually changed to conform to new conditions in this country. This is as it should be. However, in the field of interstate commerce where the power to regulate is so specifically reserved to Congress by article I, section 8. clause 3 of the Constitution, Congress has an obligation to clarify at least two major points:

1. The definition of interstate commerce. A limiting definition is set up by all three of the bills under consideration at this hearing. We respectfully request that the wording in S. 2281, section 1(b) be adopted. This would have the effect of limiting a State's power to tax any out-of-State individual or company which solicits business only through nonresident salesmen, letters, wires, etc., or through manufacturers' agents who may reside in the taxing State but who handle several lines.

2. Develop appropriate formulas under which the States may tax out-ofState companies which maintain offices, warehouses, plants, or other places of business within the taxing State. Some States use a percentage of sales made within the State compared to a company's total sales as the measuring stick for determining how much tax is owed to the State. Others use a comparison of the amount of business property, capital assets, and inventory owned within the State compared to the total of such properties owned by the company. Some use a formula which combines both factors.

It is entirely conceivable (and here I am agreeing with no less an authority than Mr. Justice Frankfurter) that because of the multiplicity of taxing formulas, a company might be forced to pay the various States on amounts of business which, when totaled, would be more than the company's actual sales for the tax year.

This statement from a third member of the industry throws light on this particular problem :

"In attempting to expand our markets into new States, we frequently spend more over a period of time than the gross profits from sales. How can we fairly apportion this development cost when the same representative may cover two or three States? What about voluntary mail orders?

"As an example we do a sizable business with a concern in Illinois. No salesman calls on them. All quotes, orders, etc., are handled by mail or telephone. We do not even deliver to railroad, but instead their truck picks up at our plant. If there is such a thing as a purely interstate transaction this certainly qualifies, yet under the ruling we are doing business in Illinois and could be subject to tax.

"What are taxable profits? This can vary from State to State. Are they net before or after Federal income taxes? If after, then all these State taxes are deductible before computing Federal tax. If before, then it is conceivable that the amount for Federal tax could shrink to such an extent that an increase in Federal rates would be necessary."

We all know that with the rising costs of Government and the natural desires of people for more and better hospitals, schools, roads, police and fire departments, recreational facilities, there is an ever-increasing pressure for higher taxes at the Federal, State, county, and municipal levels.

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A very understandable trait of State legislatures is to impose taxes which have the least possible impact on the State ballot boxes. This is one of the reasons why State taxes on out-of-State corporations could become a heavy burden to interstate commerce.

The appliance industry is important in the American economy, selling necessities of life, but this industry is also very sensitive to changing business conditions. For instance, the recent recession which lasted 8 to 10 months for most industries ran a course of more than 3 years, from August 1955, to the late months of 1958, before any real recovery was felt by the appliance industry. We are not a high-profit industry.

We have had a great many changes in our industry in the past two decades and those changes—mergers, consolidations, liquidations—still continue. This is a part of the free enterprise system and I mention business casualties only to indicate that the industry is not too stable financially even when business is good. To impose a multiplicity of State taxes on purely interstate transactions would add a burden which some of the smaller appliance companies would find extremely difficult to carry.

We as an association-and I am sure you gentlemen will agree with me on this premise are of the opinion that our industry will serve the country best if it continues to be made up of many small- and medium-sized companies as well as the larger units which have contributed greatly to our progress.

We respectfully request your favorable consideration of S. 2281 and of that portion of Senate Joint Resolution 113 which provides for the appointment of a commission to study appropriate formulas for determining the tax base for outof-State companies which actually maintain offices, plants, warehouses, or other places of business in the taxing States.

Thank you for giving me this opportunity to appear before you.

(Short recess.)

The CHAIRMAN. Our next witness is Mr. Frase.

STATEMENT OF ROBERT W. FRASE, ASSOCIATE MANAGING DIRECTOR AND ECONOMIST, AMERICAN BOOK PUBLISHERS COUNCIL

Mr. FRASE. Mr. Chairman, my name is Robert W. Frase. I am associate managing director and economist of the American Book Publishers Council, of 24 West 40th Street, New York, N.Y.

The council is the general association of book publishers in the United States. Its 154 member firms include almost all general or "trade" book publishers, such as the Viking Press, Charles Scribner's Sons, Harper & Bros., and Random House; most scientific and technical book publishers, such as McGraw-Hill and D. Van Nostrand; many medical publishers, such as Paul B. Hoeber, Inc., the Blakiston Co., and W. B. Saunders; almost all university presses; publishing houses of many of the major religious denominations; the larger book clubs; and the major publishers of inexpensive paperbound books. I am also authorized to speak today on behalf of the American Textbook Publishers Institute, a similar organization representing substantially all major publishers of elementary, high school, and college textbooks and encyclopedias and other similar works of reference.

Together the members of these two associations publish perhaps 90 percent of the books appearing in the United States.

The council and the institute are grateful for the opportunity of presenting this statement on the effect on book publishing and book distribution of further State laws which would tax the income of corporations doing business in a national market.

In view of the limited amount of time available for these hearings, I shall not attempt to cover this subject in complete detail nor to duplicate the competent analyses of the problem which have been made